Download ScalingUpAidtoAfrica

Aid Scaling-Up Scenarios: The IMF
and the MDG Africa Steering Group
Calvin McDonald, IMF
Brett House, UNDP
9 October 2008
Overview
1.
2.
3.
4.
5.
6.
MDGs: Strategic Framework
MDG Africa Steering Group
Current state of ODA
Gleneagles Commitments & Scenarios
IMF Macro Analyses
Next Steps
MDGs: Strategic Framework
 Goals – Financing – Plans – Schedules – Focus
2000 Millennium Summit, incl. MDGs
2002 Monterrey Financing for Development
Conference
2005 World Summit
G8 Gleneagles Summit
Paris Declaration on Aid Effectiveness
2007 MDG Call to Action
2008 MDG Africa Steering Group
Accra HLF on Aid Effectiveness
UN HLM on Africa’s Development Needs
UN HLE on MDGs at MDG midpoint
MDG Africa Steering Group
 UNSG committed at G8 Heiligendamm in June/07
to accelerate MDGs in Africa.
 July/07 ‘Call to Action’ on MDGs.
 Convened by UN Secretary-General in Sept/07 in
response to ‘development emergency’.
 Unprecedented collection of 8 multilaterals.
 Endorsed by African Union.
Why Africa?
 Extreme poverty, IMR and % underweight
Why Africa?
Subjacent poor
($0.75 and <$1):
485m
LAC
19 mln
EAP
109.3 mln
ECA
3 mln
MENA
3.3 mln
SSA
87.0 mln
SA
263.6 mln
Medial poor
($0.50 and <$0.75):
323m
LAC
16.6 mln
MENA
0.9 mln
ECA 1.1 mln
EAP
51 mln
SSA
90.2 mln
SA
162.9 mln
Ultra poor
(<$0.50):
162m
LAC
MENA
ECA 0.4 mln
11.5 mln
0.2 mln
EAP
8.8 mln
SA
19.7 mln
SSA
121 mln
Sources: WB WDI and Ahmed et al. IFPRI, 2007
Africa: Strong Macro Indicators
Gov't revenue and grants (percent of GDP)
 Domestic resources have already been mobilized.
38
36
34
32
30
28
26
24
Industrial
Emerging & Developing
Africa
22
20
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: WEO, IMF.
MDG Africa Key Recommendations
1. Strengthen international support mechanisms
 Agriculture and food security
 Education
 Health
 Infrastructure and trade facilitation
 Statistical systems
2. Improve aid predictability
3. Enhance country-level coordination
ODA: Falling Short
Gleneagles Commitments
2005 G8 Communiqué:
 ¶27. The commitments of the G8 and other donors will lead
to an increase in official development assistance to Africa
of $25 billion a year by 2010, more than doubling aid to
Africa compared to 2004.
Equivalent to:
 About US$85 per capita in real terms.
 About US$105 per capita in 2007 prices and exchange
rates.
Scaling Up: Where We Stand
 No MDG-consistent PRSP in Africa is fully financed.
 Few countries receive ODA consistent with Gleneagles
commitment.
Indicative nominal ODA per capita, 2006 USD
Benin
CAR
Ghana
Liberia
Niger
Rwanda
Sierra Leone
Tanzania
Togo
Zambia
Sources: OECD/DAC; Global Monitoring Report.
45
33
53
72
29
65
66
48
13
81
Gleneagles Commitments: Still
Feasible
1,600
US 'rescue'
1,400
Military spending
Billions of US Dollars
1,200
1,000
800
600
400
Ag. subsidies
200
0
Wall Street
bonuses
Gleneagles
Africa
Gleneagles Scenarios: Basic Design
 Look at Gleneagles commitments at country level.
 Ten case-study countries, vetted by AU Commission:
Benin
Central African Rep.
Ghana
Liberia
Niger
Rwanda
Sierra Leone
Tanzania
Togo
Zambia
 Builds on MDG-based nat’l development strategies/PRSPs.
 Countries identify areas for scaled up spending, with
assistance from UNDP, AfDB, WB.
 IMF assesses macroeconomic feasibility.
Gleneagles Scenario: Basic Design
Benin
120
Projected ODA (US$ per capita)
US$105
100
US$85
80
scaling up
60
40
20
Baseline ODA (proj.)
Gleneagles ODA
0
2007
2008
2009
2010
Macroeconomic Implications of ScaledUp Aid to Benin, Niger, and Togo
 Sectoral analyses. Scaling-up scenarios based on sectoral
analyses and spending plans by country authorities, the
UNDP, World Bank, and AfDB.
 Macro analysis. IMF staff use several approaches to
analyze effects of possible aid increase on key
macroeconomic variables: real growth, inflation, exchange
rate & current account.
 Comparative lens. Assess the implications of different
policy choices.
 Caveats. Uncertainty about macroeconomic relationships
in Africa. Countries are undergoing structural change. Data
and analytical studies are limited.
Scaling Up ODA: Broad Conclusions
 Growth. Positive impact on growth in both short and
medium term.
 Absorption. Need to use foreign currency proceeds from
aid inflows to finance transfer of real goods and services
from abroad.
 Competitiveness. Real exchange rate will generally
appreciate if government spends aid on domestic goods
and services.
 Inflation. The impact on inflation will depend on a number
of factors.
 Capacity development. Public sector’s administrative and
spending capacity must be strengthened to make best use
of additional resources.
 Debt sustainability. Additional ODA should have a large
grant element.
Benin Gleneagles Scenario:
Main Conclusions
 Moderate ODA increase. Meeting Gleneagles commitment
in Benin would require moderate increase in aid equivalent
to about 2 percent of GDP over next three years.
 Macro impact. Additional ODA would:
 have a positive impact on GDP growth;
 exert some short- to medium-term pressures on inflation; and
 cause a moderate real exchange rate appreciation.
Benin Gleneagles Scenario:
Main Conclusions
 Risks. Impact on growth and poverty reduction smaller if
Benin’s absorptive and administrative capacity is not
strengthened.
Niger Gleneagles Scenario:
Main Conclusions
 Relatively large ODA increase. To meet Gleneagles
commitment aid would need to increase by amount
equivalent to 18 percent of GDP by 2010.
 Macro impact. Scaled-up ODA would:
 substantially increase GDP growth;
 greater government spending could have a sizeable impact on
domestic inflation; and
 as a result, appreciate real exchange rate considerably.
Niger Gleneagles Scenario:
Main Conclusions
 Risks. In light of its size, the scaling-up could increase the
risk of debt distress if the grant element of new aid is low.
Togo Gleneagles Scenario:
Main Conclusions
 Sizeable ODA increase. Meeting the Gleneagles
commitment would increase annual aid disbursements by
10 percent of GDP over next few years.
 Macro impact. Gleneagles-consistent ODA would:
 considerably increase GDP growth;
 induce a short-lived, moderate increase in inflation; but
 persistently appreciate the real exchange rate.
Togo Gleneagles Scenario:
Main Conclusions
 Risks. Achieving higher GDP growth rates will depend on
loosening the economy’s capacity constraints and
strengthening the private sector.
Scaling Up ODA: IMF’s Stance
 Scaling up aid could greatly benefit recipient countries.
 Macroeconomic stability need not be at risk if countries
follow sensible policies.
 IMF stands ready to continue assessing scaling up
scenarios for low income countries to support country
PRSPs and the MDG Africa Steering Group.
Gleneagles Scenarios: Next Steps
 Extension of Gleneagles Scenario work to more countries.
 Enhance absorptive capacity to ensure aid used effectively.
 Consistent with Paris Declaration, ODA should be made
more predictable with pre-arranged disbursement
schedules.
 ODA should also be focused on areas identified under
Gleneagles Scenarios.