Health, Social Spending Vital in IMF-Supported Programs

• Author: Glenn Gottselig
• Position: IMF Survey online

IMF Survey online spoke to Sanjeev Gupta, Deputy Director of the IMF's Fiscal Affairs Department and Catherine Pattillo, Advisor in the Strategy, Policy and Review Department about the role the IMF plays in issues related to health and social policy.

IMF Survey online: Are governments with IMF-supported programs pressed to decrease social spending to meet agreed economic targets?

Gupta: During the global food and fuel and financial crises, IMF-supported programs have been very flexible by accommodating larger fiscal deficits and higher inflation, and by continuing to protect priority social expenditures.

At the same time, IMF-supported programs have placed considerable emphasis on strengthening social protection for the most vulnerable. Programs have been aimed at preserving and in most cases increasing social spending. While recognizing that low-income countries often do not have well targeted social benefits systems, programs have supported countries' efforts in finding practical solutions for protecting the most vulnerable. The design and implementation of Fund-supported programs involved close collaboration with the World Bank and regional development banks to increase the effectiveness of social spending programs.

Administrative capacity constraints, rather than excessively tight macroeconomic policies, are often the main factor constraining spending on health. Indeed, a survey conducted by the Center for Global Development and the International Aids Economics network of international health professionals found that among the most important obstacles to spending available resources on health were poor national coordination-mentioned by 28 percent of respondents, shortcomings in the health care system-mentioned by 14 percent, and absorptive capacity-mentioned by 8 percent. Fund spending limits were mentioned by only 1 percent of respondents.

IMF Survey online: Do IMF-supported programs require countries to cut spending on social programs so that inflation can be contained?

Pattillo: No. Fiscal deficits were budgeted to increase in 2009 in three-quarters of the low-income countries that were supported by IMF programs. And even in those countries that had to tighten fiscal policy, social spending has been protected.

In most cases, fiscal easing involved increases in government spending despite the bleaker revenue outlook. On average, total spending was set to increase by close to 2 percent of GDP in 2006-09. In real terms, this translates into an average annual increase of more than 7 percent during this period. The vast majority of the 19 countries that initiated Fund-supported programs in 2008-09 sought to increase social spending.

As demonstrated in a number of crisis-affected countries, programs were also flexible in adapting high inflation targets as food and fuel prices increased. Once commodity prices went into reverse and...