Is Foreign Aid a Loan? We Explain

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Foreign aid is financial, or material assistance given by donor countries to help nations facing conflicts, disasters or poverty. Some countries, such as the US, UK, France and Germany give millions of dollars each year in foreign aid. This raises the question, what do they expect in return? Do countries that receive foreign aid have to pay it back?

Foreign aid is not a loan. It is aimed to alleviate human suffering and help communities recover from crises. Countries that receive international aid do not have to pay it back. Foreign aid is given voluntarily by donor countries and they do not expect it to be repaid.

Now we know international aid is not a loan, let’s explore why donor countries to do not expect foreign aid to be repaid…

Why Foreign Aid is Not a Loan

There are several reasons why richer nations spend a proportion of their GBP on international aid and do not expect it to be repaid. The first, and probably most important, is to help people in poorer countries affected by disasters, poverty or conflicts. People in richer countries genuinely believe that assisting people in need in countries that lack the resources to help their own populations is the right thing to do.

People in richer countries do not give foreign aid as a loan because they want the money to be used to help people in need of assistance.

The second reason why countries given foreign aid and don’t expect it to be repaid is to tackle global security issues. Communities falling into poverty or countries being unable to recover from disasters can create instability. This can be a breeding ground for groups, such as international terror, that can in-turn threaten richer countries.

Providing aid helps communities prosper and countries remain stable, decreasing the risk of poverty and crises creating global security threats.

Another reason countries do not given foreign aid as loan is because it is used to tackle global issues that can also affect richer countries. An example of this is climate change. Nations give international aid to poorer countries on the frontlines of climate change to mitigate it’s impacts and help them transition towards greener economies.

Giving foreign aid and not having it repaid is worth it to developed countries as it can help developing countries address global challenges that would affect all nations, but that poorer nations do not the resources to address themselves.

A further big reason why countries give foreign aid not as a loan is to build international prestige. Essentially, being rich enough to give some of your money away to poorer countries shows that you are a major international power. There are very few nations wealthy enough to provide significant sums in foreign aid and they do so partly to build international clout.

Countries give international aid and do not expect it to be repaid as a way to build influence in countries and regions around the world. Most countries provide foreign aid to nations that are strategically important to them. Developed countries also give international aid as a way to build alliances and support countries and governments that they wish to see succeed.

Essentially, foreign aid is not given as a loan because it builds relationships and gives a degree of sway for richer countries over poorer ones.

The final reason countries do not lend foreign aid but give it is because they have a moral obligation to. It would not be right for rich countries to stand by as people in less developed countries face significant hardships brought on by disasters, conflicts and crises. Developed countries give foreign aid, and do not have it repaid, because it is the right thing to do.

What Do Countries Expect in Return for Foreign Aid?

If foreign aid is not given as a loan, and countries that receive it do not need to pay it back, then what do countries get in return for their international aid spending?

The biggest thing donor countries expect from their foreign aid spending is that it helps people in need. People in richer countries believe that they should use a proportion of their national income to assist people in poorer countries and crises. Essentially, they don’t expect any material in return apart from to alleviate the suffering of others. This is why they do not expect foreign aid to be repaid.

Foreign aid is also partly given by donor countries because it is in their own interests. They plan for some of the money to be used to tackle issues such as global terror, climate change and potential pandemic diseases in poorer countries. Countries that give international aid expect it to address issues that may directly or indirectly affect their populations too.

Another thing countries that give international aid expect in return is closer economic, cultural and political ties with recipient countries. Although the main aim of foreign aid is to help poorer countries and communities facing crises, it cannot be ignored that many donor countries also use it as a way to build connections with developing countries.

As nations that give foreign aid expect to have closer ties with countries that receive it – it is another reason they do not give aid as a loan.

Nations give international aid expect to receive a degree of international and diplomatic support from countries that receive a lot of aid. Again, the main aim of foreign aid is to help people. However, foreign aid can also be tied to diplomatic support, even if it is not stated openly. Donor countries know that giving a lot of foreign aid to a developing country will help build support from them in the global community.

A final thing that donor countries expect in return for their foreign aid spending, and why it is not given as loan, is to develop markets for their own businesses. As countries become richer, they are more able to purchase goods from developed markets. This helps boost the economies of richer nations. A key reason why foreign aid is given to because it is proven to benefit the donor countries economies.

Foreign Aid Vs Foreign Debt: The Differences

International aid is very different to foreign debt. Although both are methods that richer countries can use to help less developed ones, there are several key aspects that separate the two. Let’s take a look.

The biggest difference between foreign aid and foreign debt is that foreign aid does not need to be repaid, whereas foreign debts do. International aid is not a loan but is given to help poorer countries address crises or poverty. As we discussed, there are a wide range of reasons why countries give international aid and do not expect it to be paid back.

Foreign debt, on the other hand, is a loan. Countries that take on foreign debts agree to conditions of repayment that must be met. This is a big reason why foreign aid and foreign debt are not the same. Most foreign debts are repaid over many decades; however, it is vitally important that countries that take on foreign loans repay them in full.

Another difference between foreign aid and foreign debt is who provides the money. Foreign aid is almost always given by donor governments, international bodies or charitable organisations. It is not given for profit, so businesses or banks do not give foreign aid.

The biggest foreign aid donors are national government’s such as the UK, US and France, or international bodies such as the UN, World Bank or EU. There are also many NGOs that give foreign aid.

Foreign debt, in contrast, is given by governments and private businesses. As foreign debts are loans that must be repaid, they are given to make a profit as well as to help poorer countries. Charitable organisations and NGOs do not give foreign debt loans. Some international organisations, such as the International Monetary Fund (IMF) and World Bank do give foreign debt loans, but the UN does not.

The fact that foreign debt must be repaid, with interest, changes the organisations that are willing, and able, to give loans.

A difference between international aid and foreign debt is that aid is given only to poorer and developing countries, whereas many rich countries also take on foreign debt. As foreign aid is aimed at tackling disasters, conflicts and helping people living in poverty, it is only given to low- and middle-income countries and nations facing crises they cannot overcome themselves.

Foreign debt is different to foreign aid because it is taken by both rich and poor countries. Many countries in the world have foreign debt, including America, UK, France, Italy and Australia. Some developed countries actually have huge amounts of foreign loans. Most low- and middle-income countries take foreign loans too, marking a key difference between international aid and foreign debt.

A further difference between foreign aid and foreign debts is that international aid can be given as financial support as well as material resources. When countries are hit by crises, or working to fight poverty, often they need material goods such as food, supplies and equipment. Many international aid donors provide a mixture of monetary aid and material aid.

Foreign debt is not the same as international aid because foreign debt loans are always given in monetary terms. This allows countries that receive foreign loans to spend the money as they require. It also allows them to spend borrowed money on projects that international aid would not necessarily fund. The way foreign aid and foreign debt loans are given is a key difference between them.

The final way that foreign aid and foreign debt are not the same is that foreign debt is accrued only be governments, whereas international aid can be given directly to people or to local organisations. Foreign debt is a loan a government takes from an international creditor. Although many organisations can take loans internationally, the term foreign debt is only used to account for international loans taken by governments.

Foreign aid is different to foreign debt because it is given to governments as well as directly to beneficiaries and local organisations. When countries are overcome by crises or have systemic issues and poverty, international donors provide aid. However, a large proportion of this aid is channelled through NGOs to go straight to people in need and local partners working on the frontlines. Only a proportion of foreign aid is paid directly to national governments.


Duncan is the founder of Humanitarian Careers. With over ten years experience in the aid industry across fifteen countries, Duncan set-up Humanitarian Careers to help people launch their own career in international aid.