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Moving beyond grants: questions about Australian infrastructure financing for the Pacific

Economic development Infrastructure Foreign aid Political influence Australia Pacific Area

Over its more than 40 years of existence, Australian official financing for development has been provided nearly entirely in grants, through the foreign aid program. Last year, a major break with the past was signalled by Morrison’s 8 November 2018 Townsville speech “Australia and the Pacific: a new chapter.”

The speech, written to respond to a perception that Australia was being out-muscled by China in the Pacific, announced two major new initiatives. The first was the creation of the Australian Infrastructure Financing Facility for the Pacific (AIFFP), costed at $2 billion, which will “use grant funding combined with long term loans to support high priority infrastructure development.” The second was an increased role for Efic, Australia’s export credit agency: “an extra $1 billion in callable capital and a new more flexible infrastructure financing power.”

In this report, we provide background to and understanding of these announcements, as well as an initial assessment of their implications. The questions we ask are:

  • What do these announcements mean?
  • What are their implications for the aid program and for Australian Official Development Assistance (ODA)?
  • How do they compare to what other countries are doing? o What issues do these announcements raise?
  • What options does the government have in implementing these announcements, and what recommendations can be made in this regard?
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