What Have IMF Programs With Low-Income Countries Assumed About Aid Flows? - Working Paper 116
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David Goldsbrough and Ben Elberger
04/09/2007
This paper examines the nature of aid projections in IMF programs with low-income countries. The authors assess the profile of aid broadly and across regions and investigate the compatibility of IMF projections with commitments made at the 2005 Gleneagles G8 Summit to sharply increase aid. On average, they find that IMF projections of net aid increased sharply in the first year of programs but that this tapered off in subsequent years. Projections were significantly more optimistic in countries with low initial levels of aid but differed little across regions. Most notably, the authors find that projections of net aid to countries in sub-Saharan Africa following the Gleneagles Summit are significantly more pessimistic than the path implied by commitments to double aid to Africa by 2010. This pattern is strong throughout the group with only two sub-Saharan African countries showing increases in net aid consistent with the Gleneagles commitments.
The authors argue that much greater clarity is needed about the role of the IMF in the aid architecture. In addition to projecting likely aid flows based on detailed discussions with donors, the IMF should utilize sector-level inputs to assess the macroeconomic effects of a significant scaling-up of aid in programs with low-income countries. Such a scenario would help the international community and the country itself judge whether there are any macroeconomic constraints to absorbing more aid. The obvious benchmark to use for aid levels in such a scenario would be what donors have committed to globally--i.e. a doubling of aid in the case of African countries. Finally, the authors conclude that the IMF should be more transparent about what its collective program projections imply for the expected path of global aid flows.