Aid-tying and the Real Value of Foreign Assistance: The Case ofthe Sudan

Publication Year : 1991

This paper assesses the excess cost which results fromaid-tying in some development projects in the Sudan. Tying can be of twotypes, either by source or by end-use. In the fonner case, restrictionsare placed on where the recipients can spend the assistance. In thelatter case, assistance is limited to specific items or projects. Thus,aid can be deemed to be doubly tied. In addition, there are otherunquantifiable costs of tying. For example, the project to which theassistance will be tied might not suit the recipient’s developmentprogramme, or the technology used may be inappropriate. Eightforeign-aided projects, which were tied by source as well as by end-use,were analysed to estimate the excess cost which results from the tyingof aid. The overall weighted average of tying these projects appears tobe 74 percent higher than the international market. In addition, theanalysis shows that the tenns of borrowing for these projects were hard;consequently, the grant element was low. Thus, if one takes into accountthe estimated excess cost of the tied foreign credits, which was greaterthan the commercial cost of borrowing at which these credits could havebeen sought in the absence of aid, the real value of these credits, thepaper shows by using a shadow grant element approach, wasnegative.

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