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

55 Pages Posted: 12 Jan 2007

See all articles by Peter Heller

Peter Heller

International Monetary Fund (IMF)

Menachem Katz

International Monetary Fund (IMF)

Xavier Debrun

International Monetary Fund (IMF) - Research Department

Theo Thomas

International Monetary Fund (IMF)

Taline Koranchelian

International Monetary Fund (IMF)

Isabell Adenauer

International Monetary Fund (IMF)

Date Written: December 2006

Abstract

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.

Keywords: Economic assistance, Fiscal policy, Low income developing countries, Economic policy, Public finance

JEL Classification: O11, O23, H39

Suggested Citation

Heller, Peter and Katz, Menachem and Debrun, Xavier and Thomas, Theo and Koranchelian, Taline and Adenauer, Isabell, Making Fiscal Space Happen: Managing Fiscal Policy in a World of Scaled-Up Aid (December 2006). IMF Working Paper No. 06/270, Available at SSRN: https://ssrn.com/abstract=956733

Peter Heller

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Menachem Katz

International Monetary Fund (IMF)

700 19th Street, N.W.
Washington, DC 20431
United States

Xavier Debrun

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-8321 (Phone)
202-623-6343 (Fax)

Theo Thomas

International Monetary Fund (IMF)

700 19th Street, N.W.
Washington, DC 20431
United States

Taline Koranchelian

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Isabell Adenauer

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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