Aid Volatility and Macro Risks in Low-Income Countries

Eduardo Borensztein, Julia Cagé, Daniel Cohen and Cécile Valadier
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Eduardo Borensztein: Inter-American Development Bank

No 273, OECD Development Centre Working Papers from OECD Publishing

Abstract: The report argues that aid volatility is an important source of volatility for the poorest countries. Following a method already applied by the Agence Française de Développement, the report argues that loans to LICs should incorporate a floating grace period, which the country could draw upon when hit by a shock. The definition of a shock should include aid uncertainty, along with others such as commodity shocks and natural disasters. The idea is calibrated to a key IMF policy instrument towards Low-Income Countries, the Poverty-Reducing and Growth Facility (PRGF). Le rapport montre que l’aide aux pays pauvres contribue à accroître la volatilité de ces pays. Suivant une méthode déjà élaborée par l’Agence Française de Développement, l’article propose d’accorder des crédits aux pays pauvres, qui incorporent un droit de grâce flexible, utilisable par le pays, lorsqu’il est confronté à un choc négatif, quelle qu’en soit la cause : choc d’aide, de prix des matières premières ou catastrophe naturelle. Il montre comment l’instrument utilisé par le FMI à destination des pays pauvres, le PRGF, pourrait être modifié pour ce faire.

Keywords: aid; aide; FMI; IMF; low income countries; Pays Pauvres; volatility (search for similar items in EconPapers)
JEL-codes: F34 F35 (search for similar items in EconPapers)
Date: 2008-11-01
New Economics Papers: this item is included in nep-afr, nep-ara, nep-dev and nep-mac
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