Fungibility and the Choice of Aid Modalities

The 'right' choice of instruments and modalities to provide aid to developing countries in support of poverty reduction and economic development is arguably the most contested issue in the current international debate on aid effectiveness. A particular controversy exists around the provision of aid in the form of budget support to avoid high transaction costs and other shortcomings of traditional project-based aid. Critics argue that this kind of 'programme aid' involves unacceptably high fiduciary risks due to the fungibility of budgetary funds.