Foreign Aid Explained: Types, Leading Donors, and Global Impact

What Is Foreign Aid?

The term foreign aid encompasses various contributions—gifts, grants, or loans—that one nation offers to another. It extends beyond just capital, also covering essential food, supplies, and services like military and humanitarian assistance. This assistance often flows from economically advanced to developing nations, aiding in disaster response, conflict situations, or economic crises. The United States, known as a generous provider, leads in global aid contributions.

Aid can also come from religious organizations, non-governmental organizations (NGOs), or foundations. U.S. foreign aid usually refers to military and economic assistance provided by the federal government to other countries.

Exploring the Different Types of Foreign Aid

Foreign aid is any type of assistance that one country's government provides to another nation, usually from developed to developing nations. Governments may issue aid in the following forms:

• Money
• Food and supplies
• Medical assistance including doctors and supplies
• Humanitarian aid such as relief workers
• Training services including agricultural training
• Health care
• Education
• Assistance with infrastructure building
• Activities related to peacebuilding

Governments may make agreements with the countries to which they provide assistance. For instance, a developed nation may agree to provide grants to those in need after a natural disaster or during times of conflict, whether they provide any type of capital or humanitarian aid. Alternatively, a government may agree to issue loans to an allied nation that experiences economic uncertainty with special repayment provisions.

According to the Organisation for Economic Co-operation and Development (OECD)—an intergovernmental organisation with 38 member countries aimed at promoting sustainable economic growth—member countries contributed a record $223.7 billion in international aid in 2023.

The U.S. leads in generosity, says the Organisation for Economic Co-operation and Development (OECD), providing $66.04 billion in foreign aid in 2023. The remaining countries that were among the top five donors included:

• Germany: $36.68 billion 
• Japan: $19.6 billion
• United Kingdom: $19.11 billion
• France: $15.43 billion

The UN asks advanced nations to allocate at least 0.7% of their gross national income (GNI) to international aid. Norway, Luxembourg, Sweden, Germany, and Denmark are the only countries that met or exceeded this level. The total contribution of member countries, though, averaged 0.37%—much lower than the UN target.

The countries that received the most foreign aid from the U.S. for 2023 include Ukraine, Israel, Ethiopia, Jordan, and Egypt.

Key Factors and Challenges of Foreign Aid

Foreign aid estimates vary because of different agencies, funding methods, and aid categories in U.S. assistance. For instance, the Congressional Research Service (CRS)—a nonpartisan arm of Congress—the country spent $69.01 billion in foreign assistance during the 2023 fiscal year. That figure amounted to 1% to 1.5% of the total federal budget authority.

Aid can be provided by governments directly or through special federal agencies. For instance, the United States Agency for International Development (USAID) was created in 1961 to provide civilian aid. It provides assistance with education, environment, climate change, global health, crises and conflicts, food and agriculture, water, and human rights.

A Historical Overview of Foreign Aid

Foreign aid, also known as international or economic aid, isn't a new concept. The colonies were recipients of foreign military aid, particularly from France, during the American Revolution. During World War I, the U.S. government loaned the Committee for Relief in Belgium $387 million, much of which it later forgave.

U.S. foreign aid began in earnest during World War II. Before entering the war, the government began funneling funds and materials to the allied nations under the Lend-Lease program, which totaled $50.1 billion by August 1945. The United States also contributed $2.7 billion through the United Nations Relief and Rehabilitation Administration (UNRRA), beginning in late 1943.

For the four years following 1948, the U.S. gave $13 billion in aid to countries affected by the war such as the United Kingdom, France, and West Germany through the Marshall Plan. The Mutual Security Act of 1951 authorized around $7.5 billion in foreign aid per year until 1961. The amount of aid authorized by the Mutual Security Act in 1951 was approximately 2.2% of the country's gross domestic product (GDP).

The Bottom Line

Foreign aid is a voluntary transfer of resources from one country to another, primarily from developed to developing nations, in forms such as financial support, food, medical aid, and military assistance. It can be bilateral, involving direct government-to-government transfers, or multilateral, facilitated by organizations like the United Nations.

In 2023, the United States led in providing global foreign aid, although countries like Norway contributed a higher percentage of their gross national income. The statistics reflect the growing commitment to international assistance, underpinned by efforts to meet targets set by global entities such as the United Nations. Understanding the role of governmental agencies like USAID can enhance awareness of how foreign aid is both utilized and distributed globally.