Overseas aid shake-up: How DfID plans to spend abroad

Some 20% of DFID's total funding to Afghanistan is spent in Helmand

The government is to announce plans to "better focus" overseas aid. But what will this mean in real terms? Who will still benefit from UK funds - and who will not?

The Department for International Development (DfID) announcement is the most radical shift in policy since the department was founded in 1997. In the future, levels of aid will be decided in terms of impact and not cost, testing effectiveness in spending.

The government is keenly aware of its political vulnerability in ring-fencing the international development budget while cutting spending everywhere else except for health, and it wants to ensure that it is getting value for money.

The entire DfID budget will be refocused to ensure maximum benefit for the poorest people in the world, and a direction that began in the last years of the Labour government - to focus on improving security and governance in fragile states and those in conflict - will be emphatically confirmed.

Aid money will go to assist elections in 13 countries, and Afghanistan will remain a major recipient. One fifth of DfID's funding to Afghanistan is now spent directly in Helmand, and much of it goes to fund areas that are outside the traditional aid priorities such as health and education.

On a recent visit I witnessed new district council buildings, courts and police stations - all funded by DfID.

The number of countries that will receive aid in the future will be far fewer than now as the International Development Secretary Andrew Mitchell believes that DfID has been spread too thin, and wants a tighter focus.

In the future, two thirds of the countries that remain on the list will be those defined as fragile or in conflict. To DfID's critics this risks identifying aid too much with security needs - aligning the aid budget with military requirements.

The new policy has emerged from a process that tested spending from first principles, on what are known as "Ba" and "Ma" - bilateral and multilateral programmes. About half of the total £8bn development budget goes on each.

It is in bilateral spending - direct funds to developing countries - that the biggest changes will come.

Winners and losers

Five countries will have their budgets increased substantially, with Ethiopia at the top of the list, and Bangladesh and Pakistan close behind.

Nigeria will also receive a big boost to cut poverty in the highly-populated north of the country, and the Democratic Republic of Congo, still wracked by conflict, is seen as a country where British aid has made a difference, so the programme will be substantially increased.

About 16 countries will lose direct British funding. Some, like Vietnam and Bosnia, are seen to have "graduated" out of poverty, while others are considered to be well enough served by international agencies from the UN.

Oil-rich Iraq is losing its funding, as are Russia and China.

India will continue to receive substantial aid, but it will be frozen. The continuation of this programme is justified by DfID as there are more poor people in India than in any other country in the world, and DfID's programmes are technically of a high quality, providing a model for state governments to follow.

DfID's ambition is to encourage Indian businesses to invest in the poorer regions of the country.

British aid is becoming a significant political issue in India as well as in Britain, where it is controversial because of India's rapid economic growth and its nuclear weapons capability.

It will be some relief to DfID ministers that the increase in aid to Ethiopia means that for the first time India will not be the largest recipient of British aid.

The "Ma" or multilateral budget goes to international bodies for their programmes, with approximately £1bn spent through the EU, and the rest across around 40 other agencies including the World Bank and parts of the UN.

To show that the government means business, spending on four of these agencies will be axed, and two others - Unesco and the UN's Food and Agriculture Organisation - will be put on notice that they will lose their funding if they do not improve.

The drawbacks in the new value-for-money approach are obvious. Some spending, such as on infrastructure, may not have benefits that can be measured in a scientific way.

But DfID is convinced that the new approach will be more effective in cutting poverty, and assist in reaching the Millennium Development Goals by the target date of 2015.

They estimate that 50 million people will be helped in health and education. In total, 11 million children will be put through school, 10 million women will receive safe contraception, and more people will have access to clean drinking water and safe sanitation than there are households in the UK.