This article contributes to the ongoing debate on the macroeconomic management of large aid inflows to low-income countries by analysing lessons drawn from Uganda, where the fiscal deficit before grants, which was largely aid-funded, doubled to over 12% of GDP in the early 2000s. It focuses on the implications of the widening fiscal deficit for monetary policy, the real exchange rate, debt sustainability and the vulnerability of the budget to fiscal shocks, and argues that large fiscal deficits, even when funded predominantly by aid, risk undermining macroeconomic objectives and long-run fiscal sustainability.
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Document Type: Research Article
The former macroeconomic adviser to the Ministry of Finance, Planning and Economic Development, Uganda. ( )., Email: [email protected]
Governor, Bank of Uganda. and formerly Permanent Secretary/Secretary to the Treasury, Ministry of Finance, Planning and Economic Development, Uganda.
Publication date: March 1, 2007