Foreign aid

 

Introduction

Foreign aid is defined as the voluntary transfer of resources from one country to another country. This transfer includes any flow of capital to developing countries. A developing country usually does not have a robust industrial base and is characterized by a low Human Development Index (HDI).

Foreign aid can be in the form of a loan or a grant. It may be in either a soft or hard loan. This distinction means that if repayment of the aid requires foreign currency, then it is a hard loan. If it is in the home currency, then it’s a soft loan. The World Bank lends in hard loans, while the loans of its affiliates are soft loans.

Foreign aid is one of the most significant sources of foreign exchange. There are five different types of foreign aid programs.

Bilateral Aid

Assistance given by a government directly to the government of another country is Bilateral Aid. It is when the capital flows from a developed nation to a developing country.  Strategic political considerations and humanitarian ones often direct Bilateral Aid. These are to assist in long-term projects to promote democracy, economic growth, stability, and development.

Multilateral Aid

Multilateral Aid is assistance provided by many governments who pool funds to international organizations like the World Bank, United Nations, and the International Monetary Fund. These funds are then used to reduce poverty in developing nations. Though this sector constitutes a minority of the US’s foreign aid, the nation’s contributions make up a significant percentage of the donor funds received by the organization.

Tied Aid

Tied Aid is one of the types of foreign aid that must be spent in the country providing support (the donor country) or in a group of selected countries. A developed country will provide a bilateral loan or grant to a developing country, but mandate that the government spends the money on goods or services produced in the selected country.

Project Aid

Project aid is when the funds are used to finance a particular project, such as a school or a hospital, it is considered to be Project Aid.

Military Aid

Military aid is never charitable. The U.S. gave about $15 billion in Military Aid in 2011. Military aid usually requires the receiving nation to either buy arms or defense contracts directly from the USA. In other cases, it just simplifies the process by having the federal government only purchase the arms itself and ship them over on military transport.

Voluntary Aid

Voluntary aid is aid usually in the form of charity. For example, Médecins Sans Frontières (Doctors Without Borders) is “is an international humanitarian non-governmental organization best known for its projects in war-torn regions and developing countries affected by endemic diseases”

Foreign aid is very important to many less-developed countries (LDCs) around the globe. It can have a substantial effect on their improvement by providing much-needed programs that provide jobs, healthcare and sustainability to the regions of the globe that need it most. Providing aid to LDCs can also promote positive outcomes for the country giving aid.

It can be used as humanitarian aid. This form of aid is generally given during times of great distress such as natural disasters until the state can support the disaster relief effort. The European Consensus on Humanitarian Aid categorizes humanitarian aid as a “…needs-based emergency response aimed at preserving life, preventing and alleviating human suffering, and maintaining human dignity wherever the need arises if governments and local actors are overwhelmed, unable, or unwilling to act.”

It can help to fight against diseases such as HIV/AIDS. HIV and AIDS are still a major threat in countries such as Africa and require support from other countries willing to help with the crisis. Organizations and governments around the globe, such as UNITAID and PEPFAR, provide aid to help fight HIV/AIDS in LDCs. A new plan submitted by UNAIDS projects the end of the HIV epidemic as a public health threat by 2030. The new plan would need $26.2 billion by 2020 and an additional $22.3 billion by 2030 to eliminate the disease.

It helps with economic growth in LDCs. Aid is generally given in countries that are characterized as low income or that have high unemployment rates. This results in low savings and investments, meaning the capital stock is small. Countries that are provided aid need rapid economic development. Providing aid stimulates the growth of the world economy along with promoting economic development within the region.

It can help with market expansion. Providing aid to a country could mean the expansion of goods and resources that can be shared between the two countries. This can attract new investors into the country further improving the LDCs economy.

It helps with basic infrastructure in LDCs. Another key component to promoting a strong economy is the expansion of a well-developed infrastructure. Basic necessities such as transport, communication, power, education, health services and industry serve as key components to building a strong and long-lasting infrastructure.

It helps promote improvements in agriculture. Aid can be used to teach farmers how to utilize their land and resources more efficiently to produce more crops. This, in turn, provides vitamin and nutrient giving foods to people living in LDCs.

It can help with poverty relief. In 2013, 767 million people (10.7 percent of the world population) lived on less than $1.90 a day, well below the world poverty line. This is a drastic improvement from the 1.85 billion in 1990 and the number has gotten significantly better over the years. However, there is still much to do. Many of the global poor live in rural areas where they do not have access to adequate medical treatment and education,also in tanzania countries introduce Tanzania social action fund(TASAF).

It helps LDCs grow and become more independent. By providing aid to promote health, education, and infrastructure, LDCs can focus more on growing their economies. By reducing the amount of disease and poverty, citizens of these regions will be able to flourish and contribute to the growth of the country.

It promotes political ties. Aid can be used to establish and strengthen the connection between the donor and recipient countries. Aid is given to both LDCs and developed countries alike to promote solidarity and companionship.

It makes the world safer. Providing LDCs with aid and development reduces the threat of terrorist organizations by alleviating poverty in susceptible countries. A study provided by the RAND Corporation concluded that development is a more effective strategy against terrorism than military force.

The following are the reasons of countries to received  the foreign Aid

Countries also offer foreign aid in order to improve their own security. Economic aid may also be used to discourage friendly countries from coming under the control of unfriendly governments or paying for the right to set up or use military bases on foreign soil.

Foreign aid can be used to accomplish the political aims of a government, allowing it to obtain diplomatic recognition, to gain respect for its role in international institutions, or to improve the accessibility of its diplomats to foreign countries.

Foreign aid also seeks to promote the exports of a country and spread its literature, culture, or religion. Countries often provide aid to relieve the distress caused by man-made or natural disasters like drought, illness, and conflict. It helps to promote sustainable prosperity, create or reinforce political institutions, and address a range of worldwide concerns, including cancer, terrorism and other violations, and environmental degradation.

In generally Foreign aid may be given as a signal of diplomatic approval, or to strengthen a military ally, give foreign aid include to reward a government for behavior desired by the donor, to extend the donor’s cultural influence, to provide the infrastructure needed by the donor for resource extraction from the recipient country and to gain other kinds of commercial access.

References

Agarwal p(2011),Developments economics:university of southern california.

Williams v,(2009)International aid :Alvernia college.