Financial flows in fragile states

ODA and philanthropic giving to fragile states has continued to grow, just as the multi-pronged engagement (development, trade and investment) of rising powers accelerated. ODA to fragile states reached USD 50 billion, or 38% of total ODA, in 2010. It represents the biggest financial inflow, followed by remittances and foreign direct investment (FDI). However, half of all ODA to fragile states goes to only seven “donor darlings”, and remains very volatile: every fragile state has had at least one aid shock in the past 10 years. As for private sector inflows, there remains significant scope for leveraging ODA and remittances to increase them. Three-quarters of FDI to fragile states going to just seven countries, all resourcerich. Again with the exception of resource-rich countries, they are increasingly locked out from international trade. Overall, fragile states are far from realising their tax potential.