Untied Aid - Reasons For Using Untied Aid

Reasons For Using Untied Aid

One of the main arguments in favour of untied aid is that tied aid can create important distortions in the market by limiting the number of countries where the recipient can make purchases. These limitations impede the recipient country’s ability to find the most cost-effective way to spend the aid they receive. It is estimated that goods and services purchased with tied aid cost 15-30% more than comparable goods and services acquired with untied aid. Furthermore, tied aid often favours capital-intensive goods and advising primarily in the donor country’s area of expertise. This may lead recipient countries to make purchases which are inappropriate for realising their development goals. In addition, the administration of tied aid requires larger bureaucracies in both the donor and recipient countries. Untying aid would presumably give recipient countries greater freedom to choose how they spend their resources, focusing on the goods and services they need most, and allow them to purchase from the most cost effective sources. Untying aid would allow it to be more efficiently employed, effectively increasing its value.