Aid volatility and budget resilience in fragile states
Issue 1
The issue
The overwhelming majority of fragile states remain heavily reliant on Official Development Assistance (ODA). But how resilient are their budgets to aid shocks, and do stronger institutions offer protection?
Some simple findings from correlation analysis*
Variable Source
Net ODA (USD millions) - from OECD Creditor Reporting System (CRS)
ODA Volatility (3yr std dev) - Derived from OECD CRS data
Open Budget Index - Transparency Score - from International Budget Partnership – OBS
Open Budget Index - Participation Score - from International Budget Partnership – OBS
Open Budget Index - Oversight Score - from International Budget Partnership – OBS
What do the findings show?
Net ODA has a strong positive correlation with Transparency, Participation, and Oversight Scores (~0.52–0.56), suggesting that more transparent and participatory countries may attract more aid.
ODA Volatility is moderately correlated with institutional scores (~0.45–0.49), indicating that countries with stronger institutions may experience more visible or diverse aid flows—but not necessarily less volatility.
Transparency, Participation, and Oversight Scores are very strongly correlated with each other (~0.81–0.96), reflecting high institutional coherence.
What do these mean
Stronger budget institutions do not necessarily buffer countries from aid volatility. In fact, countries with better governance may:
Attract more diverse donors, leading to more variable flows.
Be more transparent about volatility, making it more visible in data.
Be more integrated into global aid systems, which are themselves volatile.
Meanwhile, low-transparency countries may appear more stable due to limited donor engagement or underreporting.
What should be done
Resilience in fragile states may not be about reducing aid volatility, but about managing it effectively. This includes building fiscal buffers, adopting flexible budgeting practices, and strengthening aid coordination mechanisms. Good governance doesn't eliminate shocks – it simply equips countries the capacity to absorb and adapt to them.
Countries analysed are based on the World Bank’s FY25 list of Fragile and Conflict-Affected Situations (FCS):
Afghanistan, Burkina Faso, Cameroon, Central African Republic, Congo (Democratic Republic), Ethiopia, Haiti, Iraq, Lebanon, Mali, Mozambique, Myanmar, Niger, Nigeria, Somalia, South Sudan, Sudan, Syrian Arab Republic, Ukraine, West Bank and Gaza, Yemen (Republic of).
*Remember: Correlation does not imply causality!