Cash or Kind?

Jan 29, 2026 Features / Columnists, Peeping Tom

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(Kaieteur News) – In policy debates, especially in developing and small open economies, it has become fashionable to argue that in-kind grants are preferable to cash grants because they supposedly create less instability in macroeconomic fundamentals. The claim sounds responsible, even prudent. After all, who wants inflation, exchange-rate pressure, or fiscal slippage? But on closer examination, this argument is far from airtight and, in some cases, rests on shaky assumptions.

Cash grants and in-kind grants differ mainly in how assistance is delivered and how recipients can use it. A cash grant provides money directly to beneficiaries, allowing them to decide whether to spend it on food, rent, transport, school expenses, or small business needs. An in-kind grant, by contrast, provides specific goods or services chosen by the state.

In Guyana, for example, the cement and steel grant gives building materials rather than cash, ensuring that the support is used for home construction or repairs. While cash grants offer flexibility and support local markets, in-kind grants limit choice but allow government to direct spending toward a particular purpose. At its core, the argument in favour of in-kind grants suggests that when governments give people cash grants, that money floods the economy, fuels excessive demand, pushes up prices, increases imports, and places pressure on foreign reserves. In-kind grants are said to avoid these dangers because the state controls what is distributed and how it is used.

There is some truth here. In economies with weak productive capacity, sudden large-scale cash injections can raise demand faster than supply can respond. That can lead to inflation, especially for basic goods. Cash grants can also be spent on imports, increasing demand for foreign currency and stressing exchange rates. These risks are real and should not be dismissed. However, it does not follow that cash grants are inherently destabilising, or that in-kind grants are inherently safe. Inflation is not caused simply by giving people cash. It depends on the size of the programme, how it is financed, whether it is phased over time, and whether domestic supply can expand. A modest, well-designed cash transfer funded sustainably is unlikely to upend macroeconomic stability.

By contrast, in-kind grants come with their own macroeconomic and institutional risks, which are often ignored in public discussions. First, in-kind grants can distort markets. When government steps in as a large buyer and distributor of goods, it can crowd out private suppliers, disrupt price signals, and create artificial shortages or surpluses. Over time, these distortions weaken the very markets that economies need for growth and resilience.

Second, in-kind programmes are administratively expensive. Goods must be procured, stored, transported, and distributed. These costs can be substantial, especially in countries with limited logistical capacity. What appears stable on the inflation front may, in reality, be placing hidden strain on the fiscal side of the economy. Third, and perhaps most troubling, in-kind grants are particularly vulnerable to rent-seeking. Rent-seeking occurs when individuals or groups try to gain income, advantages, or profits not by creating value or producing goods and services, but by manipulating the system. This often involves influence or corruption to capture benefits created by government policy.

In the context of in-kind grants, rent-seeking can take many forms. Contracts for supplying goods may be steered toward politically connected firms. Prices may be inflated because suppliers know government will pay. Distribution lists may be manipulated so benefits go to favoured groups rather than intended recipients. In some cases, goods are diverted and resold on the private market. None of this creates new wealth. It simply redistributes public resources to those best positioned to game the system.

The claim that in-kind grants are preferable because they do not affect the money supply is technically narrow and economically misleading. While in-kind grants do not place cash directly in beneficiaries’ hands, they are still financed with money—through taxes and therefore can influence the economy through fiscal channels. More importantly, macroeconomic outcomes depend on aggregate demand and resource allocation, not just on changes in the money supply. In-kind grants can raise demand and prices in specific markets, crowd out private activity, and create inefficiencies and rent-seeking, all of which can undermine stability.

Another weakness of the “in-kind is safer” argument is its assumption that governments know better than households how resources should be used. Cash grants give people choice. They allow families to prioritise food, transport, school supplies, medicine, or small business needs according to their circumstances. This flexibility improves welfare and often supports local markets, creating positive multiplier effects.

Macroeconomic stability should also be judged over the medium to long term, not just in the immediate aftermath of a policy. While in-kind grants may dampen short-term demand pressures, they can slow economic adjustment, suppress entrepreneurship, and entrench dependency on state distribution systems. Cash, when paired with sound macro management, can support recovery and growth.

None of this is to argue that in-kind grants have no role. But elevating them as a superior tool on macroeconomic grounds alone is misguided. Ultimately, stability does not depend on whether assistance is given in cash or kind. It depends on policy design, scale, timing, financing, and institutional quality. The real choice is not between cash and commodities, but between thoughtful economic management and simplistic assumptions dressed up as prudence.

(The views expressed in this article are those of the author and do not necessarily reflect the opinions of this newspaper.)

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