Uganda’s persistent poverty confronts external donors with the classic Samaritan’s Dilemma: altruism dictates generous budget support, yet the same funds risk being diverted through misappropriation and patronage networks. Combining a three-year panel of World Bank–financed projects (2019–2023) with elite interviews of Ugandan line ministries and a donor survey covering the EU, UK, US, and Nordic agencies, we show that:

(i) every 1% increase in direct budget support is associated with a 0.8% rise in perceived leakage;

(ii) fear of reputational loss makes donors “over-monitor” but under-enforce, creating a Stackelberg game in which the recipient government anticipates continued disbursements despite non-compliance; and

(iii) the equilibrium outcome is a low-effort, high-aid trap that neither reduces poverty nor satisfies fiduciary concerns.

Proposed institutional innovations:

We identify two institutional innovations—ring-fenced social-sector tranches and third-party escrow accounts—that credibly tie future tranches to independently verified service-delivery indicators. Counterfactual simulations suggest these devices could cut leakage by up to 34% and raise donor welfare by the equivalent of 6% of annual aid commitments.

Conclusion:

The findings extend Buchanan’s original Samaritan’s Dilemma to a multi-donor, bureaucratic setting and offer a roadmap for reconciling the ethical imperative to help Uganda’s poor with the strategic imperative to protect scarce aid resources.