Conditionality

Conditionality refers to requirements attached to the granting or continuation of financing, aid, a loan or another form of support.

The institution or state providing the resources may require the recipient to meet certain conditions before funds are disbursed or while the programme is being carried out.

Different kinds of conditions

Conditions may concern public finances, economic reforms, governance, public procurement procedures, transparency, environmental standards, human rights or the organisation of a particular sector.

They may be technical. A lender may, for example, require accounting procedures that make it possible to verify how funds are used.

They may also reach more broadly into public policy by requiring changes to taxation, public expenditure, subsidies, state-owned enterprises or economic regulation.

Not all conditions therefore have the same scope.

Why impose conditions?

The provider may seek to ensure that money is used in accordance with the agreement, limit corruption risks, protect repayment or increase the likelihood that a programme will achieve its objectives.

Conditionality may therefore respond to legitimate requirements of accountability and financial control.

It becomes more controversial when access to essential financing depends on reforms that substantially affect the economic or social choices of the recipient country.

The balance of power in negotiations

A condition is formally accepted by both parties. This does not necessarily mean that they have equal bargaining power.

The recipient’s position depends partly on the alternatives available. Can it refuse the financing? Can it obtain resources elsewhere? Can it postpone the project or finance it domestically?

The provider’s position also depends on its own interest in reaching an agreement.

Examining conditionality therefore requires attention not only to the written conditions but also to the circumstances in which they were negotiated.

Conditionality and sovereignty

Accepting external financing does not automatically entail a loss of sovereignty. States regularly conclude agreements that create obligations.

The question is how far those obligations restrict the range of choices available to the recipient government and whether it retains a real capacity to negotiate, amend or refuse them.

Conditionality is therefore closely connected to economic dependence.

Related factsheets

Official development assistance — Tied aid — Economic dependence — International co-operation — Exit from aid