Critical Reappraisal of the Aid-Debt-Growth Debate: Retrospect and Prospects for Low-Income Countries

The chapter traces the evolution of the academic and policy debates on the ‘aid-debt-growth’ nexus, and evaluates the extent to which these debates conducted in macroeconomic terms reveal dynamic interactions in the aid-debt-growth triad and their effects on development. Throughout the chapter, we endeavour to bring ‘aid’ and ‘debt’ literature together to highlight the importance of an integrated treatment of developmental effects of aid and debt in developing countries which have access to concessional windows as part of aid packages. We show that (a) despite abundant micro-level evidences that aid’s contribution to development is context specific, an answer to the question on whether “aid works” has been sought through an investigation of macroeconomic relationships, often with cross-country regression analyses; and (b) how research outputs have been selectively used to rationalise donors’ positions prevailed at times with profound implications for development outcomes of ‘recipient’ countries. It argues that policy conditionality attached to aid and debt relief as practiced through Washington and post-Washington consensus has created an unproductive environment for nurturing mutual trusts necessary for building institutional foundations and technical capacity for making governments truly accountable to domestic stakeholders in policy making and governance. It calls for an overhaul of ‘conditionality’, so that it is based on adherence to universally accepted codes of conduct and norms to basic human rights and governments’ efforts to achieve collectively agreed targets such as the SDGs. It should be acknowledged that successful development depends on long-term processes of institutional development, to which all parties could contribute as an equal partner through development cooperation. The chapter further presents the ways forward to make debt sustainable and aid work for development by designing efficient aid and debt contracts and move away from the austerity-dominated management of debt crisis to the investment-centred management for preventing debt crises from emerging.