©2000 International Monetary Fund
January 14, 2000
Sanjeev Gupta, Louis Dicks-Mireaux, Ritha Khemani, Calvin
McDonald, and Marijn Verhoeven
This paper reviews the IMF's policy advice in two key areas of social policy: social safety nets and public spending on education and health care. While the IMF has been helping countries promote sustainable economic growth, and thereby reduce poverty through macroeconomic policy advice, it has also been strengthening its dialogue with member countries on the social implications of its advice. This paper offers preliminary conclusions on how to improve the integration of IMF policy advice on social safety nets and public social spending into program design 1 within a sustainable macroeconomic framework.
In the family of international organizations, the social components of country programs are primarily the responsibility of the World Bank and other organizations, not the IMF. The World Bank has primary mandates, responsibilities, and expertise on social issues. Whenever feasible, the IMF has drawn, and will continue to draw, upon the work of the World Bank and other organizations. Hence, enhanced inputs from and closer collaboration with these organizations are essential. Another important element is more dialogue with civil society groups, in particular labor unions and nongovernmental organizations (NGOs).
Social Safety Nets
The design of social safety nets and the timing of their establishment in countries have been influenced by both social protection needs and constraints. The needs reflected the specific adverse social effects of reform measures and the characteristics of affected groups. The constraints reflected the availability of social policy instruments such as old age pensions and unemployment insurance, and administrative and financing capacity. Whenever social policy instruments were available, the foremost challenges have been to ensure their targeting and to increase their financing.
This review identifies three key requirements for strengthening social safety nets in IMF-supported programs:
IMF staff needs to rely on the expertise of the World Bank and other organizations in conducting the ex ante analysis. IMF staff reports should discuss such analysis and also the performance of social safety nets. When the World Bank or other relevant international institutions are unable to provide needed advice within a suitable time frame, IMF staff should attempt to fill the gap. These situations, however, should be infrequent.
Public Spending on Education and Health Care
On average, in the past decade, education and health care spending has increased—in real per capita terms, as well as in relation to GDP—in countries with IMF-supported programs. For many countries, these increases have been accompanied by improvements in a broad range of social indicators. Still, countries differ considerably on spending relative to GDP for both education and health care and on the speed of improvement of social indicators, reflecting in part differences in the efficiency of public spending.
There is scope for improving the efficiency and targeting of existing spending on education and health care as a means of improving social indicators. This improvement could be achieved through, among other things, strengthening budget formulation and implementation capacity, increasing resources spent on primary education and basic health care, and reducing excessive out-of-pocket expenses borne by the poor in the form of user charges for primary education and basic health care. To consolidate the progress already made, this review identifies some steps that should be taken in programs supported by the IMF for
These steps should be taken, in collaboration with the World Bank, by building on the progress that has already been achieved. IMF staff should continue to assess budgetary allocations for social sectors, relying on available World Bank input, in particular on timely Public Expenditure Reviews (PERs). To help promote social reform, IMF-supported programs could use as reference points the targets established by the authorities for selected intermediate social indicators (e.g., primary and secondary school enrollment rates and immunization rates). Especially where social indicators are failing to improve, despite increases in public spending, IMF staff should report to the Executive Board on discussions with the country authorities, World Bank, NGOs, and other institutions.
World Bank—IMF Collaboration
World Bank—IMF collaboration could be significantly improved by better integrating macroeconomic and social objectives, policy measures, and related work agendas. A shared understanding of the key social and macroeconomic issues is essential.
The PRSP should include several components that would facilitate World Bank—IMF collaboration. These components, which would reflect the two institutions' respective operational responsibilities in a country, should contain policy advice, financing needs, and work programs, in particular in the context of IMF-supported programs and World Bank lending operations.2 Through this process, an iterative dialogue between the staffs of the IMF and the World Bank would be intensified, assuring the consistency between a macroeconomic framework and a cost-effective strategy for sustainable growth with poverty reduction.
The social policy components of the countries' Comprehensive Development Frameworks (CDFs) could also be integrated into their macroeconomic programs. In this regard, drawing upon the advice of the World Bank, the authorities should formulate, at an early stage of their macroeconomic programs, comprehensive social strategies that include specific action plans that provide a much-needed road map from objectives to policies. High-level poverty monitoring units in governments could help strengthen coordination at the local, national, and international levels and collect data for monitoring social progress.
Data and Institutional Capacity
IMF staff should make an effort to identify and highlight data weaknesses in the area of social
spending indicators and social protection arrangements. This would help draw the authorities'
attention to the urgent need to redress the data weaknesses in collaboration with the World Bank
and other international agencies. In this regard, IMF staff should also assess the scope for
technical assistance. Greater attention could also be given to inputs prepared by civic groups,
NGOs, and donors.