Is the international community heading toward a zero foreign aid world of autonomous countries within the next 25 to 30 years? And if so, should countries and donors have a strategy for it?
Andy Sumner speculates on the new and evolving concept of “catalytic aid” or “foreign aid aimed at ending the need for foreign aid.”
Also called “aid exit,” Sumner discusses how poor countries might use catalytic aid as a development strategy.
According to Sumner, to reduce aid economic dependency — meaning aid as a percentage of the economy, gross domestic product, total government spending or total investment — a country’s development strategy should aim to progressively reduce ratios of aid/GDP over the course of years.
Another possibility is for a country to transition gradually from grant aid to concessional loans and, finally, to nonconcessional loans.
Both strategies will require redirecting considerable amounts of foreign aid flows away from traditional program aid, such as schools and vaccines, to building domestic tax systems, addressing capital flight, hiring corporate lawyers with aid money to get better deals for low-income countries negotiating natural resource contracts with international companies and other actions to increase domestically available resources.
Over the long run, the implication could be a huge shift in the tax burden from the middle classes in the North towards the new middle classes in the South, Sumner says.
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