What does a no-deal Brexit and a slide in sterling mean for our sector?

What does a no-deal Brexit and a slide in sterling mean for our sector?

In the international development sector, it can be easy to think that organisations without EU funding have relatively little to worry about where Brexit is concerned.  In Scotland only a small number of international development organisations operate at a size, reach and capacity which allows them to implement EU or ECHO (humanitarian) funding. 

However, most of our members are implementing programmes in developing countries overseas through agreements or contracts drawn up with local partners, funded by either institutional or charitable grants, or private donations, or a mix of both.   Budgeting has been carried out in sterling, for implementation costs in-country usually in local currency, or sometimes euros or US Dollars. 

If the value of sterling falls steeply against the currency used in-country, then there is a problem.  The costs of carrying out programmes demand more pounds, to deliver the same results.  Institutional funders such as the Scottish Government and DFID, and charitable trust funders usually state in their grant conditions that it is up to the grant-holders to manage currency fluctuations.  They do not expect to be asked for increased grant to help grant-holders meet rising programme costs caused by a falling pound.

So how can organisations find the extra pounds they need to transfer to in-country partners to meet their budgeted programme costs?  This funding gap is hardly an attractive fundraising ‘cause’ likely to appeal to the generosity of trusts and private donors.  The gap will probably have to be met by drawing on unrestricted reserves.

The pressure on unrestricted reserves will be particularly hard to handle for smaller organisations with low levels of reserves.  Some may simply have insufficient reserves which puts them in danger of being unable to meet contractual obligations.

All organisations currently implementing, directly or through partners, in developing countries overseas will be looking at their reserves and planning for the impact of a further slide in the pound.

Obviously none of us know what will happen to sterling, but it has already fallen by an estimated 12% since the referendum result in 2016.  The judgement of international markets is that the potential for a no-deal Brexit with accompanying further declines in sterling is sizeable. 

Trustees who need to identify and manage risk, will want to consider carefully what the impact of a no-deal Brexit might be, on both their current commitments to their partners and their future plans.

The Alliance membership comprises a diverse range of different sizes and strengths of organisations.  Almost all are directly engaged with overseas programming.  Almost all will be directly affected by a significant fall in the value of sterling which will adversely affect their ability to maintain or build on their work to meet needs around the world.  This is a serious consequence of a no-deal Brexit, militating against our ability in this country to contribute to the worldwide effort to achieving the Global Goals.