Chapter

Reconstructing the Aid Effectiveness Debate

Machiko Nissanke

in Foreign Aid for Development

Published in print February 2010 | ISBN: 9780199580934
Published online May 2010 | e-ISBN: 9780191723346 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780199580934.003.0004

Series: WIDER Studies in Development Economics

Reconstructing the Aid Effectiveness Debate

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This chapter criticizes the current International Development Association (IDA) aid allocation and debt sustainability framework on the grounds of their over-reliance on the country policy and institutional assessment (CPIA) as the guiding criterion. It argues that CPIA-centred allocation of aid fails to introduce an incentives structure supportive of a genuine donor-recipient partnership, conducive to development. Further, it claims that the CPIA-dependent debt thresholds—central to the new debt sustainability framework—effectively submit sustainability concerns to the policy performance prerogatives of the aid allocation system. Resting on a thin empirical basis, such approach fails to take due account of low-income countries' vulnerability to exogenous shocks, as a key determinant of debt distress. As an alternative to the current CPIA-based scheme, the paper outlines the key features of a state-contingent mechanism, guiding both aid allocation and debt sustainability analysis.

Keywords: foreign aid; economic development; aid allocation; debt sustainability

Chapter.  12698 words.  Illustrated.

Subjects: Economic Development and Growth

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