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Development finance standards

Untied aid

 

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Evidence has shown that "tied" aid - offering aid on the condition that it be used to procure goods or services from the provider of the aid - can increase the costs of a development project by as much as 15 to 30 percent. Untying aid, on the other hand, avoids unnecessary costs and gives the recipient the freedom to procure goods and services from virtually any country. Annual reviews monitor progress of member governments' untying efforts with respect to the Untying Recommendation and other international agreements. We also offer a global portal of ODA contract opportunities for the benefit of the international business community.

Untied aid at a glance

Revised DAC Recommendation on Untying Official Development Assistance

Members of the OECD’s Development Assistance Committee (DAC) agree to the objective of untying their bilateral Official Development Assistance (ODA) to the Least Developed Countries (LDCs), Heavily Indebted Poor Countries (HIPCs), Other Low-Income Countries (OLICs), and IDA-only countries and territories as a means to:

  • foster co-ordinated, efficient and effective partnerships with developing countries; 
  • strengthen the ownership and responsibility of partner countries in the development process; 
  • demonstrate responsiveness to the requests from partner countries and others to increase the use of untied aid in order to promote aid effectiveness; and 
  • contribute to broader efforts with partner countries to promote their integration into the global economy.

The Recommendation reflects the results of discussions in the DAC to respond to the mandate provided at its 1998 High Level Meeting.  It also reflects the subsequent decisions by the DAC to revise the Recommendation. In 2008, the DAC agreed to extend the country coverage of the Recommendation to non-LDC HIPCs, to introduce provisions inviting non-DAC donors to untie their aid in parallel with DAC Members and inviting those responsible for procurement to promote respect for internationally agreed principles of corporate social and environmental responsibility. In 2018, the DAC agreed to extend the country coverage of the Recommendation also to OLICs and IDA-only countries and territories. The shared intentions of DAC Members are to:

  • untie their ODA to the countries and territories covered by the Recommendation to the greatest extent possible; 
  • promote and sustain adequate flows of ODA in terms of quality, volume and direction, in particular to the countries and territories covered by the Recommendation and ensure that ODA to these countries will not decline over time as a result of the implementation of this Recommendation;
  • achieve balanced efforts among DAC Members.

Read the latest version of the Recommendation

 

From tied to untied aid

Tied aid describes official grants or loans that limit procurement to companies in the donor country or in a small group of countries. Tied aid therefore often prevents recipient countries from receiving good value for money for services, goods, or works.

Untying aid – removing the legal and regulatory barriers to open competition for aid funded procurement – generally increases aid effectiveness by reducing transaction costs and improving the ability of recipient countries to set their own course. It also allows donors to take greater care in aligning their aid programmes with the objectives and financial management systems of recipient countries.

 

Progress in untying aid

DAC Members have made considerable progress in untying aid. From 1999-2001 to 2018, the proportion of ODA covered by the Recommendation that was untied rose progressively from 47% to 88%. DAC Members have also pursued their untying efforts beyond the requirements of the recommendation.  The proportion of total ODA* that was untied increased from 41% in 1999-2001 to 79% in 2018. In terms of individual country performance, most Members have now untied almost all of their ODA covered by the Recommendation.

The adherence to transparency provisions, aimed at providing transparency that de jure untied aid is also de facto untied, has also significantly improved. The percentage of Members who reported on ex post contract awards has increased from 55% in 2013 to 80% in 2016 which is the highest level recorded historically. In terms of volume of contracts reported there was also a considerable increase, from USD 14 billion in 2013 to USD 30 billion in 2015 and USD 21 billion in 2016.

In 2009, an independent evaluation of DAC members' policies and practices towards untying was carried out by the Overseas Development Institute, based on principles put forward in the Paris Declaration and the DAC Recommendation on Untying ODA. Find the detailed analysis of progress in Untying Aid: Is It Working?.

History: The DAC and efforts to untie aid

Since its creation in 1961, the OECD Development Assistance Committee has worked to improve the effectiveness of its members’ aid efforts. One major issue has been whether aid should be freely available to buy goods and services from all countries (“untied aid”), or whether aid should be restricted to the procurement of goods and services from the donor country (“tied aid”).

Work culminated in a Recommendation to Untie Official Development Assistance to the Least Developed Countries (DAC High Level Meeting, April 2001).

The objectives of this recommendation are to:

  • untie ODA to the least developed countries to the greatest extent possible
  • promote and ensure adequate ODA flows, in particular to the least developed countries
  • achieve balanced efforts among DAC Members in untying aid

The recommendation calls upon donors to make developing countries responsible for procurement. A list of untied official development assistance contract opportunities allows the private sector to compete for aid-funded contracts.

The recommendation was amended in March 2006 to eliminate the thresholds and in July 2008 to expand the coverage to the heavily indebted poor countries (HIPCs). In 2018, DAC Members decided to extend the coverage also to countries that are only eligible to financing from the International Development Association (IDA-only countries), reminding the continued commitment of the DAC to make development co-operation more effective.

Members' actions to implement the recommendation are continually monitored and their performance is measured against agreed statistical indicators. Their tying policies and practices are also reviewed through the DAC Peer Review process and recorded in annual implementation reports to the DAC.

Since January 2002, ODA to the least developed countries has been untied in the following areas:

  • balance of payments and structural adjustment support
  • debt forgiveness
  • sector and multi-sector programmes assistance
  • investment project aid
  • import and commodity support
  • commercial services contracts and ODA to NGOs for procurement related activities

 

*In the framework of the monitoring of the Untying Recommendation, ODA beyond the Recommendation coverage refers to total ODA, all recipients and all sectors, excluding donors’ administrative costs and in-donor refugee costs.

 

For more information please contact us at DAC.Contact@oecd.org .

 

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