Why are external grants important for low-income countries?
Low-income countries will require an estimated $30-70 billion per year in additional government spending to reduce poverty and achieve the Millennium Development Goals (MDGs).1 This increased spending must be financed through some combination of higher domestic revenues, external assistance and government borrowing. Higher levels of external grants and their more effective use are important elements of the Monterrey Consensus to fight poverty and reach the MDGs in low-income countries. Especially for countries that are at risk of debt distress from further borrowing even on concessional terms increased grant financing enables higher poverty-related spending without incurring additional debt. The IMF is a strong advocate for increased external grants to these countries including from the Global Fund to Fight AIDS, Tuberculosis and Malaria and the Education For All Initiative. The key is to ensure that this increased funding is well used. Challenges in absorbing additional grant inflows
