The Fiscal Effects of Aid in Zambia

Working Paper 10 forms part of a set of four ESAU papers on the fiscal effects of aid in African countries. The others are on Malawi (Working Paper 7), on Uganda (Working Paper 9) and a literature Survey and Synthesis (Working Paper 11). The first, historical and analytical background, part of the paper charts the course of Zambia’s economic decline and impoverishment from the high point reached in the early 1970s to the 1990s, when a tentative recovery began in the wake of radical but incomplete reforms. The fall in mining revenues caused a fall in real public expenditure only partly offset by substantial aid inflows, and public services declined. The second part, devoted to the analysis of time-series data from the early 1970s to the late 1990s, shows that the main effect of aid has been to augment the capital budget, though it has also temporarily raised recurrent expenditure. Large aid inflows have not produced satisfactory development results because they have been overwhelmed by adverse economic circumstances and uncertain economic and public expenditure management.