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Tied Aid and Concessional Credit Support

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Tied Aid and Concessional Credit Support Tied Aid and Concessional Credit Support 1 “Tied aid credits are official or officially supported Loans, credits or Associated Financing packages where procurement of the goods or services involved is limited to the donor country or to a group of countries. Tied aid therefore often prevents recipient countries from receiving good value for money for services, goods, or works” Source: Organisation for Economic Co-operation and Development 2 “Untying aid – removing the legal and regulatory barriers to open competition for aid funded procurement – generally increases aid effectiveness by reducing transaction costs and improving the ability of recipient countries to set their own course. It also allows donors to take greater care in aligning their aid programmes with the objectives and financial management systems of recipient countries.” Source: Organisation for Economic Co-operation and Development 3 “[Concessional loans] are extended on terms substantially more generous than market loans. The concessionality is achieved either through interest rates below those available on the market or by grace periods, or a combination of these…” Source: Organisation for Economic Co-operation and Development 4 Where exactly does Britain’s £12.2bn foreign aid go? “Britain is a significant contributor to helping developing countries. In 2015, for the third year running, the government met its commitment to spend 0.7 per cent of gross national income on foreign aid, with the official budget rising to £12.2bn.” 5 UK foreign aid spending in focus Official Development Assistance (ODA) 2015 Net ODA 2015 (bn) Share of GNI (%) Largest Regional Recipient of Bilateral ODA Africa £2.54bn Source: Department for International Development 6 Largest Country Recipients of Bilateral ODA Source: Department for International Development 7 In July 2015, the UK government launched a consultation to consider whether a concessional export credit facility could be implemented, in support of the World Bank and International Monetary Fund’s efforts to help low-income developing countries (LIDCs) achieve their Millennium Development Goals (MDGs) without creating future debt problems. Source: Department for International Development 8 “From 1999-2001 to 2008, the proportion of untied bilateral aid rose progressively from 46% to 82%.” Source: Organisation for Economic Co-operation and Development 9 The UK does not offer tied aid at present. However, other OECD countries including the USA, France, Germany, Japan and Korea offer tied aid which supports their exporters. Tying Status of ODA by Individual DAC Member countries, 2014 9,000 7,500 6,000 4,500 USD USD million 3,000 1,500 0 Korea Japan France Austria Poland Sweden Australia Germany United States United Kingdom Source: Organisation for Economic Co-operation and Development 10 “Evidence has shown that tied aid - can increase the costs of a development project by as much as 15 to 30 percent.” “Untying aid, on the other hand, avoids unnecessary costs and gives the recipient the freedom to procure goods and services from virtually any country…” Source: Organisation for Economic Co-operation and Development 11 “Following debt relief under the Heavily Indebted Poor Countries (HIPCs) Initiative and Multilateral Debt Relief Initiative over the past two decades, external debt in several African countries has rapidly increased in recent years and is becoming a source of concern…” African countries need to tap into low cost and alternative funding if they hope to bridge the infrastructure gap required to end inequality and poverty. Source: Organisation for Economic Co-operation and Development 12 List of Countries That Have Qualified for, are Eligible or Potentially Eligible and May Wish to Receive HIPC Initiative Assistance (as of September 2014): Benin Guinea-Bissau Rwanda Burkina Faso Liberia São Tomé & Príncipe Burundi Madagascar Senegal Cameroon Malawi Sierra Leone Central African Republic Mali Tanzania Côte d’Ivoire Mauritania The Gambia Congo Mozambique Togo Ethiopia Niger Uganda Ghana Democratic Zambia Guinea Republic of Congo Source: International Monetary Fund 13 Traditional aid and concessional credit support, although not enough to solely cover the funding needs of African countries, is widely used in the region. 14.
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