©2000 International Monetary Fund

January 14, 2000

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O C C A S I O N A L   P A P E R     
Social Issues in IMF-Supported Programs

Sanjeev Gupta, Louis Dicks-Mireaux, Ritha Khemani, Calvin McDonald, and Marijn Verhoeven

I   Introduction
II   Evolution of the IMF's Social Policy Advice
Two Social Sector Issues
Key Steps in the Evolution
III   Social Safety Nets
Design Issues
Labor Market Implications
IV   Public Spending on Education and Health Care
Aggregate Spending on Education and Health Care
Composition of Spending
Impact on Education and Health Indicators and
    Implications for Poverty
Experience with Program Targets, Conditionality, and
    Monitoring in ESAF Countries
V   Collaboration with the World Bank and
    Other International Agencies
VI   Afterword: The Poverty Reduction and Growth Facility
Appendix: IMF Executive Board Discussion
2.1.   Evolution of the IMF's Social Policy Advice
2.2.   International Social Development Goals and Performance Indicators
3.1.   Strengthening Social Safety Nets in ESAF-Supported Programs, 1994–98
3.2.   Social Safety Nets: Issues in Transition Economies
4.1.   Quality of Social Spending and Indicators Data
4.2.   Targets for Public Spending on Education and
Health Care in ESAF-Supported Programs, 1994–98
4.1.   Improvement in Social Indicators in Member
Countries, 1985–97
4.2.   Social Development Indicators, Selected ESAF Countries
4.3.   Monitoring Arrangements, Selected ESAF Countries
4.4.   Public Education and Health Care Spending Targets, Selected ESAF Countries
4.5.   Social Policy Conditionality (Prior Actions, Performance Criteria, and Benchmarks), Selected ESAF Countries
4.1.   Changes in Education and Health Care Spending in Countries with IMF-Supported Programs, 1985–97
4.2.   Spending Levels on Education and Health Care in Countries with IMF-Supported Programs, 1997
4.3.   Allocation of Education and Health Care Spending in Countries
with IMF-Supported Programs, 1994
4.4.   Benefit Incidence of Public Spending on Education and Health Care in Countries with IMF-Supported Programs, Early 1990s



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:

  • more comprehensive ex ante analysis of the likely social impact of key macroeconomic and structural reform measures; such analysis needs to be undertaken before or at the time of program formulation;
  • adequate follow-up of performance and monitoring of safety nets during program implementation to ensure that intended poor groups receive sufficient support; and
  • introducing appropriate social policy instruments before the onset of crises and economic reforms.

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

  • establishing quantitative targets for education and health care spending more systematically, particularly for primary education and for basic health care; these targets should be reported in IMF staff papers for the Executive Board, and efforts should be made to strengthen the monitoring of such spending;
  • occasionally setting performance criteria on minimum spending thresholds; and
  • in some circumstances, monitoring budgetary allocations for selected key inputs, such as books and medicine (although an excessive level of detail in IMF-supported programs would be neither feasible nor appropriate).

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.

  • Such collaboration could take place through the formulation of a poverty reduction strategy together with the country authorities in a participatory process. The main elements of the strategy would be set forth in a Poverty Reduction Strategy Paper (PRSP), which would be endorsed by the government, the World Bank, and the IMF. The PRSP would set out medium-term macroeconomic, structural, and social policies consistent with the government's poverty reduction objectives. An IMF- or Bank-supported program should be consistent with the policy framework contained in the country-strategy paper.
  • When timely World Bank input is either not available or insufficient, program design should allow for the fuller integration of relevant social policies at a later stage (e.g., at the time of program reviews), as additional analysis becomes available.

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.

1For program descriptions see the Glossary at the end of this volume. After this paper was drafted, the Enhanced Stuctural Adjustment Facility (ESAF) was renamed the Poverty Reduction and Growth Facility (PRGF).
2A more detailed discussion of the proposed Poverty Reduction Strategy Paper is provided in the World Bank—IMF staff paper, "HIPC Initiative--Strengthening the Link Between Debt Relief and Poverty Reduction," which is available on the Internet: http://www.imf.org/external/np/pdr/prsp/status.htm. See also the Glossary at the end of this volume.