How Volatile and Unpredictable Are Aid Flows, and What Are the Policy Implications?

October 1, 2001

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Format: Chicago

A. J Hamann, and Ales Bulir. How Volatile and Unpredictable Are Aid Flows, and What Are the Policy Implications?, (USA: International Monetary Fund, 2001) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper examines empirical evidence on the volatility and uncertainty of aid flows, and the main policy implications. Aid is found to be more volatile than fiscal revenues- particularly in highly aid-dependent countries-and mildly procyclical in relation to activity in the recipient country. These findings imply that the current pattern of aid disbursements is welfare-reducing. We also find that uncertainty about aid disbursements is large and that the information content of commitments made by donors is either very small or statistically insignificant. Policies to cope with these features of aid, as well as broader international efforts to reduce the volatility and procyclicality of aid, are briefly discussed.

Subject: Aid flows, Budget planning and preparation, Exchange rates, Financial institutions, Foreign aid, Foreign exchange, Loans, Public financial management (PFM)

Keywords: Aid disbursement, Aid flows, Aid-to-revenue ratio, Budget planning and preparation, Correlation coefficient, Country, Disbursement, Donor country, Exchange rates, External aid, IMF country desk economist, IMF program projection, IMF-program projection, IMF-supported programs, Loans, Predictability, Program aid, Rank correlation correlation coefficient, Recipient country, Reform effort, Sub-Saharan Africa, Volatility, WP

Publication Details

Pages:

38
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2001/167
Stock No:

WPIEA1672001
ISBN:

9781451858181
ISSN:

1018-5941

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