The idea that foreign aid should have a catalytic effect on other development processes and actors has a very long pedigree. There are two separable but related senses in which aid is catalytic: first, in promoting growth-enhancing change in domestic policies, infrastructure and institutions; and second, in being complementary to other development finance, specifically to long-term private capital flows. In today’s terms we can call these the ‘transformative’ and ‘crowding in’ twin-tracks of catalytic aid.
The term ‘catalytic’, borrowed from chemistry, refers to an agent that speeds up change processes in others. In the development community, only positive changes are intended. So, like ‘transparent’, the term has become aspirational – who would not want to be considered catalytic, all else being equal? But this encourages a liberal, occasionally self-serving use of the term.
This Background Note aims to probe some of the limits of the term to inform further analysis and policy-making – what precisely do we currently mean by ‘catalytic’ aid? How might we recognise it and make it operational? And what aid objectives and instruments prevalent today would a resolute shift to catalytic aid allocation principles exclude?