Front Matter

Front Matter

Author(s):
Yongzheng Yang, Robert Powell, and Sanjeev Gupta
Published Date:
March 2006
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    © 2006 International Monetary Fund

    Production: IMF Multimedia Services Division

    Cover Design: Julio Prego

    Typesetting: Alicia Etchebarne-Bourdin

    Cover Photo: Brent Stirton/Getty Images

    East London, South Africa: Children play on a swing at a community daycare center for disadvantaged children.

    Cataloging-in-Publication Data

    Gupta, Sanjeev.

    • Macroeconomic challenges of scaling up aid to Africa: a checklist for practitioners/Sanjeev Gupta, Robert Powell, and Yonzheng Yang—Washington, D.C.: International Monetary Fund, [2006].

      • p. cm.

    ISBN 1-58906-505-0

    Includes bibliographical references.

    1. Economic assistance—Africa—Handbooks, manuals, etc. 2. Africa—Economic policy—Handbooks, manuals, etc. 3. Monetary policy—Africa—Handbooks, manuals, etc. 4. Debts, External—Africa—Handbooks, manuals, etc. I. Powell, Robert, 1962–II. Yang, Yongzheng.

    HC800.G87 2006

    Disclaimer: This publication should not be reported as representing the views or policies of the International Monetary Fund. The views expressed in this work are those of the authors and do not necessarily represent those of the IMF, its Executive Board, or its management.

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    Contents

    Glossary of Terms and Abbreviations

    CPI

    Consumer price index

    CPIA

    Country Policy and Institutional Assessment (World Bank)

    DfID

    Department for International Development (U.K.)

    DSA

    Debt sustainability analysis

    DTIS

    Diagnostic Trade Integration Study

    G-8

    Group of Eight industrial countries

    HIPC

    Highly indebted poor country

    IF

    Integrated Framework

    IMF

    International Monetary Fund

    ITC

    International Trade Center

    LIC

    Low-income country

    MCA

    Millennium Challenge Account (U.S.)

    MDGs

    Millennium Development Goals

    MIC

    Middle-income country

    MTEF

    Medium-Term Expenditure Framework

    NGO

    Nongovernmental organization

    NPV

    Net present value

    ODA

    Official development assistance

    OECD

    Organization for Economic Cooperation and Development

    PEM

    Public expenditure management

    PEPFAR

    President’s Emergency Program for AIDS Relief (U.S.)

    PER

    Public Expenditure Review (World Bank)

    PRSP

    Poverty Reduction Strategy Paper

    SSA

    Sub-Saharan Africa

    UN

    United Nations

    UNCTAD

    United Nations Conference on Trade and Development

    UNDP

    United Nations Development Program

    VAT

    Value-added tax

    WHO

    World Health Organization

    WTO

    World Trade Organization

    Preface

    In 2005, major donor countries of the Organization for Economic Cooperation and Development indicated their intention to increase significantly the amount of external assistance they provide to developing countries in the next decade. The sharpest increase is likely to be in Africa, where a scaling up of external assistance, including comprehensive debt relief, will aim to support individual countries’ efforts to achieve the Millennium Development Goals (MDGs). This handbook was prepared in the Policy Wing of the IMF’s African Department as a practical guide for assessing the macroeconomic implications and challenges associated with a significant scaling up of aid to African countries. Its purpose is to provide a resource for policymakers, practicing economists in African countries, and staff of international financial institutions and donor agencies who participate in the preparation of medium-term strategies for individual African countries, including in the context of Poverty Reduction Strategy Papers (PRSPs). A version of this was published in September 2005 as an IMF Working Paper (WP/05/179).

    When aid flows increase, a country has to choose how much to absorb and how much to spend. When aid is fully absorbed, a real appreciation of the exchange rate is likely, at least in the short run. In a number of countries, aid surges have been associated with real exchange rate depreciation, suggesting that supply effects have more than offset the impact of higher domestic demand on the nontradable sectors or, alternatively, that the aid has not been fully absorbed. Developing a good understanding of how a country will spend additional aid, as well as the appropriate policy response of the central bank, is therefore critical to projecting the likely macroeconomic impact. This handbook helps policymakers and economists develop various “scaling-up scenarios” to assess such contingencies. Scaling-up scenarios are not forecasts. They are tools to help countries identify important policy issues involved in using higher aid flows effectively and to help both donors and recipients provide a regularly updated vision for strengthening the potential impact of aid on growth, especially through policies that strengthen economic governance. Governments that receive higher aid flows also face the challenge of what to do if and when such aid flows are interrupted or reduced, and hence they need an “exit strategy” as part of the scaling-up scenario.

    Benedicte Vibe Christensen

    Deputy Director

    African Department

    Acknowledgments

    The authors would like to thank Kevin Carey, Jakob Christensen, Markus Haacker, and Smita Wagh for their contributions, and David Bevan for providing extensive comments on earlier drafts. Very helpful comments were also received from IMF colleagues in the African, Fiscal Affairs, Policy Development and Review, and Research Departments, as well as the World Bank and the United Kingdom’s Department for International Development (DfID). The authors are, however, solely responsible for any remaining errors. Linda Griffin Kean of the External Relations Department of the IMF edited and coordinated the publication of the paper, and Alicia Etchebarne-Bourdin, also of the External Relations Department, typeset the book.

    This publication should not be reported as representing the views or policies of the International Monetary Fund. The views expressed in this work are those of the authors and do not necessarily represent those of the IMF, its Executive Board, or its management.

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