Predictability of Budget Aid: Experiences in Eight African Countries

Oya Celasun, Macroeconomic Studies, Research Department, International Monetary Fund, presented Predictability of Budget Aid: Experiences in Eight African Countries at this CGD seminar. Steve Radelet, Senior Fellow, Center for Global Development, served as chair.

Abstract: Given the often severe financing constraints faced by low-income countries, predictability of budgetary aid flows is an important condition for the planning and uninterrupted implementation of development programs. This paper reviews aspects of aid predictability using a newly constructed dataset for eight African countries with longstanding IMF engagement during 1994-2004. Errors in projecting budget aid for any given year arising from both disbursement shortfalls and excesses remain large, at close to 1 percent of GDP on average. Adjustment needs in case of aid shortfalls are further exacerbated by the fact that they are accompanied by tax revenue shortfalls and current expenditure overruns. Countries adjust to unexpected aid shortfalls through higher domestic bank financing and cuts in domestic investment spending.