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The Fiscal Effects of Aid in Malawi

Author

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  • Sonja Fagernäs
  • Cedrik Schurich

Abstract

Working Paper 7 is the first of three ESAU monographs on the fiscal effects of aid - the two others covering Uganda (Working Paper 9) and Zambia (Working Paper 10). Their methodology and general conclusions are summarised in a separate Survey and Synthesis paper (Working Paper 11). The purpose of this research was to find out how aid has been absorbed through recipients’ fiscal processes with a view to better understanding how aid is effective in promoting growth. Each country paper combines historical and institutional analysis with the econometric analysis of time series data. In Malawi, growth has been slow and fitful, and there has been a record of uneven macroeconomic management, poor fiscal control and debt problems, often leaving public services underfunded. The government has practised fiscal dichotomy – allocating aid to the development budget, while financing its recurrent budget from revenue and domestic borrowing. The econometric evidence confirms that aid has been used to finance the development budget. It also shows that aid has, if anything, been a stabilising influence, being associated with higher domestic revenues and lower borrowing.

Suggested Citation

  • Sonja Fagernäs & Cedrik Schurich, 2004. "The Fiscal Effects of Aid in Malawi," Working Papers 7, Economics and Statistics Analysis Unit (ESAU), Overseas Development Institute.
    • Handle: RePEc:odi:wpaper:7
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    File URL: http://www.odi.org.uk/esau/publications/working_papers/Esau_7_Malawi.pdf
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    Keywords

    Fiscal; aid; aid effectiveness; Malawi; absorption; economic growth;
    All these keywords.

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