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Aid flows

Monetary policies for an mdg-related scaling up of ODA to combat HIV/AIDS

Addressing the HIV and AIDS pandemic with increased aid flows?

Authors: M. Vernengo
Publisher: International Policy Centre for Inclusive Growth, 2006

Full text of document

What would be the effects of a surge in aid flows in developing countries? This paper discusses the best monetary policy to manage the macroeconomic effects of a Millennium Development Goal (MDG)-related scaling up of aid inflows to address the HIV and AIDS pandemic. The paper suggests that the evidence on the overvaluation effects of aid flow is thin, at best. It maintains that monetary policies should:

  • maintain low rates of interest
  • increase overall liquidity in the economy
  • maintain a relatively depreciated currency

Such policies will help support the expansion of fiscal space that will be necessary for reaching the MDG target of halting and reversing the HIV and AIDS pandemic. A substantial increase in official development assistance directed towards combating HIV and AIDS will lead to an expansion of government spending on domestic goods and services.

This is the second paper in a four-part series that contributes to the on-going debate on macroeconomic policies in low-income countries that restrict the scaling up of financial resources for an expanded HIV and AIDS response.