Protecting the Most Vulnerable under IMF-supported Programs
March 30, 2016
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.
- The authorities’ sustained focus on 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. 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.
ASIA AND PACIFIC: Solomon Islands
- Achieving the Sustainable Development Goals (SDGs) is at the top of the government’s development agenda. In the forthcoming National Development Strategy (2016–35), the authorities have identified specific development objectives, including sustained and inclusive economic growth, poverty alleviation, and access to quality social services. The authorities’ five-year Medium-Term Development Plan (2016–20) has a strong emphasis on poverty reduction and allocates resources totaling 2 percent of GDP to this end, and earmarks 8 percent of GDP for health, education, and human resource development.
- In the context of the IMF-supported program under the three-year Extended Credit Facility (ECF) arrangement approved in December 2012, the authorities have accelerated public finance management reforms to strengthen the accountability of public resources and the quality of public spending. The authorities have also improved budget allocation to ensure access to basic social services. To help preserve social spending, the IMF-supported program also included a quantitative target on government-funded health and education spending.
- A one-off social dividend was distributed in 2014 to those most in need.
- The Greek authorities have committed to undertake—with assistance by the World Bank—a comprehensive review of all social benefit programs to consolidate duplication and improve targeting. Savings identified by the review would help finance the rollout of a nation-wide minimum income support program. A pilot means-tested support program was recently completed.
- Greece has launched employment programs that target unemployed youths and jobless households, and is expanding 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 have been put in place to provide free healthcare access, including health vouchers, poverty booklets, and universal health care coverage for the uninsured.
LATIN AMERICA AND CARIBBEAN: Haiti
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. Also, the IMF continues to provide concessional financing under successive ECF-supported programs approved in July 2010 and in May 2015.
- 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, the IMF-supported program includes 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 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.