Scaling up aid
Managing the exchange rate consequences of an MDG-related scale-up in HIV/AIDS financing
Proper management of increased HIV aid flows can maximise economic and welfare benefits
Authors:
J. Serieux
Publisher:
International Policy Centre for Inclusive Growth, 2006
This conference paper from UNDP’s International Poverty Centre is the first in a four-part series on macroeconomic policies in low-income countries that restrict the scaling up of financial resources for an expanded response to HIV. The paper argues that, although increased aid inflows do carry potential hazards, proper economic management can counteract potential negative effects. This could include frontloading aid in order to build necessary infrastructure, institutions and human capital. In this way, it is argued, welfare and productivity benefits can be maximised.
The author concludes that the macroeconomic disturbances usually associated with increased aid absorption are necessary for the appropriate adjustment of the economy and should not be countered in the short run. Mitigation is only called for if these systems persist or escalate. Appropriate policies include maintaining domestic savings rates and ensuring the productive use of aid. Less aid is not a long-term policy alternative to full and effective micro-absorption of funds. However, it is recommended that recipient countries build up modest reserve cover in the early stages of scale up of aid flows in order to insure against possible volatility
