The Fiscal Effects of Foreign Aid in Lesotho

Authors

  • Retselisitsoe Isaiah Thamae
  • Lineo Gloria Kolobe

Abstract

Lesotho has historically depended on foreign aid. This paper seeks to understand the fiscal effects of such aid inflows on Lesotho’s economy over the period 1982-2010. The cointegration test results indicate a strong negative long-run association between recurrent expenditure and foreign aid, and a positive but marginally significant relationship between aid and capital expenditure. These findings provide lack of evidence for the presence of aid fungibility since foreign aid is not diverted to non-development expenditure. The Lesotho Highlands Water Project also seems to have been effective in terms of changing government budgetary allocations and has had a positive impact on development spending. This supports the notion that provision of loans instead of grants results in an effective use of government funds.

DOI: 10.5901/mjss.2016.v7n1p116

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Published

2016-01-02

How to Cite

The Fiscal Effects of Foreign Aid in Lesotho. (2016). Mediterranean Journal of Social Sciences, 7(1), 116. https://www.richtmann.org/journal/index.php/mjss/article/view/8651