## CHAPTER — Introduction

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### Context: commitments and recent trends
- The international community committed to scaling up aid and improving aid delivery to low-income countries to help them meet the Millennium Development Goals (MDGs).
- The March 2002 Monterrey Consensus called on donors and international financial institutions to provide additional financing, improve aid predictability, and ensure that aid is aligned with national priorities.
- At the 2005 Gleneagles Summit, the Group of Eight (G-8) countries committed to significantly increasing the amount of development assistance they provide to the low-income countries over the next decade; specifically, donors committed to double aid to sub-Saharan Africa by 2010 (G-8, 2005).
- Although official development assistance (ODA) to sub-Saharan Africa, net of debt relief, remained broadly unchanged in 2005, some countries are receiving rising private and public flows. Preliminary data suggest that total ODA declined slightly in 2006.
- A wide range of other “emerging” donors are increasing their assistance to low-income countries.
- In many countries, the health sector is progressively receiving more assistance from the private sector, as well as from health funds.
  - The overall aid from private sources doubled during 2001–05 to US$14.7 billion (World Bank, 2007c).
  - The Bill and Melinda Gates Foundation has provided more than US$6 billion for health programs.
  - Global funds to combat HIV/AIDS were estimated to reach US$9 billion in 2007 (Serieux and McKinley, 2007).
- Debt relief under the Multilateral Debt Relief Initiative and the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative has created space for new borrowing by low-income countries; some countries (for example, Ghana and Kenya) are using this opportunity to tap international capital markets.
- Remittances to low-income countries increased by more than 80 percent between 2000 and 2005, totaling twice the amount of ODA in 2005.
- Many countries benefited from high commodity prices; resource flows to many low-income countries are increasing, enabling them to scale up spending.

### Fiscal management of scaled-up aid: objectives and IMF role
- Effective and sustainable use of increased public and private resource flows requires sound fiscal management.
- In an environment of scaled-up resource flows, countries need to:
  - Frame spending programs with a medium-term perspective.
  - Ensure resources are used efficiently by aligning budget priorities with those of donors and by strengthening critical fiscal institutions.
- The IMF’s Medium-Term Strategy calls on the IMF to assist low-income countries in establishing policies and economic institutions that help them “absorb the projected scaling up of aid in a sustainable way” (IMF, 2005b).

### Four questions shaping fiscal policy response to scaled-up aid
- How should the medium-term resource envelope for the budget be assessed?
  - Formulating spending plans in a medium-term perspective requires information about the availability, phasing, and magnitude of resource flows over the medium term.
  - In many countries, comprehensive information on current resource flows is not available, complicating this assessment.
  - The task is further complicated by an increase in the number of donors—both official and private.
- What considerations should influence the choice of a medium-term spending path for the budget?
  - Once the resource envelope is established, countries need to decide how much and how fast available resources should be spent over the medium term.
  - Factors influencing this decision include macroeconomic conditions, capacity constraints (both absorptive and institutional), and debt sustainability considerations.
- How should the budget deal with aid uncertainty and volatility?
  - Aid volatility and uncertainty have complicated policy implementation, especially where a large part of government spending is financed by aid (see Bulíő and Hamann, 2006).
  - These issues are likely to become even more relevant when external flows are scaled up.
- Which fiscal institutions are key to using resources effectively and how can they be strengthened?
  - Scaled-up but uncertain and volatile aid flows will place increased pressure on fiscal institutions in general and on public financial management (PFM) systems in particular.
  - Strengthening fiscal institutions is crucial to ensuring that spending is efficient.

### Organization of the paper (chapters overview)
- Chapter 2: Establishing a medium-term resource envelope for the budget.
- Chapter 3: Considerations that influence the choice of a medium-term expenditure path and guidance for setting short-term fiscal targets.
- Chapter 4: Problems associated with volatility and uncertainty of aid flows and possible steps to mitigate them.
- Chapter 5: Basic reforms for strengthening fiscal institutions so that aid can be used more effectively; draws on recent IMF Fiscal Affairs Department technical assistance to member countries and proposes specific measures and factors for preparing an action plan for PFM reforms in low-income countries.
- Chapter 6: Summary and policy conclusions.

*Source: CHAPTER — Introduction (_chap1).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-publications/external/pubs/nft/books/2008/scaleupaid/_chap1.pdf_