Inherent flaws in the global aid system

Economic liberalisation does not assure growth, it can also enable the already haves to improve their lot

For decades, rich countries have been allocating billions of dollars each year to aid poorer countries around the world. Yet, the ability of this aid to address even the most basic deprivations plaguing the so-called ‘developing world’ remains modest at best.

There are several reasons why foreign aid remains ineffective. One is the amount of aid allocated for ‘development’ purposes. Rich countries are hard pressed to spend 0.7% of their national incomes on international aid, primarily meant to address poverty caused in the global south due to centuries of colonial exploitation. Of course, exploitation of the global south did not end with the dismantling of colonial empire but has continued via the current age of imperialist extraction. Unfair trade policies, extractive global supply chains and high indebtedness in part due to the failure of development lending schemes aimed at spurring sustainable growth, continue to take more money out of the global south than given to them as aid.

The process of aid itself is not entirely motivated by altruistic aims either. Powerful countries view aid as a carrot to entice poorer countries to do their bidding. Significant amounts of US aid poured into countries like Egypt and Pakistan was impelled by the pursuit of strategic goals rather than due to the demonstrated ability or desire of the rulers in these countries to channel aid to those most in need. Often authoritarian and unrepresentative regimes can manage to secure aid if they have strategic relevance, whereas many deserving countries, with little strategic value, still have a tough time getting desperately needed aid.

Then comes the question of how aid is administered. Often, aid comes with strings attached. Bilateral aid, and loans, provided on concessional terms by institutions such as IMF and World Bank require poorer countries to pry open their economies to multinational corporations and to implement other economic liberalisation policies. Unfortunately, economic liberalisation does not automatically assure growth, it can also enable the already haves to improve their lot without addressing glaring inequalities within their midst.

A related issue on why aid produces lackluster results is due to the way in which it is delivered. The phenomenon of ‘tied’ aid means that many rich countries make sure that a significant proportion of the aid they give to poorer countries stimulates their own economies by requiring recipient countries to use goods and services provided by companies located within the donor country. While there has been growing recognition to allow poorer countries to use their aid allocations to hire local companies and experts, the phenomenon of ‘tied’ aid persists.

According to research published by the Center for Global Development, less than a third of foreign aid is directly managed by the poorer countries that it is meant to help. Analysis of aid disbursed in 2020 indicated that donor governments manage a significant amount of aid directly and via their own private sector firms and NGOs. Or else, they funnel aid to multilateral development agencies. Conversely, only 32% of aid funds are directly managed by poor ‘partnering’ country governments, private sector firms and NGOs combined. Despite all the emphasis on corruption within poor countries, which is often blamed for wasting development aid meant to help poor people, recipient countries have very limited direct say over the aid being provided to them.

Not allowing recipient governments and relevant local entities to control aid allocated to their countries reflects the skepticism of donor nations about the capacity and will of poorer countries to help their own people. This skepticism may be justified in part, but then the failure of aid to deliver its intended goals is a responsibility which must primarily rest with the donor nations themselves.

Published in The Express Tribune, July 1^st, 2022.

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