Monday, September 22, 2008

An MTEF to Manage Aid Flows

IMF recommends Dominica;

The mission recommended moving gradually to a medium-term expenditure framework (MTEF) to help manage the effects of recent aid inflows. In recent years, the government has taken steps to diversify its trade and economic cooperation linkages, especially with China and Venezuela, which has resulted in increased (but uncertain) aid flows (Box 5). This includes assistance under the PetroCaribe and Bolivarian Alternative for the America’s (ALBA) agreement with Venezuela. An MTEF would give greater predictability to government expenditure, reduce economic volatility, and help prevent an appreciation in the REER associated with aid-financed spending beyond the economy’s absorptive capacity. The mission also recommended improving the framework for executing and monitoring grant-financed projects. This would be aided by early approval of the pending Finance Administration Act, which would enhance recording and accountability in government finances. Regarding financing under the PetroCaribe and ALBA agreements, staff and the authorities agreed that such financing should be consistent with the overall public expenditure and debt strategy, and preserve the passthrough of changes in international oil prices. The authorities indicated that they propose to save the bulk of the concessional financing for fuel consumption under the PetroCaribe initiative. They plan to set up an investment fund, possibly at the ECCB, and restrict their spending on social projects from this source to the net return derived from the investment fund. Arrangements are also being made to incorporate the government owned petroleum trading company and ensure that its activities are clearly reflected in the government accounts.

Hype and Reality: "The" Medium-term Expenditure Framework in Developing Countries

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