|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
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:
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:
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 2019, the proportion of ODA covered by the Recommendation that was untied rose progressively from 47% to 87%. 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 80% in 2019. In terms of individual country performance, most Members have now untied almost all of their ODA covered by the Recommendation.
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?.
* 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.
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:
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:
*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 .