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Making Fiscal Space Happen

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Author Info

  • Xavier Debrun
  • Peter S. Heller
  • Theo Thomas
  • Menachem Katz
  • Isabell Adenauer
  • Taline Koranchelian

Abstract

Debt relief and the scaling up of aid to low-income countries should allow for greater fiscal space for expenditure programs to create long-term growth and lower poverty rates. But designing a suitable medium-term fiscal framework that fosters a sustainable delivery of better public services and infrastructure while maintaining a credible commitment to fiscal prudence confronts many challenges. This paper discusses what low-income countries can do to shape fiscal policy frameworks that are ambitious in trying to absorb additional aid while still ensuring longer-term sustainability for government expenditure programs and finances. It suggests what approaches can be used to manage the greater fiscal policy risks associated with a scaled-up aid environment, including coordination with monetary policy. The paper also discusses what institutional changes are needed if donors and countries are to facilitate the implementation of a higher level of aid-financed spending programs.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/270.

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Length: 53
Date of creation: 01 Dec 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/270

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Keywords: Economic assistance; Public finance; expenditure; fiscal policy; mtef; expenditure programs; mtff; budget support; expenditures; medium-term fiscal framework; fiscal rules; fiscal space; medium-term expenditure framework; public expenditure; medium-term expenditure; capital expenditure; fiscal policy framework; public debt; fiscal balance; fiscal framework; expenditure program; expenditure framework; public financial management; general budget; fiscal management; mtbf; fiscal risks; annual budget; fiscal targets; fiscal deficit; government expenditure; social expenditure; primary deficit; fiscal programming; fiscal policies; composition of expenditure; tax revenue; fiscal discipline; fiscal program; fiscal sustainability; debt service; expenditure envelope; budget process; fiscal institutions; budget constraint; fiscal policy coordination; fiscal authorities; fiscal adjustment; government revenue; capital expenditures; public expenditures; fiscal reporting; expenditure target; aggregate fiscal; fiscal outcomes; fiscal prudence; fiscal risk; public spending; fiscal plans; tax base; fiscal balances; fiscal consolidation; fiscal policy objectives; medium term expenditure; government budget; medium term expenditure framework; expenditure plans; fiscal performance; expenditure priorities; fiscal affairs department; tax compliance; medium-term fiscal projections; composition of expenditures; fiscal perspective; interest expenditure; government expenditures; fiscal criteria; national budget; fiscal reporting framework; expenditure needs; fiscal spending; expenditure frameworks; fiscal stance; expenditure implications; fiscal position; fiscal policy response; tax expenditures; fiscal agent; medium-term budgetary framework; budgetary process; expenditure patterns; fiscal programs; expenditure mix; primary fiscal balance; expenditure ceilings; expenditure adjustment; fiscal objectives; expenditure inefficiencies; debt obligations; fiscal policy formulation; fiscal projections; budgetary allocations; fiscal policy targets; fiscal commitments; aggregate expenditure; medium-term projection; medium term expenditure frameworks; primary fiscal deficit; fiscal adjustments; expenditure commitments; expansion of expenditure; expenditure areas; fiscal policy frameworks; fiscal policy objective; recurrent expenditure; prudent fiscal policies; social expenditures; budget management; foreign debt; tax incentives; annual budgets; fiscal revenue; medium-term budgetary projections; fiscal policy management; fiscal data; tax collection; public expenditure management; fiscal agencies; fiscal operations; fiscal debt; fiscal affairs; expenditure management; statement of fiscal policy objectives; fiscal shocks; fiscal accounts;

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  1. Oya Celasun & Xavier Debrun & Jonathan David Ostry, 2006. "Primary Surplus Behavior and Risks to Fiscal Sustainability in Emerging Market Countries," IMF Working Papers 06/67, International Monetary Fund.
  2. Fatás, Antonio & Mihov, Ilian, 2005. "Policy Volatility, Institutions and Economic Growth," CEPR Discussion Papers 5388, C.E.P.R. Discussion Papers.
  3. Peter S. Heller, 2005. "Understanding Fiscal Space," IMF Policy Discussion Papers 05/4, International Monetary Fund.
  4. Ale Bulir & A. Javier Hamann, 2003. "Aid Volatility: An Empirical Assessment," IMF Staff Papers, Palgrave Macmillan, vol. 50(1), pages 4.
  5. LF Jameson Boex & Jorge Martinez-Vazquez & Robert McNab, 1998. "Multi-Year Budgeting: A Review of International Practices and Lessons for Developing and Transitional Economies," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper9804, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  6. Oya Celasun & Xavier Debrun & Jonathan D. Ostry, 2006. "Primary Surplus Behavior and Risks to Fiscal Sustainability in Emerging Market Countries: A "Fan-Chart" Approach," IMF Staff Papers, Palgrave Macmillan, vol. 53(3), pages 3.
  7. Eifert, Benn & Gelb, Alan, 2005. "Improving the dynamics of aid : towards more predictable budget support," Policy Research Working Paper Series 3732, The World Bank.
  8. Henning Bohn, 1998. "The Behavior Of U.S. Public Debt And Deficits," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 949-963, August.
  9. Michael A. Clemens & Steven Radelet & Rikhil Bhavnani, 2004. "Counting chickens when they hatch: The short-term effect of aid on growth," International Finance 0407010, EconWPA.
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Citations

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Cited by:
  1. Jan Kees Martijn & Markus Berndt & Abu Shonchoy & Paolo Dudine, 2008. "The Spending and Absorption of Aid in PRGF Supported Programs," IMF Working Papers 08/237, International Monetary Fund.
  2. Devarajan, Shantayanan & Go, Delfin S. & Page, John & Robinson, Sherman & Thierfelder, Karen, 2008. "Aid, growth, and real exchange rate dynamics," Policy Research Working Paper Series 4480, The World Bank.
  3. World Bank, 2008. "Haiti : Public Expenditure Management and Financial Accountability Review," World Bank Publications, The World Bank, number 6469, October.
  4. Gupta, Sanjeev, 2008. "Enhancing Effective Utilization of Aid in Fragile States," Working Paper Series RP2008/07, World Institute for Development Economic Research (UNU-WIDER).

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