8 Signaling, Aid, and IMF Financial Arrangements for Low‐Income Countries

Abstract

Abstract This chapter focuses on how the IMF interacts with macroeconomic policy formulation in low-income countries (LICs). It addresses four related concerns. Can the IMF remain fully engaged with LICs without having a loan program (such as the PRGF) in place? How can it sign up to a macroeconomic approach characterized by greater fiscal flexibility? Is its approach (jointly with the World Bank) to debt sustainability adequate, especially in the context of aid concessionality? Is the type of technical assistance it offers suitable to the needs of LICs? The general conclusion is that the Fund has made considerable progress in addressing these issues, but that much more remains to be done: specifically, it should strengthen the underpinnings of its technical assistance and advice, develop a more focused low-income analytic perspective, build its own capacity to assist countries to explore their macroeconomic options, and more systematically evaluate its technical advice in the light of the outcomes this has helped to induce.

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