Overhaul aims to squeeze more value for money from each aid dollar. Photo: AFP
A fifth of Australia's aid budget will be geared towards driving economic growth in developing countries - known as ''aid-for-trade'' - under a radical restructure to be unveiled by Foreign Minister Julie Bishop.
The overhaul, which follows the announcement of deep cuts by the Abbott government and is likely to be controversial with aid groups, aims to squeeze more value for money from each aid dollar through a series of tough new targets and benchmarks.
It will also target gender equality, with all aid projects to be assessed each year on how they improve the opportunities of women and girls. The aim will be to have 80 per cent of programs address gender.
Ms Bishop said: ''We will introduce a rigorous system of performance benchmarks and mutual obligations tailored to each country's circumstances.''
Aid projects deemed not to deliver value for money will be given a year to improve or be axed, and under ''mutual obligation'' requirements, countries that don't tangibly improve the lives of their citizens will face cuts in aid money.
The reforms will also concentrate spending on Australia's region, with nine-tenths of money to go to the Indo-Pacific region as of next year - up from about 80 per cent.
Ms Bishop said on Wednesday that the benchmarks would ensure that Australia not only met its aid objectives, but that recipient governments tookresponsibility for the implementation of programs.
''We will work with countries to ensure that they understand what is required, and they understand the concept of mutual obligation because we can't keep doing what we've always done and expect a better outcome,'' she told ABC radio
''I want to see much better outcomes, and that means working with partner countries to ensure that the aid dollar is spent effectively and efficiently and actually delivers results.''
Under aid-for-trade, introduced by the Howard government, money is channelled towards liberalising developing nations' economies and boosting their trade opportunities. About 12 per cent of projects are now geared this way, but that will reach 20 per cent by the end of the decade under the new changes.
Money in the past has been spent on building roads for the transport of goods to markets, reducing customs red tape and teaching farmers to improve their agricultural processes so they meet international export requirements.
Aid groups are likely to welcome aspects of the plan, such as the focus on women and girls.
But aid-for-trade has been controversial, with critics arguing it does not target the very poor, who often dwell outside the official economy and therefore may not benefit.
The reforms also include stronger anti-corruption and anti-fraud checks. This change could put the aid boost, which is a part of a refugee resettlement deal, to Papua New Guinea under the spotlight, with PNG Prime Minister Peter O'Neill facing fraud allegations.
Asked about this, Ms Bishop said: ''The government has a zero tolerance policy towards fraud in the aid program. We will take a robust approach to preventing, detecting and rapidly responding to fraud.
''Any instance of alleged, suspected, attempted or detected fraud relating to an aid investment must be immediately reported by DFAT officials and investigated.''
The Abbott government's first budget in May revealed that $7.6 billion would be stripped from foreign aid over the next five years.
The previous Labor government committed to spending 0.7 per cent of GDP on aid but repeatedly pushed back the date to meet the goal.
The Abbott government has capped the spending at $5 billion a year for two years and then will increase it with inflation.