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Steven Radelet,, Michael Clemens,, and Mr. Rikhil Bhavnani

This paper explores why increased aid flows require economic policymakers to confront some specific issues. Ensuring that increased aid promotes growth and reduces poverty is certainly the most important task. Empirical studies offer only mild support for aid-boosting growth. However, one study suggests that once one excludes the aid flows aimed at political and humanitarian goals, a positive net effect is observed for the remaining aid focused on economic objectives. This paper also outlines the roles to be played by development partners for making the aid being properly utilized for boosting growth.

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


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. Other "emerging" donors, public and private, are increasing their assistance, and debt-relief initiatives are creating space for new borrowing. Remittances to low-income countries have been on a precipitous rise, and many countries are benefiting from high commodity prices. Fiscal Management of Scaled-Up Aid explores approaches to the sound fiscal management that will be required to ensure effective and sustainable use of these flows. With a medium-term perspective and efficient use of resources in mind, this paper addresses questions that shape fiscal policy response to scaled-up aid. Drawing on IMF Fiscal Affairs Department technical assistance to member countries, it outlines factors that should be taken into account in preparing an action plan for public financial management reform and proposes specific measures that will assist countries in strengthening fiscal institutions.

International Monetary Fund
This paper evaluates Sri Lanka’s Request for Emergency Assistance. The Sri Lankan authorities have requested a purchase in an amount of SDR 103.35 million under the IMF’s policy for emergency assistance related to natural disasters. In line with IMF policy for Poverty Reduction and Growth Facility (PRGF)-eligible countries, they have also requested the provision of subsidies to reduce the rate of charge to concessional terms. Reconstruction and rehabilitation will support growth momentum in 2005.
Mr. Joong S Kang, Mr. Alessandro Prati, and Mr. Alessandro Rebucci
We use a heterogeneous panel VAR model identified through factor analysis to study the dynamic response of exports, imports, and per capita GDP growth to a “global” aid shock. We find that a global aid shock can affect exports, imports, and growth either positively or negatively. As a result, the relation between aid and growth is mixed, consistent with the ambiguous results in the existing literature. For most countries in the sample, when aid reduces exports and imports, it also reduces growth; and, when aid increases exports and imports, it also increases growth. This evidence is consistent with a DD hypothesis, but also shows that aid-receiving countries are not “doomed” to catch DD.
International Monetary Fund. External Relations Dept.

This paper highlights that agreement on an important package of reforms of vital significance to the future of the international monetary system was reached at a meeting of the Interim Committee of the Board of Governors of the IMF on the International Monetary System in Kingston, Jamaica, on January 7–8, 1976. The reforms include a substantial quota increase for almost all members, as well as an increase in access to the IMF’s resources for all member countries in the period prior to implementation of the increase in their IMF quotas, and some other amendments.

International Monetary Fund
The 2009 reforms have broadly achieved their objective of closing gaps and creating a streamlined architecture of facilities that is better tailored to the diverse needs of LICs. Supported by the financing package to boost the PRGT’s lending capacity for 2009–14 and the accompanying doubling of access, the Fund was able to mount an effective response to LICs’ needs during the global financial crisis.
International Monetary Fund
This is the first review of the interest rate mechanism approved under the 2009 reforms of the Fund’s concessional lending facilities. The mechanism links the Poverty Reduction and Growth Trust (PRGT) interest rate structure to world interest rates and provides a setting to differentiate interest rates across the various PRGT facilities. The framework requires reviews every two years, with the first such review to be completed by December 31, 2011.
International Monetary Fund
In recent months, a number of Directors have expressed support in the Executive Board for a further extension of the temporary exceptional interest waiver on concessional lending. An extension would send a signal of the Fund’s continued support for Low-Income Countries at a time when the global economic crisis is still ongoing. In view of the related downside risks to the global economic recovery and a decline in the ability of Low-Income Countries to respond to a further weakening of global growth, this paper proposes a further extension of the exceptional interest waiver by two years, to end-2014. This paper also proposes to further extend to April 2013 the existing subsidization of the rate of charge on outstanding Emergency Natural Disaster Assistance and Emergency Post-Conflict Assistance purchases by PRGT-eligible members.
Mr. Paul R Masson, Mr. Timothy D. Lane, and Ms. Padma Gotur
This series aims to make available to the general public and to economic policy practitioners, a selection of policy papers prepared by the staff of the International Monetary Fund. Papers in the International Economic Policy Review will offer specific policy-relevant analysis, but at a relatively non-technical level. These papers are intended to provide analytical background for IMF-supported programs and more generally to shed light on a range of policy choices facing ministries and central banks.
International Monetary Fund. External Relations Dept.

This paper explains how the World Bank carries out its most characteristic activity: the identification, preparation, appraisal, and supervision of projects for economic development. The paper highlights that project lending is intended to ensure that the World Bank funds are invested in sound, productive projects with the purpose of contributing both to the borrowing country’s capacity to repay and to the development of its economy. It is in the coincidence of these two purposes that the Bank’s functions as an international financial institution merge with those that it has increasingly assumed as a development institution.