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Paper long abstract

External development aid and national fiscal capacity of post-conflict states are not completely comprehended although they are the key to sustainable peacebuilding. Although a significant body of literature has been done to investigate the effectiveness of aggregates aid, less effort has been exerted to address the impacts of aid dependence on the structure and independence of national budgets in weak political settings. This paper examines the effects of different levels of dependence on official development assistance (ODA) on the budget structure, expenditure priorities of the government and the fiscal policy space of governments that come out of the armed conflict.

It uses an original panel sample that includes data on about 18 post-conflict countries for the period 2000-2022 based on combining OECD-DAC disbursement data, IMF Government Finance data, and governance indicators offered by World Bank in their Worldwide Governance Indicators. The research, based on instrumental variable corrections of endogeneity on fixed-effects estimation, investigates the claim that high levels of aid to budget are systematically related to lower levels of discretionary spending, sectoral allocations, and labour constrained revenue mobilisation activities.

The initial descriptive patterns are that the presence of heavy aid dependency states is characterised by consistent underinvestment in locally funded social areas and an excessive allocation of resources to security and debt repayment-patterns which may be attributed to conditionality and earmarking measures by donors. The article also questions the issue of heterogeneity by aid modalities by differentiating between general budget support, project-based assistance, and humanitarian flows.