Moving Money: Aid Fungibility In Africa

Abstract

The issue of the “fungibility” of aid, or the ability to indirectly transfer donor resources to non-targeted expenditures, is as old as foreign aid itself. This article presents a summary of the issue and then examines the empirical evidence for the existence of fungibility across developing countries and in particular, Africa. It is determined that aid is only slightly fungible at the macro-level (i.e. funds are diverted to tax relief) and a greater level of fungibility is observed at the meso-level (i.e. funds are transferred between sectors), with large variations among sectors and across countries. The number of donors present in a country appears to increase fungibility as well. However, it is advanced that fungibility may not be inherently bad for development, and that it is, at any rate, inevitable.