Macroeconomic Management of Foreign Aid

The IMF is centrally engaged in promoting policies that help countries achieve macroeconomic stability and high-quality growth-the surest and fastest route for reducing poverty. In support of these objectives, the IMF Institute took the lead in organizing a high-level seminar to raise awareness of the macroeconomic pitfalls and trade-offs that can arise in the wake of large new aid inflows. The seminar brought together senior African policymakers, experts from universities and development think tanks, and representatives of the IMF, World Bank, and aid-donor community. This volume presents the papers prepared for the seminar, which was hosted in Maputo by the Government of Mozambique during March 2005, and was cofinanced by the United Kingdom's Department for International Development (DFID) and Germany's Internationale Weiterbildung und Entwicklung gGmbH (InWEnt). The papers in this volume address a range of relevant issues: the relationship between aid, growth, and poverty reduction; the potential for sizable increases in aid to adversely affect competitiveness and how to avoid this; concerns that aid flows that are volatile, unpredictable, and sometimes procyclical exacerbate macroeconomic stabilization difficulties; the impact of higher aid flows on the debt sustainability of recipients; the effect of aid on institutions and the political economy in recipient countries.