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How Does the U.S. Spend Its Foreign Aid?

• Foreign Aid
• Donald Trump

Introduction

President Donald J. Trump has repeatedly called for deep cuts to foreign assistance programs, raising pointed questions about the role the United States should play around the world.

There has long been broad bipartisan agreement on the moral and strategic significance of foreign aid. Aid levels rose sharply after the 9/11 attacks, with policymakers seeing global economic development as a way to promote U.S. national security.

Though aid remains a small percentage of the overall U.S. budget, some politicians and economists have criticized the spending as ineffective. Others have urged the United States to expand its international aid commitments.

What is foreign aid?

The current foreign aid system was created by the  1961 Foreign Assistance Act , which attempted to streamline the government’s efforts to provide assistance around the world. The statute defines aid as “the unilateral transfers of U.S. resources by the U.S. Government to or for the benefit of foreign entities.” These resources include not just goods and funding, but also technical assistance, educational programming, health care, and other services. Recipients include foreign governments, including foreign militaries and security forces, as well as local businesses and charitable groups, international organizations such as the United Nations, and other nongovernmental organizations.

How much does the United States spend on it?

Given the many agencies, funding methods, and categories of aid associated with U.S. foreign assistance efforts, estimates can differ. According to the nonpartisan Congressional Research Service (CRS), which uses the  broadest definition of aid [PDF], including military and security assistance, total spending was roughly $49 billion in 2016, the last full fiscal year analyzed. This accounts for about 1.2 percent of the federal budget.

Since taking office, President Trump has sought deep cuts in foreign aid spending, aiming to slash nearly a third of the budget. In his 2018 speech before the UN General Assembly, he said , “Moving forward, we are only going to give foreign aid to those who respect us and, frankly, are our friends.” Congress, the branch of government that sets federal funding, has so far disagreed with the president, largely maintaining existing levels of funding in 2017 and 2018 budget deals.

Aid funding levels are at their highest since the period immediately following World War II, when the United States invested heavily in rebuilding European economies. Aid levels were cut in the 1990s, in the wake of the collapse of the Soviet Union; in 1997 they were less than $20 billion, or 0.8 percent of the overall budget. Aid rose again in the wake of the 9/11 attacks, surpassing 1.4 percent of the budget by 2007, which analysts say was driven largely by assistance to Afghanistan and Iraq, as well as President George W. Bush’s global health programs.

What are its objectives?

As former State Department official and aid expert Carol Lancaster pointed out in her book  Foreign Aid: Diplomacy, Development, Domestic Politics , modern U.S. aid originated in Cold War geopolitics: the Marshall Plan to rebuild Europe was designed to blunt the influence of rising Communist political forces on the continent. National security concerns have continued to drive U.S. assistance policy, aiming to provide stability in conflicted regions, bolster allies, promote democracy, or contribute to counterterrorism and law enforcement efforts abroad.    

National security concerns have continued to drive U.S. assistance policy.

Other objectives, related to but separate from U.S. national security, also drive assistance. These include, most notably, humanitarian relief efforts to respond directly to acute disasters, poverty reduction, health care, and other development programs.

How is the money spent?

U.S. aid policy seeks to achieve its aims through a diverse array of programs, which can be organized into several major categories. According to CRS calculations, foreign aid spending as of 2016 can be broken down as follows:

Long-term development aid (42 percent) provides ongoing funding for projects to promote broad-based economic growth and general prosperity in the world’s poorest countries. More than half of this goes to bilateral health programs, including treatment of HIV/AIDS, maternal and family health, and support for government health-care systems, mostly in Africa. This also includes funding to multilateral institutions such as the World Bank and the UN Development Program.

Military and security aid (33 percent) primarily goes toward helping allies purchase U.S. military equipment, training foreign military personnel, and funding peacekeeping missions. A smaller slice goes to “non-military security assistance,” which includes counternarcotics programs in Afghanistan, Colombia, Peru, and elsewhere, as well as nonproliferation and counterterrorism efforts.

Humanitarian aid (14 percent) is spent to alleviate short-term humanitarian crises, such as those resulting from famine, earthquakes, war, state failure, or other natural or man-made disasters. This includes State Department and Defense Department disaster relief efforts, as well as purchases of U.S. agricultural goods and funding for organizations such as the International Red Cross and the UN High Commissioner for Refugees.

Political aid (11 percent)  is intended to support political stability, free-market economic reforms, and democratic institutions. Programs include governance and justice system reforms, backing for human rights organizations, and support for peace talks and treaty implementation.

Which agencies manage it?

U.S. foreign assistance is managed by a complex ecosystem of agencies, with more than twenty federal agencies involved in either funding or implementing foreign aid policy.

The 1961 Foreign Assistance Act created the U.S. government’s primary aid organization, the  U.S. Agency for International Development  (USAID). The agency administers the bulk of U.S. development and humanitarian aid, managing nearly $20 billion in funds and employing more than nine thousand staff around the world. Trump’s proposed budgets, in 2017 and 2018, sought to slash USAID funds by nearly a third, but were rejected by Congress .

USAID is a semi-independent agency, operating under the policy guidance of the president, the State Department, and the National Security Council. It receives its funding through the State Department budget. In 2006, in an attempt to streamline what some policymakers considered a dysfunctional aid system, the Bush administration created a new State Department role, the  director of foreign assistance , with a mandate to coordinate all U.S. aid activity. Trump’s USAID director, Mark Green, is pushing ahead with a new plan to consolidate and reorganize the agency.  

The Department of Defense plays a major role as the agency primarily responsible for implementing traditional military aid, though the State Department also funds and influences many security assistance programs. The Department of Health and Human Services implements many health-related programs, including the  President’s Emergency Plan for AIDS Relief  (PEPFAR). The Treasury Department helps manage funding of global financial institutions, as well as programs for debt relief and economic reforms in poor countries. There is also a plethora of other agencies and autonomous organizations, including the  Millennium Challenge Corporation , the  Peace Corps , and the  African Development Foundation , involved in aid work.

Which countries receive the most aid?

More than  two hundred countries  receive U.S. aid. It disproportionately goes to a few, however, with the top five all receiving over $1 billion per year as of 2016: Iraq ($5.3 billion), Afghanistan ($5.1 billion), Israel ($3.1 billion), Egypt ($1.2 billion), and Jordan ($1.2 billion).

As a  Washington Post  analysis  points out , this is largely due to the concentration of military aid in a few countries: Afghanistan receives $3.7 billion in security aid, all of Israel’s $3.1 billion is military aid, and the vast majority of aid to both Egypt and Iraq is for security.

More than two hundred countries receive U.S. aid. Aid disproportionately goes to a few, however.

Economic and development aid is much more dispersed: while Afghanistan again receives the most of any single country, most of the ten-largest recipients are in Africa, including Kenya, Nigeria, Tanzania, and Ethiopia. Regionally, Africa receives 32 percent of all U.S. aid, followed by the Middle East at 31 percent and South and Central Asia at 25 percent.

Some of this funding takes place through U.S. contributions to the United Nations, which are distributed to development initiatives and peacekeeping operations around the world. CFR’s Stewart Patrick calls the U.S. contribution “modest,” with the United States providing some $10 billion a year for UN operations. Nearly $2.4 billion of that goes to peacekeeping.

How does U.S. aid spending compare with other countries?

The United States is by far the largest single foreign donor. It outspends the next largest, Germany, by more than $10 billion a year; the United Kingdom, Japan, and France follow.

As a percent of gross domestic product (GDP), however, U.S. aid spending ranks near the bottom of all developed countries. It accounts for 0.18 percent of GDP,  twenty-second out of twenty-eight countries  measured by the Organization for Economic Cooperation and Development (OECD). Sweden, Luxembourg, Norway, Denmark, the Netherlands, and the United Kingdom all spend 0.7 percent or more of GDP on foreign aid, which is the  target set  by the United Nations. 

What are the criticisms of foreign aid?

A number of economists have criticized various aspects of the global foreign aid system as ineffective or counterproductive. New York University professor and former World Bank economist William Easterly made the case in his 2006 book,  The White Man’s Burden , that development aid is dominated by top-down planners and bureaucrats with little accountability, and that there is scant evidence that aid boosts a country’s long-term growth. Easterly is also  highly critical  of linking aid to counterterrorism efforts, and he and  other analysts  have warned about the potential for military aid to bolster repressive regimes. To combat that, Congress  has passed legislation  barring U.S. aid to military units that were found to have violated human rights.   

Military aid in particular has come under fire for its potential to bolster repressive regimes.

Nobel laureate Sir Angus Deaton  argues that aid gives a lifeline to corrupt governments, insulating them from the political pressures that would create a better functioning state. Zambian-born economist Dambisa Moyo writes that despite more than $1 trillion in aid flowing to Africa in past decades, real per capital income on the continent has not improved since the 1970s.

Some analysts, and many in Congress, have criticized U.S. aid as wasteful spending. Danielle Pletka of the American Enterprise Institute  argued before Congress  [PDF] that USAID has little to show for much of its spending and that the aid structure established by the 1961 foreign assistance law is increasingly dysfunctional.

What are the arguments in favor?

High-profile defenders of aid, such as tech billionaire Bill Gates and Columbia University economist Jeffrey Sachs, counter that health initiatives in particular have  saved millions of lives . Gates says that successes such as anti-HIV/AIDS and anti-polio campaigns have increased political stability , expanded economic opportunity, and boosted U.S. popularity. Critics such as Easterly and Deaton praise such life-saving humanitarian aid but point out that it is a small fraction of total aid spending.

R. Nicholas Burns, a Harvard University professor and former U.S. diplomat, concurs with some of the criticisms of the State Department, arguing that the system needs some restructuring to improve performance. However, he  warns that  reducing funding to USAID and other programs would be “unwise, unnecessary, and a danger to our overall national security.”

Many military leaders are also outspoken supporters of foreign aid programs. A  2017 letter to Congress  authored by more than 120 retired admirals and generals advocated for continued aid funding in the next budget, arguing that “the State Department, USAID, Millennium Challenge Corporation, Peace Corps and other development agencies are critical to preventing conflict and reducing the need to put our men and women in uniform in harm’s way.”

Jim Mattis, now President Trump’s defense secretary, made similar arguments as a military commander, telling Congress in 2013, “If you don’t fully fund the State Department, then I need to buy more ammunition.” CFR’s Patrick agrees, writing that cutting the foreign assistance budget “would signal the definitive surrender of any pretense to U.S. global leadership.”

Recommended Resources

This  2018 Congressional Research Service report  [PDF] delves into the history and current practice of U.S. foreign assistance.

The  USAID Foreign Aid Explorer  allows for a country-by-country and sector-by-sector exploration of how U.S. foreign aid is spent.

The  Washington Post ’s   Max Bearak and Lazaro Gamio create cartographic visualizations of U.S. humanitarian and military aid spending in  this 2016 analysis .

Former USAID administrator Andrew S. Natsios explains the dynamics of U.S. responses to famines and other humanitarian disasters in  this CFR podcast .

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What every American should know about US foreign aid

Subscribe to global connection, george ingram george ingram senior fellow - global economy and development , center for sustainable development.

October 15, 2019

Foreign aid is money, technical assistance, and commodities that the United States provides to other countries in support of a common interest of the U.S. and that country. Opinion polls consistently report that Americans believe foreign aid is about 25% of the federal budget, when it is actually less than 1%. As the world’s wealthiest nation, the U.S. provides more assistance than any other country, but a smaller proportion of its gross national product (GNP) than other wealthy nations. Historically, support for foreign aid has been bipartisan.

A Closer Look

Seventy-five years of American foreign aid has produced more fiction than fact when it comes to how U.S. tax dollars are spent.

As we enter an election cycle, it is important that candidates and voters have a basic understanding of how taxpayer dollars support foreign aid.

What is foreign aid?

Foreign aid is money, technical assistance, and commodities that the United States provides to other countries in support of a common interest of the U.S. and that country. Typically, the support goes either to a government entity or to communities in that country. Such support typically falls into one of three categories: humanitarian assistance for life-saving relief from natural and manmade disasters; development assistance that promotes the economic, social, and political development of countries and communities; and security assistance, which helps strengthen the military and security forces in countries allied with the United States. The relative proportions vary each year, but over time humanitarian assistance accounts for a bit less than one-third of the foreign aid budget, development assistance a bit more than a third, and security assistance about a third. Very little actually is delivered as cash, and most funds for humanitarian and development assistance are provided not to government entities but used for technical assistance and commodities provided by U.S., international, and local organizations.

How much of the federal budget is devoted to foreign aid?

Less than 1%. Opinion polls consistently report that Americans believe foreign aid comprises around 25% of the federal budget. When asked how much it should be, they say about 10%. In fact, at $39.2 billion for fiscal year 2019, foreign aid is less than 1% of the federal budget.

Do other wealthy countries do their fair share?

YES, relative to their economic size. The U.S. provides more assistance than any other country, which as the world’s wealthiest nation, is appropriate. There is a broad international commitment that wealthy countries should provide annually 0.7% of GNP to assist poor countries. Five countries (Norway, Sweden, Luxembourg, Denmark, and the U.K.) exceed that benchmark. The average for all wealthy nations is around 0.3 %. The U.S. ranks near the bottom at below 0.2 %.

Is support for foreign aid partisan or bipartisan?

BIPARTISAN. This is surprising given today’s divisive politics. Historically, Democrats embraced foreign aid more fully than Republicans. Take the Truman administration, which initiated the Marshall Plan. Or, in the 1990s, when votes in Congress on foreign aid spending were close, the appropriations bill garnered more Democratic than Republican votes. Yet every president, Democratic and Republican, until the current occupant of the White House, has been a strong proponent of foreign aid.

In fact, some of the most rapid increases in foreign aid have come during Republican presidencies—the first terms of Ronald Reagan and George W. Bush. Since the creation in the early 2000s of President Bush’s popular and successful signature programs—the Millennium Challenge Corporation, the President’s Emergency Plan for AIDS Relief (PEPFAR), and the President’s Malaria Initiative—foreign aid now also carries a Republican brand and has received overwhelming congressional support from both parties. One needs to look no further for proof of this than the recent bipartisan rejection of proposals by the Trump administration to cut the U.S. international affairs budget by one-third.

Does foreign aid go to corrupt, wasteful governments?

NO. Only about a fifth of U.S. economic assistance goes to governments. In 2018, 21% of U.S. official development assistance went to governments, 20% to non-profit organizations, 34% to multilateral organizations, and 25% elsewhere. Typically, when the U.S. wants to support a country that is ruled by a corrupt, uncooperative, or autocratic government, U.S. assistance goes through private channels—NGOs, other private entities, or multilateral organizations. Accountability of U.S. economic assistance is high—the U.S. imposes stringent, some would say onerous, reporting and accounting requirements on recipients of U.S. assistance, and the office of the U.S. inspector general investigates misuse.

Does foreign aid go to autocratic governments?

LESS SO TODAY. During the Cold War, when foreign aid was often based on the premise that “the enemy of my enemy is my friend” no matter what the nature of the government, some aid did find its way to autocratic governments. That substantially changed in the 1990s following the demise of the Soviet Union. However, there are countries that are at best “semi-democratic” and have autocratic elements but receive U.S. assistance because of strong U.S. security interests in their stability. Further, there is reason to worry that less concern with autocracy is reappearing with the abiding anxiety about terrorism in our post-9/11 era.

Does foreign aid produce concrete results?

YES. The U.S. government requires regular monitoring and reporting on how and whether assistance programs are working, and periodic evaluations of results. There is hard evidence that development and humanitarian programs produce considerable results, less so for programs driven for foreign policy and security purposes. While U.S. assistance is by no means the sole driver, the record of global development results is impressive. These results include:

• Extreme poverty has fallen dramatically over the past 30 years—from 1.9 billion people (36 percent of the world’s population) in 1990 to 592 million (8 percent) in 2019.
• Maternal, infant, and child mortality rates have been cut in half.
• Life expectancy globally rose from 65 years in 1990 to 72 in 2017.
• Smallpox has been defeated; polio eliminated in all but two countries; and deaths from malaria cut in half from 2000 to 2017.
• The U.S. PEPFAR program has saved 17 million lives from HIV/AIDS and enabled 2.4 million babies to be born HIV-free.
• Assistance programs can promote national economic progress and stability, which can make it more viable for citizens to remain at home rather than migrate to other countries.

Does foreign aid benefit the U.S. or foreigners?

BOTH. Foreign aid typically aims to support security as well as the economic, social, and political development of recipient countries and their people. At the same time, such assistance also advances one or all of the following overriding U.S. interests:

• Contributing to U.S. national security by supporting allies in promoting regional and global stability and peace.
• Reflecting the core U.S. value of caring for others in need—providing humanitarian assistance to victims of war, violence, famine, and natural disasters.
• Advancing U.S. and recipient economic interests by building economies and markets.

Do the American people support foreign aid?

YES. While the term “foreign aid” is not universally popular and polling reveals that some feel our foreign policy is overextended, Americans support U.S. active engagement in the world. Polling over several decades shows consistent approval of U.S. assistance efforts, with support particularly strong for purposes such as improving people’s health, helping women and girls, educating children, and helping poor countries develop their economies.

A 2016 poll by the Chicago Council on Global Affairs found that 64% of Americans feel the U.S. should take an active role in international affairs. Seventy-eight percent supported the statement, “the U.S. should coordinate its power with other countries according to shared ideas of what is best for the world as a whole.”

A 2017 poll by the University of Maryland Program for Public Consultation found 8 in 10 respondents favoring humanitarian assistance and two-thirds favoring aid that helps needy countries develop their economies. Two-thirds supported the notion that “the world is so interconnected today, that in the long run, helping Third World countries to develop is in the economic interests of the U.S.” What receives less support is assistance for strategic purposes.

Editor’s note: A version of this piece was originally published by The Ripon Forum.

George Ingram

December 10, 2018

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Foreign Aid

AKA economic assistance, is a voluntary transfer of resources from one country to another.

Graduation: B.Com (MIT Pune)

Post Graduation: MSc in Econ (MIT WPU)

Working as Admin, Senior Prelim Reviewer, Financial Chief Editor, & Editor Specialist at WSO.

Honors & awards: Student of The Year - Academics (PG) Vishwakarad Merit Scholarship (Attained twice in PG)

• What Is Foreign Aid?

Understanding Foreign Aid

How foreign aid can be provided.

• Types Of Foreign Aid
• Foreign Aid In Developmental Economics
• Foreign Aid In Economics And Politics
• Measuring The Effectiveness Of Foreign Aid
• Advantages Of Foreign Aid
• Disadvantages Of Foreign Aid

What is Foreign Aid?

Foreign aid or economic assistance is a voluntary transfer of resources from one country to another. Such assistance can be provided in different forms, such as money, food, medical supplies, etc.,

The vast majority of transactions occur from developed/wealthy countries or large International organizations to developing/third-world countries. This can be provided as a donation, grant, or credit facility. The majority of economic aid is created to fulfill multiple goals effectively.

Nations frequently give foreign help to increase their stability and sovereignty. Hence, foreign financial support may be given in exchange for the right to build or utilize army bases abroad or to keep allied governments or nations from being influenced by enemy countries. 

A nation could use foreign aid to further its international and geopolitical objectives, such as increasing access for its ambassadors to foreign leaders, gaining support for its positions within international bodies, or gaining diplomatic recognition.

Key Takeaways

• Foreign aid refers to the financial, technical, or material assistance provided by one country to another.
• This aid can be in the form of grants, loans, or donations and is intended to support economic development, humanitarian relief, or political stability in the recipient country.
• The purpose of Foreign Aid is to provide relief in response to natural disasters, conflicts, or emergencies, and to support infrastructure projects, education, healthcare, and agricultural development.
• It also aims to strengthen diplomatic relationships, promote stability, and foster favorable political environments.

A foreign assistance program may require professional direction, training, and goods and financial resources. Financial resources can be obtained through concessional loans or grants, such as  export credits .

The most common foreign assistance is Official Development Assistance (ODA), which is given to aid development and poverty alleviation. 

ODA is mostly derived through bilateral donations from one country to another. Some are in the form of loans and are commonly channeled through non-governmental organizations and foreign organizations.

Countries also deploy external assistance to bolster their security. Economic aid can also prevent friendly countries from submitting to hostile governments' authority or paying for the right to build or retain military installations on foreign land.

Foreign assistance can be used to assist a government in achieving its political goals, such as gaining diplomatic recognition, improving respect for its participation in international organizations, or enhancing the accessibility of its diplomats to foreign countries.

International economic assistance can also be used to increase a country's exports and spread its cultural and native goods. Countries commonly send relief to alleviate the suffering caused by man-made or natural disasters such as drought, illness, and war.

It contributes to long-term prosperity, establishing or strengthening political institutions, and resolving a wide range of global challenges such as cancer, terrorism, and other offenses, as well as ecological damage.

Governments may engage in treaties with the countries to whom they transfer help. For example, we can take a look at the Marshall Plan.

The  Marshall Plan  was an American program implemented in 1948 to offer international aid to Western Europe. 

Following the conclusion of WWII, the United States of America transferred approximately $13 billion in economic recovery projects to Western European economies, and ever since, the United States of America and the Western European countries have had good and peaceful relations. 

Foreign assistance is primarily provided in the following ways:

• Money:  One of the best ways to provide aid as it allows the receiving country to make more fluid decisions on how to overcome their problem with their methods and control—for example, the famous $18 billion  bailout  by the IMF to Ukraine.
• Food and Supplies:  There are situations when a country is not economically weak, but there is a high shortage of certain essential food commodities or products. For example, the  wheat shortage in India (1991 Indian Economic Crisis)  and the United States provided India with wheat on loan. 
• Health care & medical assistance:  Frequently, in war zones, that country's medical and healthcare facilities are destroyed. Therefore international organizations such as the World Health Organisation (WHO) and the United Nations Refugee Agency (UNHCR) provide such nations with healthcare aid, medicines, trained doctors, etc. For example, UNHCR provided  Syrian refugees  with $65 million worth of healthcare and medical resources in 2019 due to the rising prices of medical supplies.
• Humanitarian & Infrastructure aid:  When a country goes through a natural disaster, it requires relief workers and assistance in rebuilding its infrastructure. For example, in the 2018  Kerala floods  (India), the United Arab Emirates attempted to help India by providing relief workers and resources for rebuilding the infrastructure worth $98 million.
• Education:  This encompasses building education systems for below-poverty-line countries so that the government can fare well economically and democratically. For example, the World Bank has provided loans worth $150 million to Chad so that they can improve their education facilities and standards.

Types of Foreign Aid 

Foreign aid is of various types. They can be classified as tied, bilateral, multilateral, military, and project aid. These types of foreign aid are discussed below.

This is a type of international aid in which the recipient country or a group of nations must invest. For example, a developed nation can make a bilateral credit grant to a developing country, but the money must be used on goods and services produced in that country.

For example, China follows this method of economic assistance. They invest in building ports and airports in many countries, and as a result, Chinese corporations own over a hundred ports and airports in 63 countries worldwide.

Bilateral Aid

This means that money is given directly from the government of one nation to the government of another. 

Currency devaluation occurs when money moves from a developed country to an emerging economy . Strategic, political, and humanitarian factors drive bilateral aid. This is implemented to foster democratic freedom, financial prosperity, tranquility & project long-term stability. 

For example, in 2022, during Pakistan's major political and economic crisis , the government of the Kingdom of Saudi Arabia directly gave the Pakistan government an $8 billion bilateral loan.  

Multilateral Aid

Governments of different countries collectively contribute multilateral aid to international organizations such as the United Nations, World Bank, and International Monetary Fund . These organizations work to alleviate poverty in developing countries. 

For example, the World Bank provides an $8 billion education and training facilities package to over 35 countries below the poverty line.

Military Aid

Military assistance is an aid used to help a country or its people defend themselves or to assist a developing country in maintaining sovereignty over its territory. 

Many countries receive military support to aid in counterinsurgency battles. For example, military aid can be given to a revolt to help it fight another government.

For example, During the Second World War, the United States of America provided the allied power countries with over $50 billion in military resources, weapons, and troops.

Project Aid

Project aid is an aid for building a specific humanitarian project, such as hospitals, schools, old age homes, Special Needs centers, etc.

For example, The UAE government built and opened up two hospitals in Somaliland. This hospital has all those facilities available in a fully equipped hospital, which runs on the Dubai Care donation fund.

Foreign Aid in Developmental Economics

There are two main schools of thought on how effective External International Economic Assistance is.

The First School of Thought

This group feels that state aid is useless and has hurt developing nations over time.

According to this viewpoint, official aid fosters reliance, corruption, and currency overvaluation. It also prohibits countries from taking advantage of global economic possibilities.

Example:  China is one of the greatest single creditor nations in the world. Over the last decade, its loans to low- and middle-income nations have increased by three times, reaching $170 billion by the end of FY 2020.

According to  AidData , China does not reveal half of its financing to developing nations in government debt data. It is frequently allocated to state-owned corporations and banks, joint ventures, or private organizations rather than going directly from the government to the government.

The Chinese government, through its corporations, has lent money to over 40 lower or middle-income countries valued at more than 10% of their GDP , making them fall into a Debt trap.

In the case of Sri Lanka, they acquired more loans from China so that they could pay back its interest. That's one of the reasons why Sri Lanka is going through a major economic crisis.

The Second School of Thought

This group believes that International Economic assistance levels have positively impacted modern geopolitics and that significant increases in such assistance would help eliminate poverty.

For example, the United Nations Children's Fund (UNICEF) has invested in building schools and education centers for young children in middle to low-income countries, which has shown a direct increase in the Per Capita Income ( PCI ) of the North African countries.

Foreign Aid in Economics and Politics

Economists are looking into whether aid is helpful in terms of boosting GDP and improving economic results. 

Most of these investigations have attempted to address questions of confounding variables, employing a variety of tools – some more persuasive than others – to address the possibility that slower growth will draw more help.

Many of these researches have looked at nonlinear functional forms and looked at whether there are any relevant connections between assistance and other factors, including literacy, corruption, stable macroeconomic situation, institutional strength, overall strong economic policies, and geography.

Most research has relied on all terrain or cross-sectional data and sought to differentiate between short- and long-term effects. 

Several writers have utilized ' Dutch disease ' related models to examine how much extra aid causes currency overvaluation, poor export performance, and crises.

What is the Dutch Disease Model?

The term "Dutch disease" refers to an economic trend in which strong growth in one area of the economy causes a deterioration in other sectors. It is also frequently accompanied by a strong increase in the value of the native currency.

Economists believe that International aid can be supplied as a diplomatic gesture or to reinforce a military alliance.

Various motives for providing foreign aid include:

• Rewarding a government for desirable conduct.
• Extending the donor's cultural influence.
• Providing the infrastructure required by the donor for resource exploitation from the recipient nation.
• Gaining other types of economic access.

International assistance aids in the formation of treaties that lead to long-term mutual obligations that promote peaceful cohabitation between governments of developed nations and governments of middle-income and low-income countries.

Measuring the Effectiveness of Foreign Aid

There is a QuODA Index that measures how effective it is as International Aid and what its utility is.

What is the QuODA Index? The quality of Official Development Assistance Index is a system for ranking 31 donors, 23 nations, and eight multilateral – on four criteria ;

• Maximizing efficiency:  Donors may increase the effectiveness of their assistance expenditure, or the "better value for money," by making wise decisions about how to divide their funds across various nations and industry sectors and by supporting international public goods .
• Fostering institutions:  Several institutional processes have been developed for managing development partners' conflicting interests with partner nations, but the preferred course of action is to utilize the systems of partner countries. To address the needs and interests of donors, enhance these institutions.
• Reduction of burden:  The high expenditures that various donor organizations, each with its agendas and reporting requirements, impose on their partner nations have long been a source of complaint. They have promoted a plan for resource cooperation among donors
• Transparency and learning:  As an important step toward greater accountability toward one another, partner nations, and their own populations, donors should pledge to be more open. Additionally, transparency serves as a tool for donor coordination and may be utilized to learn from past mistakes and enhance the efficacy of help.

What do the 4 Components of calculating the QuODA Index mean? The four aspects of this study have very little association with each other.

As assistance quality is multifaceted, QuODA does not attempt to create a single factor Index but instead gives data on each of the four components.

This is because the goal is to bring about change, which is dependent on particular QuODA aspects.

"How are donors performing on their pledges to improve assistance quality?" is an issue addressed by QuODA. QuODA does not examine the effectiveness of aid; that is determined by the joint efforts of donors and partner nations.

Instead, it reviews donors' attempts to keep their promises on the aspects of assistance quality that data and experience show contribute to successful help. We focus solely on elements under donor agencies' control with QuODA. 

Advantages of foreign aid

A few of the advantages of foreign aid are:

• In times of crisis, emergency assistance saves lives.
• Aid helps rebuild livelihoods and housing after a disaster. 
• Medical education, medications, and equipment may all aid in improving one's health and living situation.
• Agriculture aid may assist in increasing food production, and so improving the quality and amount of food supplied.
• Encouragement of assisted industrial growth can lead to the creation of employment and the improvement of transportation infrastructure.
• International Aid may help countries enhance their natural resources and energy infrastructure.
• Clean water and sanitation projects may enhance people's health and living conditions.

Disadvantages of foreign aid

Apart from the mentioned advantages, a few of the disadvantages are:

• Assistance may enhance reliance on donor nations. 
• Aid is sometimes a debt, not a gift, and impoverished nations may struggle to return it.
• It might be a requirement of the investment that foreign firms manage the projects or that a percentage of the resources or earnings are remitted outside.
• Projects do not always assist smaller farms, and they are frequently large-scale.
• Employers may gain more from infrastructure upgrades than employees.
• Assistance can be used to exert political or economic pressure on recipients. 
• Assistance might not target those who require it the most. 
• Due to corruption, local officials may use aid for personal or political benefit.
• Certain infrastructure initiatives might increase the cost of food and water.

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Foreign Aid

The voluntary movement of capital from one country to another

What is Foreign Aid?

Foreign aid refers to the international movement of money, services, or goods from governments or international institutions for the benefit of the receiving country or its citizens. Foreign aid can be fiscal, military, or humanitarian and is considered one of the significant sources of foreign exchange.

Foreign aid is the voluntary movement of money or other resources from one nation to another. The transactions are mostly from developed countries to developing countries. A developing nation typically lacks a strong manufacturing base and is distinguished by a low value of the Human Development Index (HDI) . Foreign aid may be offered as a contribution or a loan, which can either be a hard or soft loan. If the loan is in a foreign currency, it is termed as a hard loan.

• Foreign aid is the voluntary movement of resources from one country to another.
• Foreign aid may require the transfer of professional advice and training, commodities, or financial resources.
• The assistance can be used to advance the political aims of a government, allowing it to obtain diplomatic recognition.

Purpose of Foreign Aid

Foreign aid may require the transfer of professional advice and training, or commodities or financial resources. Financial resources can occur in the form of concessional loans or grants, such as export credits. Official Development Assistance (ODA) is the most common form of foreign aid, which is the help provided to support development and to fight poverty. The main source of ODA is the bilateral grants from one country to another, while some of the funding is in the form of loans, and often it is channeled by non-governmental organizations and foreign organizations.

Countries also offer foreign aid in order to improve their own security. Economic aid may also be used to discourage friendly countries from coming under the control of unfriendly governments or paying for the right to set up or use military bases on foreign soil.

Foreign aid can be used to accomplish the political aims of a government, allowing it to obtain diplomatic recognition, to gain respect for its role in international institutions, or to improve the accessibility of its diplomats to foreign countries.

Foreign aid also seeks to promote the exports of a country and spread its literature, culture, or religion. Countries often provide aid to relieve the distress caused by man-made or natural disasters like drought, illness, and conflict. It helps to promote sustainable prosperity, create or reinforce political institutions, and address a range of worldwide concerns, including cancer, terrorism, and other violations, and environmental degradation.

Types of Foreign Aid

1. tied aid.

Tied aid is a type of foreign aid that must be invested in a country that is providing support or in a group of chosen countries. A developed country can offer a bilateral loan or grant to a developing nation but will be required by the government to invest the money on goods and services produced in that country.

2. Bilateral Aid

Bilateral aid is given directly by one country’s government to that of another country’s government. It occurs when money flows from a country with a developed economy to a country with a developing economy. Bilateral aid is directed by strategic, political, and humanitarian interests. This is meant to further foster democracy, economic growth, peace, and sustainability of long-term programs.

3. Multilateral Aid

Multilateral aid is the support offered by several countries that share funds to foreign organizations such as the United Nations, the World Bank, and the International Monetary Fund (IMF) . The funds are used to relieve hunger in developing nations. While the sector represents a minority of financial aid of the U.S., the donations provided by the country make up a large proportion of the donor funds obtained by the organizations.

4. Military Aid

Military aid typically allows the recipient country either to procure weapons or security contracts directly from the U.S. In other situations, it actually simplifies the mechanism by enabling the federal government to buy weapons on its own and ship them to military transport.

5. Project Aid

The assistance is known to be project aid when the funds are used to support a certain project, such as a hospital or school.

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What Is Foreign Aid?

Understanding foreign aid, special considerations, history of foreign aid, the bottom line.

• Government & Policy

What Is Foreign Aid? Forms of Aid, Statistics, and Examples

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The term foreign aid refers to any type of assistance that one country voluntarily transfers to another, which can take the form of a gift, grant , or loan. Most people tend to think of foreign aid as capital , but it can also be food, supplies, and services such as humanitarian aid and military assistance.

Broader definitions of aid include any assistance transferred across borders by religious organizations, non-governmental organizations (NGOs), and foundations. U.S. foreign aid usually refers to military and economic assistance provided by the federal government provides to other countries.

Key Takeaways

• Foreign aid is any type of assistance that one country voluntarily transfers to another.
• Countries may provide aid through capital, food, supplies, and services such as humanitarian aid and military assistance.
• Developed nations may provide developing nations with foreign aid after a natural disaster, times of conflict, or during an economic crisis.
• The United Nations requires advanced countries to spend at least 0.7% of their gross national income on international aid.
• The United States is the most generous, according to the Organisation for Economic Co-operation and Development.

Foreign aid is any type of assistance that one country's government provides to another nation, usually from developed to developing nations. Governments may issue aid in the following forms:

• Food and supplies
• Medical assistance including doctors and supplies
• Humanitarian aid such as relief workers
• Training services including agricultural training
• Health care
• Assistance with infrastructure building
• Activities related to peacebuilding

Governments may make agreements with the countries to which they provide assistance. For instance, a developed nation may agree to provide grants to those in need after a natural disaster or during times of conflict, whether they provide any type of capital or humanitarian aid. Alternatively, a government may agree to issue loans to an allied nation that experiences economic uncertainty with special repayment provisions.

Concerned about where foreign aid goes? Only a small portion of American assistance goes to federal governments, while the rest is assigned to non-profits, NGOs, and other organizations.

According to the Organisation for Economic Co-operation and Development (OECD)—an intergovernmental organisation with 38 member countries aimed at promoting sustainable economic growth—member countries contributed a record $223.7 billion in international aid in 2023.

The United States is the most generous, according to the OECD, providing $66.04 billion in foreign aid in 2023. The remaining countries that were among the top five donors included:

• Germany: $36.68 billion 
• Japan: $19.6 billion
• United Kingdom: $19.11 billion
• France: $15.43 billion

The United Nations (UN) calls for economically advanced countries to spend at least 0.7% of their gross national income (GNI) on international aid. Norway, Luxembourg, Sweden, Germany, and Denmark are the only countries that met or exceeded this level. The total contribution of member countries, though, averaged 0.37%—much lower than the UN target.

The countries that received the most foreign aid from the U.S. for 2023 include Ukraine, Israel, Ethiopia, Jordan, and Egypt.

Foreign aid estimates tend to vary, given the different agencies, funding methods, and aid categories associated with U.S. foreign assistance efforts. For instance, the Congressional Research Service (CRS)—a nonpartisan arm of Congress—the country spent $69.01 billion in foreign assistance during the 2023 fiscal year. That figure amounted to 1% to 1.5% of the total federal budget authority.

Aid can be provided by governments directly or through special federal agencies. For instance, the  United States Agency for International Development (USAID) was created in 1961 to provide civilian aid. It provides assistance with education, environment, climate change, global health, crises and conflicts, food and agriculture, water, and human rights.

Foreign aid—also commonly referred to as international aid and economic aid—isn't a new concept. The colonies were recipients of foreign military aid, particularly from France, during the American Revolution . During World War I, the U.S. government loaned the Committee for Relief in Belgium $387 million, much of which it later forgave.

U.S. foreign aid began in earnest during World War II. Before entering the war, the government began funneling funds and materials to the allied nations under the Lend-Lease program, which totaled $50.1 billion by August 1945. The United States also contributed $2.7 billion through the United Nations Relief and Rehabilitation Administration (UNRRA), beginning in late 1943.

For the four years following 1948, the U.S. gave $13 billion in aid to countries affected by the war such as the United Kingdom, France, and West Germany through the Marshall Plan . The Mutual Security Act of 1951 authorized around $7.5 billion in foreign aid per year until 1961. The amount of aid authorized by the Mutual Security Act in 1951 was approximately 2.2% of the country's gross domestic product (GDP).

What Country Gives the Most Foreign Aid?

As mentioned above, the United States was the world's top donors of government aid in 2023. However, as a percentage of national income, Norway was the highest donor, contributing 1.09% of its GNI to foreign aid in 2023.

What Are Different Forms of Foreign Aid?

Per the OECD, foreign can take two primary forms. Bilateral aid is financial support that flows from one government to another. Multilateral aid is more complex, and it involves contributions from multiple government sources to multilateral organizations, such as agencies of the United Nations, which then use the funding to develop aid programming and projects.

Is Foreign Aid an Ethical Issue?

Foreign aid can sometimes be a controversial topic, and has drawn opposition from a range of critics. Proponents of foreign aid argue that it helps nations develop, and that it can pursue humanitarian ends, such as relieving poverty or improving public health. However, some have raised issues related to the disbursement of foreign aid, arguing that it can be costly for donor nations, that it's difficult to oversee, and that it risks fostering dependence over agency.

Foreign aid refers to any resource that one country transfers to another. Aid can take the form of money, military assistance, or humanitarian resources, such as food, medicine, and shelter. Foreign aid can be distributed directly from one government to another, or it may be multilateral, channeled through organizations such as the United Nations.

OECD. " Official Development Assistance (ODA): International Aid Rises in 2023 with Increased Support to Ukraine and Humanitarian Needs. "

Concern Worldwide U.S. " Foreign Aid by Country ."

Congressional Research Service. " Foreign Assistance: An Introduction to U.S. Programs and Policy. "

USAID. " What We Do ." Accessed Nov. 2, 2020.

OECD. " Frequently Asked Questions: Official Development Assistance. "

Development Aid. " Pros and Cons of Humanitarian Aid. "

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Bell Ringer: Foreign Aid

Foreign aid and usaid.

Senator David Perdue discussed the reasons for foreign and USAID while speaking about budgetary impacts of providing foreign aid.

Description

Senator David Perdue discussed the reasons for foreign aid and USAID while speaking about budgetary impacts of providing foreign aid to other countries.

Bell Ringer Assignment

• What Senate committee oversees foreign aid and USAID?
• What is meant by "foreign aid?"
• Explain the needs around the world that Senator Perdue mentions?
• What are the three concerns that Senator Perdue mentions?
• Where does the funding for U.S. foreign aid come from? What is the issue with this?

Additional Resources

• Lesson Plan: The Future of US Foreign Policy
• Lesson Plan: President Trump Administration and Policy Positions
• Bell Ringer: U.S. Foreign Policy and Interventionism vs. Isolationism

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• Introduction

Types and purposes

foreign aid

foreign aid , the international transfer of capital , goods, or services from a country or international organization for the benefit of the recipient country or its population. Aid can be economic, military, or emergency humanitarian (e.g., aid given following natural disasters).

Foreign aid can involve a transfer of financial resources or commodities (e.g., food or military equipment) or technical advice and training. The resources can take the form of grants or concessional credits (e.g., export credits). The most common type of foreign aid is official development assistance (ODA), which is assistance given to promote development and to combat poverty. The primary source of ODA—which for some countries represents only a small portion of their assistance—is bilateral grants from one country to another, though some of the aid is in the form of loans, and sometimes the aid is channeled through international organizations and nongovernmental organizations (NGOs). For example, the International Monetary Fund (IMF), the World Bank , and the United Nations Children’s Fund (UNICEF) have provided significant amounts of aid to countries and to NGOs involved in assistance activities.

Countries often provide foreign aid to enhance their own security. Thus, economic assistance may be used to prevent friendly governments from falling under the influence of unfriendly ones or as payment for the right to establish or use military bases on foreign soil. Foreign aid also may be used to achieve a country’s diplomatic goals, enabling it to gain diplomatic recognition , to garner support for its positions in international organizations, or to increase its diplomats’ access to foreign officials. Other purposes of foreign aid include promoting a country’s exports (e.g., through programs that require the recipient country to use the aid to purchase the donor country’s agricultural products or manufactured goods) and spreading its language, culture, or religion. Countries also provide aid to relieve suffering caused by natural or man-made disasters such as famine, disease, and war , to promote economic development, to help establish or strengthen political institutions, and to address a variety of transnational problems including disease, terrorism and other crimes, and destruction of the environment. Because most foreign aid programs are designed to serve several of these purposes simultaneously, it is difficult to identify any one of them as most important.

The earliest form of foreign aid was military assistance designed to help warring parties that were in some way considered strategically important. Its use in the modern era began in the 18th century, when Prussia subsidized some of its allies. European powers in the 19th and 20th centuries provided large amounts of money to their colonies, typically to improve infrastructure with the ultimate goal of increasing the colony’s economic output. The structure and scope of foreign aid today can be traced to two major developments following World War II : (1) the implementation of the Marshall Plan , a U.S. -sponsored package to rehabilitate the economies of 17 western and southern European countries, and (2) the founding of significant international organizations, including the United Nations , IMF, and World Bank. These international organizations have played a major role in allocating international funds, determining the qualifications for the receipt of aid, and assessing the impact of foreign aid. Contemporary foreign aid is distinguished not only because it is sometimes humanitarian (with little or no self-interest by the donor country) but also by its size, amounting to trillions of dollars since the end of World War II, by the large number of governments providing it, and by the transparent nature of the transfers.

The level of foreign aid expenditures following World War II dwarfed prewar assistance. The postwar programs of the United Kingdom, France , and other European former colonial powers grew out of the assistance they had provided to their colonial possessions. More importantly, however, the United States and Soviet Union and their allies during the Cold War used foreign aid as a diplomatic tool to foster political alliances and strategic advantages; it was withheld to punish states that seemed too close to the other side. In addition to the Marshall Plan, in 1947 the United States provided assistance to Greece and Turkey to help those countries resist the spread of communism , and, following the death of Soviet leader Joseph Stalin in 1953, communist-bloc countries donated increasing amounts of foreign aid to less-developed countries and to close allies as a means of gaining influence as well as promoting economic development.

Several non-European governments also implemented their own aid programs after World War II. For example, Japan developed an extensive foreign aid program—an outgrowth of its reparations payments made following the war—that provided assistance primarily to Asian countries. Much of Japan’s aid came through procurement from Japanese companies, which helped fuel economic development in Japan. By the late 20th century, Japan had become one of the world’s two leading donor countries, and its aid programs had extended to non-Asian countries, though much of the country’s assistance was still directed toward Asia.

The vast majority of ODA comes from the countries of the Organisation for Economic Co-operation and Development (OECD), specifically the nearly two dozen countries that make up the OECD’s Development Assistance Committee (DAC). The DAC includes western European countries, the United States, Canada , Japan, Australia , and New Zealand . Other providers of significant assistance include Brazil, China, Iceland, India, Kuwait, Poland, Qatar, Saudi Arabia , South Korea , Taiwan, Turkey, and the United Arab Emirates . In the 1970s the international community, through the United Nations, set 0.7 percent of a country’s gross national income (GNI) as the benchmark for foreign aid. However, only a small number of countries (Denmark, Luxembourg , the Netherlands, Norway , and Sweden) reached that mark. Although the United States and Japan have been the world’s two largest donors, their levels of foreign aid have fallen significantly short of the UN’s goal.

Since the end of the Cold War , the United States has furnished foreign aid as part of peacemaking or peacekeeping initiatives in the Balkans, Northern Ireland , and parts of Africa. Foreign aid also has been used to promote smooth transitions to democracy and capitalism in former communist countries, most notably Russia.

Foreign assistance is still used to promote economic development. Although significant development occurred in much of Asia and Latin America during the second half of the 20th century, many countries in Africa remained severely underdeveloped despite receiving relatively large amounts of foreign aid for long periods. Beginning in the late 20th century, humanitarian assistance to African countries was provided in increasing amounts to alleviate suffering from natural disasters, the HIV/ AIDS epidemic, and destructive civil wars. Major initiatives to combat HIV/AIDS focused on the hardest-hit countries, most of which are in sub-Saharan Africa.

Foreign aid has been used, particularly in poorer countries, to fund or to monitor elections, to facilitate judicial reforms, and to assist the activities of human rights organizations and labour groups. In the post-Cold War era, when funding anticommunist governments became a less important criteria for the United States and its allies, promoting democracy was elevated as a criterion in foreign aid programs. Aid was provided to some countries as an incentive for initiating democratic reforms and was withheld from others as a punishment for resisting such reforms.

Foreign aid is also used to address transnational problems such as the production and export of illegal drugs and the battle against HIV/AIDS. For example, the International Narcotics Control program allocates U.S. funds to countries to battle drug production, and the Anti-Drug Abuse Acts of 1986 and 1988 make foreign aid and access to U.S. markets conditional upon recipient countries’ actively combatting drug production and trafficking.

Since the 1990s many foreign aid sources, notably the IMF, have made aid conditional on market-oriented economic reforms, such as lowering trade barriers and privatization . Thus, foreign aid has been used as a tool by some institutions and countries to encourage the spread of capitalism.

In the last decade of the 20th century, private capital flows and remittances from migrant workers became the two largest sources of “aid” from wealthy countries to poor ones, surpassing the amount of ODA provided by those countries. However, this form of aid is heavily stratified; most direct foreign investment has gone to developing countries pursuing policies of trade and economic liberalization and those with large markets (e.g., Brazil, China, and India).

By the early 21st century, China had become a major provider of foreign aid, especially in Africa. Notably, beginning in 2013, China offered infrastructure loans to a large number of countries in East Asia , Africa, and South America as part of its massive Belt and Road Initiative .

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USAID Re-Establishes Advisory Committee On Voluntary Foreign Aid With Leading Global Experts

For Immediate Release

Office of Press Relations [email protected]

Press Release

Today, the U.S. Agency for International Development (USAID) re-established its external advisory committee, the  Advisory Committee on Voluntary Foreign Aid (ACVFA) . The Committee’s new membership is comprised of internationally recognized leaders representing a broad range of sectors who will support the Agency’s mission and goals by advising on key development challenges and priorities. The Committee will be chaired by Nisha Biswal, Senior Vice President for International Strategy and Global Initiatives at the U.S. Chamber of Commerce.

ACVFA, which was first established in the aftermath of World War II, has existed longer than USAID itself and has played an important role in shaping the United States’ approach to international development. Over many decades, the committee has evolved to play a key role in fostering cooperation between the U.S. government and a range of nongovernmental organizations, and it has provided a platform for civil society to engage with USAID and help inform its approach to U.S. foreign assistance. 

The distinguished membership of the re-established ACVFA is among the most diverse in the committee’s history, with representation from a wide range of professional backgrounds, expertise, and identities. The demonstrated leadership of the committee’s members will support USAID’s vision for inclusive and local development, as well as responding to critical development challenges including the global food crisis, climate change, democratic backsliding and corruption. 

ACVFA’s membership includes leading experts representing nongovernmental organizations, private sector, academia, civil society, and more. The newly appointed Committee members are:

• Adriana Beltrán , Executive Director, Seattle International Foundation
• Asma Lateef , Policy and Advocacy Lead for Agriculture, SDG2 Advocacy Hub
• C.D. Glin , Global Head of Philanthropy, PepsiCo Inc. and Vice President, PepsiCo Foundation
• Dan Twining , President, International Republican Institute
• Derek Mitchell , President, National Democratic Institute
• Eileen Donahoe , Executive Director, Global Digital Policy Incubator, Stanford University
• Eka Tkeshelashvili , Director, Support to Anti-Corruption Champion Institutions (SACCI), MSI a Tetra Tech Company
•   Enock Chikava , Interim Director, Agricultural Development, Bill & Melinda Gates Foundation
• Hibak Kalfan , Executive Director, NEAR Network
• Levon Esters , Professor and Associate Dean for Diversity, Equity & Inclusion and Faculty Affairs, Purdue Polytechnic Institute
• Hindou Oumarou Ibrahim , President, Association for Indigenous Women and Peoples of Chad (AFPAT)
• Jeremy Weinstein , Professor of Political Science, Fisher Family Director of Stanford Global Studies, Stanford University
• Johan Swinnen , Global Director of Systems Transformation at CGIAR, and Director General of the International Food Policy Research Institute (IFPRI)
• Julie Dorf , Co-Chair, Council for Global Equality
• Katherine Marshall , Professor of the Practice of Development, Conflict, and Religion in the Walsh School of Foreign Service, Georgetown University
• Kennedy Odede , CEO, Shining Hope for Communities 
• Kristin Lord , President and CEO, IREX
• Liz Schrayer , President and CEO, US Global Leadership Coalition
• Manuel Pulgar-Vidal , Global Leader of Climate and Energy, World Wildlife Fund
• Nadia Murad , Founder and Chairwoman, Nadia’s Initiative
• Nisha Biswal , Senior Vice President, International Strategy and Global Initiatives, U.S. Chamber of Commerce
• Olga Wall , CEO, Avallon Consulting LLC
• Paul Weisenfield , Executive Vice President for International Development, RTI International
• Rachel Kyte , Dean, Fletcher School at Tufts University
• Saad Mohseni , Chairman and CEO, MOBY Group
• Sanjay Pradhan , CEO, Open Government Partnerships
• Sara Menker , Founder and CEO, Gro Intelligence
• Teresa Barger , Co-Founder and CEO, Cartica

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Foreign Aid

Published on :

21 Aug, 2024

Blog Author :

Edited by :

Ashish Kumar Srivastav

Reviewed by :

Dheeraj Vaidya

Foreign Aid Definition

Foreign aid or international aid refers to the voluntary transfer of resources like money, goods like food, drugs, weapons, or technical services, and training from a developed country to a developing one in the form of a loan. Governments or international or non-governmental organizations provide it to address issues like terrorism, environmental degradation, pandemics, etc.

Different types of foreign aid assist countries with poor humanitarian and economic conditions or those suffering from natural disasters or war. Other objectives of international loans may include healthcare and infrastructure development and diplomatic relations. OECD’s Official Development Assistance (ODA) is one such assistance that supports the development of societies and reduction of poverty.

Table of contents

How does foreign aid work.

• History Of Foreign Aid 

#1 - Bilateral Aid

#2 - multilateral aid, #3 - military aid, #4 - voluntary aid, #5 - humanitarian aid, #6 - tied aid, # 7 - project aid, foreign aid donor country, foreign aid receiver countries, frequently asked questions (faqs), recommended articles.

• Foreign aid is the process of transferring resources such as money, items such as food, pharmaceuticals, weapons, or technical services, and training from a wealthy nation to a developing country in the form of a loan or grant.
• Foreign aid has several purposes, such as maintaining diplomatic relations, providing healthcare, improving infrastructure, and combating poverty. However, it is criticized for raising inflation and interfering in local politics.
• Bilateral, multilateral, tied, military, project, and voluntary are all common types of foreign aid.
• According to the OECD, the United States, Germany, the United Kingdom, Japan, and France, were the top foreign aid donors in 2020.

Foreign aid, in most cases, involves the transfer of funds or resources from a wealthy country to a poor state. It differs from commerce in that the resource transfer is accomplished by giving or lending something rather than trade. Also, it is driven by international politics or humanitarian concerns.

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The main foreign aid benefits are reducing hunger and poverty in developing nations, assisting economies to recover from crises, and establishing diplomatic connections with countries. It may also aid in the promotion of a country's culture and languages and boost its exports.

Critics often criticize foreign aid for interfering in the politics of another country. Aid recipients become more politically reliant on the countries that provide it, leading to shifts in foreign policies and international politics. Another problem is that it may increase inflation by injecting money if the economy is not productive. There is also the issue of corrupt governments and bodies interfering with the proper flow of aid. In other words, the donor and receiver nations must ensure that the help reaches the right and deserving people.

History Of Foreign Aid 

Foreign aid is vital for establishing and fostering international relations. The earliest known foreign aids were mainly as military assistance offered to the allies in times of war. These aids were to promote infrastructure development in colonies.

The practice gained traction after the United States introduced the Marshall Plan, which helped European economies recover post-World War II. However, despite being popularly linked to the U.S. and its foreign policies, foreign assistance first appeared before the Marshall Plan. Several countries have been using forms of it throughout history, including aids offered by England and France to Portugal soon before the Seven Years’ War, for instance.

Organizations such as the United Nations (UN), the World Bank, and the International Monetary Fund (IMF) expanded their scope by assisting countries in financing projects or resolving economic issues. These international groups are responsible for allocating foreign grants or loans, determining who qualifies for aid and assessing the impact of the assistance. IMF also uses foreign aid to promote economic reforms and lower trade barriers between countries.

Types Of Foreign Aid

Foreign aid can take several forms and originate from various sources. It can come as food, human resources, or even weapons, but with/from agreements. The following are the most popular forms of international aid agreements:

It is the most common type of international aid, often provided by a developed country to an underdeveloped one through a bilateral agreement. One side determines the conditions for granting the money, while the other agrees with them. Bilateral grants are the primary sources of ODA. The two main reasons for this kind of agreement are geopolitical (and hence, strategic) and to assist during a humanitarian crisis such as an earthquake, tsunami, or other natural disasters.

It includes funds raised by a group of countries via an international organization to assist developing nations. Most of the time, the capital is used to aid the world’s poorest countries, alleviate hunger, and improve humanitarian conditions. One of the most influential organizations engaged in multilateral aid is the World Bank.

Military aid, unlike bilateral and multilateral, is not about charity. It is all about selling and buying weapons and signing defense contracts. Countries amid a crisis frequently seek international assistance in obtaining weaponry to combat their adversaries. The United States is the most well-known provider of military aid. It accounts for roughly 30% of overall US foreign aid . However, countries like Russia are also known for it.

Voluntary aid is a charity mainly carried out by non-governmental organizations (NGOs) and is not necessarily linked to governments. The well-known 'Doctors Without Borders' project, for example, sends doctors to countries with poor health conditions to better the lives of the residents.

It is often given to countries struck by a natural disaster. It is a more short-term aid and involves several nations, NGOs, or private entities donating resources and services during a crisis.

One recent example is the  rebuilding of the Notre Dame cathedral in France. After the fire, the French government received money from entities worldwide to help rebuild the famous cultural symbol.

Another example is the U.S. government foreign aid spending over $1.5 billion on emergency health and humanitarian needs in other nations during the COVID-19 outbreak.

It works similarly to bilateral aid. However, the contract states that the entire loan amount must be spent on a specified country. Most of the time, it is either the donor country or its group of allies.

This type of aid is known as a form of protectionism. The government of the developed country donates the capital to another. But the recipient can only spend it on improving the economy of the donor.

It intends to assist with specific projects. A country may, for example, assist another in the construction of a school or a hospital in a region. In this scenario, the funds help support the project. The funding may or may not originate from a single source.

Member countries of the DAC (Development Assistance Committee) of the Organization for Economic Cooperation and Development (OECD) significantly contribute to ODA. The OECD has set the benchmark for foreign aid by country at 0.7% of its gross national income (GNI).

The countries that give the most foreign aid are among the wealthiest nations in the world. According to a note from OECD, the top countries that donated money in 2020 are the United States, Germany, the United Kingdom, Japan, and France.

Other countries that stand out in the OECD’s report are Luxembourg, Denmark, Norway, Turkey, and the United Kingdom. Despite not donating such large amounts of money, they spent a fair share of their GNI on foreign aids.

While developed countries usually give the most foreign aid, countries suffering from humanitarian crises or poverty receive it the most. According to the  report from Statista, Syria received the most foreign funds in 2019, followed by Yemen, Sudan, and Somalia. The Regional Response Plan and the Humanitarian Response Plan are two different measures to assess humanitarian aid in the report, the combined value of which is as follows:

Foreign aid is the process of sending resources from an affluent nation to a developing country, such as money, food, medications, weaponry, or technical services and training in the form of a loan or gift. Governments or international or non-governmental organizations provide bilateral, multilateral, military, tied, project, or voluntary aids to address various regional and global issues.

Foreign aid intends to help countries in need of humanitarian and economic assistance and those affected by natural catastrophes or war. Healthcare services, infrastructural development, prevention of hunger and poverty, and diplomatic relations are some of the other goals of international aid. It may also help promote a country's culture and languages and increase exports.

In most circumstances, foreign aid entails the transfer of finances or resources from a wealthy nation or entity to a developing country. Its goals could be to provide development assistance, reduce hunger and alleviate poverty in developing countries, assist economies in recovering from crises, forge diplomatic ties with governments, and increase exports. Critics, however, chastise it for rising inflation, meddling in local politics, and leading to corruption.

This has been a guide to Foreign Aid and its definition. Here we discuss how does it work along with types, donor and receiving countries, and history. You can learn more from the following articles –

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What is foreign aid and does it work?

Foreign aid is assistance given out by donors such as governments or NGOs for several reasons, ranging from moral or altruistic interests to political or economic ones. However, once the aid is distributed, there is no tracking mechanism for this aid. For this reason, some experts question the effectiveness of foreign aid. Others argue it is crucial in order to solve the poverty trap.

Professor’s bio

Waya Quiviger has worked for the World Economic Forum in Geneva as Manager of the Global Leaders for Tomorrow (GLTs), a community of outstanding young leaders, many of them social entrepreneurs. She has also consulted for the Women’s Forum and the Club de Madrid.

She currently teaches Global Governance & International Organizations and Aid, Development and Social Entrepreneurship in the Bachelor in International Relations and in the Master in International Relations. From 2009 to 2018, she was the Executive Director of the Master in International Relations.

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Impact of Regime Type on the Influence of U.S. Foreign Aid

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Brian Lai, Daniel S. Morey, Impact of Regime Type on the Influence of U.S. Foreign Aid, Foreign Policy Analysis , Volume 2, Issue 4, October 2006, Pages 385–404, https://doi.org/10.1111/j.1743-8594.2006.00037.x

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Past studies of U.S. foreign aid and UN voting have not taken into account the different incentives of leaders based on regime type. Democratic and nondemocratic leaders use different means to remain in power, conditioning their response to foreign aid. Nondemocratic leaders can use foreign aid to provide private goods to elites ensuring continued support or to improve their coercive capabilities to maintain power. Democratic leaders can use neither of these tools, as their tenure requires mass support. This means nondemocracies are more likely than democracies to change their voting behavior in the UN to match donor preferences. Controlling for the influence of regime type allows us to test for when foreign aid is an effective tool of state policy. We find that nondemocratic state leaders respond to increased foreign aid by voting with the U.S. in the UN, whereas democratic leaders are nonresponsive to foreign aid.

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The White House 1600 Pennsylvania Ave NW Washington, DC 20500

Report on the U.S. Strategy for Addressing the Root causes of Migration in Central   America

Vice President Harris launched the Root Causes Strategy on July 29, 2021, to align U.S. Government efforts to address the economic, governance, and security drivers of irregular migration from Central America.  Tackling the persistent challenges that drive irregular migration requires sustained political will and cooperation across a broad range of stakeholders to foster long-term development in the region.  The Vice President has led progress on the Administration’s Strategy, including by traveling to Guatemala , Mexico , and Honduras to launch new initiatives that sustainably address the root causes of migration. 

Recognizing the important role for the private sector, Vice President Harris brought together private sector leaders through a Call to Action, which has resulted in over $1.2 billion in private sector commitments in Central America to create new jobs and opportunities for people in the region.  Vice President Harris also engaged partners around the world to support our work and generate new commitments.  

The Biden-Harris Administration’s strategy represents a comprehensive approach to promoting inclusive economic growth in the region with a sharp focus on strengthening democratic governance and combatting corruption, women’s empowerment, climate change, human rights, security and curbing gender-based violence.  It integrates various U.S. Government tools, including foreign assistance, development finance, public diplomacy, and economic sanctions and visa restrictions.  Because the region’s long-term development will require more than just the resources of the U.S. Government, the Strategy forges strong partnerships with the private sector and international partners. 

Mobilizing Private Sector Investment

The Vice President’s leadership has brought together private sector leaders through a Call to Action .  In collaboration with the Partnership for Central America, this has resulted in  more than $1.2 billion in private sector commitments in Central America to create new jobs and opportunities for people in the region.  The Call to Action’s six focus areas are intended to support long-term development of the region.  They are: promoting a reform agenda; digital and financial inclusion; food security and climate-smart agriculture; climate adaptation and clean energy; education and workforce development; and public health access.

Companies that have made investments and commitments in the region include Microsoft, Nespresso, Mastercard, CARE International, Cargill, Grupo Mariposa, Parkdale Mills, PepsiCo, JDE Peet’s, and PriceSmart.  These initial commitments are already bearing fruit.  Some highlights include:

• Internet Access:  Microsoft catalyzed the development of digital access training centers, clean off-grid energy, and broadband access covering a population of 1.1 million people, and is on track to connect 4 million people to broadband by 2024.
• Support for Farmers :  Nespresso works with over 1,200 farms in Guatemala to improve livelihoods in the region. The company announced its first-ever coffee sourcing from Honduras and El Salvador, with plans to increase activities in the region for the next harvest season. This is part of the company’s commitment to support the region’s economy with a minimum of $150 million to be spent across coffee purchases, price premiums, and technical assistance by 2025.
• Digital and Financial Inclusion :  Mastercard committed to bring five million people in El Salvador, Guatemala and Honduras into the formal financial economy and to digitize one million micro and small businesses.   The company established a Digital Country Partnership with Guatemala’s Ministry of the Economy, accelerating their work to bring five million people in El Salvador, Guatemala, and Honduras into the formal financial economy.  This will also enable one million micro and small businesses to access online payment and management systems.
• Job Creation and Supply Chain Resilience :  Parkdale Mills is investing $150 million in a new yarn spinning facility in Honduras.  This support will provide customers with sources for purchasing one million pounds of yarn per week within the region while increasing U.S. supply chain resilience. The investment is intended to support roughly 500 employees at each location and increase indirect job growth in Honduras and in the United States, particularly in the U.S. cotton industry across 18 states. The investment also includes $24 million in new investments in solar energy, water recapture, and energy efficient HVAC systems.
• Infrastructure and Renewable Energy Investments :  PepsiCo will invest at least $190 million in northern Central America through 2025.  The company’s planned investments include improvements to its infrastructure and manufacturing plants; expansion of new distribution routes; IT projects; and investments aligned with its “pep+” (PepsiCo Positive) agenda. This includes spreading regenerative farming practices across seven million acres (which is approximately the size of the company’s entire agricultural footprint), becoming Net Water Positive by 2030 by reducing absolute water use and replenishing watersheds, and achieving net-zero emissions by 2040 by increasing the use of renewable energy, among other efforts.
• Support for Small Businesses :  Grupo Mariposa will provide over 70,000 small-business owners with access to credit and digital services.  It will also support 3,500 small and medium-enterprises with access to telemedicine, education, and Internet connectivity, impacting more than 200,000 people and expanding healthcare and telemedicine solutions to 2,000 remote communities. In addition, it will invest more than $10 million to grow its coffee footprint, creating more than 500 new jobs and supporting more than 400 small and medium-sized coffee producers to increase productivity and earnings potential.
• CARE announced its plans to establish a $50 million Center for Gender Equity in Central America focused on women and young people and designed to reach 500,000 individual women and their families, impacting two million people in total.  The Center will support public and private programs in the region – scaling up those that work – to support financial inclusion, women’s economic empowerment (including in the protection of labor rights and in supporting entrepreneurship), improved agricultural outcomes, and reductions in gender-based violence. In particular, CARE will support companies joining the Call to Action with technical assistance to ensure that a gender-based lens is applied to new programs and investment.

Creating Economic Opportunity

• Job Creation:   In Fiscal Year 2021, USAID support to private sector firms in El Salvador, Guatemala, and Honduras helped create more than 70,000 jobs, spurred $415 million in sales, and supported agricultural producers to gain access to $860 million in financing.  In Honduras, USAID helped establish a new $20 million loan facility to lend to underserved agricultural clients, especially women agribusiness owners.
• Mobilizing Investment:   Through USAID’s Guatemalan Entrepreneurship and Development Innovation initiative, announced by Vice President Harris in June 2021, USAID has leveraged $59 million, against its $7.5 million investment, from international and local private sector partners to scale technology-driven, market-led solutions to critical development challenges throughout the country.
• Public-Private Partnerships:   U.S. Government advocacy contributed to Guatemala’s first public-private partnership (PPP) project in November 2021, which will extend and repair the highway that connects the capital with the country’s primary Pacific port, Puerto Quetzal, and can serve as a model for other infrastructure investment and help Guatemalans bring their products to the global market.  The U.S. Trade and Development Agency (USTDA), in December 2021, awarded a feasibility study grant to develop a PPP that would install LED streetlights along more than 500 kilometers of highway across El Salvador to improve safety, increase energy efficiency, and lower energy costs.  These PPPs can serve as powerful models for future infrastructure investment collaboration in the region.
• Access to Finance:   In October 2021, the U.S. International Development Finance Corporation (DFC) disbursed $100 million to the Central American Bank for Economic Integration (CABEI) to fund financial institution intermediaries in El Salvador, Guatemala, and Honduras which will then lend to micro, small, and medium enterprises (MSMEs) to support economic recovery in the wake of the COVID-19 pandemic.  The DFC, with USAID funding, provided additional loan guarantees to entities in El Salvador and Honduras to enhance lending to women-led small and medium enterprises (SMEs) and SMEs in high growth sectors of the economy to support economic growth and job creation within historically marginalized communities.  In September 2021, USAID finalized a new loan guarantee that is facilitating access to loans for SMEs in the Western Highlands of Guatemala, a region with high levels of out-migration.
• Trade Facilitation:   In August 2021, the Department of Commerce’s Commercial Law Development Program (CLDP) and International Trade Administration (ITA) conducted a regional trade facilitation workshop with Guatemalan customs and trade ministries.  In May and June of 2022, CLDP will host two workshops in Honduras on customs valuation and communication.  These workshops are part of a multiphase effort to promote transparency, cooperation, and coordination among the northern Central American governments and improve inter-regional trade.

Strengthening Health and Education

• Vaccine Doses:   To assist people in the region in combating the COVID-19 pandemic, the U.S. Government has delivered more than 15 million free-of-cost vaccine doses bilaterally and in partnership with COVAX to countries in northern Central America. Vaccination rates are steadily increasing in all three countries with Guatemala at 33 percent, Honduras at 46 percent, and El Salvador at 66 percent of their populations completing the initial COVID-19 vaccination protocol.
• Vaccine Financing:   In September 2021, the DFC, in conjunction with Citigroup Inc., provided a risk management solution to Gavi, the Vaccine Alliance, to mitigate risk and overcome financial hurdles with governments that are funding COVID-19 vaccine purchases through the COVAX Facility.  Of the $383 million in political risk insurance provided to Gavi, $50 million was provided to support allocation of vaccines to Guatemala.
•   The U.S. Government has provided $26.4 million to El Salvador, $81.5 million to Guatemala, and $57.1 million to Honduras to support the fight against COVID-19 and strengthen health systems.  Assistance is supporting training health care workers and public health staff in critical care management and safe and effective administration of vaccines, building laboratory capacity, strengthening contact tracing efforts, sharing critical information to prevent the spread of disease, providing technical assistance for the health information systems needed to evaluate vaccine distribution equity and monitor vaccine safety, and bolstering oxygen systems to ensure availability for patients who need them in Guatemala and Honduras. 
• Education:   In El Salvador in November 2021, USAID launched a $20 million Scholarships for Education Project to curb irregular migration by increasing equitable access to formal educational opportunities for 6,450 returnees and potential migrants.  In Honduras, USAID installed Internet hotspots in 60 community learning centers and increased access to remote learning for more than 5,000 people, including more than 600 returned migrant children. USAID also completed repairs on and expansions to two schools in western Honduras, which serve more than 1,800 local students in this area of high out-migration.  In Guatemala, USAID provided education assistance to more than 6,300 at-risk youth and launched new partnerships to strengthen English language programs.

Enhancing Climate Resilience and Food Security

• Humanitarian Assistance:  Since April 2021, USAID reached approximately 1.9 million people impacted by recurrent droughts, COVID-19, and severe damage from Hurricanes Eta and Iota in northern Central America with life-saving humanitarian assistance such as emergency food assistance, health, livelihoods restoration, protection, shelter as well as water, sanitation, and hygiene (WASH) support. 
• Food Security:  The U.S. Department of Agriculture (USDA) provided $30 million to expand its Food for Progress program in Guatemala, which will enable it to reach an additional 18,000 producers.  USDA provided $45 million to expand its McGovern-Dole school feeding, health, nutrition, and educational programming in Guatemala and Honduras, reaching an additional 124,000 beneficiaries, with a projection of nearly 400,000 beneficiaries over the life of the program.   In addition, in Fiscal Year 2021, USAID’s Feed the Future activities in Honduras directly assisted nearly 16,000 farm families and agribusinesses in adopting technologies to increase yields.  This assistance contributed to over $23 million in incremental sales.  In Guatemala, USAID’s Feed the Future activities created nearly 30,000 jobs and over $76 million in sales while leveraging over $10 million in financing and $6 million in investment in the agricultural sector.

Combating Corruption

• Anti-Corruption Task Force:   In June 2021, Vice President Harris announced the establishment of the Department of Justice’s Anti-Corruption Task Force (ACTF). The ACTF subsequently created a new tip line for reporting corruption in the region and the FBI has reviewed and followed up on the resulting tips.  The ACTF continues to operate the tip line and relies on relationships with counterparts, witnesses, cooperators and others in the region to streamline and prioritize investigations.  In addition, the number of Department of Justice Resident Legal Advisors (RLAs), supported by the Department of State, was increased throughout the region, and RLAs continue to work with their counterparts in El Salvador, Guatemala, and Honduras.  In November 2021, an RLA-assisted Honduran anti-corruption unit secured guilty verdicts against the former minister of health and former minister of labor on charges of embezzlement, bribery, fraud, and money laundering.  
• Sanctions and Visa Restrictions:  In December 2021, the Department of the Treasury imposed sanctions on officials in El Salvador and Guatemala in connection with public corruption pursuant to the Global Magnitsky sanctions program, which allows for the targeting of corruption and serious human rights abuse.  In addition, the Department of State publicly designated several Guatemalan and Salvadoran officials under Section 7031(c) of the Department of State, Foreign Operations, and Related Programs Appropriations Act for their involvement in significant corruption, generally rendering them and their immediate family members ineligible for entry into the United States.  Prior to these actions, the Department of State publicly included multiple current and former officials and private individuals on the Section 353 Corrupt and Undemocratic Actors List generally rendering these individuals ineligible for visas and admission to the United States. In August 2021, the United States also launched a new visa restriction authority under Section 212(1)(3)(C) of the Immigration and Nationality Act on the issuance of visas to current or former Guatemalan, Honduran, or Salvadoran government officials and other individuals believed to be responsible for, or complicit in, undermining democracy or the rule of law. 
• Audit and Oversight:   To promote transparency and fight corruption, USAID trained 100 auditors in Guatemala’s Specialized Center for Tax and Customs Crimes to better identify tax crimes, donated computer equipment for use in field audits, and provided technical assistance on the documentation of criminal complaints.  With USAID support, the Center has recovered nearly $80 million in tax revenue since its inception.

Advancing Democracy, Promoting the Rule of Law, and Protecting Human Rights

• Democratic Elections:   The Department of State and USAID engaged all levels of Honduran society and the government ahead of the November 2021 presidential election to promote free, fair, and peaceful elections that reflected the will of Honduran voters.  USAID assistance helped facilitate the country’s election through support to journalists and civil society organizations to objectively report on information about the election process, independent analyses that informed recommendations on elections security, and get out the vote campaigns.  USAID also supported the strengthening of electoral management bodies.  The Department of State supported training for police officers in advance of the elections, including content on the use of force and relevant election laws and procedures, and distributed 20,000 election day pocket guides to police officers emphasizing the importance of respecting the rights of all citizens to vote.  The election, characterized by high voter turnout, resulted in the peaceful election of the country’s first woman president. 
•   Across the northern Central American countries, the Department of State and USAID worked together to promote human rights, labor rights, and press freedom.  USAID increased resources to respond to rising protection needs, providing critical support to journalists, human rights defenders, and anti-corruption champions.  USAID provided timely assistance to more than 30 human rights defenders and democracy advocates in El Salvador, Guatemala and Honduras.  To respond to high rates of extortion, human trafficking, and violence among marginalized sexual and gender minority individuals, USAID supported LGBTQI+ civil society organizations to address regressive policies and advocate for reforms to key laws.  In Honduras, this included advocating for transgender individuals to be able to legally register under their chosen names, rather than the names on their birth certificates under the law governing the National Persons Registry.  A public petition garnered more than 4,000 signatures before submission to the Honduran National Congress in November 2021.  As the Congress considers its response, LGBTQI+ advocacy groups are engaged in related advocacy and policy efforts to further promote necessary protections. In addition, U.S. Southern Command’s Human Rights Initiative has efforts in all three northern Central American countries, helping to institutionalize respect for human rights in partner nation armed forces doctrine and professional education.
• New Technical Assistance to Promote Labor Rights:  The Department of Labor (DOL) recently announced $20 million in new programs in northern Central America.  Activities will focus on increasing collective action to address child and forced labor and improve occupational safety and health conditions of workers in the region.  Efforts also will improve the ability of workers to exercise their labor rights in agricultural supply chains in Guatemala and Honduras and the textile/apparel sector in El Salvador.   
• Labor Roundtables:  In June and July 2021, DOL hosted nine labor roundtables, convening over 50 unions and civil society organizations from the United States, El Salvador, Guatemala, and Honduras to discuss the nexus between labor issues and migration. 

Combating Crime and Increasing Security 

• Human Smuggling:  In June 2021, Vice President Harris announced the creation of a regional task force to identify, disrupt, and prevent migrant smuggling and human trafficking operations.Working with partners in the region, the Departments of Justice and Homeland Security’s Joint Task Force Alpha, which targets human smuggling, continues to identify and pursue priority human smuggling cases for prosecution within the United States.  Department of Justice RLAs, with Department of State support, are working with counterparts in El Salvador, Guatemala, and Honduras to pursue investigations and prosecutions.  In November 2021, prosecutors mentored by RLAs obtained indictments against twenty members of a human smuggling organization (HSO) that operated throughout El Salvador and Guatemala.  In a coordinated effort, Guatemalan police and prosecutors also executed search warrants at five locations linked to the same HSO.  In January 2022, as part of another coordinated investigation with DHS’s Homeland Security Investigations, Guatemalan authorities executed 19 search warrants, seized over $200,000, and arrested ten Guatemalan nationals for violations of foreign law related to human smuggling and money laundering. In Honduras, U.S. government efforts resulted in the formation of a migration task force to focus on investigation and prosecution of smuggling and trafficking networks.  Since January 2021 this and other border security programs have resulted in the arrest of 283 alleged human smugglers, the rescue of 200 minors, and a tripling in the number of migrants checked against U.S. criminal and terrorist databases.
• Money Laundering:   In November 2021, U.S.-mentored prosecutors in Honduras secured money laundering convictions against seven Honduran nationals who were high-level members of the Byron Ruiz drug trafficking organization previously convicted of aggravated drug trafficking charges in Honduras.
• Civilian Law Enforcement:   The Department of State worked to professionalize security forces across the region by training more than 5,000 civilian police in calendar year 2021 on topics such as community policing, investigations, and human rights. 
• Conventional Weapons Destruction:   In 2021, the Department of State provided explosive ordnance disposal and stockpile management training to 86 security forces personnel, destroyed 7.91 metric tons of obsolete munitions, and provided physical security upgrades to vulnerable weapons storage facilities in El Salvador and Guatemala to prevent the illicit pilferage and proliferation of State-held weapons which contribute to armed violence and criminal activity in the region.
• Regional Information Sharing:   The Department of State supported a regional effort to share criminal intelligence about transnational criminal organizations and associated criminals in Central America, with a focus on migrant smuggling and human trafficking.  In 2021, this effort facilitated the identification of nearly 1,200 members of transnational criminal organizations.
• Reinsertion of Former Offenders:   In El Salvador, USAID supported an innovative and evidence-based reinsertion model for adult and youth populations exiting prison and gang-involvement, which in the last year has led to a 70 percent success rate of participants receiving employment or consistently participating in skill building support and not re-offending.    

Focusing on Women and Youth

• Gender-Based Violence:    In February 2022, USAID awarded a $5 million grant to El Refugio de la Niñez, a Guatemalan NGO, to expand education, legal, housing, medical, psychosocial and other services to survivors of trafficking in persons and unaccompanied migrant children. In September 2021, the Department of State supported the design and implementation of a specialized course for Honduran prosecutors on gender-based violence, including domestic violence, which launched with an initial class of 25 prosecutors in February 2022.  U.S. support is helping the Honduran National Police revamp its training curriculum to focus on incidents of gender-based violence and train 911 operators on how to prioritize and route the more than 60 reports of such violence daily.  U.S. programs are also significantly increasing post-violence victim support and resources.
• Young Women’s Empowerment :  With the June 2021 launch of its $40 million Young Women’s Empowerment Initiative, USAID is partnering with Guatemalan indigenous and women’s organizations, private sector, and international organizations to increase education, professional training, and income-generating opportunities for thousands of indigenous Guatemalan women and girls.
• Women Entrepreneurs:   The Department of State’s Academy of Women Entrepreneurs (AWE) program in northern Central America provides women participants the knowledge, networks, and access to launch and scale their businesses through a proven combination of business classes, professional mentoring, and seed money.  In September 2021, Honduras added 315 new participants and in November 2021, Guatemala graduated a class of 120 women, including representatives from highland and Afro-Guatemalan Garifuna communities with high rates of emigration, while El Salvador graduated a class of 176 women, 36 of whom received $24,000 in seed capital to invest further in their businesses and create jobs in their communities.
• Advancing Women’s Economic Empowerment:   On January 4, 2022, USAID launched the MujerProspera (WomenProsper) challenge, seeking solutions that advance women’s economic security, employment, and/or entrepreneurship in El Salvador, Guatemala, and Honduras.  With this challenge, USAID expects to issue up to 14 awards each valued between $150,000 and $500,000 later this spring.
• At-Risk Youth:   Since July 2021, USAID has provided psychosocial support and family counseling, gender-based violence prevention activities, life-skills training, vocational workshops, digital inclusion, sports and arts activities, and alternative education for youth left out of the formal education system for more than 27,500 children and youth in 80 high-crime and out-migration communities of the north, central, and western regions of Honduras.  The Department of State worked with certified Gang Resistance Education and Training (G.R.E.A.T.) instructors across Honduras to reach more than 100,000 children and help strengthen their ability to resist gang recruitment. In El Salvador, USAID launched a $20 million alliance (which includes $10 million in private sector leverage) with local partner Glasswing International to improve citizen security in targeted Salvadoran communities to help reduce irregular migration, with a goal of reaching 30,000 people (mostly youth) in five years with economic and educational opportunities.

Enhancing Partnerships

• Engaging Local Organizations:   In November 2021, USAID announced Centroamérica Local , a five-year, $300 million initiative to empower local organizations in El Salvador, Guatemala, and Honduras to address the drivers of irregular migration to the United States.
• Cooperation with Mexico:   In December 2021, the United States and Mexico announced Sembrando Oportunidades , a new framework for development cooperation to address the root causes of irregular migration from El Salvador, Guatemala, and Honduras.  These efforts are underway. In El Salvador, USAID is providing scholarships to graduates of Mexico’s youth workforce program, and in Honduras, USAID and its Mexican counterpart aim to reach more than 500,000 at-risk youth with skills and experience that can lead to long-term employment.

Diplomatic Engagement Around the World to Address Root Causes

• The Vice President has recognized the need to internationalize her efforts, and has been rallying partners around the world to support U.S. efforts to address the root causes of migration. The Vice President’s extensive diplomatic engagement with leaders around the world includes the following important new commitments:
• Republic of Korea :  After the Vice President met with South Korean President Moon Jae-in, the Republican of Korea doubled foreign assistance to northern Central America to $220 million over five years.
• Japan :  The Government of Japan committed to closer collaboration and has provided nearly $22 million in assistance to the three countries of northern Central America.
• Israel :  The Israeli government announced it would collaborate with USAID on agriculture, watershed management, and violence prevention programs in Guatemala and Honduras.

The Vice President’s diplomacy helped establish the United Nations Humanitarian Response Plans for Honduras, El Salvador and Guatemala. She has worked with the European Union and Canada, which have become the largest donors to the effort after the United States.

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Foreign Aid: Meaning and Types

Let us make an in-depth study of the meaning and types of foreign aid.

Meaning of Foreign Aid:

External assistance is considered to be a major element towards the advancement of the deve­loping countries. It is said that aid, and not trade, is the engine of growth.

The term foreign aid or external assistance or development assistance or development aid is often used synonymously, though there are certain subtle differences in their meanings.

In essence, all these term refer to transfer of resources (e.g., loans, growth, technical assistance) from rich to poor countries or from international agencies like the IMF, the WB.

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To start with, it is better to have a clear under­standing of the notion “foreign aid” . Any transfers of capital from one country to another cannot be treated as foreign aid. In the strict sense, all governmental resource transfers from one country to another is to be called foreign aid. And resource transfers by private foreign investors need not to be confused with aid. According to economists, any flow of capital is included within the ambit of foreign aid to LDCs if it satisfies three criteria.

Transfer of resources should be:

(i) develop­mental or charitable,

(ii) non-commercial, and

(iii) concessional.

Thus, loans to LDCs are treated as foreign aid if they contain a “growth element” .

Foreign aid or external assistance can thus be defined to include all official grants and conce­ssional loans either in foreign currency or in kind, which aims at transferring resources from the deve­loped countries to the LDCs for developmental reasons.

Types of Foreign Aid :

The two main forms of external assistance are:

(i) Private foreign direct investment by MNCs/ TNCs and portfolio investment that comprises stock or equity holdings by non-residents in the recipient country’s joint stock companies, and

(ii) Public and private development assistance (call it foreign aid) from governments of foreign countries and international donor agencies.

FDI is an investment involving the setting up of a new overseas operations or the mergers and acquisitions of controlling interests in an already existing foreign company through the purchase of shares and stocks. On the other hand, portfolio investment is just a transfer of capital through equity holding from one country to another.

Broadly, loans and grants are the two forms of foreign aid. Loans are required to be repaid with interest, however, on concessional terms. One may call it ‘soft’ loan also. However, outright grants do not have any obligation of interest payment or anything else. But grant-recipient countries sometimes may be asked to purchase commodity or ‘consultancy services’ from the grant-donor countries.

Secondly, foreign aid may be project and programme aid. In the words of C.P. Kindleberger: “Project aid is embodied in loans or grants that are intended to pay for specific projects. Project aid allows the donor to influence and control the uses to which aid is put. Programme aid embodies more general support, for example, for the activities of sectors as a whole such as agriculture or education, or for balance of payments support without reference to the goods being bought with the proceeds of the transfer.”

Thirdly, there is commodity aid. It is well known that the U.S. Government provided agricultural commodities (mostly wheat) to India under PL 480 and 665 free of cost subject to the payment of transport costs in hard currency.

Such commodities may serve the purpose of capital goods if through such transfer of resources in the importing country previously used in food produc­tion are shifted out of agriculture into (i) export production to provide foreign exchange to pay for imported capital goods, and (ii) capital formation, to the extent that domestic capital is in short supply. Such transfer may also replace existing purchased agricultural imports and thus release foreign exchange for buying capital or other consumption goods.

Fourthly, aid is often given in a tied or non- tied form. Donors often force recipients to spend their loan amount in the country where the aid originated. The result of aid-tying is two-fold. First, projects with large import content are eligible for more aid than those using domestic inputs.

This imposes a permanent burden on the aid- receiving countries. Purchase of one country’s products initially implies continuing demand for spare parts and on-going technical advice on operating the imported equipment. Second, aid tied to exports from a single donor country may buy less than unrestricted (‘untied’) aid, if prices in the donor country are higher than elsewhere.

Fifthly, foreign aid may take a variety of physical forms. It may take the shape of capital goods, technical assistance, agriculture commo­dities or even military support. Again, aid may be either bilateral (i.e., nation-to-nation programmes of aid of particular countries) or multilateral (IMF, W. B, ADB, aid from global and regional develop­ment banks, some United Nations agencies, and aid consortia consisting of the principal donor countries and creditors of any given LDC, e.g., the ‘Aid India Club’). In case of the latter, the donor countries, “surrender control over the uses of those funds and agree to abide by the decisions which they make with other members of the agency or institution.”

Sixthly, foreign aid may be hard or soft loan. If repayment of loan requires foreign currency then such is called hard loan. Repayment of loan by home currency refers to soft loan. While the World Bank loan is hard loan, loan of its affiliates is soft loan.

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Foreign Policy: War & Peace and Everything In Between

Learning objectives.

The student will...

• Define the terms “foreign” and “domestic” by identifying common-use phrases that use these words.
• Distinguish between foreign and domestic policy by analyzing examples of both.
• Take notes about the three main tools the executive branch uses for foreign policy.
• Determine how the executive and legislative branches share foreign policy powers by matching powers with branches.
• Categorize current and historical examples of foreign policy in action by analyzing the examples and matching them with the correct foreign policy tool.  
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Students learn what foreign policy means. First, they learn the distinction between foreign and domestic policy. Then they find out what role the executive branch plays in foreign policy and the primary tools it uses: foreign aid, the military, and treaties. In addition, students learn how foreign policy power is shared with the legislative branch.

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Finance Ministry Changes Accounting Procedure for Revolving Fund Accounts

The Ministry of Finance has revised the accounting procedure for Revolving Fund Accounts (also called “foreign aid assignment accounts”).

According to a document released by Finance Ministry, a Revolving Fund Account (RFA) in respect of donor financing under loan/credit grant will be established at a branch of the National Bank of Pakistan  separately from the account to be established for the government’s share of project financing, if any required.

The document states that such accounts will be in the nature of Assignment Accounts.

The document further said that the RFA will be a part of “Federal Consolidated Fund” at the level of Federal Government, while at Provincial Government’s level; it will be part of “Provincial Government’s Consolidated Fund”.

The document has empowered Finance Division to approve the opening and change of signatories of the RFAs. Alongside, National Bank of Pakistan has been designated for handling all of the transaction of RFAs.

The document further highlights that the separate RFAs for each project shall be established by the project management at the NBP for each of the loans/credits/grants. Each RFA will be designated a special Sub-Fund Identification Number upon establishment of the account.

Furthermore, RFA will be lapsable at the end of each financial year. However, the lapsed balance in one financial year will be protected through budgetary allocation in next financial year.

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What is Foreign Aid? Explain different types of the foreign aid which are provided by developed nations to the least developed nations.

• Post author: IGNOU ASSIGNMENT WALA
• Post published: July 28, 2023
• Post category: Updates
• Post comments: 0 Comments

Foreign aid, also known as international aid or overseas aid, is a term used to describe the voluntary transfer of resources, assistance, or support from one country to another for the purpose of promoting economic development, alleviating poverty, improving infrastructure, and enhancing the overall well-being of the recipient nation. Foreign aid is usually provided by developed or wealthier nations to less developed or underprivileged nations.

There are various types of foreign aid, each serving different purposes and objectives. The types of foreign aid can be broadly classified into the following categories:

1. **Economic Aid:** Economic aid focuses on providing financial resources to support economic development and stability in the recipient country. It may come in the form of grants, loans, or credits. Grants do not need to be repaid, while loans and credits have to be repaid over time, often with interest. Economic aid can be used for infrastructure development, capacity building, and investment in various sectors such as education, healthcare, agriculture, and energy.

2. **Humanitarian Aid:** Humanitarian aid is given in response to emergencies, disasters, or conflicts. Its primary goal is to provide immediate assistance to save lives, alleviate suffering, and meet the basic needs of affected populations. Humanitarian aid includes items like food, water, shelter, medical supplies, and emergency relief services.

3. **Technical Assistance:** Technical assistance involves sending experts, professionals, and advisors from the donor country to the recipient country to provide knowledge, skills, and expertise in specific areas. This type of aid aims to build the recipient’s capacity and capabilities to address challenges and promote sustainable development.

4. **Food Aid:** Food aid, as the name suggests, involves providing food supplies to countries facing food shortages or famine. It can be in the form of direct food donations or cash transfers to purchase food.

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5. **Military Aid:** Military aid is given to bolster the recipient country’s defense capabilities. It may include military equipment, weapons, training, and other forms of support to strengthen the recipient’s security and defense.

6. **Development Aid:** Development aid focuses on promoting long-term economic growth and development in the recipient country. It aims to improve the standard of living, infrastructure, healthcare, education, and overall economic conditions.

7. **Debt Relief:** Developed nations may offer debt relief to less developed countries by canceling or reducing the debts owed by the recipient country. This allows the recipient to allocate more resources to developmental initiatives rather than servicing debts.

8. **Environmental Aid:** Environmental aid is directed towards supporting projects and initiatives that promote environmental sustainability and address climate change issues. It may include funding for renewable energy projects, conservation efforts, and sustainable development practices.

9. **Budget Support:** Budget support is a form of aid where funds are provided directly to the recipient government’s budget. This approach allows the recipient country to allocate resources based on its own development priorities and policies.

Each type of foreign aid serves a specific purpose, and donors tailor their assistance based on the needs and priorities of the recipient nation. The effectiveness of foreign aid depends on various factors, including the transparency and accountability of both donor and recipient countries, the alignment of aid with the recipient’s development goals, and the efficient utilization of aid resources.

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