Economic impact of increased aid flows for HIV/AIDS in developing countries : briefing note
Document type: report
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Abstract:
There is a tension between the rational for increased investments of human and financial resources to tackle the impact of AIDS and the potential economic implications of such increased aid flows in macroeconomic, budgetary, and sectoral terms. The note concludes that the discussion about the potential negative effects of increased aid flows for AIDS is more relevant with regards to the credibility and predictability of donor financing, than to the macroeconomic problems of absorbing new aid flows. The way in which existing and new donors deal with the national budgetary process is crucial to ensure effective funding with limited distortion of the economy. The macroeconomic impact of increased aid flows is manageable. The long-term benefits of aid should be able to offset any initial negative impact of large inflows of external financing. However, the fact that aid levels below expectations cause more problems (higher debt and spending cuts) than aid in excess of expectations will cause countries to be cautious when the anticipated increase in aid consists of large, but potentially volatile or short-run pledges with limited credibility regarding disbursement or sustainability. Predictability and transparency of external resources are crucial in order to avoid economic instability. Moreover, active engagement with national government and alignment with the government’s resource allocation process is probably more effective in ensuring that sustainable new flows of aid result in expanded expenditure for priority programmes than trying to influence spending patterns by insisting on demonstrations of “additionality” of aid or earmarking external funding. The way in which aid is delivered also plays an important role with regards to the sectoral absorptive capacity. Practices as donor harmonization and alignment have the potential to reduce the burden on existing capacity in the public and private sector. Moreover, external financing that is aimed at improving the long term capacity of the health sector, for example through sector-wide approaches and health system improvements, will further reduce the risk of macroeconomic instability.
Authors:
Compernolle, P.
Category:
Policy
Keywords:
health
,
finance
,
policy
,
international cooperation
Language:
eng
Organization:
KIT - Royal Tropical Institute
PAGE:
6
Place:
Amsterdam
Publisher:
Koninklijk Instituut voor de Tropen (KIT)
Year:
2004
Right:
© 2004 KIT
Subject:
Health and Nutrition
Title:
Economic impact of increased aid flows for HIV/AIDS in developing countries : briefing note