A. Is There Scope for More Fiscal Space?

17. Spending needs in LICs are very real and very large.¹⁷ As such, an important consideration is the extent to which higher public investment can be used productively and sustainably. Ultimately, such considerations about fiscal space are country specific, and require detailed assessments of a government’s initial fiscal position, its revenue and expenditure structure, prospects for increased external financing and the like (Heller, 2005b). But on the basis of the analysis in the background papers, some broad inferences can be made and the three main avenues for financing significantly higher public investment—taxation, borrowing, and/or grants—are considered below.

18. In many countries, there could also be scope for providing additional public services through better allocation of existing resources. Public expenditure tracking surveys reveal substantial waste and leakage in some countries that could be reduced by better public expenditure management and improved project selection (Reinikka and Svensson, 2004). As such, reforms that reduce waste and leakage can enhance the efficiency of public spending.¹⁸ Similarly, civil service reforms that eliminate ghost workers and redundant positions could free additional resources for high priority expenditure. Shifting resources from relatively unproductive spending such as subsidies to highly-productive ones (e.g., preventive health outlays for immunization that have significant externalities) would also be helpful in this regard.

Taxation

19. Collected in a transparent, equitable, and efficient manner, higher taxation is the most dependable and sustainable source of additional public resources to finance poverty-reducing expenditures.¹⁹ Spending financed by taxes (like that financed by foreign grants) does not affect debt dynamics. The tax to GDP ratio varies widely across LICs with a tendency to rise with per capita income (text table). In the mature stabilizers, the tax ratio ranges from 8-10 percent (Bangladesh, Madagascar, Rwanda, and Uganda) to some 30 percent of GDP (Guyana and Mongolia).^{20, 21} The level of taxation should reflect country-specific institutional structures, but experience suggests that a tax to the GDP ratio of at least 15 percent is a realistic objective for most LICs. Countries where the tax ratio is already above 15 percent, of course, should maintain their tax efforts, if not aim higher. A higher tax ratio, provided it is collected without coercion or much distortion, can generally be maintained without hurting growth. Countries with tax ratios well above 15 percent may also reasonably prefer to give higher priority to revenue-neutral reforms that will widen the tax base, thus facilitating collections and reducing opportunities for evasion, while allowing marginal reductions in rates. For example, countries could consider substantially lower tax rates in some areas in an attempt to spur economic activity. A lower corporate tax rate (with an appropriately wide base) would be one such option.

Tax Ratio and Per Capita Income

Tax Ratio and Per Capita Income

GDP per capita	Tax to GDP Rati 1997-2001
< US$1,000	14.5
US$1,000 - 5,000	21.3
US$5,000 - 10,000	22.8
> US$10,000	32.4

View Table

Tax Ratio and Per Capita Income

GDP per capita	Tax to GDP Rati 1997-2001
< US$1,000	14.5
US$1,000 - 5,000	21.3
US$5,000 - 10,000	22.8
> US$10,000	32.4

Seigniorage

20. Lower inflation in PRGF-eligible countries over the last decade has meant a reduction in the inflation tax or seigniorage income. With inflation at its current average level (some 6 percent), the average seigniorage income in the mature stabilizers is about 1 percent of GDP. Higher inflation could generate more seigniorage income—assuming somewhat optimistically that it is not offset by lower money demand. For example, allowing inflation to rise to 15 percent would allow the government to generate an additional 0.4 percentage point of GDP—a non-trivial amount given the challenges of mobilizing such amounts through the formal tax system.²² However, the benefits derived from this additional revenue need to be weighed against the costs, which include the regressive nature of the inflation tax (hurting the poor most). The increased macroeconomic uncertainty that a higher inflation tax rate engenders is also likely to have an adverse bearing on investment and growth. Moreover, it takes time to bring higher inflation rates down once they are ingrained. For these reasons, the scope for creating more fiscal space through a higher inflation tax is likely limited, if it exists at all.

Borrowing

21. For a country with little or no debt, borrowing—postponed taxation—can be an efficient route to finance development expenditures. Particularly in the case of poor, but growing, countries, which can reasonably expect the next generation to be better off, borrowing would allow them to undertake investments now that future generations will benefit from (and pay for). However, most LICs already have a rather high public debt burden.²³ In particular:

• Debt stocks in 9 of the 15 mature stabilizers are high or have been rising rapidly. While baseline debt sustainability scenarios for these countries project gradual declines in debt ratios, these scenarios are often based on the assumption that real GDP growth will be significantly higher, and fiscal policy significantly tighter, than they have been historically. In other cases, debt is sustainable in the baseline scenario, but not in the event of modest shocks.

• In six of the countries in the sample (Azerbaijan, Benin, Mozambique, Rwanda, Senegal, and Tanzania), the NPV of public sector debt-to-GDP ratio is at more reasonable levels (well below 40 percent, Figure 3) and broadly stable.²⁴ This 40 percent threshold is the one adopted for external public debt in the low-income debt sustainability framework for countries with policies and institutions typical of the mature stabilizer sample.²⁵ Provided projects have sufficiently high rates of return, recourse to borrowing (particularly on concessional terms) would be a reasonable course of action. For countries with low debt ratios, these debt thresholds should not be seen as targets to aim for, but rather as the edge of the precipice, proximity to which is to be avoided.

Ratios to GDP of the NPV of External Debt and (nominal) Domestic Debt

Citation: Policy Papers 2005, 045; 10.5089/9781498331265.007.A001

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Ratios to GDP of the NPV of External Debt and (nominal) Domestic Debt

Citation: Policy Papers 2005, 045; 10.5089/9781498331265.007.A001

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Ratios to GDP of the NPV of External Debt and (nominal) Domestic Debt

Citation: Policy Papers 2005, 045; 10.5089/9781498331265.007.A001

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Grants

22. This leaves external grants—like domestic taxes and better use of existing resources—as the other solution for significant increases in poverty-reducing expenditures. Grants do not give rise to debt sustainability concerns and avoid higher taxes on the private sector. Grants have been a significant source of financing in the mature stabilizers, averaging some 5 percent of GDP per year. In about a third of the sample (Madagascar, Mozambique, Rwanda, Tanzania, and Uganda), external grants contributed to the financing of more than 25 percent of public expenditures.

23. Grants, however, are not free from problems. They are subject to uncertainties related to availability, timing, and duration which are to some extent beyond the control of recipient governments.²⁶ The volatility of grant flows makes governments reluctant to scale- up expenditures (to, say, add to the payroll large numbers of health workers on the promise of budgetary support for a year or two) or could undermine effective multiyear planning; for example, after expenditures have been scaled up, they could prove ineffective (the nurses are hired but they don’t have the medicines to dispense). Grants may also weaken governments’ incentives to collect domestic taxes. If grants are readily available, they could make governments more complacent about mobilizing tax revenues—some empirical evidence supports this thesis (Gupta, et al., 2004).

B. Absorbing Higher Aid Inflows

24. Increases in aid inflows to LICs are in prospect and effective management of these resources will be critical for the achievement of the MDGs. As noted above, these inflows will ease many of the constraints that governments in LICs now face in their efforts to increase infrastructure investment and poverty reducing social spending. There is, however, also a need to ensure that these potentially large inflows do not jeopardize hard- won macroeconomic stability. As such, the effective management of aid inflows represents one of the main challenges for the next generation of Fund-supported programs in LICs.

25. Central to managing a surge in aid inflows is the coordination of fiscal policy with exchange rate and monetary policy. To highlight this interaction, it is useful to consider two distinct but related concepts: spending and absorption.²⁷

• Spending is defined as the increase in government expenditures accompanying an increment in aid: if this increase exceeds the amount of the aid that comes in the form of grants, then it would lead to an increase in the fiscal deficit (excluding aid).

• Absorption is defined as the widening of the current account deficit (excluding aid) due to incremental aid. It measures the extent to which aid engenders a real resource transfer through higher imports or through a reduction in the domestic resources devoted to producing exports.

26. The macroeconomic impact of aid depends on the combination of spending and absorption. Spending depends on fiscal policy, while for a given fiscal policy, absorption depends on exchange rate and monetary policy. If the government receives aid-in-kind, or uses aid directly to finance imports, spending and absorption are equivalent. More typically, aid also finances government spending on domestic goods and services for which the government obtains domestic currency by selling aid dollars to the central bank. Absorption depends on the response of the central bank, with foreign exchange sales influencing the exchange rate and interest rate policy shaping aggregate demand.

27. To spend and absorb is the textbook response to increased aid; the government increases spending, and aid finances the resulting rise in net imports.²⁸ Even if the government spending is on domestic goods, the aid allows the resulting higher aggregate demand and spending to spill over into net imports without creating a balance of payments problem. Some real exchange rate appreciation may be necessary to enable this reallocation of resources. The degree of appreciation will, in general, depend on a number of factors, including how much of the aid is spent directly on imports, and the extent to which the aid- related spending generates a supply response.

28. In a review of country experiences with large increases in aid inflows, a one-to-one correspondence between increased spending and absorption was found to be rare.²⁹ Typically, policies limited aid absorption—and the consequent real appreciation—perhaps related to concerns about competitiveness or aid volatility. In the sample of countries surveyed, incremental aid was found either to have been mostly saved (in other words, neither spent nor absorbed) or to have been spent but not absorbed. In particular:

• In two of the countries—Ethiopia and Ghana—spending and absorption were both very low. This response reflected a desire to build-up international reserves from a precariously low level or to smooth volatile aid flows. In Ethiopia, reserves were accumulated to bolster the de facto exchange rate peg against the dollar. In Ghana, a buffer against extremely volatile aid inflows was built.

• To spend but not absorb was the other response observed, sometimes reflecting inadequate coordination of monetary and fiscal policies. In Mozambique, Tanzania, and Uganda, spending exceeded absorption, creating a surge in domestic liquidity. In Mozambique, this led to high inflation. In Uganda and (initially) Tanzania, treasury bill sales were used to contain inflationary pressure, leading to a rise in interest rates and the domestic debt burden.³⁰ This monetary response is similar to that called for by a fiscal stimulus in the absence of aid. The lion’s share of the aid goes to reserves, so the increase in government spending must be financed by printing money or government borrowing from the domestic private sector. There is no real external resource transfer given the absence of an increase in net imports.

29. In general, targets in PRGF-supported programs appear to have been compatible with a spend-and-absorb response, but the consistency of monetary and exchange rate policy with fiscal policy needed greater attention. Fiscal targets accommodated surges in aid, and reserve targets have been broadly consistent with an (aid- financed) increase in the current account deficit. However, where countries pursue a spend- but-not-absorb strategy—perhaps in order to safeguard competitiveness—more care needs to be taken that an appropriate outcome is achieved. Where the goal is to smooth absorption in the face of short-lived aid surges or as a holding operation while tackling supply-side constraints, a better approach would generally be to smooth spending as well as absorption, thereby avoiding a surge in government spending that is effectively domestically financed.

C. Sustainability

30. The third key policy challenge for LICs is maintaining debt sustainability. External grants are and will remain in short supply—a constraint that is likely to persist even after the much anticipated increase in aid in support of the MDGs materializes. Even if higher grant resources are available, given the high level of needs, countries will be likely to want to borrow to finance additional expenditures. While external borrowing by most LICs in recent years has almost entirely been on concessional terms, this is no guarantee of debt sustainability. As in the past, even concessional borrowing can lead to an excessive build-up of debt—because the envisaged pick-up in exports and growth fails to materialize, or because capturing the rates of return to projects remain difficult or, indeed, because the amounts borrowed are excessive.

31. In this context, the challenge for program design will be to set fiscal positions that are consistent with debt sustainability while accommodating productive public spending. As noted in Monetary and Fiscal Policy Design Issues in Low-Income Countries, debt sustainability analysis is the first step in assessing the optimal path of the fiscal balance. Absent sustainability, debt will rise to high levels that hinder growth and precipitate macroeconomic imbalances. One argument that has been made for utilizing as much concessional borrowing as is available is the presumption that such borrowing is unlikely to give rise to a liquidity crisis because official creditors can be relied upon to reschedule or provide new financing in excess of sums falling due. Moreover, amortization on most such loans does not fall due for another 20 or so years. But as noted above, it was borrowing on largely concessional terms that gave rise to the debt that had to be written off in the context of the enhanced HIPC Initiative and also why external viability remains beyond reach in some countries.

32. The recently-operationalized framework for debt sustainability analysis (DSA) in LICs should be the main vehicle for assessing the appropriate fiscal path. This framework takes a comprehensive view of debt sustainability, looking at not just the evolution of debt ratios in NPV terms, but also debt-service ratios and gross financing needs under a variety of alternative scenarios. For those countries with debt burdens close to or above the agreed policy-dependent debt thresholds, a tighter fiscal stance and/or higher levels of concessionality in foreign financing need to be targeted. In these cases, fiscal policy should target deficits that are sufficiently low and debt-management policies should ensure that borrowing terms are sufficiently concessional to avoid future debt sustainability problems, including in the event of modest shocks. In many cases, this is likely to require an increase in grant resources to meet the twin objectives of debt sustainability and providing sufficient funding for MDG-related spending. It may also entail using grants in a way that preserves flexibility to reduce expenditures if grants were to not materialize in the future.

33. In countries with moderate debt burdens, the pace at which countries accumulate new debt will need to be monitored carefully in order to avoid the emergence of debt problems. In these countries, the benefits of further fiscal consolidation are less clear. Spending decisions will instead need to pay heed to considerations such as the productivity of additional outlays relative to their financing cost. In countries with poor governance, the low productivity of outlays may be such that higher spending has a limited effect on growth and social indicators. Countries with limited absorptive capacity may also not be in a position to increase spending, while ensuring that these outlays are productive. The scope for fiscal expansion would also need to take into account fiscal vulnerabilities in the face of exogenous shocks, including those due to aid variability. Furthermore, given the rigidity of spending commitments, especially for current outlays, the fiscal risks associated with increases in spending would also need to be assessed.

D. Monetary and Exchange Rate Policies

34. The challenges for monetary policy in the next generation of Fund-supported programs in LICs are threefold: determining the appropriate target range for inflation; accommodating on-going monetary deepening; and allowing greater exchange rate flexibility.

35. Fund-supported programs need to continue targeting single-digit inflation rates. While PRGF-supported programs have on average aimed to limit inflation to 4 percent by the end of the program period, inflation outcomes tended to be somewhat higher at around 6 percent. The case for continuing to target single-digit inflation targets is strong—low and moderate inflation levels tend to be associated with higher economic growth. Further, high inflation tends to hurt the poor disproportionately and inhibit financial deepening. By the same token, the precise threshold where inflation becomes harmful is less clear and could be outweighed by costs (which could include a loss of output). On balance, a 5-10 percent target range (with a bias towards falling) would seem to address the need to keep inflation low, but not excessively so.³¹ Critically, LICs tend to be prone to adverse exogenous price shocks, which raises the risk of an unduly restrictive monetary policy stance if headline inflation is targeted. Programs have responded by allowing higher outcomes for headline inflation. More generally, PRGF-supported programs should accommodate the first-round price effect of exogenous shocks by targeting an inflation range—rather than a point target—with the midpoint being used for operational purposes or by focusing on core inflation where this concept is feasible and acceptable.

36. Second, monetary growth targets in the mature stabilizers have been exceeded without a significant overshooting of inflation targets. Inflation deviations have been moderated by higher-than-expected money demand and lower velocity. Higher-than- programmed money growth has mainly reflected a larger-than programmed accumulation of international reserves by the central bank. This benign experience of the mature stabilizers contrasts with the findings of the broader 2004 review of the design of Fund-supported programs, which found that in many cases overruns in reserve and money growth were reflected in significantly higher inflation.³² The main implication is that with the attainment of price stability, monetary projections should allow for a trend decline in velocity for a period of several years. For the mature stabilizers that do not have a fixed exchange rate regime, the standard NDA/NFA framework provides a useful safety valve that allows money supply to respond to unforeseen changes in money demand. However, the framework does not have a nominal anchor and close monitoring of reserve money growth remains warranted. In order to support such monitoring, indicative targets for reserve money growth should continue to be employed.

37. The third consideration concerns the interaction among monetary policy, the exchange rate, and aid inflows. Many mature stabilizers actively seek to stabilize the nominal exchange rate (in particular relative to the U.S. dollar) through interventions in the exchange market.³³ In this context, the larger-than-programmed foreign reserve expansion noted above likely reflects not just the accommodation of higher money demand, but also a strong desire to avoid nominal appreciation pressures in the face of external inflows. At the same time, in order to resist real appreciation that would occur through inflation, the implications of increased reserve accumulation for money growth have been offset through treasury bill sales. This results in the spend-and-do-not-absorb response to aid inflows described above: aid dollars flow into reserves while the associated fiscal expansion is effectively financed domestically.

38. Over a longer time frame, some real exchange rate appreciation in the face of large increases in aid is unavoidable, with the amount of appreciation depending inter alia on the supply response and import content of the aid-related spending. In a floating exchange rate regime, this appreciation would imply that the central bank retains fewer aid dollars, allowing a nominal exchange rate to appreciation. In a fixed exchange rate regime, this implies that the monetary expansion associated with aid-related fiscal spending should not necessarily be sterilized through treasury bill sales—in such a regime, the only way to achieve the real appreciation required to absorb aid inflows may be through a period of temporarily higher inflation. The risk that inflation expectations would be reignited argues for a greater degree of nominal exchange rate flexibility, particularly in countries with a recent history of high inflation. Fixed exchange rate regimes have other merits, however, and in these cases, in particular, caution about aggressive sterilization is warranted.³⁴

IV. Synthesis

39. Three questions emerge from the foregoing discussion. First, how should policies address constraints that might jeopardize sustained growth? Second, how should policies respond to large volumes of aid inflows? Third, what steps are required to ensure coordination between monetary and fiscal policies?

Sustaining growth

40. While strong broad institutions are central for sustained growth, the Fund’s mandate and expertise in this area is limited. In the main, the Fund advises on economic policies and/or narrow economic institutions—e.g., central banks, fiscal authorities, and regulatory bodies. And while these policies and institutions have a bearing on growth, broad institutions, which are typically embedded in domestic political structures, probably matter as much if not more for achieving and sustaining rapid economic growth. This poses two challenges for the Fund. First, changing broad institutions—say, access to property rights—is a deeply political process; outside institutions like the Fund have a limited impact. Second, successful broad institutions tend to be country and context specific and need to emanate from domestic processes. (For example, much of the growth in “private” investment in China during the 1980s and early 1990s came from township village enterprises, which embodied a unique system of property rights.)

41. The Fund is better placed to support macroeconomic policies which also play a large role in sustaining growth. As discussed in Section II, the sustained growth cases direct attention towards the importance of policies related to trade liberalization, avoiding exchange rate misalignment and macroeconomic stability. The results presented in Can PRGF Policy Levers Improve Institutions and Lead to Sustained Growth show that these policies seem to play a role in accelerating growth even when broad economic institutions are weak.

42. But this emphasis on macroeconomic policies is not to suggest that Fund-supported programs should eschew structural reforms; such reforms should be strengthened in countries where investment and export growth are found to be anemic. Drawing on the expertise of other development partners, including on the World Bank, Fund-supported programs should, in particular, take the following into consideration.

• Where private investment or export growth is lackluster, a stronger focus on the factors impeding such activities is necessary in Fund-supported programs—particularly if policy-induced distortions are responsible. The recent review of Design of Fund-supported Programs shows that while it is difficult to establish the impact of individual structural reforms, there is a positive association between economic efficiency-enhancing measures in programs and improved medium-term growth performance. Against this backdrop, it will be important to monitor the recent shift in conditionality away from reforms that promote growth and efficiency in PRGF- supported programs.³⁵

• Second, programs need to recognize the limitations on the Fund’s ability to influence broad institutions. For changes in such institutions to be meaningful requires extensive domestic ownership. Fund-supported programs can still make a useful contribution to the environment in which broad institutions can change by enhancing fiscal transparency and governance. This enhancement not only plays a role in relation to macroeconomic stability, but can also contribute to reducing corruption as well as greater efficiency and productivity.

Managing aid inflows

43. All in all, the picture that emerges is of most LICs needing to rely on appropriate concessional financing for increased fiscal space, but that extensive recourse to such financing can have adverse implications for the tradables sector. In other words, higher aid inflows do not by themselves resolve all of the constraints that poor countries face. With the welcome prospect of higher aid inflows, the first consideration is how best to utilize these additional resources and manage the trilemma.

44. A spend and absorb strategy would be appropriate where the benefits of increased public spending outweigh the possible adverse effects on the tradables sector. This determination can only be made on a country-by-country basis, and there are a number of indicators, including: adequate absorption capacity—for example, in the ability to design and implement projects; high rate of return on public investment; and strong growth in private investment, including in the tradables sector. Helping to increase absorptive capacity and ensure that spending is productive are thus important program objectives. When these conditions are broadly in place:

• The extent to which programs automatically save unanticipated aid inflows should be minimized, particularly where contingent spending plans are already in place. Most PRGF-supported programs currently have adjusters that require higher aid inflows than anticipated to be saved for later use, but this would delay both spending and absorption and should be avoided—particularly when countries have finance- constrained plans for productive spending.

• When countries are following such a spend-and-absorb strategy, programs should assess competitiveness issues very closely. In this regard, some real appreciation is inevitable—indeed, necessary—as part of the process of shifting resources from the tradables to the non-tradables sector. The key challenge will be identifying the point beyond which a real appreciation is likely to become problematic. In making such competitiveness assessments, a broad range of indicators should be employed. But among the most telling indicators will be trends in private investment and exports.

45. If, however, higher government spending confronts constraints on absorptive capacity, tension between aid volatility and spending rigidities, and a real exchange rate appreciation that would give rise to an unacceptable erosion of competitiveness then:

• Consideration should be given to limiting spending increases, because the overall rate of return to such spending is likely to be low. Such a strategy, coupled with reserve accumulation, would effectively save the aid resources for later use—once absorptive capacity has been increased.

• The adverse implications of a real exchange rate appreciation for competitiveness can be dampened or even reversed by using the aid for productivity-enhancing projects and/or initiatives that remove domestic supply constraints (for example, increased electricity generation capacity to minimize energy shortages). Relatedly, aid could be used to directly purchase tradable goods (for example, machinery for building infrastructure or antiretroviral drugs), thereby reducing the impact on the exchange rate.

• Monetary policy action to sterilize the liquidity effects of increased aid-financed public spending (for example, through treasury bill sales) should be used judiciously. It can limit real exchange rate appreciation, but at the cost of raising interest rates and heightening the crowding-out of the private sector, while raising public domestic debt. Moreover, sterilization limits the extent to which the aid is absorbed—i.e., the extent to which real resources are transferred from donors.

• An important reason why governments intervene to limit a real exchange rate appreciation is out of concern about aid volatility, and in particular, the possibility that aid resources may not continue to be available to finance a higher trade deficit. Steps by donors to increase the fungibility of aid and its predictability are thus critical.

• Countries whose budgets are more dependent on aid could also consider maintaining a larger reserve buffer—well above the standard benchmarks such as 3 months of import cover.³⁶

• Finally, greater leeway to draw down reserves when shortfalls in aid materialize could be considered. At present, most programs (for example, 34 out of 38 PRGF- supported arrangements in effect as of March 2004) have adjusters that allow shortfalls in external financing to be accommodated by higher domestic financing. In countries where debt sustainability is not a constraint, greater recourse to domestic financing could be considered.³⁷ Where domestic debt is high or excessively costly, this option should be used more prudently.

Monetary and fiscal policy coordination

46. The consistency of monetary and exchange rate policies with fiscal policy will likely be more acutely tested when the authorities increase government spending but keep the foreign exchange in reserves. This response has the effect of generating liquidity in excess of the increase in aggregate demand. As noted above, sterilization is not a desirable option since it would result in raising interest rates and further squeezing the private sector. The only alternative would seem to be allowing the monetary expansion necessary to accommodate increased public spending to take place. This requires some tolerance for a period of higher inflation to achieve the required real appreciation. But even this would only be desirable in the short run—not least because of the economic costs related to higher inflation. Critically, the authorities must be willing to defend the nominal exchange rate against depreciation and, as the real appreciation increases demand for imports, sell the foreign exchange. In essence, this amounts to a spend-and-eventually-absorb scenario—it would allow the aid to be spent, some real appreciation to take place to facilitate absorption, but for further liquidity effects to be sterilized via foreign exchange sales.

V. Issues for Discussion

47. Directors may wish to discuss the following issues:

• Do Directors agree with the main challenges identified for Fund-supported programs in LICs?

• Directors views on how the existence of weak broad institutions should influence the design of Fund-supported programs are welcome.

• Do Directors agree that low-income countries face a trilemma—the tension between higher government spending, private sector development, and policy sustainability—identified in this paper?

• Do Directors agree with the staff’s views on how incremental aid inflows should be managed?

• Do Directors agree that Fund-supported programs in LICs should continue targeting a single digit inflation rate that takes into account these countries susceptibility to exogenous shocks?

• Do Directors agree that fiscal stance in LICs should be anchored by debt sustainability considerations?