How Volatile and Unpredictable Are Aid Flows, and What Are the Policy Implications?

Author/Editor:

A. J Hamann ; Ales Bulir

Publication Date:

October 1, 2001

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper examines empirical evidence on the volatility and uncertainty of aid flows, and the main policy implications. Aid is found to be more volatile than fiscal revenues- particularly in highly aid-dependent countries-and mildly procyclical in relation to activity in the recipient country. These findings imply that the current pattern of aid disbursements is welfare-reducing. We also find that uncertainty about aid disbursements is large and that the information content of commitments made by donors is either very small or statistically insignificant. Policies to cope with these features of aid, as well as broader international efforts to reduce the volatility and procyclicality of aid, are briefly discussed.

Series:

Working Paper No. 2001/167

Subject:

Aid flows Budget planning and preparation Exchange rates Financial institutions Foreign aid Foreign exchange Loans Public financial management (PFM)

English

Publication Date:

October 1, 2001

ISBN/ISSN:

9781451858181/1018-5941

Stock No:

WPIEA1672001

Pages:

38

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