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Aid and Fiscal Deficits: Lessons from Uganda on the Implications for Macroeconomic Management and Fiscal Sustainability

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  • Martin Brownbridge
  • Emmanuel Tumusiime-Mutebile
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    Abstract

    This article contributes to the ongoing debate on the macroeconomic management of large aid inflows to low-income countries by analysing lessons drawn from Uganda, where the fiscal deficit before grants, which was largely aid-funded, doubled to over 12% of GDP in the early 2000s. It focuses on the implications of the widening fiscal deficit for monetary policy, the real exchange rate, debt sustainability and the vulnerability of the budget to fiscal shocks, and argues that large fiscal deficits, even when funded predominantly by aid, risk undermining macroeconomic objectives and long-run fiscal sustainability. Copyright 2007 Blackwell Publishing Ltd.

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    Bibliographic Info

    Article provided by Overseas Development Institute in its journal Development Policy Review.

    Volume (Year): 25 (2007)
    Issue (Month): 2 (03)
    Pages: 193-213

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    Handle: RePEc:bla:devpol:v:25:y:2007:i:2:p:193-213

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    Cited by:
    1. Christopher Adam & Stephen O’Connell & Edward Buffie, 2007. "Monetary Policy Rules For Manging Aid Surges In Africa," WEF Working Papers 0016, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
    2. Mumtaz Hussain & Andrew Berg & Shekhar Aiyar, 2009. "The Macroeconomic Management of Increased Aid: Policy Lessons from Recent Experience," Review of Development Economics, Wiley Blackwell, vol. 13(s1), pages 491-509, 08.
    3. Mayr, Karin, 2010. "Optimal Deficit and Debt in the Presence of Foreign Aid," World Development, Elsevier, vol. 38(1), pages 19-27, January.

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