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Foreign Aid

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Submitted By Baraka
Words 2685
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Introduction:
The standard definition of foreign aid comes from the Development Assistance Committee
(DAC) of the Organization for Economic Cooperation and Development (OECD), which defines
Foreign aid (or the equivalent term, foreign assistance) as financial flows, technical assistance, and commodities that are;
(1) Designed to promote economic development and welfare as their main objective (thus excluding aid for military or other non-development purposes); and

(2) Are provided as either grants or subsidized loans.

Grants and subsidized loans are referred to as concessional financing, whereas loans that carry market or near-market terms (and therefore are not foreign aid) are non-concessional financing.

According to the Development Assistance Committee (DAC), a loan counts as aid if it has a “grant element” of 25 percent or more, meaning that the present value of the loan must be at least 25 percent below the present value of a comparable loan at market interest rates (usually assumed by the DAC rather arbitrarily to be 10 percent with no grace period).
Thus, the grant element is zero for a loan carrying a 10 percent interest rate, 100 percent for an outright grant, and something in-between for other loans.

The Development Assistance Committee (DAC) classifies aid flows into three broad categories. Official Development Assistance (ODA) is the largest, consisting of aid provided by donor governments to low and middle income countries.
Official Assistance (OA) is aid provided by governments to richer countries with per capita incomes higher than approximately $9,000 (example Bahamas, Cyprus, Israel and
Singapore) and to countries that were formerly part of the Soviet Union or its satellites.
Private Voluntary Assistance includes grants from non-government organizations, religious groups, charities, foundations, and private companies.

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