Foreign Aid: What Is the Actual Impact and How Can We Improve?
By admin November 28, 2018

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Foreign aid is defined by the OECD as “financial flows, technical assistance, and commodities that aim to promote economic development and welfare, is a common practice in the field of international development.” However, controversies over aid effectiveness and transparency have led many countries to rethink traditional practices. The Chinese government, for example, has been criticized for constructing poorly-managed infrastructure projects in Africa, leaving the recipient countries in debt. This month, Beijing passed a regulation to improve the management of its foreign aid programs amid growing pressure from the international community. On the U.S. side, President Donald Trump also made the announcement earlier this month that he would end all U.S. foreign aid to Central American countries unless they stop migrants from flooding in.

Foreign aid is disseminated at such a large scale that you cannot simply ignore its existence. There are more than 150 countries and territories receiving foreign aid today, and the total amount of foreign aid from official donors reached USD 146.6 billion in 2017. The U.S. is the largest single donor as it contributed USD 35.26 billion in 2017, accounting for 24 percent of the total. In terms of percentage of Gross National Income (GNI), Sweden came in first as its Official Development Assistance (ODA) totaled 1.01 percent of its GNI, followed by Luxemburg and Norway.

When it comes to the impact of foreign aid, the debate is ongoing. Proponents think that foreign aid can benefit the recipient countries’ governance by financing development projects that could not have otherwise been afforded, and by contributing to their governments’ budgets, which allows them to pay higher salaries to civil servants as a way of strengthening domestic institutions. Aid personnel can also provide management expertise and training programs to improve the efficiency and effectiveness of the local governments. Scholars found empirical evidence to support that foreign aid can spur economic growth in recipient countries, through augmenting savings and increasing the capital stock.

On the other hand, opponents point out several negative consequences of foreign aid. They argue that high levels of foreign aid are not likely to contribute to self-sustainable growth and could create aid dependence that hamstrings a country’s future development. It reduces the incentive of government officials to improve the institutional efficiency, allowing bad governance to persist. The effectiveness of foreign aid largely hinges on how the donors handle aid programs. To start with, multiple donors and international organizations may have different projects promoting different development priorities. These projects sometimes fail to create synergies and even conflict with each other. Studies also showed that foreign aid is often determined by the objectives of donor countries rather than the needs of recipient countries, and donors usually attach certain conditions to the assistance, which reduces the aid effectiveness.

In light of the pros and cons of foreign aid, many scholars and development practitioners have proposed solutions to improve foreign aid effectiveness. To start with, unconditional foreign aid is preferred practice because it makes the transactions less costly. The second solution is to encourage country ownership and recipient participation. This approach gives the government in the recipient country and the actual beneficiaries more power in setting development priorities. The participatory model also allows interventions better fit into local contexts, such as ethnic and religious contexts. Third, improved monitor and evaluation methods are also critical in improving aid effectiveness. In some countries where qualified data is particularly hard to collect, which is a huge challenge for development practitioners to overcome.



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Thanks for sharing !

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