If you are watching news or scrolling down any news apps you would be familiar with foreign aid.
Foreign aid can be identified as the transferring of capital, goods or services from one country or an international organization to another country. It can be given as a loan, gift or grant.
These foreign aid can be economic, humanitarian or military.
Countries like USA, Japan, France, Germany and UK are the most popular countries that provide foreign aid for the less developed countries while International Monetary Fund (IMF), World Bank and United Nations Children’s Fund (UNICEF) are among the International Organizations which are in the foreign aid process.
In this post, I’m going to provide a brief overview about foreign aid. So, let’s begin.
Importance of Foreign Aid
Foreign aid can be given to any country. But for less developed countries, foreign aid is very important. Here’s why.
Foreign aid can stimulate the economic growth of the less developed countries. Basically, foreign aid is given to countries which have high unemployment rates and low income. It can boost the economic growth of these countries.
In order to stimulate economic growth, the development of infrastructure is a must. Foreign aid can develop the infrastructure in the recipient countries which means transportation, communication, education, power and health services.
Foreign aid can decrease poverty in less developed countries. When foreign aid stimulates the economy while developing infrastructure facilities, it creates more economic opportunities such as creating new jobs. This improves the quality of lives of the people by reducing poverty.
Types of Foreign Aid
There are few types of foreign aids that are used by the countries.
1. Bilateral Aid
This is the most common form of Foreign aid.
Here, the donor country directly provides foreign aid for the recipient country without any intermediate agency.
As for the statistics, Middle east and North African countries received the most assistance from the developed countries, in 2018, while the countries like Afghanistan, Jordan, Kenya received the highest amount of foreign aid.
2. Tied Aid
This type of foreign aid is also a bilateral aid. But the difference is, the recipient country should be bound by the conditions of the donor country.
For example, if Sri Lanka received a foreign aid from Canada for schools to develop computer labs, the equipments should be purchased from canada.
There are many pros and cons in tied aid.
3. Multilateral Aid
Multilateral aid is provided by many donor countries via an international agency.
This can be seen with the Red Cross. These international agencies provide a successful management in transferring foreign aid and reduce the chances of conflicts between donor countries and the recipient country.
In this post, I discuss about the Foreign aid and its importance for less developed countries. To be honest, foreign aid is very important for developing countries. But, depending too much on foreign aid is not a good condition for the economies of countries. On the other hand, many powerful countries use foreign aid as a tool to control the less developed countries to achieve their agendas.
You can check out my previous post about foreign direct investment
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