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Volatility of Development Aid: From the Frying Pan Into the Fire?

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Author Info
Ale� Bulir
A. Javier Hamann

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Abstract

The positive impact of foreign aid is limited by the erratic behavior of aid flows. The introduction in 1999 of various initiatives anchored in Poverty Reduction Strategy Papers (PRSPs) which were aimed at strengthening coordination among donors, improving the design of financial support programs, and improving domestic records of policy implementation should have led to an improvement in the time series properties of aid flows. We find no evidence of any fundamental changes in the way aid has been delivered in the past five years. If anything, aid volatility has worsened somewhat and the information value of long-term lending commitments has declined. We take these results to mean that the main causes of the volatility and unpredictability of aid, and the broader issue of macroeconomic instability in low-income countries, have not been addressed in a systematic manner by the donor community.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/65.

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Length: 32 pages
Date of creation: 21 Mar 2006
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Handle: RePEc:imf:imfwpa:06/65

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Keywords: Development assistance ; Financial programs ; Low income developing countries ;

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  1. Christopher Adam & Stephen O’Connell & Edward Buffie, 2007. "Monetary Policy Rules For Manging Aid Surges In Africa," WEF Working Papers 0016, ESRC World Economy and Finance Research Programme, Birkbeck, University of London. [Downloadable!]
    Other versions:
  2. Smita Wagh & Sanjeev Gupta & Catherine A. Pattillo, 2006. "Are Donor Countries Giving More or Less Aid?," IMF Working Papers 06/1, International Monetary Fund. [Downloadable!]
  3. Paul Mosley & Abrar Suleiman, 2005. "Budget support, conditionality and poverty," Working Papers 2005012, The University of Sheffield, Department of Economics, revised Jun 2005. [Downloadable!]
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  5. Raghbendra Jha & T. Palanivel, 2007. "Resource Augmentation for Meeting the Millennium Development Goals in the Asia Pacific Region," ASARC Working Papers 2007-02, Australian National University, Australia South Asia Research Centre. [Downloadable!]
    Other versions:
  6. Paolo Dudine & Markus Berndt & Abu Shonchoy & Jan Kees Martijn, 2008. "The Spending and Absorption of Aid in PRGF Supported Programs," IMF Working Papers 08/237, International Monetary Fund. [Downloadable!]
  7. Yongzheng Yang & Sanjeev Gupta & Robert Powell, 2005. "The Macroeconomic Challenges of Scaling Up Aid to Africa," IMF Working Papers 05/179, International Monetary Fund. [Downloadable!]
  8. John Hudson & Paul Mosley, 2007. "Aid Volatility, Policy and Development," Working Papers 2007015, The University of Sheffield, Department of Economics, revised Oct 2007. [Downloadable!]
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  9. Kang Yong Tan & David Vines, 2007. "Woodford goes to Africa," WEF Working Papers 0029, ESRC World Economy and Finance Research Programme, Birkbeck, University of London. [Downloadable!]
  10. Yohane Khamfula, 2006. "Fiscal uncertainty with donor herding and domestic debt crisis," Working Papers 07/2006, Stellenbosch University, Department of Economics. [Downloadable!]
  11. Heller, Peter S. & Katz, Menachem & Debrun, Xavier & Thomas, Theo & Koranchelian, Taline & Adenauer, Isabell, 2006. "Making Fiscal Space Happen! Managing Fiscal Policy in a World of Scaled-Up Aid," Working Papers RP2006/125, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
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