Conditionality

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DEFINITION of 'Conditionality'

The requirements placed on the usage or distribution of money lent to another country. Conditionality is most often associated with aid money. International organizations, such as the International Monetary Fund (IMF) and World Bank, or individual countries can use conditionality when lending money to another country. The donor country requires that the country receiving the funds adhere certain rules directing the use of funds.

Conditions can range from provisions to reduce corruption to more controversial requests, such as improvement in human rights or reduction in deficit spending. The donor organization may also require that the funds be used toward a specific project rather than being left to the discretion of the receiving country.

INVESTOPEDIA EXPLAINS 'Conditionality'

Some argue that the use of conditions on aid money is controversial. Conditions imply that the donor country knows what the best use of funds are, or that the recipient country is unable to make the economic or political adjustments required to be a functioning entity. In some cases, conditionality can help push the receiving country toward improvement, while in others it might lead to poltical conflict in the receiving nation.

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