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The PRGF/PSI, Fiscal Space and Financing for Development A focus on Africa: Trends, Prospects, and Challenges October 11, 2008 Dan Ghura Jan Kees Martijn International Monetary Fund PRGF/PSI Support for Development Spending Programs help create fiscal space: Full use of aid over time Explain to donors the scope for using higher aid Support domestic revenue mobilization Develop domestic and foreign borrowing strategies that keep debt sustainable Help development of financial markets to channel savings to public and private sector NB. Monetary financing is not a sustainable source of fiscal space PRGF/PSI Support for Development Spending (cont’d) Programs support effective expenditure management: Promote medium-term budgeting Smooth spending despite aid volatility Increase budgetary transparency Monitor social spending Use wage bill-ceilings only as a temporary measure in exceptional cases PRGF and PSI PRGF Provides concessional balance of payments support To build track record for HIPC/MDRI debt relief PSI For mature stabilizers Signal to donors Possible financial support in case of shocks (ESF) Figure 1. Real GDP Growth and Inflation 14 12 14 35 Growth 12 10 30 30 25 25 10 Mozambique 8 8 6 6 4 4 2 Cameroon 2 15 0 10 Rwanda 0 -2 -4 35 Inflation 20 -6 -4 -6 2000 2001 2002 2003 2004 2005 2006 2007 Sources: WEO, WETA, and staff estimates 15 Mozambique 10 Rwanda -2 Malawi 20 Malawi 5 Cameroon 5 0 0 2000 2001 2002 2003 2004 2005 2006 2007 Figure 2. Government Capital Expenditure (In percent of GDP) 16 16 14 14 12 12 Mozambique 10 10 Rwanda 8 8 6 6 4 4 Malawi Cameroon 2 0 2 0 2000 2001 2002 2003 Sources: WEO, WETA, and staff estimates 2004 2005 2006 2007