Protecting the Most Vulnerable under IMF-supported Programs

June 27, 2017

Under IMF-supported programs, the Fund helps governments to protect and even increase social spending, including social assistance. In particular, the IMF promotes measures to increase spending on, and improve the targeting of, social safety net programs that can mitigate the impact of some reform measures on the most vulnerable in society. Below are some examples from the major regions of the world of how IMF-supported programs seek to protect social spending in a way that is both fiscally-sustainable and cost-effective.

AFRICA: Rwanda
  • The authorities’ sustained focus on high and inclusive growth has contributed to significant reductions in poverty and inequality, with poverty dropping from 57 to 39 percent and the GINI coefficient from 0.52 to 0.45 over the past 10 years. Minimum spending on priority areas of energy, roads, agriculture, health and education as identified by the authorities is part of the IMF program conditionality. The authorities have implemented successful programs in increasing agricultural productivity, fostering financial inclusion, and improving access to health and education. For example, households with a savings account have increased from 19 to 54 percent, and literacy from 77 to 86 percent over the past 10 years. Rwanda is a regional leader in promoting gender equality.These efforts have been supported by their “signaling” program with the IMF.

  • The authorities and the IMF are working together to create fiscal space to allow Rwanda to increasingly improve its pro-poor spending—above 10 percent of GDP. Mobilizing more domestic resources can help replace donor inflows and help achieve the authorities’ objective to reduce donor dependency.

  • The authorities and IMF staff are working together to consider how the authorities can continue to finance their ambitious investment program, particularly those aimed at improving poor households’ access to water and electricity, despite difficult international financing conditions and lower commodity prices.
  • Rwanda's US$ 204 million arrangement under the IMF's Standby Credit Facility is aimed at supporting the authorities’ efforts to address the external imbalances. Adjustment policies, anchored on exchange rate flexibility and prudent fiscal and monetary policies, are complemented by longer-term strategies to promote export diversification and production in Rwanda of products previously imported. Together, these policies are expected to support higher growth, restore external sustainability, and improve the country’s resilience to external shocks.

ASIA AND PACIFIC: Vanuatu

  • Vanuatu is one of the countries in the world most vulnerable to natural disasters. The 2016 UN World Risk Index, which measures exposure to natural hazards and the capacity to cope with these events across 171 countries, continues to place Vanuatu at the top of its ranking. In the aftermath of one of the most devastating natural disasters in Vanuatu’s history in March 2015, the IMF’s financial assistance of about US$23.8 million under RCF/RFI (about 3 percent of GDP) was swift and helped cope with immediate balance of payment needs. The financial assistance helped Vanuatu cope with its immediate balance of payments needs and catalyzed critical donor support for the recovery efforts especially of poor populations in the outer islands.

  • Vanuatu’s ongoing development strategy pays particular attention to poverty, education and financial inclusion in accordance with Sustainable Development Goals (SDGs) 1 and 2. Improving access to employment opportunities and to basic social services is a priority, especially in the outer islands. The ability to access external labor markets is a window of opportunity for poverty reduction and inclusion. Several PICs, including Vanuatu, have had labor mobility agreements with Australia, New Zealand, or the United States. Expanding these agreements will prove critical in addressing the country’s unemployment challenges. Seasonal workers in Australia and New Zealand have increased, raising their living standards and those of their families at home

  • The National Bank of Vanuatu (NBV), the only domestic bank in Vanuatu, has played an important role in providing financial services to the outer islands, including via microfinance and financial literacy education programs. NBV recorded a 35 percent growth of microfinance lending in 2015 after introducing the Rural Land and Seasonal Labour Loans to rural residents and seasonal workers. The financial literacy education program was also very successful in helping open bank accounts in rural areas. Credit unions have played a complementary role in providing financial services to rural residents unable to access banking services.

 

EUROPE: Greece

  • In early 2017, the Greek authorities rolled out a nationwide means-tested social protection program, which provides guaranteed minimum income for those whose income is below 60 percent of the poverty level. With assistance by the World Bank, the authorities also undertook a comprehensive review of social benefit programs to reduce their fragmentation and improve targeting.
  • Greece launched employment programs that targeted unemployed youths and jobless households, and expanded public and social work programs and training programs to fight long-term unemployment, supported by EU structural funds.
  • Spending cuts in health focused mainly on reducing prices for pharmaceuticals, where Greece had one of the highest per capita outlays in the OECD in 2008. At the same time, several schemes were put in place to provide free healthcare access, including health vouchers, poverty booklets, and universal health care coverage for the uninsured.

Ukraine

Ukraine is implementing several measures to improve social conditions for the vulnerable following a deep economic crisis.

  • Social assistance in the form of household utility subsidies has been scaled up significantly to help protect vulnerable households from the cost of higher gas and heating tariffs. By end-2016, around one half of all households in Ukraine were receiving this benefit. Ukraine has also initiated reforms to improve the targeting of this support to the most vulnerable households to ensure that the programs remain fiscally affordable.

  • Ukraine is working on a comprehensive reform of its public pension system. With an aging population and very generous early retirement options, too many pensioners are currently financed by too few workers, forcing pensions to be very low and compromising the future viability of the pension system. To gradually increase individual pensions to more socially acceptable levels, parametric pension reform aimed at reducing the inflow of new pensioners into the system by increasing the effective retirement age is a key element of the ongoing IMF-supported program.

  • As part of a new deep and comprehensive healthcare reform—to improve the efficiency of healthcare spending, deliver better outcomes and reduce out-of-pocket expenses—the government will introduce a new mechanism of budgetary financing and establish a single national purchasing agency that will procure basic healthcare packages for the population and fully cover urgent and primary care costs and partially more specialized health services.

LATIN AMERICA AND CARIBBEAN: Haiti

In November 2016, the IMF approved $41.6 million in financial assistance following the passage of Hurricane Matthew under the Rapid Credit Facility (RCF). Previously, after the devastating earthquake that hit the country in early 2010, the IMF approved $268 million (4 percent of GDP) in post-catastrophe debt relief to free up resources for Haiti to meet its exceptional reconstruction needs.

  • RCF funds were disbursed to help the authorities meet urgent balance-of-payments needs and facilitate the post-hurricane reconstruction effort. A portion of these funds was used for nutritional assistance and sanitation needs in the immediate aftermath of Hurricane Matthew. Part of the Fund debt relief resources have been used to provide affordable social housing and to build institutional capacity aimed at strengthening the quality of public spending.

  • To boost social spending, IMF-supported programs in Haiti have included a quantitative target on poverty-reducing expenditures, including on health, education and agriculture. This helped social spending double between 2009 and 2014, with anti-poverty spending reaching almost 4 percent of GDP.

  • The IMF supports other actions taken in the context of the 2015 ECF program, including (i) a comprehensive education program financed by the Haitian government to bring all children aged 6 to 12 to school over a period of four years (about 25 percent each year); (ii) a conditional cash transfer program in favor of women in very poor neighborhoods in the Port-au-Prince area; and (iii) a food production and distribution program in poor neighborhoods to alleviate the impact of drought and promote agricultural development.

MIDDLE EAST AND CENTRAL ASIA: Jordan

Jordan implemented several measures under the three-year SBA-supported program, which was approved in August 2012 and expired in August 2015:

  • Electricity tariff reform has been implemented in a socially acceptable way. All households were exempted from the tariff increase implemented in mid-August 2013, and the increases in January 2014 and January 2015 affected only wealthier households.

  • Access to finance for small and medium-sized enterprises and low-income individuals is being improved. A credit bureau was licensed and has started its operations. Also, a new legislation on secured lending is currently before parliament. The World Bank and the European Bank for Reconstruction and Development approved loans to promote the  financing of small and medium-sized enterprises. The Central Bank of Jordan has started working on a financial inclusion strategy.

  • Cash transfers were introduced in November 2012 to mitigate the social impact of the removal of general fuel subsidies. These transfers, which are paid when the oil prices exceed $100 per barrel, amount to about US$100 per person per year; they are capped at a maximum of six family members. Initially, all families with an annual income below JD 10,000 (US$14,700) (70 percent of the population) were eligible for the transfers, but eligibility criteria were extended to include assets (land, car and real estate ownership), so as to better target the poor segments of the population.