Potential Benefits and Risks of Increased Aid Flows to Burundi

Burundi has experienced a significant increase in aid flows in recent years. Currently, about half of the budget is funded by aid, mostly grants. The high external assistance has, however, not yet translated into high and sustainable growth rates. This paper analyzes (i) the policy response of the government to the aid surge and its impact on macroeconomic variables; and (ii) the allocation of external assistance and its implications for growth. Since not all aid affects economic development in the same way, aid disbursements are disaggregated by sector as well as by their lag in impacting growth. The analysis shows that Burundi has mostly spent and absorbed increased aid flows, but has until now not suffered significantly from the possible negative effects of an appreciating exchange rate and the related loss of competitiveness, but the possibility of a Dutch disease effect remains a risk. The country s low growth performance, despite high aid inflows, is not necessarily a sign that aid is ineffective or exceeding Burundi s absorptive capacity. It reflects that a large share of aid has been allocated to either humanitarian and emergency aid or long-run growth enhancing sectors. Therefore, the lagged impact of aid on economic growth is not yet visible. Furthermore, the composition of the domestically financed budget is biased toward recurrent spending, and therefore not directly growth enhancing. In addition, low and often unpredictable aid disbursement ratios aggravate the bias away from investment and toward government consumption. To boost short-term growth, the share of aid allocated to productive sectors, such as agriculture and the supporting infrastructure, needs to be increased. Firm commitments and timely disbursements of aid by donors are essential and the Government of Burundi needs to strengthen its capacity and mechanisms for donor coordination.

Bibliographic Details

Main Authors:	Nielsen, Hannah, Madani, Dorsati
Language:	English en_US
Published:	World Bank, Washington, DC 2010-01
Subjects:	ABSORPTIVE CAPACITY, ACCOUNTING, AGGREGATE DEMAND, AID, AID ALLOCATION, AID DEPENDENCY, AID FLOWS, ALLOCATION OF FUNDS, ALLOCATION OF RESOURCES, AMORTIZATION, ANNUAL GROWTH, ARREARS, ARREARS ACCUMULATION, BALANCE OF PAYMENTS, BILL, BREAKDOWN OF EXPENDITURES, BUDGET SUPPORT, BUDGETARY PRACTICES, BUDGETARY PROCESS, BUDGETING, CAPACITY BUILDING, CAPITAL ACCOUNT, CAPITAL EXPENDITURE, CAPITAL FLOWS, CAPITAL FORMATION, CAPITAL OUTFLOWS, CENTRAL BANK, COMMERCIAL LAWS, COMMODITY MARKETS, CONSOLIDATION PROCESSES, CONSTRAINTS TO GROWTH, CONSUMPTION EXPENDITURE, CREDITOR, CREDITORS, CURRENCY APPRECIATION, CURRENT ACCOUNT, CURRENT ACCOUNT BALANCE, CURRENT ACCOUNT DEFICIT, DEBT RELIEF, DEBT SERVICE, DEBT STOCK, DEMOCRATIC GOVERNANCE, DEPRECIATION, DEVELOPED COUNTRIES, DEVELOPMENT ASSISTANCE, DEVELOPMENT GOALS, DEVELOPMENT ISSUES, DEVELOPMENT PARTNERS, DEVELOPMENT STRATEGIES, DISBURSEMENT, DISBURSEMENTS, DOMESTIC CURRENCY, DOMESTIC DEBT, DOMESTIC FUNDS, DOMESTIC RESOURCES, DOMESTIC REVENUE, DOMESTIC SAVINGS, DONOR COORDINATION, DUTCH DISEASE, ECONOMIC DEVELOPMENT, ECONOMIC GROWTH, ECONOMIC GROWTH RATES, ECONOMIC POLICY, ECONOMIC RECOVERY, ECONOMIC STABILITY, EFFICIENT ALLOCATION, EXCHANGE RATE, EXCHANGE RATE APPRECIATION, EXCHANGE RATES, EXPENDITURE, EXPENDITURES, EXPORT PERFORMANCE, EXPORTS, EXTERNAL AID, EXTERNAL ASSISTANCE, EXTERNAL DEBT, EXTERNAL FINANCING, EXTERNAL SHOCKS, FINANCIAL ACCOUNTABILITY, FINANCIAL CRISIS, FINANCIAL SECTOR, FINANCIAL SERVICES, FINANCIAL TRANSACTIONS, FISCAL ACCOUNTS, FISCAL BALANCE, FISCAL DEFICIT, FISCAL IMPACT, FISCAL POLICY, FIXED CAPITAL, FOOD AID, FOREIGN DIRECT INVESTMENT, FOREIGN EXCHANGE, FOREIGN INVESTMENTS, FOREIGN INVESTORS, FOREIGN RESERVES, GENERAL BUDGET SUPPORT, GOVERNMENT CONSUMPTION, GOVERNMENT EXPENDITURE, GOVERNMENT EXPENDITURES, GOVERNMENT POLICY, GOVERNMENT SECURITIES, GOVERNMENT SPENDING, GROSS FIXED CAPITAL FORMATION, GROWTH PERFORMANCE, GROWTH RATE, HEALTH SERVICES, HIGH INFLATION, HIGHER ALLOCATIONS, HIGHER EXPENDITURE, HIGHER INFLATION, HIGHER INTEREST, HIGHER INTEREST RATES, HOLDING, HUMAN CAPITAL, HUMANITARIAN AID, IMPORT, IMPORTS, INFLATION, INFLATION DIFFERENTIAL, INFLATION RATE, INTEREST PAYMENTS, INTEREST RATE, INTEREST RATE POLICY, INTEREST RATES, INTERNATIONAL BANK, INTERNATIONAL DEVELOPMENT, INTERNATIONAL FINANCIAL MARKETS, INTERNATIONAL RESERVES, INTERNATIONAL TRADE, INVESTING, INVESTMENT CLIMATE, INVESTMENT EXPENDITURES, INVESTMENT LEVEL, INVESTMENT LEVELS, INVESTMENT RATE, INVESTMENT SPENDING, LOAN, LONG-RUN DEBT, LOSS OF COMPETITIVENESS, MACROECONOMIC MANAGEMENT, MACROECONOMIC VARIABLES, MINISTRY OF FINANCE, MONETARY FUND, MONEY SUPPLY, NATURAL DISASTERS, NET INFLOWS, NET LENDING, NOMINAL EXCHANGE RATE, OPTIMAL CHOICE, PETROLEUM PRICE, POLICY RESPONSE, POLITICAL INSTABILITY, POVERTY REDUCTION, POVERTY-REDUCING EXPENDITURES, PRICE INCREASES, PRIVATE CONSUMPTION, PRIVATE FUNDS, PRIVATE INVESTMENT, PRIVATE SECTOR, PROGRAMS, PUBLIC CAPITAL, PUBLIC DEBT, PUBLIC EXPENDITURE, PUBLIC EXPENDITURE MANAGEMENT, PUBLIC EXPENDITURES, PUBLIC EXTERNAL DEBT, PUBLIC FINANCE, PUBLIC HEALTH, PUBLIC INSTITUTIONS, PUBLIC INVESTMENT, PUBLIC SERVICES, REAL EFFECTIVE EXCHANGE RATE, REAL EXCHANGE APPRECIATION, REAL EXCHANGE RATE, REAL EXCHANGE RATE APPRECIATION, RECURRENT EXPENDITURE, RECURRENT EXPENDITURES, REGRESSION ANALYSIS, RELATIVE PRICE, REPAYMENT, RESERVES, RESOURCE MANAGEMENT, RETURN, RETURNS, SANITATION, SCHOOL FEES, SERVICE DELIVERY, SHORTFALLS, SOCIAL EXPENDITURES, SOCIAL INFRASTRUCTURE, STRUCTURAL ADJUSTMENT, SUPPLY CONSTRAINTS, SUSTAINABLE GROWTH RATES, TAX, TAX REVENUE, TECHNICAL ASSISTANCE, TOTAL EXPENDITURE, TOTAL EXPORTS, TOTAL IMPORTS, TOTAL PUBLIC EXPENDITURE, TRADABLE GOODS, TRADE BALANCE, TRADING, TRADING PARTNERS, TRANSPARENCY, WORLD DEVELOPMENT INDICATORS,
Online Access:	http://documents.worldbank.org/curated/en/2010/01/11648941/potential-benefits-risks-increased-aid-flows-burundi https://hdl.handle.net/10986/19939
Tags:	Add Tag No Tags, Be the first to tag this record!