It is well known that LDCs, at least until recently, have been very eager to accept foreign aid, even in its most stringent and restrictive forms. It has been given much attention to receiving foreign aid. A primary motive for receiving aid is political as foreign aid provides greater political leverage to the existing leadership to maintain its power and suppress opposition.

Another major reason is clearly economic in concept and practice. According to Todaro (1989), developing countries have often tended to accept uncritically the proposition that foreign aid is a crucial and essential ingredient in the development process. There are some successful cases such as Israel, Taiwan and South Korea. Hence, foreign aid supplements the scarce domestic resources of developing countries; it contributes towards the economy transforming structurally. It is also contributes to the achievement of developing countries' take-offs into self-sustaining economic growth. Therefore, the economic rationale for foreign aid in developing countries is largely on their acceptance of what they require to promote their economic development. Hence, conflicts generally arise, not out of any disagreement about the role of foreign aid, but over its amount and conditions. Todaro (1989) concluded that "naturally, developing countries would like to have more aid in the form of outright grants or long term low-cost aid with minimum strings attached" (Todaro, 1989, p.490).

Moreover, recipients use aid for commercial reasons as they shift resources from their destined projects or programmes to other non-productive purposes. This is known as the fungibility of aid93. It is argued that government are enable to alter their spending patterns to subvert the sectoral distribution of expenditure desired by donor countries.

Indeed Mosley indicates that in some countries reluctance to raise taxes, or to collect the taxes that are due, forces governments of these countries to drain some overseas aid into the recurrent budget94. He argues that the trend in tax effort is a good indicator for the extent to which foreign aid is switched into consumption.

The fungibility of foreign aid is a theoretical phenomenon. The government of a developing country adjusts its allocation of expenditure, which is equal to domestic resources plus foreign aid, between two goods or sectors to achieve its highest benefit.

The foreign aid funds designated for one project may be spent on another as government alters its expenditure pattern. More recently, Cashel-Cordo and Craig (1990) and Gang and Khan (1991) investigated the fungibility of foreign aid empirically.

White (1993) reached to conclusion that the impact of foreign aid on income may feed back into higher savings and there is a possibility that aid will lead to an increase in taxes and an increase in government expenditure in excess of the value of the aid inflows. "The impact of aid on these variables depends crucially upon the relationship between aid and private investment. If aid crowds out private investment then there is a greater possibility that aid will reduce taxes, and it may even reduce national income" (White, 1993, p.311).

Fungibility of foreign aid highlights the recipient motives for receiving aid. Indeed, foreign aid inflows are switched from productive purposes to non productive or wasteful forms of recurrent expenditure. These include enlarging the army, paying off debts, reducing taxes and reducing borrowing. Furthermore, recipient motives are not always directed towards poverty alleviation and benefiting the poor. This is apparent since property interests in developing countries are aligned to governments and thus the benefit of foreign aid goes primarily to the rich. Recipient governments rarely target aid and self loans to agricultural and rural areas. This is a contradiction in the objectives of aid which are primarily to alleviate poverty among the masses and increase growth rates.