Moving Money: Aid Fungibility In Africa

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 examines the empirical evidence for the existence of fungibility across developing countries, particularly in Africa. It determines that aid is only slightly fungible at the macro level (where funds are diverted to tax relief) but that a greater level of fungibility is observed at the meso level (i.e. funds 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, fungibility may not be inherently bad for development