|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. Biennial reports monitor progress of DAC members’ untying efforts with respect to the DAC Recommendation on Untying Official Development Assistance (ODA). A global portal of ODA contract opportunities for the benefit of the international business community is also offered on this page.|
Untied aid at a glance
Review of the DAC Recommendation on untying Official Development Assistance (ODA) in 2023
The Development Assistance Committee (DAC) has decided to launch in 2023 a review of the DAC Recommendation to assess whether this legal instrument could and should be updated to better fit the current development co-operation context that has significantly changed since the DAC Recommendation was agreed in 2001:
In line with OECD’s standard-setting role, it is important to maintain the relevance and impact of the DAC Recommendation to ensure that it is still fit-for-purpose and aligns with other existing standards and continues to respond to today’s policy objectives.
The review will address three main questions:
The objective of the review is to strengthen the DAC standard. Therefore, the review is not expected to propose solutions that result in lower aid effectiveness, value for money and partner country-level ownership or a lower coverage (both geographical and sectoral) of the DAC Recommendation. The review is expected to conclude by the end of 2023.
DAC Recommendation on Untying Official Development Assistance
Through the DAC Recommendation on Untying Official Development Assistance (ODA), members of the OECD’s Development Assistance Committee (DAC) agree to the objective of untying their bilateral ODA to the Least Developed Countries (LDCs), Heavily Indebted Poor Countries (HIPCs), Other Low-Income Countries (OLICs), and countries and territories that are eligible for financing from the International Development Association (IDA-only countries and territories) as a means to:
The DAC 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 DAC Recommendation in 2006, 2008, 2014 and most recently in 2018. The shared intentions of DAC members which are reflected into the DAC Recommendation are to:
DAC members agree to untie their ODA in the following areas: balance of payments and structural adjustment support; debt forgiveness; sector and multi-sector programme assistance; investment project aid; import and commodity support; commercial services contracts, and ODA to Non-Governmental Organisations for procurement related activities. The Recommendation excludes free-standing technical cooperation and food aid. The overall impact of the Recommendation on untying aid extends well beyond the activities and countries and territories it covers. In this regard, the DAC Recommendation invites DAC members to untie their ODA to the greatest extent possible, including for activities and countries and territories not covered by the DAC Recommendation.
The DAC Recommendation calls upon donors to make developing countries responsible for procurement and to promote procurement from local and regional sources in developing partner countries. A list of untied official development assistance contract opportunities allows the private sector to compete for aid-funded contracts.
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 and territories 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 and territories 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 and territories.
Progress in untying aid
DAC members have made considerable progress in untying aid. From 1999-2001 to 2020, the proportion of ODA covered by the DAC Recommendation that was untied rose progressively from 47% to 91%. DAC members have also pursued their untying efforts beyond what is set in the DAC Recommendation. The proportion of total ODA* that was untied increased from 41% in 1999-2001 to 82% in 2020. In terms of individual country performance, most DAC members have now untied almost all of their ODA covered by the DAC Recommendation.
The adherence to transparency provisions, aimed at providing transparency that de jure untied aid is also de facto untied, has also improved. While a few members showed a poor implementation of the provisions, the majority of DAC members displayed a high or good implementation.
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 2001 when the DAC adopted the DAC Recommendation to Untie Official Development Assistance to the Least Developed Countries (DAC High Level Meeting, April 2001), former name of the present DAC Recommendation. The 2001 version of the DAC Recommendation reflected the results of discussions in the DAC to respond to the mandate provided at its 1998 High Level Meeting.
The DAC Recommendation was amended in March 2006 to eliminate the thresholds of its coverage (i.e. all transactions are to be untied) and in July 2008 to expand its geographic coverage to include the non-LDCs Heavily Indebted Poor Countries (HIPCs). In 2014, the DAC further amended the DAC Recommendation to reflect the outcome of the 2013 review of the provision to extend its geographic coverage to include non-LDC HIPCs and renewed this extension for a further five years. In 2018, the DAC renewed the extension of the geographic coverage of the DAC Recommendation to non-LDC HIPCs for a further five years and decided to extend the geographic coverage also to OLICs and IDA-only countries and territories, reminding the continued commitment of the DAC to make development co-operation more effective.
DAC members' actions to implement the DAC 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 biennial implementation reports to the DAC.