Tied aid

Tied aid is assistance whose use is restricted to the purchase of goods or services originating in the donor country or in a limited group of countries.

The recipient therefore does not have complete freedom in choosing suppliers.

The return of part of the aid to the donor

Part of the money provided may return to companies in the country financing the aid through contracts, supplies or services.

The cost of tying aid

The OECD estimates that tying aid can increase the cost of goods and services by 15 to 30 per cent, notably because it restricts competition between suppliers.

Why does tied aid exist?

It may reflect industrial policy, support for domestic companies and employment, or the donor country’s economic influence.

Untying aid

The DAC has encouraged the untying of aid for several decades. Formally untied aid does not, however, guarantee contracts for local firms: technical capacity, tendering procedures and access to information continue to matter.

Related factsheets

Official development assistance — International co-operation — Conditionality — Economic dependence