Tied Aid

International research has shown that the tying of aid is costlier and less effective than untied aid.[1] The tying of aid is a practice which privileges Australian companies and national priorities in the aid program. Aid is tied in three ways:

1. nationally-tied – aid money is provided on the condition that the receiving country buys goods and services from the donor country; 
2. project or program-tied – aid which must be spent on specific projects or sectoral programs determined by Australia; or 
3. performance or condition-tied – aid tied to particular performance outcomes or conditions.

While in 2006 Australia officially untied its aid program from national procurement (nationally-tied aid), the informal tying of aid continues with Australian companies receiving the majority of aid contracts.

Performance-based aid

The most heavy-handed form of tied aid is performance-based aid. Performance-based aid is made available to countries when they meet certain conditions, triggering the allocation of aid into high priority areas such as roads, health and education. This form of aid acts as an incentive for recipient countries to carry out political and economic reform in areas such as education management, improved budget management, utility regulation, private sector development and sub-national government administration.

Minh Nguyen on aid conditionality writes:

While few would oppose donor or lender conditions to ensure that funds are well spent, current practices have gone beyond what is necessary for basic fiduciary accountability. Conditions are now so intrusive that they can cover recipients’ trade and investment policies and even the structure of government.(41)

 In 2010-11, Australia will fund performance-based initiatives through a four-year $336.1 million program in Asia and the Pacific. [2]   Linking aid funding to outcomes decided by Australia undermines developing country rights for self-determination.

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Last updated 12 November 2010

[1] See for example, Clay, E. J., B. Riley and I. Urey (2005), The Development Effectiveness of Food Aid: Does Tying Matter? OECD, Paris; OECD DAC (2005). Final Report of the OECD Development Assistance Committee Development Partnership Forum on Improving Donor Effectiveness in Combating Corruption, 9–10 December; United Nations (2005) Human Development Report: International Cooperation at a Crossroads: Aid, Trade and Security in an Unequal World (New York).

[2] AusAid Australia’s International Development Assistance Budget 2010 p.24