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Abstract
The Commission for Africa (2005) and the United Nations (UN) Millennium Project have identified a need for donors to scale up aid flows to well-governed low-income countries, including Mozambique, to enable them to meet the Millennium Development Goals (MDGs). While large aid inflows can play an important role in helping countries achieve the MDGs, they also pose a number of macroeconomic challenges. Scaling-up scenarios are intended to illustrate a potential medium- to long-term macroeconomic outcome and to identify some of the key mea-sures and policies that would help countries absorb larger amounts of aid and use it efficiently (Gupta, Powell, and Yang, 2006). In practice, donors might be less likely to offer more aid, and recipient governments might be less likely to accept it, on a sustained basis if either party started to observe significant macroeconomic absorption problems—such as rising inflation, crowding-out of the private sector, or a serious loss of international competitiveness—and microeconomic capacity constraints, such as severe skill shortages, a deterioration in the quality of services, or other bottlenecks.1
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