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Mr. Kevin Fletcher, Mr. Sanjeev Gupta, Mr. Duncan P Last, Mr. Gerd Schwartz, Mr. Shamsuddin Tareq, Mr. Richard I Allen, and Ms. Isabell Adenauer

Abstract

The international community has committed to scaling up aid and improving aid delivery to low-income countries to help them meet the Millennium Development Goals (MDGs). The March 2002 Monterrey Consensus called on donors and international financial institutions to provide additional financing, improve aid predictability, and ensure that aid is aligned with national priorities. Recipient countries, on the other hand, have committed to implementing appropriate policies, strengthening institutions, and enhancing governance to ensure that aid is used effectively. At the 2005 Gleneagles Summit, the Group of Eight (G-8) countries committed to significantly increasing the amount of development assistance they provide to the low-income countries over the next decade. Specifically, donors committed to double aid to sub-Saharan Africa by 2010 (G-8, 2005).

Mr. Peter S. Heller and Mr. William C. Hsiao

Abstract

Whether working on a low-income country or an advanced economy, it is important that macroeconomists be aware of issues in health economics and health policy. Health care has gained prominent recognition in development. The United Nations (UN) Millennium Development Goals (MDGs) set 10 specific targets to be achieved by 2015, of which three explicitly pertain to health. Research studies document that millions of households in developing nations are impoverished each year by health expenditures, retarding poverty alleviation efforts, and an emerging body of research shows that investments in health can have a significant effect on economic development (Bloom and Canning, 2000; Fogel, 2004; and Bloom, Canning, and Sevilla, 2004). HIV/AIDS has undermined the development prospects of a number of African countries and threatens to weaken the growth momentum of several important Asian economies. For middle-income economies, transition economies, and industrial countries, the challenge posed by the health sector for macroeconomists differs, but is no less daunting. Increasingly, pressures emerging from the health sector—in part owing to the aging of populations and in part due to the rapid pace of technological change in the medical sector—are affecting fiscal sustainability, inflation, and possibly even the current account of the balance of payments.

Mr. Kevin Fletcher, Mr. Sanjeev Gupta, Mr. Duncan P Last, Mr. Gerd Schwartz, Mr. Shamsuddin Tareq, Mr. Richard I Allen, and Ms. Isabell Adenauer

Abstract

The first step in establishing a medium-term resource envelope is to collect information on the intentions of official and private donors. Governments typically lack information on private aid flows, and a part of the aid from official sources is also provided outside the budget. The increase in the average number of donors per country, as well as an increase in the number of aid channels, has complicated the task of gathering accurate information on external flows. The average number of donors per country has increased from about 12 in the 1960s to more than 30 during 2001–05 (World Bank, 2007a). In some sectors, such as health, aid channels have also proliferated, stretching the already weak capacity of low-income countries. Governments should encourage private aid organizations to strengthen their representation in recipient countries, while official donors should reach out to key private donors and invite them to participate in existing donor coordination structures.

Mr. Peter S. Heller and Mr. William C. Hsiao

Abstract

As a general rule, issues of health care policy have not generally been seen as the domain of macroeconomists. Only in recent years, with the report of the World Health Organization’s (WHO) Commission on Macroeconomics and Health (CMH) (WHO, 2001, 2002), has there been a greater focus on why health issues are relevant to macroeconomic policymakers and, in particular, ministers of finance. That report also provided further support for the prominence of health goals (for example, reduced infant and maternal mortality rates as well as reduced prevalence rates for HIV/AIDS, malaria, and tuberculosis) in formulating the MDGs. The CMH initiative principally sought to demonstrate that progress in improving health in low-income countries could be a critical factor influencing the growth potential of a country. In particular, the CMH report explored the various ways in which better health status could improve the quality of the labor force; enhance productivity, in both the short and the long run; limit the extent to which catastrophic illnesses can lead to households falling into poverty; raise household saving rates; and reduce fertility rates.3

Mr. Kevin Fletcher, Mr. Sanjeev Gupta, Mr. Duncan P Last, Mr. Gerd Schwartz, Mr. Shamsuddin Tareq, Mr. Richard I Allen, and Ms. Isabell Adenauer

Abstract

The IMF’s advice and program design encourage aid recipients to spend all aid fully and effectively. How much and how fast scaled-up aid should be spent over the medium term is a function of the following:

Mr. Peter S. Heller and Mr. William C. Hsiao

Abstract

Certain basic facts about the health sector and health care are not widely known. This section explains what macroeconomists should know on this subject as they participate in the formulation of health policies.

Mr. Kevin Fletcher, Mr. Sanjeev Gupta, Mr. Duncan P Last, Mr. Gerd Schwartz, Mr. Shamsuddin Tareq, Mr. Richard I Allen, and Ms. Isabell Adenauer

Abstract

Aid volatility complicates fiscal policy implementation. Aid flows are more volatile than revenues (Bulíř and Hamann, 2007) and significantly more volatile than remittances (Gupta, Pattillo, and Wagh, 2007). Moreover, such volatility has increased over time. The relative volatility of aid, even for HIPCs, with respect to revenue (when variables are expressed as a share of GDP) has increased to 62 in 2000–03 compared to 25 in 1995–98 (Bulíř and Hamann, 2007) (see Appendix 1). This problem is likely to worsen, for two reasons. First, even if the volatility of aid does not change, a larger aid volume implies that a larger portion of the budgetary spending would be aid financed and thus subject to volatility. Second, the volatility of aid itself may increase because of shifts in the composition of aid away from project aid and toward budget support and program loans. A rising share of budget support can aggravate aid volatility because of the inability of donors to make long-term commitments for budget support.

Mr. Peter S. Heller and Mr. William C. Hsiao

Abstract

Although specific issues confront nations at different stages of development, several issues confront all nations throughout the world. We first present the universal issues, then the ones for each stage.

Mr. Peter S. Heller and Mr. William C. Hsiao

Abstract

Like other socioeconomic systems, a health system is structured by state action or inaction to serve certain social purposes. A state makes conscious decisions in structuring the system to achieve certain objectives or takes no action, allowing the system to become a laissez-faire free market system. Simply put, a health system is a means to an end. It exists and evolves to serve societal needs. Under this paradigm, a health system is a set of relationships in which the means—structural elements of the system—are causally connected to the ends or goals.

Mr. Kevin Fletcher, Mr. Sanjeev Gupta, Mr. Duncan P Last, Mr. Gerd Schwartz, Mr. Shamsuddin Tareq, Mr. Richard I Allen, and Ms. Isabell Adenauer

Abstract

Ensuring efficient public expenditure calls for strengthening fiscal institutions, including PFM systems.20 Sound and effective PFM systems are important for several reasons: (1) to increase the prospects of achieving key economic and social priorities; (2) to support transparency and accountability—that is, to ensure that the government is held responsible for managing public resources and that donors and taxpayers have access to information about the allocation and use of such funds; and (3) to reduce the transaction costs of aid-related donor requirements. Weaknesses in PFM systems can undermine budgetary planning, execution, and reporting and result in leakage of scarce public resources.