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Aid Volatility and Macro Risks in Low-Income Countries

Author

Listed:
  • Eduardo Borensztein

    (Inter-American Development Bank)

  • Julia Cagé

    (PSE - Paris-Jourdan Sciences Économiques)

  • Daniel Cohen

    (CEPREMAP)

  • Cécile Valadier

Abstract

The report argues that aid volatility is an important source of volatility for the poorest countries. Following a method already applied by the Agence Française de Développement, the report argues that loans to LICs should incorporate a floating grace period, which the country could draw upon when hit by a shock. The definition of a shock should include aid uncertainty, along with others such as commodity shocks and natural disasters. The idea is calibrated to a key IMF policy instrument towards Low-Income Countries, the Poverty-Reducing and Growth Facility (PRGF). Le rapport montre que l’aide aux pays pauvres contribue à accroître la volatilité de ces pays. Suivant une méthode déjà élaborée par l’Agence Française de Développement, l’article propose d’accorder des crédits aux pays pauvres, qui incorporent un droit de grâce flexible, utilisable par le pays, lorsqu’il est confronté à un choc négatif, quelle qu’en soit la cause : choc d’aide, de prix des matières premières ou catastrophe naturelle. Il montre comment l’instrument utilisé par le FMI à destination des pays pauvres, le PRGF, pourrait être modifié pour ce faire.

Suggested Citation

  • Eduardo Borensztein & Julia Cagé & Daniel Cohen & Cécile Valadier, 2008. "Aid Volatility and Macro Risks in Low-Income Countries," OECD Development Centre Working Papers 273, OECD Publishing.
  • Handle: RePEc:oec:devaaa:273-en
    DOI: 10.1787/227667286811
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    File URL: https://doi.org/10.1787/227667286811
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    Citations

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    Cited by:

    1. Frot, Emmanuel & Santiso, Javier, 2009. "Crushed Aid: Fragmentation in Sectoral Aid," SITE Working Paper Series 6, Stockholm School of Economics, Stockholm Institute of Transition Economics.
    2. Larru, Jose Maria, 2009. "A structural analysis of foreign aid to ten Mediterranean countries," MPRA Paper 17865, University Library of Munich, Germany.

    More about this item

    Keywords

    aid; aide; FMI; IMF; low income countries; Pays Pauvres; volatility;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F35 - International Economics - - International Finance - - - Foreign Aid

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