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Pacific and Foreign aid survives Budget axe

ABC News - Budget 09 By Linda Mottram posted 13 May 2009

Despite producing a 2009-10 Budget marked by disappearing revenues and a slide into the red, some Government pledges have survived - among them, the aid budget. There is little new in the list of aid programs. But aid spending in the new financial year will rise from $3.7 billion to $3.8 billion, keeping faith with the commitment to grow the overseas development budget over time to 0.5 per cent of Gross National Income.

Indonesia and Papua New Guinea receive the largest slices of that budget, the former commanding more than $452 million, the latter - for years the single biggest Australian aid recipient - to receive $414 million. A highlight of the program for Indonesia is the cancellation over six years of $75 million in debt owed by Indonesia to Australia in exchange for increased Indonesian government investment in programs fighting tuberculosis. A focus on democracy, justice and good governance marks Australia's approach to its large, mostly Muslim neighbour as it continues to build on its striking democratic transformation.

In Papua New Guinea, a key emphasis will be a push for universal basic education, particularly for girls. Papua New Guinea enrols just 35 per cent of its children in primary school. At a recent meeting in Canberra, Prime Ministers Kevin Rudd and Sir Michael Somare set a goal to raise the net enrolment rate at PNG primary schools to 70 per cent by 2015. Aid to Papua New Guinea is the subject of vigorous debate, with the country frequently criticised for corruption and poor progress tackling vital development issues like HIV/Aids, despite years of Australian aid largesse. Funds will also continue to be allocated to a $100 million, five-year HIV crisis response which began in 2007. Other Australian priorities for the Papua New Guinea budget include strengthening the public service, improving statistical data and improving governance, all familiar themes in the aid agenda. Sanitation is another continuing aid focus.

The Budget says the aid spend in the Pacific will continue to be concentrated through the Rudd Government's Partnerships for Development, which have so far been signed with Papua New Guinea, Samoa, Solomon Islands and Kiribati. Partnerships with Vanuatu, Tonga, Nauru and Tuvalu and currently under discussion.

Australia is favouring "performance-linked" aid with Asia Pacific recipients. This approach gives aid in exchange for progress towards defined aims, with the UN's Millennium Development Goals an overarching measure.

The Government says it will expand programs that support broad-based growth to generate employment, it will do more to ensure food security through rural development and microfinance and financial development generally will get more attention. The Budget also highlights aid to Afghanistan and Pakistan with more than $352 million over four years, as part of the wider effort to stabilise the volatile region. And more aid will be channelled to Africa, the Budget says, reflecting the Government's newest aid priority.

Global outlook

The Budget papers also tell Treasury's story about the global outlook. With Australia's terms of trade already down 13 per cent, the Budget says the commodities boom will continue to unwind and that is primarily about China's dramatic slowing. But the Budget papers signal a looming recovery for China, which is seen as an important plus for Australia's prospects, with Treasury sharing the now frequently cited view that Chinese growth will be at 8 per cent, possibly by the end of this calendar year.

But the papers warn that China will still be growing at lower than trend rates. Treasury unsurprisingly predict continuing dire economic prospects for Japan, with a deep and protracted recession forecast there. The papers say eight of Australia's 10 ten trading partner economies will contract in 2009, a far weaker performance even than during the Asian Financial Crisis. The United States, which in last year's Federal Budget was forecast to have just a mild recession, is headed for a slump of 3 per cent next year, Treasury says. The beginnings of a US recovery are forecast for the following year, though more pessimistic forecasts warn of another round of financial carnage from the US.

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