Overseas aid and the Pacific investment package

Budget Resources

Matthew Keene

The 202324 Budget provides a comprehensive investment package for the Pacific that includes aspects of aid and development and defence and security. In a joint media release on 9 May 2023, the Foreign Minister announced ‘a transformational package of support to the Pacific to respond to Pacific priorities and ensure our shared interests in a peaceful, prosperous and resilient region’.

While not explicitly stated in this release, the Foreign Minister’s April 2023 National Press Club address, statements from government ministers on the Defence strategic review (DSR), and the multiple mentions of geopolitical intensification in Budget strategy and outlook: budget paper no. 1: 202324 (pp. 138–9), suggests this investment is most likely in response to China’s growing interest in the region.

This article will examine 4 separate measures in the 2023–24 Budget. Three of the 4 measures are funded from official development assistance (ODA, or aid) funds and the fourth is part-funded from ODA. The measures, found in Budget measures: budget paper no. 2: 202324, are:

  • Enhancing Pacific Engagement (pp. 119–20)
  • official development assistance (p. 115)
  • expansion of the Emerging Markets Investment Fund (p. 120)
  • the Australian Infrastructure Financing Facility for the Pacific – Sasape Shipyard (p. 117).

Enhancing Pacific Engagement

Through the ‘Enhancing Pacific Engagement’ measure, the Government is providing $1.9 billion over 5 years from 2022–23, blending aid functions with defence and security. As described in the Portfolio budget statements 202324: budget related paper no. 1.8: foreign affairs and trade portfolio (p. 14): 

We are supporting Pacific regionalism, strengthening Pacific regional architecture, and ensuring we are collectively equipped to respond to the challenges we face. And we are advancing Pacific peace and security, responding to Pacific priorities, and assisting our Pacific partners to meet their own security needs.

This measure is comprised of 4 components, with funding over 4 years (2023–24 to 2026–27):

  • Pacific peace and security – $1.4 billion
  • Pacific Australia Labour Mobility scheme – $370.8 million
  • Pacific regional unity – $114.3 million
  • Deepening Pacific connections – $89.5 million.

The cost of this measure will be partially met from the existing resources of the Department of

Employment and Workplace Relations and the Department of Defence (see below). This measure will also be partially offset by the 202223 March Budget measure, ‘Support to the Pacific and Timor-Leste – additional support’. 

Pacific peace and security

The Pacific peace and security component is the largest part of the ‘Enhancing Pacific Engagement’ measure, with $1.4 billion over 4 years (2023–24 to 2026–27). This includes the family first approach agreed by leaders of the Pacific Islands Forum, and the peace and security commitments under the 2050 Strategy for the Blue Pacific continent.  

Of this component, the defence and security portfolios are the major beneficiaries, with funding estimated at around $1.27 billion. Defence support will be expanded to develop Pacific Island nations’ security infrastructure and maritime security capability, including under the Pacific Maritime Security Program, and to cover any changes that may flow from the DSR. 

The funding also provides for the involvement of the Australian Federal Police and Attorney-General’s Department in supporting Pacific law enforcement and criminal justice initiatives. In addition, the Department of Foreign Affairs and Trade (DFAT) will provide ‘cyber resilience’ support.  

Defence expenditure under this component is to be largely met from existing resources. Reportedly, this will involve $923 million being reprioritised for ‘increased maritime surveillance, providing patrol boats and other vessels, and infrastructure upgrades such as wharves’.

In response to concerns that the increase in Defence funding and activity in the Pacific militarises the region and thus raises tensions, the Foreign Minister explained that the increased Defence funding was to strengthen capacity in the region in order to protect the Pacific’s large Economic Exclusion Zones.

Pacific Australia Labour Mobility scheme

The Pacific Australia Labour Mobility (PALM) scheme allows Australian businesses to hire workers from 9 Pacific Island countries and Timor-Leste in sectors where there are workforce shortages. These are unskilled, low-skilled or semi-skilled positions for placements up to 4 years in any sector except for agriculture and agriculture food product manufacturing. However, this use of migration to bring in lowerskilled labour has been criticised by aid commentators for its lack of policy rationale. The Government itself has acknowledged contradictions within the scheme: the increase in lower paid migration, according to the Department of Home Affairs review of the migration system final report 2023, ‘presents complex economic and ethical challenges’ (p. 90).

The PALM scheme is funded at $370.8 million over 4 years (2023–24 to 2026–27), which builds on

$67.5 million over 4 years from 2022–23 (and $12.4 million per year ongoing from 2025–26) in the ‘Enhancing the Pacific Australia Labour Mobility Scheme’ measure in the 202223 October Budget  (pp. 111–112). 

The funding also provides training places for PALM workers to prepare them for work in priority areas in the Pacific (and Timor-Leste), and where there are workforce gaps in Australia (p. 42). This component is also expected to generate revenue with the expansion and improvement of the PALM scheme estimated to bring in $300 million over 4 years from 2023–24.

Pacific regional unity

The next component sees $114.3 million being provided over 4 years to ‘support a stronger, more united Pacific region’ as they face the impacts of climate change (p. 120). This is done by supporting the development of regional architecture that will assist in the provision of humanitarian relief and in disaster preparedness. The funding also covers improving diplomatic capability; however, it is unclear whether this funding is for DFAT or for developing Pacific Islander diplomats. 

The Pacific Islands Forum recently produced the Pacific security outlook report 202223. The report draws on specialist analysis to provide forum members with an overview of current regional security issues to inform their policy approaches. Climate change is described as a ‘threat multiplier’ across regional security priority areas, which include natural disasters, gender-based violence, illegal unreported and unregulated (IUU) fishing, cybercrime, and transnational organised crime. 

Arguably, the budget funding focuses on addressing the impacts of climate change, rather than the causes. The Foreign Minister was asked in a media interview on 11 May 2023 whether Australia would meet the call of 6 Pacific nations asking for global backing of a fossil fuel non-proliferation treaty, to which the minister responded that Australia is taking a different approach to rolling back fossil fuel impacts. However, the Government’s budget statement states that ‘climate change is the single greatest threat to the livelihoods, security and wellbeing of the Pacific family. We will do more to help the Pacific address what is an existential threat, especially for smaller Pacific nations’ (p. 14).

Deepening Pacific connections

Lastly, there is $89.5 million over 4 years to ‘deepen Pacific connections by strengthening cultural and people-to-people ties with the region and promote shared values’. This includes improving access to Australian media, with $8.5 million being provided to the Australian Broadcasting Corporation, and strengthening sporting ties. The Government is also funding investment in education and social protection systems, and investments to empower women and girls and people with a disability to participate more fully in all aspects of life.

Official development assistance

Australia’s official development assistance (ODA) budget measure has 2 components – the main aid budget and funding to DFAT for program administration and related activities such as evaluation. The aim of the ODA program in the past has been to help alleviate poverty in developing countries. However, there has been a shift with this year’s Budget to one that more explicitly links aid with security. In a world where ‘climate change, geostrategic competition, and international economic uncertainties are reshaping our region’, the Government argues that Australia needs a development program shaping the world for the better. This new approach packages aid funding with defence and security, as outlined under the Enhancing Pacific Engagement measure.

In 2023–24 the ODA budget has gone from $4.65 billion in the October 202223 Budget to $4.77 billion in this Budget, and increased by $158.6 million over the next 4 years. In addition, funding in the forward estimates allocates $8.6 billion over 10 years from 2026–27, an increase of 2.5% each year. This measure builds on the 2022–23 October Budget measure, Additional Official Development Assistance (p. 19).

Departmental funding for DFAT to deliver the ODA program is now $288.4 million, up from $274.4 million in the October 2022–23 Budget. This additional $36.8 million to DFAT is for ‘program design, procurement, monitoring and evaluation capabilities’.

The portion of ODA allocated to the Pacific for 2023–24 is $1.90 billion. This equates to roughly 40% of the 2023–24 aid budget. The top 4 recipients are (Table 2, p. 8):

  • Papua New Guinea – $616.2 million
  • Solomon Islands – $171.3 million
  • Fiji – $88.1 million
  • Vanuatu – $84.6 million.

The Australian Council for International Development (ACFID) has welcomed the increased spending, including the funding to DFAT. However, it does describe Australia’s overall performance as an aid donor as ‘lagging’. 

The Australian National University’s Development Policy Centre points out that the aid budget amounts to an indexation of ODA funding with no real dollar value increases. However, this indexation, particularly the out-years beyond the forward estimates (2026–27), does provide a level of certainty for Australia’s international development program. 

In 2022, according to the accepted measure of aid generosity, the official development assistance to gross national income ratio (ODA/GNI), Australia ranked 27th out of 30 OECD countries. The OECD Development Assistance Committee (DAC) sets a target for member countries of 0.7% ODA/GNI – it is worth noting that only a small percentage of countries meet this target. The average rate for 2022 was 0.36%, with Australia at 0.19%, or 4th lowest.

Another measure of aid generosity is simply the percentage of total budget. The 2023–24 ODA budget comprises approximately 0.70% of the total Budget, which is an all-time low. It is estimated that Australia’s ODA/GNI ratio will slip further down the rankings over the next 4 years, with some stabilisation after that (from 2026–27).

There have been calls for the Australian Government to increase its level of aid investment, including recommending it be tied to the OECD target of 0.7% of GNI. To get Australia there, in its 2022 policy brief,  Elevating development to the heart of Australian foreign policy, ACFID calls for Australia’s overseas aid funding to be legislated at 0.5% ODA/GNI by 2025–26, then 0.7% ODA/GNI by 2029–30 (p. 1). This was reiterated in ACFID’s 2023–24 pre-Budget submission in which it called for immediate action on developing a budget framework to reach 0.5% ODA/GNI (p. 4). 

It seems these calls went unanswered; however, the Government is formulating a new international development policy following a public submission process and targeted consultations held in 2022. According to the terms of reference:

The new policy will set the long-term direction for Australia’s international development program. It will deliver on the Government’s commitment to work in partnership with our neighbours in the Pacific and Southeast Asia to address shared challenges and achieve our shared aspirations. It will also see Australia contribute to a global system that can help meet present and future development needs.

There is also a concurrent and related Development Finance Review being conducted. This review:

… will examine existing sovereign and non-sovereign mechanisms used by the Government and draw on regional and global innovative approaches to development finance. It will examine blended finance mechanisms where government financing instruments such as grants and loans are used in combination with, and to leverage, private sector and philanthropic investment in development.

Based on available government information, the review appears to be more about making do with existing resources rather than considering increasing ODA funding to the 0.7% ODA/GNI international standard. It also provides glimpses of what the new international development policy will include – development that benefits both recipient and donor, and where private interests play a greater role.

However, this investment does not, of course, sit in isolation, and this year in particular linkages are made real between development and the security of our region. The ODA and ‘Enhancing Pacific Engagement’ budget measures combined comprise a significant investment that is likely more effective than if the 2 measures were applied separately. As ACFID notes, it will be important to maximise these linkages:

This budget also includes a significant package of non-ODA support to the Pacific. We hope to see these measures brought into line with the core development program, especially on transparency and safeguards. This will ensure coherence and maximise the impact of Australia’s support to the region.

Expansion of Emerging Markets Investment Fund

By providing $210 million over 4 years from 2023–24, this measure will expand the Emerging Markets Investment Fund (EMIF) from $40 million to $250 million. The EMIF provides finance for small and medium enterprises in the Indo-Pacific and supports assigning additional finance for development outcomes. As mentioned above, this measure is part of the ODA budget, but similar to the PALM scheme generating tax revenue, increases in the EMIF funding cap are an attempt to leverage private sector development, which is predicted to generate financial returns of 3:1, increasing the underlying cash balance. The Lowy Institute sees this as a move away from more traditional forms of development towards ones that also directly benefit Australia.

Australian Infrastructure Financing Facility for the Pacific – Sasape Shipyard

The Sasape International Shipyard is a major shipyard located on Tulagi Island in Solomon Islands, located around 25 nautical miles off the coast of the capital Honiara.

The Australian Government is providing an undisclosed amount to support the Sasape Shipyard to expand its physical footprint through land purchases and for capital upgrades. The measure includes a loan through the Australian Infrastructure Financing Facility for the Pacific (AIFFP) together with a grant from the budgeted ODA funding. This preferencing of loans over grants by aid donors has been criticised for its potential to create debt crises in developing countries.

The measure builds on the October 202223 Budget funding for AIFFP, which saw a doubling of available grant funding to $1 billion. The funding of the 2023–24 measure is marked ‘not for publication’ due to commercial sensitivities. This capital works project that sits as a separate budget measure with an undisclosed funding figure for the only Pacific nation to have a security pact with China, is another example of the new blending of aid and security considerations.


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