Introduction

Foreign aid is the transfer of resources from developed countries to under-developed countries, either through bilateral donors or multilateral donors. Many countries in the world accept foreign assistance and get different benefits along with a few adverse results. The implication of foreign assistance has made it a debatable issue.

Meaning of Foreign Aid

Foreign aid is defined as the voluntary transfer of resources from one country to another country. This transfer includes any flow of capital to developing countries. A developing country usually does not have a robust industrial base and is characterized by a low Human Development Index (HDI).

Foreign aid can be in the form of a loan or a grant. It may be in either a soft or hard loan. This distinction means that if repayment of the aid requires foreign currency, then it is a hard loan. If it is in the home currency, then it’s a soft loan. The World Bank lends in hard loans, while the loans of its affiliates are soft loans.

The U.S. spends roughly $50.1B in foreign aid each year which is only 1.2% of the Federal government’s budget.

Who Gives Aid, and Who Receives It?

Historically most aid has been given as bilateral assistance directly from one country to another. Donors also provide aid indirectly as multilateral assistance, which pools resources together from many donors. The major multilateral institutions include the World Bank; the International Monetary Fund; the African, Asian, and Inter-American Development Banks, and various United Nations agencies such as the United Nations Development Programme.