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....
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2010/01/11648941/potential-benefits-risks-increased-aid-flows-burundi http://hdl.handle.net/10986/19939 |
| Summary: | 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. |
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