Politicians, the media, bloggers and other armchair experts on development almost all agree that aid for developing countries should be conditional on reforms by recipient countries, and that aid should be tied to conditions about how the aid is used. But this approach is generally not supported by people who work in development.
I’ve written a paper which looks at the advantages and disadvantages of conditionality. Unlike many critics of conditionality, I am broadly supportive of the policy reforms that donors recommend. But I am not at all convinced that aid conditionality is the right way to get those reforms implemented.
There are three possible arguments for conditionality:
(a) Conditions on aid might increase incentives for policy reform by developing country governments.
(b) Allocating aid to countries with good policy environments might increase the impact of aid spending.
(c) Aid conditions might increase our ability to account for how the money was used and what effects it had.
Alongside these advantages, we should consider the possible disadvantages of aid conditionality.
(a) The conditions increase transactions costs, for both the donor and especially for the recipient.
(b) Conditions may reduce predictability, which in turn reduces the effectiveness with which aid is used.
(c) There is a possibility that some of the policy prescriptions are incorrect, either because they reflect donor interests or because some of the international experts have given poor advice.
(d) The conditions may undermine internal government systems for prioritising, allocating, managing and accounting for public spending.
(e) The imposition of external conditions may contribute to poor accountability of developing country governments to their own citizens.
As set out in detail in the longer note, the arguments for conditionality are not very persuasive; but the possible adverse consequences are alarming. I conclude that aid should take the form of long-term, predictable commitments, focused on countries that are pursuing policies that are likely to benefit the poor. I support aid “selectivity” linked to long-term outcomes, which is a far cry from the current system.