Pity the Finance Minister: Issues in Managing a Substantial Scaling-Up of Aid Flows

Abstract

This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.Substantially scaling up of aid flows will require development partners to address many issues, including the impact of higher aid flows on: the competitiveness of aid recipients; the management of fiscal and monetary policy; the delivery of public services; behavioral incentives; and the rate of growth of the economy. Other issues will include the appropriate sequencing of aid-financed investments; balancing alternative expenditure priorities; the implications for fiscal and budget sustainability; and exit strategies from donor funding. Donors will need to ensure greater long-term predictability and reduced short-term volatility of aid. The international financial institutions can play a critical role in helping countries address these scaling-up issues. JEL Classification Numbers: F35, H30,O11,O23

Aid, spending strategies and productivity effects: A multi-sectoral CGE analysis for Zambia

“…As this sector is quantitatively very signi cant for the Zambian economy this e ect should be taken very seriously. These simulation results for production and trade generally lend support to the view of Heller [2005] who asks for aid in order to eliminate bottlenecks on the supply side by investment and increased imports of capital goods. A high proportion of aid should be invested especially with the aim to enhance productivity.…”

“…The increased de cit could either allow for increased imports, like e.g. Heller [2005] proposes, or for reduced exports. In all scenarios a mixture of both arises but some scenarios are biased in favor of increased imports whereas especially the consumption scenarios (NAIV, PUBCONS and TRANS) lead to decreasing exports.…”

13 ‘Big Push’ versus Absorptive Capacity: How to Reconcile the Two Approaches

“…In the short run, macroeconomic management of increased aid inflows may help to prevent an over-rapid rise of non-tradable relative prices, although sterilization of reserves can be only a transitory and partial solution (Heller 2005). More important is to consider the uses of aid as well as of public domestic resources.…”

“…In addition to considerations of 'alignment' and 'predictability' (we revert to these later), the Declaration of the Paris Forum on Aid Effectiveness in 2005 underlines the need for the 'harmonization' of procedures, and defines related indicators. However, to quote Heller (2005):…”

Financing Human Development : A Comparative Analysis

“…The empirical literature on Dutch disease shows a wide range of RER adjustments in response to strong increases in aid flows or private capital inflows, with the extent of the effects depending largely on the relative demand and supply effects across sectors, and thus on country-specific circumstances (Bevan, 2005;Heller, 2005;Bourguignon and Sundberg, 2006;Gupta and others, 2006).…”