By Jenny Hayward-Jones, Director of the Lowy Institute's Melanesia Program, and Philippa Brant, a Lowy Institute research associate.

The Abbott Government last night brought down the first annual aid budget since the integration of the Department of Foreign Affairs and Trade (DFAT) and AusAID.

As the ANU's Stephen Howes points out, there is less detail available in this budget about individual programs and sector country allocations than in previous years, but DFAT's website has updated its country pages with 2014-15 budget estimates. For an excellent analysis of what the numbers mean, Stephen Howes and Matthew Dornan from the Development Policy Centre at the ANU have posted very informative blogs on the budget.

What is clear is that over the next two years Australia's aid budget will be cut by 10% in real terms. This risks Australia falling further down the OECD Development Assistance Committee donors table, where we currently hold 10th position. 

Last year, the Conservative government in the UK became the first G7 donor to reach the OECD's  0.7% of GNI target, increasing its official development assistance (ODA) by 27.8% on 2012 levels. It is committed to meet the 0.7% of GNI target again in 2014. 

Foreign Minister Julie Bishop has talked of sharing experiences with partner countries such as the UK and US in order to 'create new ways and innovative solutions to long-standing development challenges'. Australia signed a partnership agreement with the UK's development ministry in March 2014 which provides a framework for collaboration in priority areas, including economic growth, private sector development, gender equality, humanitarian response, and the global development agenda.

Australia will clearly be the junior partner in this relationship, as its ODA ambitions appear to be in retreat while the UK remains the global standard bearer, even in times of domestic economic and fiscal hardship. 

And while Australia treads water, the world's emerging donors are paddling full steam ahead.

The United Arab Emirates, for example, provided US$5.2 billion of ODA in 2013 (bigger than Australia's A$5.03 billion in 2014-15), a 375% increase on its 2012 ODA levels. This equates to 1.25% of its GNI. While much of this is attributed to its support for Egypt, the UAE has grand ambitions to be a significant global aid donor.

China, too, has a larger program than Australia, spending US$6.4 billion in 2013. While China's budgeting and delivery is not completely compatible with Development Assistance Committee conventions, it is clear that its aid spending is on an upward trajectory, with an estimated average annual increase of almost 10% over the last five years.

With economic diplomacy now guiding DFAT's international engagement, including in development policy, Australia's agenda now has some parallels to the south-south cooperation approach of emerging donors in developing countries. Many of these emerging donors are already putting significant resources behind this. Australia, during an era of budgetary constraint, now finds itself stretched to do the same.

This reduced aid budget signals a retreat from (or at least curtailment of) Australia's ambitions to be a global aid player. But Australia's long-held position as the Pacific Islands region's principal development partner is, for the moment, protected.

With the announcement of increased spending on Papua New Guinea and the Pacific in the next financial year (from $1.06 billion to $1.15 billion), Australia maintains its position as the region's biggest aid donor. This is consistent with Julie Bishop's ambitions to prioritise Australia's relations with its neighbours. Indeed DFAT's Strategic Direction Statement elevates the relationship with PNG to one of the Department's highest priorities and commits it to 'align the aid program with the shared political and economic objectives of Australia and PNG'. Australia is also committed to working with other donors to support democratic elections in Fiji and strengthen bilateral aid with Solomon Islands.

If Australia wants to be regarded as a significant global donor, maintaining regional leadership in the development space in the Pacific, where a number of other donors are increasing their presence, will be vital.

Image courtesy of DFAT.