• Debt and MDGs

Debt and MDGs

This paper examines the macroeconomic impact of official aid, paying special attention to its contributions to growth and poverty reduction. It also reviews volumes of and trends in official development assistance and highlights the need for new sources of development finance.

In particular, the paper highlights that:

• the empirical literature concludes overwhelmingly that growth in developing countries would have been lower in the absence of official aid
• poverty would therefore have been higher in the absence of these flows
• there has been a substantial downturn in world aid flows in the 1990s, especially regarding aid to sub-Saharan Africa, where the Millennium Development Goals will be hardest to achieve
• there has also been a downturn in non-aid, development oriented financial flows
• while there has been a recent increase in aid given to this region, it will be an immense challenge to sustain these recent increases
• new sources of development finance need to be developed, and a number of possible sources have been recently been proposed including the Tobin Tax, the International Finance Facility, a global lottery, a global premium bond, development-focused special drawing rights and global environment taxes.

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