UN General Assembly
Panel Discussion on
Scaling Up Aid
October 20, 2006
Macroeconomic Issues and
Challenges of Scaling Up Aid
Presentation by
Elliott Harris, Advisor,
Policy Development and Review
Department, IMF
EDMS: 3092403v1
Introduction and Overview
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Scaling up to meet the MDGs
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Resources, policies, and institutions
Aid and the MDGs
Issues/Challenges

Absorbing the aid
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Fiscal and debt sustainability
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Predictability and volatility of aid flows
Scaling Up to Meet the MDGs

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More conducive external environment
More effective use of available
resources
Better policy planning and implementation
 Improved institutions
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More resources – external and domestic
Aid and the MDGs
Recognition of need for :
 massive increase in external resources
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changes in aid architecture
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donors to increase ODA—Aid to Africa to double
by 2010
aid effectiveness agenda
budget support; funding recurrent costs
improvements by recipients
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Good planning; strengthened systems
Absorptive capacity
Issues and Challenges
of Scaled up Aid

Predictability and volatility of aid flows

“Absorbing” the Aid

Fiscal sustainability

Debt management/sustainability
Planning and Implementing-Alternative Scenarios
For Scaling Up

Use of alternative scenarios
What could be achieved with more resources
 Identify improvements in policies and
institutions
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Scaled up macroeconomic frameworks :
consistent with macroeconomic stability
 balance ambition and realism

Predictability And Volatility
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Early commitments for the longer term

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For effective planning and budgeting
Non-volatile disbursements
For good economic management
 Steady effective implementation of
programs

Managing Aid Inflows “Absorbing” the Aid

“Absorption” - Using aid to finance higher
imports or reduce domestic resources used
for producing exports

real resource transfer from abroad, higher
current account deficit (excluding the aid)
“Spending” – A higher fiscal deficit
(excluding aid) that accompanies the aid
inflow
 “Right” mix depends on circumstances

Fiscal sustainability

Current versus future fiscal space
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Future cost implications
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Future aid dependency
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Effective service delivery and resource
management
Debt sustainability
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Not all the additional aid will be grants
Danger of renewed debt distress from
new borrowing
Debt sustainability analysis and for
debt management systems
Private capital flows and emerging
donors
Key Messages
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Countries: prepare early to use scaled up aid
 PRSs with coherent and costed scaled up programs
 Linked to MTEFs and annual budgets
 Strengthened institutions, service delivery
systems
 Alternative scenarios
Donors: predictable and longer-term commitments
and improved aid practices
Both: Careful analysis of fiscal and debt sustainability
Thank you