Making Fiscal Space Happen: Managing Fiscal Policy in a World of Scaled-Up Aid

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

December 1, 2006

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Format: Chicago

Xavier Debrun, Peter S. Heller, Theo Thomas, Menachem Katz, Isabell Adenauer, and Taline Koranchelian. Making Fiscal Space Happen: Managing Fiscal Policy in a World of Scaled-Up Aid, (USA: International Monetary Fund, 2006) accessed November 21, 2024

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

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.

Subject: Aid flows, Budget planning and preparation, Expenditure, Fiscal policy, Public financial management (PFM)

Keywords: Annual budget, Central bank, Country authorities, Debt relief, Exchange rate, Expenditure program, LIC government, Policy objective, WP

Publication Details

Pages:

53
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2006/270
Stock No:

WPIEA2006270
ISBN:

9781451865301
ISSN:

1018-5941

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