Factsheet
The IMF’s Role in Helping Protect the Most Vulnerable in the Global Crisis
October 29, 2009
In this difficult environment, the IMF is helping governments to protect and even increase social spending, including social assistance. In particular, the IMF is promoting measures to increase spending on, and improve the targeting of, social safety net programs that can mitigate the impact of the crisis on the most vulnerable in society. Below are some examples of how recent IMF-supported programs seek to protect social spending in a way that is both fiscally sustainable and cost-effective.
In this difficult environment, the IMF is helping governments find the necessary budgetary savings while ring-fencing social spending on the most vulnerable in society. Below are some examples of how recent IMF-supported programs have sought to protect social spending.
| Armenia | Higher social spending. Despite a fall in fiscal revenues, social spending under the IMF-supported program will increase from 5.7 percent of GDP in 2008 to 7.3 percent of GDP in 2009, mainly as a result of higher spending on pensions, which make a significant contribution to reducing poverty in Armenia. In addition, program conditionality includes a commitment by the government to strengthen the targeting of social safety nets in close collaboration with the World Bank. |
| Belarus | Strengthening the social safety net. To protect the most vulnerable people against the effects of reduced subsidies and the economic downturn, housing assistance for families with 3 or more children, noncash housing subsidies for low-income families, and unemployment assistance will be raised. The authorities are also discussing with the World Bank measures to reduce social risks that might arise as the economy slows and unemployment increases. |
| Bosnia and Herzegovina | Protecting social spending. The program aims to cushion the effects of the global economic crisis and of the fiscal adjustment on the vulnerable groups by avoiding cuts to pensions and reforming the social safety net. The rights-based benefits system will be overhauled with the help of the World Bank to improve targeting and tighten eligibility criteria. |
| Burundi | Strengthening the social safety net. Fiscal and monetary policy has been eased to help the economy adjust to the shocks from the global financial crisis. To offset the impact of this crisis on the poor, the PRGF-supported program foresees emergency spending on targeted social safety nets (approximately 1.5 percent of GDP). Such spending, financed by donor grants, will be used to finance food security and school feeding programs and to assist the most vulnerable segments of the population and farmers. Notwithstanding a difficult budgetary situation, social spending is slated to increase from 8.8 percent of GDP in 2008 to 9.9 percent of GDP in 2009. |
| Costa Rica | Higher social spending. Fiscal policy aims to mitigate the adverse effects of the drop in private demand during 2009. The authorities plan to use available fiscal space to increase spending on education and labor-intensive infrastructure projects. They are expanding a conditional cash transfer program and non-contributory pensions (total transfers of 1 percent of GDP). Capital investment is slated to increase by 0.3 percent of GDP, mainly for infrastructure projects. |
| Côte d'Ivoire | Higher social spending. A key objective of the PRGF-supported program approved in March 2009 is to create fiscal space for poverty reduction in a post-conflict environment. To that end, the government has identified 36 specific expenditure categories that have the biggest impact on the poor, and will ensure that such pro-poor spending will grow from 6.9 percent of GDP in 2008 to 8.6 percent of GDP in 2011 (indicative floor on the level of pro-poor spending in the PRGF-supported program). |
| El Salvador | Better targeting and higher social spending. The authorities eliminated the non-residential electricity subsidy in early March, thereby creating fiscal space (of up to 0.3 percent of GDP) to increase social pending. The new government is in the process of implementing its General Anti-Crisis Plan which includes, among other things, a temporary employment program, the expansion of a rural conditional cash transfer program (Red Solidaria), and the creation of a similar program for the urban poor. The IMF team is supporting the authorities’ efforts to refocus transport, gas, and water subsidies and using part of the savings for well-targeted measures to compensate the poorest segments of the population. |
| Guatemala | Higher social spending. Social spending is slated to increase by 0.4 percent of GDP (from 4.4 percent of GDP in 2008 to 4.8 percent in 2009). The authorities’ social protection policy aims at enhancing current programs to offset the effect of the crisis on the poorest people in society. To address extreme poverty, emphasis will be placed on four flagship government programs. A key conditional cash transfer program that was initiated in 2008 (Mi familia progresa) will be expanded to reach 500,000 families and 0.3 percent of GDP in 2009. |
| Hungary | Better targeting. The fiscal strategy aims at protecting the poor and low-income earners from the impact of the global crisis. Measures include preserving the purchasing power of low-income civil servants despite the nominal freeze of the public sector wage bill, replacing a universal housing subsidy by a targeted scheme to help the needy have access to adequate housing, canceling increases in disability pensions while increasing benefits for the poorest disabled, and creating a social fund to provide temporary relief to those particularly affected by the crisis and who would not otherwise be eligible for sufficient social transfer. The government is working with social partners when designing fiscal policies. At the same time, spending programs have been created to maintain employment and project jobs and to temporarily guarantee mortgage payments for unemployed people. |
| Iceland | Higher social spending. So far in 2009, automatic stabilizers have been operating with few limits, which means Iceland’s extensive social safety net is helping to cushion the blow for the most vulnerable groups. The government has identified a number of policy options to carry out needed fiscal adjustment beginning in the second half of 2009. Consensus building has featured prominently in this process. |
| Latvia | Strengthening the social safety net. The IMF has been working with the authorities as well as with the European Commission and the World Bank to refine cost-cutting measures to make sure they can deliver the necessary adjustment without putting the most vulnerable groups at a disadvantage. These efforts have resulted in a comprehensive strategy to improve the social safety net. Measures include guaranteed minimum income payments, covering health co-payments for the most vulnerable, increasing funds for emergency housing support, protecting schooling for six-year-olds, and promoting job creation through active labor market policies. |
| Pakistan | Higher social spending and better targeting. Strengthening the social safety net is a key priority under the program. Cash transfers to poor people are projected to increase from 0.4 percent of GDP in 2008-09 to 0.6 percent in 2009-10. A recently announced wheat procurement program for 2009-10 may involve expenditures that will exceed the 0.3 percent of GDP already included. The government is collaborating with the World Bank to develop specific measures to strengthen the social safety net and improve targeting to the poor. Most recently, the slowing economy, additional donor support, and the need to protect priority expenditures, have resulted in an agreement between the IMF and the authorities to relax the fiscal deficit target for 2009/10 to 4.6 percent of GDP (compared to the original target of 3.4 percent of GDP) to provide for additional spending associated with donor support (of up to 1.2 percent of GDP). This relaxation would provide fiscal space to absorb additional donor support, boost growth, and increase social, development, and security spending, including for internally displaced persons. |
| Romania | Higher social spending. The IMF-supported program provides room for additional spending of RON 250 million (amounting to 0.05 percent of GDP) in 2009 and RON 500 million (0.1 percent of GDP) in 2010 to improve social protection for the most vulnerable groups during the economic downturn. |
| Senegal | Better targeting and higher social spending. Notwithstanding a difficult budgetary situation, the IMF-supported program protects social spending, which aims to reach the PRSP targets by 2010. With support from development partners, the authorities are introducing targeted cash transfers to protect young vulnerable children of poor families on a pilot basis. |
| Serbia | Protecting and better targeting social spending. Social spending remains protected from nominal budget cuts. Serbia has a well developed social protection system with an increasing share of well-targeted social programs, and the 2010 draft budget envisages an increase in the allocation for those benefits. |
| Seychelles | Better targeting. The current Stand-By Arrangement introduced a cash transfer program, aimed at protecting the most vulnerable segments of the population, replacing untargeted product subsidies. |
| Tajikistan | Higher social spending. Under the IMF-supported program, the authorities aim to raise social- and poverty-related spending from 7.3 percent of GDP in 2008 to 8.7 percent of GDP in 2009, and further to 10 percent of GDP by 2010. In 2009, the increase falls partly on transfers to households to help them deal with the projected decline in disposable income on account of a 35 percent decline in remittances inflows. In addition, the new spending will strengthen Tajikistan's health and education systems. Under the 3-year Poverty Reduction and Growth Facility arrangement, the authorities have also committed to reforming the agriculture sector with a view to creating employment opportunities and raising farmers' income potential. |
| Ukraine | Higher social spending and better targeting. The IMF-supported program includes a substantial increase in social spending during the recession (0.8 percent of GDP). Measures include (i) protection of the poor against gas prices increases through the life-line tariff and housing and utility allowance; (ii) protection of the unemployed through the unemployment insurance system; and (iii) expansion of two well-targeted social safety programs identified by the World Bank. Unemployment insurance is available to many who could lose their jobs. The system covers about 20 million people and provides monthly cash transfers for up to one year, at a minimum benefit of about 60 percent of the minimum wage. Housing and utility allowances are available to those who spend more than 20 percent of their income (15 percent for pensioners) on utilities. Gas tariffs are already set to provide a “lifeline” to smaller users (indeed, half the population falls into this category). Finally, there is a program to provide income support to poor households. The World Bank considers this program as one of the best targeted programs in Ukraine. |