What are the advantages and disadvantages of conditional aid?

Answer 1

Advantages and disadvantages: -

Advantages:

(i) For the Aid-recipient Country:

i. The aid-giver is more concerned about promoting the interests of the aided country than its own.

ii. The aid-giver is in a better position than the aided country to take decisions regarding the aided projects and their details.

iii. The volume of aid is adequate, timely, and on an assured long term basis.

iv. Under such conditions, there is also a high probability of aid being on concessional terms.

(ii) For the Aid-giver:

It reduces the risk of default by the aid-recipient, and gives the aid- giver a better control over the design, technology, location, and management, etc., of the aided projects.

Tied aid is also expected to generate some extra benefits to the aid-giver country in the form of additional export earnings, secured markets and higher level of domestic employment, and the like.

Disadvantages of Tied Aid: -

i. It needs no elaboration that for the aid-recipient country, economic cost of the tied aid goes up.

ii. Tied aid restricts the choice of its use by the aid-receiving country.

iii. Aid may be subject to some matching contribution by the aid-receiver. This again leads to a situation where the aid-giver can dictate its own priorities regarding resource allocation by the aid-receiver.