## Social Spending for Inclusive Growth in the Middle East and Central Asia

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### Regional context and challenges
- Socioeconomic outcomes in the Middle East and Central Asia have improved substantially over the last two decades; nearly all countries in the region have made gains in health and education outcomes.
- Excluding conflict-affected countries, these gains have generally been larger than in comparator economies outside the region.
- The region faces an urgent need for more inclusive growth driven by demographic pressures, youth unemployment, poverty, high and rising inequality, internal conflicts, large movements of refugees, and heightened security risks.
- A more challenging external environment—slowing global growth, trade uncertainty, and geopolitical risks—limits prospects and the ability to meet the UN Sustainable Development Goals (SDGs).
- The COVID-19 pandemic has magnified existing challenges, exposed vulnerabilities in health infrastructure and social safety nets, and substantially strained public finances and budgetary resources.

### Scope, questions addressed, and definition of social spending
- Scope and key questions:
  - How large is social spending across the region?
  - How do countries in the region fare on socioeconomic outcomes?
  - How important is social spending as a determinant of these outcomes?
  - How efficient is social spending in the region?
- Definition of social spending used:
  - Social protection (social insurance and social assistance)
  - Education services (such as primary and secondary education services)
  - Health services (such as a basic health care package provided by primary, secondary, and hospital service providers)
- Omitted or partial measures noted:
  - Private outlays by households, charitable activity, foreign-aid-funded projects outside the budget, and social components of other government budget items (including the wage bill and some subsidies) are acknowledged but largely not included due to data limitations.

### Levels and composition of social spending (selected statistics)
- Regional averages and comparisons:
  - Governments in the region devote 10.4 percent of GDP on average to social spending, compared to an EM average of 14.2 percent.
  - LIC-MENAP countries’ level of social spending averages 8 percent, compared to the global LIC average of 14 percent of GDP.
  - EM countries in the MENAP region spend an average of US$1,220 on social outlays compared to US$1,978 spent by EMs globally (per capita PPP).
  - The median country in the Middle East and Central Asia needs to spend an additional 5.3 percent of GDP per year by 2030 to achieve five critical SDGs (estimate assumes spending efficiency is at the frontier).
- Health:
  - On average, countries in the region spend 6 percent of GDP on health care, of which 3 percent is public expenditure and 3 percent is private.
  - Private health expenditure in the CCA and LIC-MENAP comprises about 71 percent of overall health expenditure.
- Education:
  - Governments in the region spend on average 3.5 percent of GDP on education, whereas global EMs are at 4.2 percent.
  - LIC-MENAP countries spend 2.6 percent of GDP on public education.
- Social protection:
  - Countries in the region spend on average 4.9 percent of GDP on social protection, compared to 6.6 percent in EMs.
  - Social protection in the CCA is 6.6 percent of GDP, comparable to EMs.
  - The gap between GCC countries and their AE peers in social protection spending is 11.7 percentage points.
  - Wide PPP$ per capita variability in GCC social protection spending (example range: US$280 in Qatar to US$7,200 in Kuwait).

### COVID-19 response and fiscal cost (selected points)
- Most countries substantially increased social spending in response to COVID-19; at least half announced targeted support to lower-income and vulnerable households and informal workers.
- Modalities:
  - Much social protection assistance was delivered through cash transfer programs, with many countries using technology to deliver benefits.
  - Some countries (Egypt) also increased education spending.
- Fiscal cost:
  - The fiscal cost of responding to the pandemic has generally been significant—on average above 2 percent of GDP—although somewhat smaller than in global peers.
  - Fiscal measures include above-the-line on-budget measures directly affecting the government budget balance or financing needs in gross terms, including additional spending on health and social protection and foregone revenue from cutting tax rates or postponing tax collections.
  - Fiscal measures as of June 2020 averaged 2.6 percent of GDP, including 0.6 percent of GDP in the health sector.
  - Iran’s additional health spending to combat the crisis, at 2.2 percent of GDP, is among the highest in the world.

### Main empirical findings on impact of social spending
- Aggregate estimated relations (as presented in the source):
  - HDI = 0.017 × Social spending + Vector of controls
  - Expected years of schooling = 0.38 × Public education spending + Vector of controls
  - Child mortality rate = −0.073 × Public health spending + Vector of controls
  - Life expectancy = 0.2 × Public health spending + Vector of controls
  - Poverty rate = −0.5 × Social spending + Vector of controls
  - IHDI = 0.05 × Social spending + Vector of controls
- Key empirical results (1990–2017, global sample):
  - Public spending on education is associated with higher secondary-school enrollment and higher expected years of schooling.
  - Higher public health expenditure is associated with greater life expectancy and lower infant mortality.
  - Public social spending is associated with higher HDI after controlling for income, urbanization, macroeconomic stability, trade openness, domestic and external conflict, and financial development.
  - The relationship between social spending and the HDI, IHDI, and poverty reduction is positive and statistically significant at the 1 percent level (Annex 3).
- Magnitude and comparative impacts:
  - Using the most conservative SGMM coefficient, a 10 percent higher PPP dollars per capita social protection spending (if sustained for 3 years) can:
    - Close 20–40 percent of the HDI gap between MENAP countries and their comparators.
    - Close up to 65 percent of the gap between CCA countries and EM peer average.
  - Improving governance amplifies the impact of additional social spending:
    - If MENAP countries boost survey-based governance indicators to peer levels, the same 10 percent increase in social protection spending can close 45–60 percent of the gap and completely close the gap for CCA countries and EM average.

### Econometric approach and robustness
- Data: global panel covering 191 countries during 1990–2017.
- Model specification includes lagged social spending (previous year or multi-year lags) and controls for macroeconomic, institutional, health-specific, and education-specific variables.
- Endogeneity addressed via:
  - Lagging social spending.
  - Two-stage least squares (2SLS) with instruments (e.g., log of population, share of agriculture in GDP, index of ethnic tensions).
  - Systems Generalized Method of Moments (SGMM).
- Results robust to:
  - Measuring social spending as percent of GDP or PPP dollars per capita.
  - Using annual data or smoothed 3- and 4-year averages.
  - Different lags (including three- and four-year lags).

### Efficiency of spending and potential gains from efficiency improvements
- Outcome gap exceeds spending gap, implying efficiency matters in addition to levels of outlays.
- If the region brought its social spending efficiency to the average efficiency level of advanced economies, without extra spending:
  - It could close 34 percent of the HDI outcome gap.
  - It could close 20 percent of the outcome gap in secondary school enrollment.
  - It could close 10 percent of the outcome gap in life expectancy.
- Country-level examples under higher efficiency:
  - Life expectancy at birth could increase by three years in Kuwait if the existing resource envelope was spent at the efficiency level of advanced economies.
  - Under higher social spending efficiency, Afghanistan’s HDI could reach the level of the Kyrgyz Republic.
  - Infant mortality in Iraq would drop from 31 per 1,000 live births to 27 per 1,000 live births.
- Methods: nonparametric approaches (DEA, FDH) and parametric approaches (SFA) show scope to improve spending efficiency in the region.
  - FDH and SFA results indicate MENAP-EMs and MENAP-LICs are generally less efficient than global peers in several outcomes.
- Drivers of efficiency:
  - Strong correlation between spending efficiency and institutional quality (government effectiveness, control of corruption, rule of law).
  - Efficiency improvements linked to higher urbanization, financial inclusion, and controlling infectious diseases.
- Selected coefficients from drivers of efficiency (Table 4, selected values preserved as in source):
  - Control of Corruption: 0.004 0.028 20.021 20.02 0.025
  - Domestic Credit to Private Sector as Percent of GDP (Log): 0.011 0.029 0.074 0.083 0.069
  - GINI Index: 0.000 20.001 20.005 20.006 20.009
  - Observations: 124 124 101 89 104
  - Log likelihood: 375.5 204.98 0.925 7.247 3.57
  - F-statistic: 44.727 0.1534 4.795 4.041 0.74

### Fiscal sustainability and policy constraints
- Many countries cannot permanently sustain higher social spending without creating fiscal space.
  - Public debt in MENAP EMs and LICs was high before the pandemic and projected at close to 90 percent of GDP on average in 2020 (IMF 2020).
- Sustaining higher social spending required by the pandemic without further increasing debt will require reprioritizing current spending and/or mobilizing additional revenues.
- Efficiency gains can help reconcile social objectives with fiscal sustainability.

### Policy implications and recommendations (priorities)
- Increase social spending where necessary:
  - Some countries—particularly those with relatively low public social spending—may need to raise budgetary allocations for social sectors.
  - To protect fiscal sustainability, raising spending may require reallocations within existing budgets and/or expanding fiscal envelopes via increased revenue mobilization.
- Improve spending efficiency:
  - Nearly all countries should aim to increase the efficiency of social spending, especially those with limited fiscal space and those significantly below the efficiency frontier.
  - Measures to improve efficiency may include:
    - Improving targeting of social protection while guarding against exclusion of intended beneficiaries.
    - Addressing gaps such as gender gaps in access to education.
    - Promoting financial inclusion to facilitate benefit payments and reduce corruption risks.
    - Strengthening institutions, transparency, and accountability.
- Build on COVID-19 lessons:
  - Use digital technologies and operational innovations (examples from the region: Jordan mobile wallets; Kazakhstan mobile-app bank accounts; Morocco SMS outreach) to improve delivery efficiency.
  - Reprioritize expenditures toward primary health care, preventive services, and mechanisms that enhance rapid targeted support to vulnerable households.
- Country-specific diagnostics and reforms:
  - Prioritize reforms that raise efficiency and quality of existing social spending alongside or before increasing spending levels.
  - Examples and priorities from case studies:
    - Bahrain: lower teacher–student ratio (Bahrain has 8.22 teachers per 100 students) and increase competition in the health sector.
    - Armenia: expand coverage of targeted social protection where targeting already works well.
    - Tunisia: more and better-targeted social spending; financially viable social security; institutional and governance reforms; rebalance education spending away from oversized wage share (education wage share grew from 88 to 93 percent over 2012–17, leaving 4 percent for investment).
- Measurement and data needs:
  - Need for better data on non-public spending with a social component (household, charitable, off-budget aid) and more comprehensive, timely data on socioeconomic outcomes to enable richer, evidence-based and tailored policy advice.

*Source: Executive Summary and selected sections, “Social Spending for Inclusive Growth in the Middle East and Central Asia.”*

### Executive Summary ������������������������������������������������������������������������������������������������������

### Executive Summary

### Regional context and challenges
- Socioeconomic outcomes in the Middle East and Central Asia have improved substantially over the last two decades; nearly all countries in the region have made gains in health and education outcomes.
- Excluding conflict-affected countries, these gains have generally been larger than in comparator economies outside the region.
- The region faces an urgent need for more inclusive growth driven by demographic pressures, youth unemployment, poverty, high and rising inequality, internal conflicts, large movements of refugees, and heightened security risks.
- A more challenging external environment—slowing global growth, trade uncertainty, and geopolitical risks—limits prospects and the ability to meet the UN Sustainable Development Goals (SDGs).
- The COVID-19 pandemic has magnified existing challenges, exposed vulnerabilities in health infrastructure and social safety nets, and substantially strained public finances and budgetary resources.

### Scope and questions addressed
- The paper examines the role of social spending on education, health, and social protection in improving socioeconomic outcomes in the Middle East and Central Asia.
- Key questions addressed:
  - How large is social spending across the region?
  - How do countries in the region fare on socioeconomic outcomes?
  - How important is social spending as a determinant of these outcomes?
  - How efficient is social spending in the region?

### Main empirical findings
- Regional spending and outcomes
  - Countries in the Middle East and Central Asia have made notable progress but generally lag global peers in socioeconomic outcomes.
  - Levels of public social spending in the region are lower than in global peers.
- Impact of social spending
  - Public spending on education, health, and social protection can have a meaningful impact on socioeconomic outcomes.
  - A 10 percent increase in social spending per capita could close 20–65 percent of the Human Development Index (HDI) gap between countries in the region and their global peers.
- Efficiency of spending
  - The outcome gap between the region and global comparators is larger than the spending gap, implying that efficiency matters in addition to levels of outlays.
  - Increasing the efficiency of spending in the region to the global frontier could—without any increase in outlays—eliminate one-third of the HDI gap.
  - Spending efficiency is linked strongly to indicators of institutional capacity and governance.

### Measurement caveats
- The paper uses the standard definition of “social spending,” but notes that other forms of spending with social impact also matter:
  - Private outlays by households, charitable activity, foreign-aid-funded projects outside the budget, and social components of other government budget items (including the wage bill and some subsidies).
- Consistent data on these other types of social outlays are often not available; the social component of the public wage bill and subsidies is particularly difficult to identify.
- Evidence suggests the sum total of these other forms of social spending is neither systematically higher nor lower in the region than in peer countries; therefore measurement issues should not materially affect the paper’s conclusions.

### Policy implications and recommendations
- Increase social spending where necessary
  - Some countries—particularly those with relatively low public social spending—may need to raise budgetary allocations for social sectors.
  - To protect fiscal sustainability, raising spending may require reallocations within existing budgets and/or expanding fiscal envelopes via increased revenue mobilization, as many countries in the region have done in recent years (IMF 2018).
- Improve spending efficiency
  - Nearly all countries should aim to increase the efficiency of social spending, especially those with limited fiscal space and those significantly below the efficiency frontier.
  - Measures to improve efficiency may include:
    - Improving targeting of social protection while guarding against exclusion of intended beneficiaries.
    - Addressing gaps such as gender gaps in access to education.
    - Promoting financial inclusion to facilitate benefit payments and reduce corruption risks.
    - Strengthening institutions, transparency, and accountability—the most important but also most challenging tasks.
- Build on COVID-19 lessons
  - Most countries in the region were able to quickly mobilize resources for additional health care and social protection during the COVID-19 crisis.
  - The crisis experience offers lessons on reprioritizing expenditure and improving spending efficiency, including greater use of digital technologies.

### Relationship to prior IMF work
- This study builds on earlier IMF analyses of fiscal and infrastructure spending effects on socioeconomic outcomes (IMF 2017, 2018) and on reorienting fiscal policy toward inclusive growth (IMF 2019b).
- The paper shows econometrically that increased public expenditure on education, health, and social protection leads to better education and health outcomes, reduced poverty and inequality, and stronger growth overall.

*Source: Executive Summary, “Social Spending for Inclusive Growth in the Middle East and Central Asia.”*

### Introduction

### Introduction

### Objectives and scope
- Two main objectives for social spending in the region:
  - Reprioritization of the existing expenditure envelope and/or enhanced revenue mobilization, with the precise mix varying across countries and dependent on a deeper analysis of fiscal space across the region that is beyond the scope of this paper.
  - Policy efforts to address factors underpinning relative spending inefficiency, such as institutional weaknesses, governance problems, and poor financial inclusion.
- The COVID-19 crisis has underscored the need for strong health systems and effective frameworks to channel cash transfers to vulnerable households and has forced a swift and concerted national and multilateral response to ensure adequate public spending on health and social protection.
- The paper focuses on on-budget government spending on social protection, education, and health consistent with IMF (2019b), and does not attempt to incorporate comprehensive off-budget private or charitable spending due to limited cross-country data.

### Defining social spending
- Social spending definition used:
  - Social protection (social insurance and social assistance)
  - Education services (such as primary and secondary education services)
  - Health services (such as a basic health care package provided by primary, secondary, and hospital service providers)
- Other budget items with social aspects are noted but not treated as substitutes for the standard definition:
  - Large public wage bill and public-private wage premium can act as de facto social protection but may be poorly targeted and create budget rigidities.
  - Some subsidies (e.g., energy subsidies) function as universal transfers but tend to benefit richer households in absolute terms and can distort incentives.
- Data limitations:
  - Comprehensive cross-country data on private education spending and off-budget foreign-aid-funded spending are not available; private health spending data are used in empirical analyses.

### Levels and composition of social spending in Middle East and Central Asia (MCD)
- Average social spending in the region:
  - Governments in the region devote 10.4 percent of GDP on average to social spending, compared to an EM average of 14.2 percent.
  - LIC-MENAP countries’ level of social spending averages 8 percent, compared to the global LIC average of 14 percent of GDP.
- Per capita PPP comparisons:
  - EM countries in the MENAP region spend an average of US$1,220 on social outlays compared to US$1,978 spent by EMs globally.
- Additional spending required to meet selected SDGs:
  - The median country in the Middle East and Central Asia needs to spend an additional 5.3 percent of GDP per year by 2030 to achieve five critical SDGs covering human, social, and physical capital (this estimate assumes spending efficiency is at the frontier).
- Health spending composition:
  - On average, countries in the region spend 6 percent of GDP on health care, of which 3 percent is public expenditure and 3 percent is private.
  - Private health expenditure in the CCA and LIC-MENAP comprises about 71 percent of overall health expenditure.
  - Low public health spending implies larger out-of-pocket expenses and barriers to access for the poor and vulnerable.
- Education spending:
  - Governments in the region spend on average 3.5 percent of GDP on education, whereas global EMs are at 4.2 percent.
  - LIC-MENAP countries spend 2.6 percent of GDP on public education.
- Social protection spending:
  - Countries in the region spend on average 4.9 percent of GDP on social protection, compared to 6.6 percent in EMs.
  - Social protection in the CCA is 6.6 percent of GDP, comparable to EMs.
  - The gap between GCC countries and their AE peers in social protection spending is 11.7 percentage points.
  - Wide PPP$ per capita variability in GCC social protection spending (example range: US$280 in Qatar to US$7,200 in Kuwait).

### COVID-19 response and fiscal cost
- Most countries in the region substantially increased social spending in response to COVID-19, with many announcing targeted support to lower-income and vulnerable households and informal workers.
- An important part of responses was to support health care spending; at least half of the countries announced plans for targeted support to lower-income and vulnerable households and informal workers.
- Modalities and features:
  - Much social protection assistance was delivered through cash transfer programs, with many countries using technology to deliver benefits.
  - Some countries (Egypt) also increased education spending.
- Fiscal cost:
  - The fiscal cost of responding to the pandemic has generally been significant—on average above 2 percent of GDP—although somewhat smaller than in global peers.
  - Fiscal measures here include above-the-line on-budget measures directly affecting the government budget balance or financing needs in gross terms, including additional spending on health and social protection and foregone revenue from cutting tax rates or postponing tax collections.

### Socioeconomic outcomes and indicators
- Outcome indicators used:
  - Health: infant mortality rate and life expectancy at birth.
  - Education: secondary school enrollment and expected years of schooling; supplemented by learning poverty (LP) where available.
  - Aggregate: HDI, inequality-adjusted HDI (IHDI), income per capita, poverty rates, and the World Bank’s Human Capital Index (HCI).
- Recent trends:
  - Socioeconomic outcomes in the region have improved substantially over the last two decades, including health, education, and poverty reduction.
  - MENAP economies (except LICs) posted larger-than-average socioeconomic gains in relative terms.
  - Examples: Tunisia and Oman among top 20 globally for increasing secondary-school enrollment since 1990; Morocco in top 20 for HDI improvements.
  - LIC-MENAP countries reduced the secondary-school enrollment gap with other LIC peers, largely by closing gender gaps.
  - Higher female secondary-school enrollment is associated with lower fertility rates, improved female literacy, and lower infant mortality.
- Concerns:
  - The rate of progress appears to be slowing down in reducing infant mortality and raising life expectancy and other outcomes.

### Analysis approach and paper organization
- Chapter structure overview:
  - Chapter 2: definition of social spending and limitations.
  - Chapters 3 and 4: documentation of levels of social spending and socioeconomic outcomes.
  - Subsequent chapters: econometric analyses of how social spending affects socioeconomic outcomes; analysis of spending efficiency and drivers of inefficiency.
  - Final sections: policy recommendations and annex with three regional case studies.

*Source: ssigmecaea - Introduction (ssigmecaea - Introduction, PDF).*

### 1. PISA/TIMSS Scores and Secondary School Enrollment in MCD

### 1. PISA/TIMSS Scores and Secondary School Enrollment in MCD

### Key improvements and remaining gaps in education and health
- Region-wide trends (1990–2017) show improvements in expected years of schooling, secondary school enrollment, life expectancy at birth, and reductions in infant mortality and poverty, but progress has slowed in the last decade.
- MENAP-specific and regional comparisons:
  - MENAP emerging markets lag peers in secondary school enrollment rates by "13.9 percentage points".
  - MENAP emerging markets lag peers in expected years of schooling by "1.4 years".
  - GCC’s infant mortality rate is "twice that of advanced economies".
  - Adult literacy rates in EM-MENAP are "76 percent", which is "17 percentage points lower than the EM average".
- Conflicts have reversed progress in some cases: life expectancy at birth and secondary school enrollment fell after the start of the conflict in Syria.
- Learning outcomes: Learning Poverty (share of children at end-of-primary age below minimum reading proficiency adjusted by out-of-school children) and Learning-Adjusted Years of School display worse outcomes in several regional groups versus global peers.

### Econometric approach and data
- Data:
  - Global panel covering "191 countries during 1990–2017".
  - Socioeconomic outcomes used as dependent variables include child mortality rate, life expectancy at birth, secondary school enrolment rate, expected years of schooling, and Human Development Index; specifications also consider poverty rates and inequality-adjusted HDI.
- Model specification described in the source:
  - The source presents the equation (verbatim as in text):
    - Outcome it  5 a 1 B 1 (S Spending ) it21  1 B 2 (Z ) it 1 m r 1 m t 1 « i,t
  - S_Spending denotes social spending as a percentage of GDP (or in PPP dollars per capita terms) in the previous year.
  - Z denotes a vector of control variables; m_r and m_t denote unobserved region-specific effects and time effects, respectively; «i,t represents the disturbance term.
- Controls included (depending on the outcome):
  - Macroeconomic: inflation (proxy for macroeconomic stability), trade openness (sum of exports and imports to GDP), credit to GDP (financial development), GDP per capita.
  - Institutional: government effectiveness and control of corruption indices (ICRG and WGI).
  - Health-specific: access to safe drinking water and sanitation, urbanization, fertility rates, private health spending, conflict indicators.
  - Education-specific: public education spending when the dependent variable is education-related; public health spending used for health-related outcomes.
- Endogeneity / timing:
  - Social spending is lagged (previous year) to help address endogeneity concerns.
  - Results are robust to using social spending in percent of GDP or PPP dollars per capita, using annual data or three-year or four-year averages, and to using three- and four-year lags of social spending.

### Main empirical findings (1990–2017, global sample)
- Simple estimation (pooled OLS and fixed effects) indicates a positive and statistically significant relationship between social spending and socioeconomic outcomes.
- Statistical significance:
  - The relationship between social spending and the HDI, IHDI, and poverty reduction is positive and statistically significant at the "1 percent level" (Annex 3).
- Outcome-specific associations:
  - Public spending on education is associated with higher secondary-school enrollment and higher expected years of schooling.
  - Higher public health expenditure is associated with greater life expectancy and lower infant mortality.
- Robustness:
  - Results hold regardless of whether social spending is measured as percent of GDP or PPP dollars per capita, and whether analyses use annual data or smoothed averages.
  - Results are robust to different lags (including three- and four-year lags) of social spending.

### Policy implications and interpretation from the literature
- Prior literature summarized:
  - Haile and Nino-Zarazua (2018): statistically significant impact of social spending on the IHDI and on child mortality.
  - Alper and Demiral (2016): social spending boosts growth.
  - Gupta, Verhoeven, and Tiongson (2003): health spending improves health outcomes.
  - Baldacci and others (2008): education and health spending significantly affect education and health capital; improving governance and taming inflation could help achieve similar outcomes.
  - Filmer and Pritchett (1999): no effect of public health spending on child mortality where institutional capacity is inadequate.
  - Rajkumar and Swaroop (2008): public spending has little impact on outcomes in poorly governed countries but a positive impact where governance is good.
- Interpretation emphasized in the source:
  - Most prior empirical work and the authors’ global estimations find that social spending matters for socioeconomic outcomes, especially when accompanied by good governance.
  - Complementary policies to improve governance, institutional capacity, and macroeconomic stability are important to realize the potential benefits of social spending.

*Source: ssigmecaea - 1. PISA/TIMSS Scores and Secondary School Enrollment in MCD (PDF chapter/section).*

### 6. Social Spending and IHDI

### 6. Social Spending and IHDI

### Key empirical findings
- Aggregate relations and estimated marginal effects (as presented in source figures and equations):
  - HDI = 0.017 × Social spending + Vector of controls
  - Expected years of schooling = 0.38 × Public education spending + Vector of controls
  - Child mortality rate = −0.073 × Public health spending + Vector of controls
  - Life expectancy = 0.2 × Public health spending + Vector of controls
  - Poverty rate = −0.5 × Social spending + Vector of controls
  - IHDI = 0.05 × Social spending + Vector of controls
- Public social spending is associated with higher HDI after controlling for income, urbanization, macroeconomic stability, trade openness, domestic and external conflict, and financial development.
- Public health spending has a statistically significant negative association with child mortality; private health spending also reduces child mortality but with smaller magnitude and lower statistical significance.
- Public education spending is significantly associated with improvements in education outcomes (expected years of schooling).
- Social protection spending has the largest, distinct, and most statistically significant impact on HDI relative to health or education spending.
- For poverty reduction, education spending appears more important than health spending (larger and more statistically significant estimated coefficient).

### Econometric strategy and robustness
- Endogeneity concerns addressed using:
  - Two-stage least squares (2SLS) with instruments drawn from the literature: log of population, share of agriculture in GDP, and an index of ethnic tensions (and variants used in prior literature).
  - Systems Generalized Method of Moments (SGMM) to control for persistence (lagged dependent variable) and endogeneity.
- Instrument relevance: first-stage 2SLS controls for urbanization and trade openness; post-estimation suggests instruments are relevant and not weak.
- Results hold across OLS, fixed effects, 2SLS, SGMM, and when using annual or 3- and 4-year averages.
- Caveats: SGMM required limiting the number of explanatory variables to keep number of instruments (lags) smaller than the number of countries; number of observations and countries smaller in SGMM than in 2SLS.
- The analysis does not explore threshold effects or nonlinearities in the impact of social spending.

### Selected regression outputs (as reported)
- Table 2. Regression Results for HDI Outcome (annual data for 2SLS, and three-year averages for SGMM)
  - Social Spending (log): 0.139 0.060 0.000 0.005
  - Inflation, Consumer Prices (annual %): 0.000 0.000
  - Urbanization (Log): 0.149 0.159 0.000 20.005
  - Domestic Credit to Private Sector (% of GDP) (Log): 0.020 0.015 20.002 20.003
  - Trade, % GDP (Log): 20.029 20.010
  - Control of Corruption: 0.076 0.029 0.001 0.002
  - Observations22422242337337
  - R-squared0.7110.717
  - Number of Countries1301308888
  - Note: HDI = Human Development Index; SGMM = Systems Generalized Method of Moments; 2SLS = two-stage least squares. Instruments are a share of agriculture in GDP and index of ethnic tensions for 2SLS. Bolded coefficients in the source are significant at least at 5 percent level.

- Table 3. Regression Results for Child Mortality Rate Outcome (FE and 2SLS reported)
  - Public Health Spending (log, t – 1): 20.05920.05920.39820.002
  - Private Health Spending (Log, t – 1): 20.01220.01220.03320.01
  - Inflation, Consumer Prices (annual %): 00 20.001 20.001
  - Government Effectiveness: 0.0320.0320.003 20.092
  - Domestic Credit to Private Sector (% of GDP) (Log): 20.08620.08620.078 0.053
  - GDP per Capita (Log) [t – 1]: 20.51320.454
  - Access to Safe Water: 20.49820.49821.320.967
  - Fertility Rate [t – 1]: 0.0920.0920.0290.329
  - Urbanization (Log): 20.89320.89320.81620.008
  - Observations2,2082,2082,2332,226
  - R-squared0.6690.669
  - Number of Countries171171167167
  - Note: FE = fixed effects; 2SLS = two-stage least squares. Instruments are a share of agriculture in GDP and log of population growth. For 2SLS regressions public health spending is used at time t. Bolded coefficients in the source are significant at least at 5 percent level.

### Magnitude and role of institutions
- Using the most conservative SGMM coefficient, a 10 percent higher PPP dollars per capita social protection spending (if sustained for 3 years) can:
  - Close 20–40 percent of the HDI gap between MENAP countries and their comparators.
  - Close up to 65 percent of the gap between CCA countries and EM peer average.
- Improving governance amplifies the impact of additional social spending:
  - If MENAP countries boost survey-based governance indicators to peer levels, the same 10 percent increase in social protection spending can close 45–60 percent of the gap and completely close the gap for CCA countries and EM average.
- Government effectiveness index helps reduce poverty in regression results.

### Country case studies and policy-relevant diagnostics
- Bahrain:
  - Education outcomes (net primary and secondary enrollments, literacy) comparable to AE averages.
  - Life expectancy increased by 4.4 years over the last 25 years to 77 years.
  - Teacher–student ratio: Bahrain has 8.22 teachers per 100 students, compared to 5.1 in EMs, 7.6 in the GCC, and 7.8 in AEs.
  - Policy implication: improve efficiency (e.g., lower high teacher–student ratio) and increase competition in health sector.
- Armenia:
  - Social protection programs reduced poverty rates by 30 percentage points from 2004 to 2018.
  - Gini coefficient fell from 37.5 to 34.4 in 2018.
  - Targeting works well, but program coverage of the poor is limited; larger budgetary allocation could improve reach.
- Tunisia:
  - HDI increased by 30 percent over three decades; expected years of schooling rose beyond 15 years by 2018; secondary enrollment >90 percent; life expectancy ~76 years.
  - Challenges: skills mismatch, weak PISA scores, high share of education spending on payroll limiting investment, regional disparities in health access, rigid wage spending and pharmaceutical subsidies, fragmented social assistance favoring better-off urban groups.
  - Policy priorities: (1) more and better-targeted social spending, (2) financially viable social security system, (3) institutional and governance reforms to improve spending quality.

### Fiscal sustainability and need for efficiency gains
- Many countries cannot permanently sustain higher social spending without creating fiscal space.
  - Public debt in MENAP EMs and LICs was high before the pandemic and projected at close to 90 percent of GDP on average in 2020 (IMF 2020).
  - Sustaining higher social spending required by the pandemic without further increasing debt will require reprioritizing current spending and/or mobilizing additional revenues.
- COVID-19 fiscal context (figures and labels as reported in source):
  - Figure 17: Projected fiscal deficit increase in 2020; COVID-19 fiscal cost (total); COVID-19 fiscal cost in the health sector; projected public debt increase in 2020 (rhs); public debt (rhs).
  - Figure 18: Total Estimated Fiscal Cost of COVID-19, 2020 (Percent of GDP); Fiscal Balance and Debt, 2019 (Percent of GDP); country labels and averages reported in source figures.
- Efficiency assessment:
  - Nonparametric approaches (DEA, FDH) and parametric approaches (SFA) both indicate scope to improve spending efficiency in the region.
  - FDH estimates (Herrera and Ouedraogo 2018) show MENAP-EMs achieve less output for education spending than global EM peers; MENAP-LICs less efficient than global LIC average; GCC less efficient than AEs.
  - Example: If Mauritania’s spending efficiency reached the global frontier, average years of schooling could double (as noted in source).
  - SFA results corroborate that regional LICs are somewhat less efficient than global income peers in health and education.

### Policy implications and priorities (as emphasized in source)
- Prioritize reforms that raise the efficiency and quality of existing social spending before or alongside efforts to increase spending levels.
- Strengthen governance and institutional quality to enhance the translation of social spending into socioeconomic outcomes.
- For countries with limited fiscal space:
  - Reprioritize spending and mobilize additional revenues to sustain higher social spending without unsustainable debt increases.
  - Improve targeting and coverage of social protection to reach larger shares of the poor.
  - Increase competition and efficiency in public service delivery (health and education), address rigid payroll spending, and reorient spending toward preventive care, training, and technologies.
- Country-specific diagnostics and reforms are necessary; Annex 6 in the source provides granular country experiences and policy recommendations for Bahrain, Armenia, and Tunisia.

*Source: IMF staff chapter "6. Social Spending and IHDI" (annual data and regression results) from the provided PDF content.*

### 1. Health Efficiency Frontier

### 1. Health Efficiency Frontier

### Efficiency comparisons across regions and sectors
- Efficiency scores range from 0 to 100, where 100 represents the most efficient level.
- The GCC economies appear to be somewhat less efficient than global AEs, and CCA countries are less efficient than EM peers.
- Efficiency in education spending for EMs in the region is broadly in line with global peers but exceeds global peers in health spending efficiency.
- Even without increasing outlays, boosting the efficiency of spending would help significantly improve socioeconomic outcomes.

### Potential gains from higher spending efficiency (model-driven)
- If the region brought its social spending efficiency to the average efficiency level of advanced economies, even without extra spending:
  - It could close 34 percent of the HDI outcome gap.
  - It could close 20 percent of the outcome gap in secondary school enrollment.
  - It could close 10 percent of the outcome gap in life expectancy.
- Example country-level hypothetical impacts under higher efficiency:
  - Life expectancy at birth could increase by three years in Kuwait if the existing resource envelope was spent at the efficiency level of advanced economies.
  - Under higher social spending efficiency, Afghanistan’s HDI could reach the level of the Kyrgyz Republic.
  - Infant mortality in Iraq would drop from 31 per 1,000 live births to 27 per 1,000 live births.

### Health spending adequacy and efficiency (findings from Figures 21–23)
- There is scope to increase the efficiency of public health care spending in the region; notable cases include Kazakhstan, Kuwait, and Pakistan.
- Azerbaijan: health care spending is particularly inefficient at attaining a lower infant mortality rate, but performs better at improving life expectancy at birth.
- Afghanistan achieves better-than-expected health outcomes for its level of spending; increased investment in primary health care is recommended to enable early diagnosis and prevention of chronic illnesses.
- Investing in human resources for primary health care offers a gender dividend, given that many primary health care workers in the region tend to be female.
- The analysis uses multiple methods (DEA = data envelopment analysis; FDH = free disposal hull; SFA = stochastic frontier analysis) and presents both parametric and nonparametric approaches.

### COVID-19 response, temporary spending, and hypothetical long-run impacts
- In response to the COVID-19 pandemic, many countries have increased public outlays on health care and social protection; much of this increase is temporary and will be rolled back once the health crisis abates.
- The SFA model suggests that life expectancy would increase substantially in certain countries if COVID-19 related health spending were incorporated into permanent government expenditure, with larger increases if countries were also able to raise their health spending efficiency at the same time.
- Fiscal measures as of June 2020 averaged 2.6 percent of GDP, including 0.6 percent of GDP in the health sector.
- Iran’s additional health spending to combat the crisis, at 2.2 percent of GDP, is among the highest in the world.
- IMF emergency financing operations have helped to support outlays on health and social protection in a dozen countries in the region.
- The text notes that sustaining current elevated levels of spending depends on available fiscal space and competing policy priorities.

### Education spending, efficiency, and returns to scale
- Education spending in the Middle East and Central Asia is relatively higher and more efficient than health care spending, but there is still scope for efficiency gains.
- Country-specific guidance:
  - Kuwait, the Kyrgyz Republic, Saudi Arabia, and Uzbekistan are spending in line with global peers on education and should focus primarily on boosting efficiency.
  - Lebanon, Mauritania, Pakistan, and Tajikistan are not spending enough and could see gross school enrollment and expected years of schooling rise with larger education budgets.
  - Countries spending both inefficiently and not enough (Mauritania, Pakistan, Qatar) should prioritize addressing spending efficiency before increasing spending levels to maximize impact per dollar.
- Evidence of decreasing returns to scale implies that additional spending needs calibration to preserve efficiency and achieve better outcomes per dollar spent.
- Promoting high-quality education starting in the early years and setting the right teaching policies provides an opportunity for efficiency savings over time.

### Institutional drivers of spending efficiency and policy implications
- There is a strong correlation between spending efficiency and indicators of institutional quality, such as government effectiveness, the control of corruption, and the rule of law.
- Stronger transparency and accountability over the use of public resources minimizes wasteful spending and promotes efficiency.
- A formal Tobit analysis using efficiency scores for public health and public education confirms that improving institutional quality is key to improving spending efficiency; efficiency scores used are averages from the 2009–15 time period (Herrera and Ouedraogo 2018).
- Country experiences point to practical improvements that raise efficiency:
  - Better targeted social protection programs and good coverage of social safety nets.
  - Avoiding duplication of programs.
  - Monitoring outcomes.
- Examples of recent efforts:
  - Iraq (2018) cleaned up records of the Public Distribution System by removing duplicate entries and deceased participants; nevertheless, in 2019 about 38.2 million people participated in the program, equivalent to estimates of the entire population of Iraq.
  - Saudi Arabia introduced the Citizen Account Program (a well-targeted social protection tool) and its Etimad program is trying to improve efficiency and inclusiveness of social spending.
- Most countries in the region are working on improving financial inclusion.

*Source: ssigmecaea - 1. Health Efficiency Frontier (PDF chapter/section).*

### 1. Quality of Democracy and Life Expectancy DEA Score2. Rule of Law and Secondary School Enrollment DEA Score

### 1. Quality of Democracy and Life Expectancy DEA Score2. Rule of Law and Secondary School Enrollment DEA Score

### Drivers of Efficiency (Output Efficiency Score)
- Table 4. Drivers of Efficiency (Output Efficiency Score) — selected estimated coefficients (preserve exact values as in source):
  - Control of Corruption: 0.004 0.028 20.021 20.02 0.025
  - Domestic Credit to Private Sector as Percent of GDP (Log): 0.011 0.029 0.074 0.083 0.069
  - GINI Index: 0.000 20.001 20.005 20.006 20.009
  - General Government Final Consumption Expenditure (% of GDP): 0.000 20.002 0.001 0.002 20.001
  - Population (Log): 20.001 20.002 20.012 20.002 20.003
  - Urbanization (Log): 0.005 0.024 0.103 0.122 20.007
  - Inflation: 20.022 0.114 20.038 20.133 0.041
  - HIV/AIDS Prevalence: 0.001 0 0.004 0.005 0
  - MENAP: 20.009 20.008 20.236 20.191 0.032
  - Advanced Economies: 20.002 0.008 0.095 0.02 20.001
  - Low-Income Developing Countries: 20.008 20.018 20.181 20.189 20.02
  - Constant: 0.953 0.816 0.385 0.2 0.844
- Model statistics (preserve exact values):
  - Observations: 124 124 101 89 104
  - Log likelihood: 375.5 204.98 0.925 7.247 3.57
  - F-statistic: 44.727 0.1534 4.795 4.041 0.74
- Note: Bolded coefficients in the original table are significant at least the 5 percent level.

### Key Findings on Efficiency and Determinants
- The results suggest scope for improving efficiency in the region.
- The MENAP region in particular is less efficient than the global EM average in its social spending; this is consistent across many social outcomes.
- Efficiency improvements are associated with:
  - Strengthened governance (including control of corruption).
  - Higher levels of urbanization (economies of scale).
  - Addressing infectious diseases to boost workforce productivity.
  - Higher levels of inclusion and financial deepening (access to banking services helps households smooth consumption and prevents deterioration in socioeconomic outcomes; it also facilitates delivery of social transfers and reduces opportunities for corruption).

### Case Studies and Operational Innovations
- Case study observations (selected examples from Annex 6):
  - Bahrain and Tunisia: schools and vocational training often do not adequately address the skills mismatch between supply and private-sector needs.
  - Tunisia: health care systems leave little room for preventive care; administrative costs are relatively high; a subsidy system for pharmaceutical products encourages overprescription.
  - Existing programs in multiple countries suffer from fragmentation, insufficient coverage of low-income and informal sector employees, and disproportionately benefit better-off urban residents.
  - Some of these inefficiencies are being addressed in ongoing social protection reforms.
- COVID-19 prompted operational innovations improving delivery efficiency:
  - Jordan: mobile wallets used to transmit transfers to recipients.
  - Kazakhstan: customers allowed to open bank accounts via a mobile app to receive government cash transfers and make purchases.
  - Morocco: reached informal workers via SMS to administer modest cash transfers.
  - These digital solutions helped improve the efficiency of delivering social assistance to intended recipients.

### Takeaways and Policy Implications
- Importance of increasing both the size and efficiency of social spending to achieve more inclusive growth in the Middle East and Central Asia.
- Evidence (from nearly 20 years of global data) indicates public social spending can have an appreciable impact on outcomes, but countries in the region generally lag global income peers in socioeconomic outcomes due to:
  - High incidence of conflict and fragility.
  - Lower levels of public spending on health, education, and social protection.
  - Relative inefficiency of spending compared to global peers.
- COVID-19 highlighted the need for robust health care systems and frameworks to channel targeted financial support to the vulnerable; most countries in the region are expected to temporarily boost spending on health and social protection in 2020.
- Policy priorities:
  - Continue prioritization of social spending post-COVID, with sustained or increased education spending to mitigate learning losses among at-risk children.
  - Create fiscal space for social spending through budget reprioritization and enhanced revenue mobilization, while ensuring fiscal sustainability.
    - Pre-crisis measures already taken in some countries include: fiscal reforms alongside strengthening targeted safety nets (Armenia, Egypt, Tunisia, Jordan, Pakistan, Oman, Saudi Arabia); mobilizing and diversifying revenues (Bahrain, Saudi Arabia, United Arab Emirates); strengthening tax administration and rationalizing tax exemptions (Djibouti, Morocco).
  - Boost social spending efficiency via:
    - Strengthening institutions and governance, controlling corruption.
    - Continuing digital innovations adopted during COVID-19 for administering social protection.
    - Promoting financial deepening and inclusion to help households withstand crises, simplify payment delivery, and reduce opportunities for corruption.
  - Identify and address gaps impeding access to social services, including gender gaps and institutional barriers excluding vulnerable groups from formal safety nets.
  - Increase investments in primary health care for early diagnosis and prevention of chronic illnesses—the least costly and most efficient way to improve health outcomes.

### Measurement, Definitions, and Data Needs
- Definition used in the paper (aligned with IMF (2019b)): "social" public spending includes social protection (social insurance and social assistance), education services, and health services.
  - This traditional definition may understate total social spending but allows for better cross-country comparisons.
- Caveats on measurement and omitted spending:
  - Budgetary spending with social aspects (public wage bill excesses, energy subsidies) may behave like social protection but are difficult to isolate; these expenditures are discussed and shown in Annex Figures (e.g., Annex Figure 1 pre-tax energy subsidies, Annex Figure 2 excess wage bill).
  - Household "social spending" (charitable spending, zakat) is generally small or captured in government budgets in some countries (e.g., zakat in Saudi Arabia); Annex Figure 3 shows zakat contributions as percent of GDP for selected countries.
  - Private spending on education and health can substitute partly for public spending; regression analysis controls for private health spending, but scarcity of private education spending data prevents similar controls.
  - Social spending financed from abroad (on- and off-budget aid, NGO spending) could bias measures if not captured, but Middle East and Central Asia countries occupy the middle ground in net official development assistance compared to other regions (Annex Figure 5).
- Recommendation: need for better data on non-public spending with a social component and more comprehensive, timely data on socioeconomic outcomes to enable richer, evidence-based and tailored policy advice.

*Source: IMF staff estimates.*

### Annex Figure 4. Funding of Education

### Annex Figure 4. Funding of Education

### Overview
- Metric: (Percent of GDP)
- Display elements indicated: Median, Q1, Q3
- Note: Very high values in APD are for small island states.
- Sources: IMF, World Economic Outlook; World Bank; and IMF staff calculations.

### Regional sample sizes and labels
- AFR: n = 44
- APD: n = 29
- EUR: n = 9
- MCD: n = 24
- WHD: n = 26

### Axis and scale indicators (as shown)
- Vertical scale markers appearing in the figure: 16, 6, 10, 8, 12, 14, 4, 2, 0

*Source: ssigmecaea - Annex Figure 4. Funding of Education*

### Annex Table 12. Key Social Spending Policies in Response to COVID-19 in the Middle East and Central Asia Region

### Annex Table 12. Key Social Spending Policies in Response to COVID-19 in the Middle East and Central Asia Region (As of June 4, 2020)

### Regional overview
- Governments in the Middle East and Central Asia mobilized a mix of health spending increases, cash transfers, employment support, subsidies, tax relief, and business support in response to COVID-19.
- Measures range from targeted social assistance and food vouchers to large-scale stimulus and liquidity packages for businesses and the private sector.

### Country measures (selected, as reported)
- Afghanistan
  - Allocated 0.5 percent of GDP as part of emergency response; one fifth (0.1 percent of GDP) for urgent health needs (testing facilities, specialized hospital wards, procuring critical medical supplies).
  - Budget amendments submitted to allocate around 1.4 percent of GDP to support short-term employment programs, purchasing extra hospital beds, and distributing bread.
  - Collaborating with the World Bank on cash and in-kind transfers for food security.
  - Projecting to spend approximately 2 percent of GDP on the pandemic response, with about one third directed towards health expenditure.
- Algeria
  - Supplementary law provides approximately US$544 million; of which 5.3 percent is designated for medical supplies, 24 percent as a bonus for health workers, 13 percent for development of the overall health sector.
  - Around 30 percent of the package reserved for unemployment benefits, and 16 percent for transfers to poor households.
- Armenia
  - Multiple support packages: Educational support; cash transfers to families who lost jobs and vulnerable households; utility support; additional social security support.
  - Authorities allocated $37.2 million to as many as 2 million beneficiaries.
- Azerbaijan
  - Increased public health spending by US$4.8 million; created COVID-19 response fund financed with US$11.8 million; plans to provide US$1.9 billion to businesses.
- Bahrain
  - Stimulus package worth US$1.5 billion including employee salary payments and expanded liquidity funds to support SMEs.
  - Additional US$14.5 million to support lower income and vulnerable households.
- Djibouti
  - Response package of 2.4 percent of GDP including increased health spending and emergency support to households and businesses; food vouchers distributed to most vulnerable.
- Egypt
  - Total of US$6.13 billion allocated.
  - Approximately US$528 million to support healthcare (medical supplies, bonuses to frontline medical staff).
  - Monthly grants for three months totaling US$93 (1500 EGP) extended to day-laborers and irregular workers; pensions increased by 14 percent.
  - Targeted cash transfers set up to reach vulnerable families.
- Georgia
  - Targeted social assistance (around 200 GEL per month for six months) for those who lost jobs or are on unpaid leave; subsidies for employers and firms to retain workforce.
  - Financial assistance to vulnerable families and persons with severe disabilities; pensions will increase.
  - Temporary subsidy measures on gas, electricity and utilities, and on imported staple products to stabilize prices.
- Iran
  - Additional funding of 2 percent of GDP to health sector.
  - Subsidizing loans for affected firms and vulnerable households (around 4.4 percent of GDP).
  - Cash transfers to vulnerable households (0.3 percent of GDP).
  - Increasing contribution to unemployment insurance fund amounting to 0.3 percent of GDP.
- Iraq
  - Fund created for Ministry of Health totaling US$37 million.
  - Nearly US$250 million spent on direct cash payments to individuals not receiving salaries or benefits from government.
- Jordan
  - Allocated US$71 million of additional spending to purchase health equipment and supplies.
  - Temporary cash transfer program of US$114 million for the unemployed and self-employed.
- Kazakhstan
  - Crisis package totaling US$13 billion (9 percent of GDP) including increase in pension and social benefits, additional health spending, and support for employment and businesses.
- Kuwait
  - Assigned US$1.6 billion (1.4 percent of GDP) to support COVID-19 response and ease economic impact.
- Kyrgyz Republic
  - Health sector plan costing US$16 million (0.2 percent of GDP) for training health-care workers and procuring medical equipment and tests.
  - Additional US$15 million (0.2 percent of GDP) to mitigate economic impact via tax payment postponements, temporary tax exemptions on property and land, and time-bound price controls on essential foods.
  - Second package of US$540 million (7 percent of GDP) discussed, including tax exemptions for SMEs, food security for vulnerable groups, and subsidized credit.
- Lebanon
  - Parliament approved allocation worth US$792 million from the 2020 budget to social safety nets.
- Libya
  - Government of National Accord announced US$356 million (about 1 percent of GDP) in emergency spending related to COVID-19.
- Mauritania
  - Emergency fund totaling US$290 million (4.3 percent of GDP) for medical supplies, social protection and subsidies to poor households, and support to small businesses.
- Morocco
  - Fund amounting to 2.7 percent of GDP for pandemic management including upgrading medical facilities and supporting businesses and households.
  - Targeted support to about 5 million partially unemployed and informal sector workers using digital delivery; financed by a special new Fund with public and private contributions.
- Oman
  - Measures include employee retainment schemes, temporary tax cuts and fuel subsidies, and postponement of electricity and water fees.
- Pakistan
  - Relief package worth US$7.3 billion including elimination of import duties on emergency health equipment; cash disbursements to daily wage workers (US$457 million); cash transfers to low-income families (US$915 million); accelerated tax refunds to export industry (US$610 million); financial support to SMEs and agriculture sector (US$610 million).
- Qatar
  - US$20.6 billion program to assist small businesses and hard-hit sectors.
  - Widespread COVID-19 testing in most impacted area and free healthcare to those affected.
- Saudi Arabia
  - Budgetary allocations totaling US$12.5 billion to Ministry of Health.
  - Additional package worth US$18.7 billion to support the private sector.
- Somalia
  - Three-month tax holiday or reduced consumption taxes on rice and flour.
  - Initial US$2.9 million funding-for-lending support for medium and small enterprises through commercial banks.
- Sudan
  - Financing needs to cope with COVID-19 related health care about US$150 million.
  - External donors supported Sudan with US$202 million covering healthcare and food security, among others.
- Tajikistan
  - Planning cash transfer assistance to minimum wage workers and vulnerable households and social groups.
  - Free medical care for COVID-19 patients, sick leave and compensation benefits, and additional pay for health workers.
- Tunisia
  - Emergency plan of US$710 million (1.8 percent of GDP).
  - Plan includes US$35 million for equipment for public hospitals, US$158.4 million in cash transfers to vulnerable population, and US$106 million in support to temporarily unemployed due to COVID-19 shock.
- Turkmenistan
  - Planning to revise State budget spending to increase health spending for prevention and provide support to businesses.
- United Arab Emirates
  - Announced about US$7.2 billion (2 percent of GDP) in fiscal measures including private sector support, reduction of government fees, and additional water and electricity subsidies.
- West Bank and Gaza
  - Palestinian Authority planning to spend US$119 million to cover short-term critical gaps (recruitment of medical personnel, purchase of medical equipment and tests).
  - Additional US$5.8 million for worker support and unemployment benefits; distributed food baskets and paid direct financial assistance to households and laborers impacted by pandemic.
- Yemen
  - Government assigned limited budget resources to respond to COVID-19 crisis.

### Notable aggregate figures and program types
- Large crisis or stimulus packages: Kazakhstan US$13 billion (9 percent of GDP); Qatar US$20.6 billion; Saudi Arabia US$12.5 billion (health) plus US$18.7 billion for private sector.
- Country-level packages expressed as percent of GDP: Afghanistan projected ~2 percent of GDP; Djibouti 2.4 percent of GDP; Mauritania US$290 million (4.3 percent of GDP); Morocco 2.7 percent of GDP; Tunisia US$710 million (1.8 percent of GDP); Kuwait US$1.6 billion (1.4 percent of GDP); Kyrgyz Republic proposed second package US$540 million (7 percent of GDP).
- Common policy instruments: increased health spending; direct cash transfers; temporary unemployment/worker support programs; pension increases/bonuses for medical staff; subsidies and price controls on staples; tax relief and liquidity support for businesses; digital delivery mechanisms for transfers.

*Sources: National authorities, IMF Policy Tracker: Policy Responses to COVID-19, and IMF staff.*

### Annex Figure 7. Public Expenditure on Health and Education

### Annex Figure 7. Public Expenditure on Health and Education

### Health expenditure: levels, sources, and outcomes
- Private spending on health nearly doubled between 2005 and 2016, reaching 1.8 percent of GDP and accounting for about 40 percent of total health spending.
- Private spending on health and education rose as a share of total household spending from 7 percent in 2005 to 11.5 percent in 2015.
- External grants and development aid:
  - Tamkeen invested BD1.5 billion (10 percent of 2018 GDP) supporting more than 200,000 citizens and 50,000 companies.
  - GCC announced an aid package (GCC Development Fund) worth US$10 billion; projects for an amount of US$7.5 billion have so far been committed in housing, social development, health, education, and infrastructure.
- Health outcomes and efficiency:
  - Life expectancy increased by about 4.5 years to 77 years.
  - Infant mortality declined from more than 19 per 1,000 births in 1990 to 6 in 2015.
  - Total per capita health spending (PPP-adjusted) in Bahrain is more than double the EMs’ level, suggesting spending inefficiencies relative to EMs.
  - Hospital and workforce indicators are reported but show scope for efficiency improvements (see source figures for detailed indicators).

### Education expenditure, outcomes, and efficiency
- Private spending on education increased by more than 20 percent between 2005 and 2016 to 1.2 percent of GDP.
- Education outcomes:
  - Net primary and secondary enrollments in Bahrain exceed respective ratios in OECD countries.
  - Primary completion rate in Bahrain is 98 percent by end 2018.
  - Youth (age 15–24) literacy rate increased from 86 percent in 1980 to 99.7 percent in 2018.
- Resource and efficiency indicators:
  - Teacher-student ratio in Bahrain is about 9 per 100 students, higher than MENAP average and higher than OECD (8) and EM (5), indicating scope to enhance education spending efficiency by reducing the teacher-student ratio.
  - The education wage bill accounts for more than 87 percent of the education current expenditure, with very limited expenditure on education-supporting goods and services.

### Distributional patterns of household spending on health and education (2015)
- Bahraini equivalized health spending by income quintile, 2015:
  - Lowest quintile: 10.0
  - 2nd: 14.5
  - Middle quintile: 18.8
  - 4th: 23.1
  - Top quintile: 33.6
- Bahraini equivalized education spending by income quintile, 2015:
  - Lowest quintile: 7.0
  - 2nd: 11.1
  - Middle quintile: 14.5
  - 4th: 21.7
  - Top quintile: 45.6
- Interpretation:
  - The lowest two income quintiles account for less than 25 percent of total health and education spending.
  - The top two quintiles’ share was close to 60 percent for health and 70 percent for education spending.

### Social outcomes, inequality, and labor income dynamics
- Human Development Index (HDI):
  - Bahrain’s HDI value increased by 21 percent between 1990 and 2018, from 0.694 to 0.838.
  - Bahrain ranked 45th in the 2019 HDI out of 189 countries (Very High Human Development group).
- Inequality and poverty:
  - Gini coefficient for equivalized household income declined 3 percentage points since 2005, to 32 percent in 2015.
  - A household is considered relatively poor if equivalized income is less than 50 percent of median; implied poverty rate about 2.6 percent of total households.
  - Excluding current transfers, income inequality would have been higher by 4.2 percent in 2015 and 1.9 percent in 2005, indicating dependence of the bottom on social insurance.
- Household income composition and wages:
  - Wages and salaries account for 54 percent of average household income in 2015, down from 62 percent in 2005.
  - Government employment of nationals and average wages:
    - Public sector average pay was higher by 6.5 and 3.0 percent in nominal and real terms, respectively, over the period referenced.
    - Wages in the private sector increased by about one-third during the same period.
    - A public sector employee’s wage accounts for 75 percent of total income and is 40 percent higher than average private sector wage.
  - Private sector employment growth was about 2.5 percent annually over the last decade.
  - Unemployment has been below 4 percent over the last decade.

### Gender and social protection impacts
- Gender outcomes:
  - Female household income is on average 10 percent less compared with a household headed by a male, after adjusting for household size.
  - Bahraini female workers in the public sector represent 48 percent of total Bahraini workers.
  - A female earns on average 30 percent less in wages and salaries than a male, but receives more from public social protection spending.
  - Only 47 percent of a female gross income comes from wages and salaries compared to 60 percent for a male.
- Social spending effects:
  - Social spending has contributed to reduced income inequality and poverty; labor income growth at the bottom and expanded social programs drove the reduction in inequality.

### Policy conclusions and recommendations
- Fiscal sustainability and revenue:
  - Bahrain’s fiscal sustainability concerns constrain increases to social spending.
  - Introducing a direct taxation regime—corporate income tax, property tax, and personal income tax—could better insulate current programs, expand social spending plans going forward, and enhance the redistributive role of fiscal policy to promote equity.
- Improve spending efficiency in health and education:
  - Reduce the high teacher-student ratio to achieve a sizable reduction in the education wage bill (education wages account for more than 87 percent of current education expenditure).
  - Reallocate part of the wage bill savings to support better performance of teaching and non-teaching staff, finance learning materials, and boost capital investment in the education sector.
  - Effective implementation of the recently approved medical insurance law to boost efficiency, encourage competition among public hospitals and between public and private hospitals, and improve health care quality.

*Source: Annex Figure 7. Public Expenditure on Health and Education (excerpt) from the provided IMF PDF content.*

### Annex 6. Case Studies: Social Spending Challenges in Selected Countries

### Annex 6. Case Studies: Social Spending Challenges in Selected Countries

### The Challenge
- GNI per capita grew on average above 5 percent per year over 1990–2010.
- Poverty (headcount ratio at US$5.50 per day) fell by two-thirds to 18 percent over the past three decades.
- Gini coefficient fell to a reading of 0.33.
- HDI increased by 30 percent, putting Tunisia in the high human-development category and at rank 91 out of 189 countries.
- Growth fell dramatically in the 2010s relative to the preceding decade and unemployment persisted at 15 percent, mainly affecting the young and women.
- World Bank Human Capital Index (HCI): a child born in Tunisia in 2018 will only be 51 percent as productive when she grows up as she could be if she enjoyed complete education and full health.
- Geographic variation in poverty: poverty levels range from a tenth in Greater Tunis to a third in the center-west.

### Social Spending Performance — Key Findings
- Total public social spending (comprising current and capital spending, including wages and subsidies) amounted to 14 percent of GDP in 2010.
- Social spending helped achieve better socioeconomic outcomes by 2018:
  - Expected years of schooling rose beyond 15 years.
  - Secondary school enrolment reached more than 90 percent.
  - Life expectancy climbed to almost 76 years.
  - Infant mortality rate fell below 1.2 percent.
- Social protection pillars:
  1. Three contributory schemes: public and private pensions funds (CNRPS and CNSS) and the public health fund (CNAM).
  2. Noncontributory programs: direct cash transfer scheme (PNAFN) and two health care programs (AMG1 and AMG2).
- Coverage and financing gaps:
  - Only 37 percent of Tunisians contribute to the pension system.
  - Only half are covered by public health insurance.
  - No national unemployment insurance scheme exists.
  - Pension and health benefits financed by contributions face deficits and arrears; demographic change (declining fertility and increased life expectancy) and weak cash flow of many state-owned enterprises exacerbate sustainability risks.
  - Pension funds’ arrears to the public health fund undermine basic health service provision.
- Social assistance limitations:
  - Programs are fragmented and underfunded.
  - Nearly a quarter of Tunisians are net beneficiaries of social transfers representing up to one-fifth of total income; only two in five of these beneficiaries live below the national poverty line.
  - Generalized subsidies on food and energy amounted to about 4.3 percent of GDP in 2019 and mostly accrue to the better-off; energy subsidies benefit rich households up to 30 times more than those with lower income.
  - 15 percent of households live below the national poverty line, yet only 9 percent receive cash transfers under PNAFN and free health care under AMG1.
  - More than 50 percent of covered households may not be poor (substantial leakage).
  - An additional 20 percent of the population receive subsidized health care under AMG2.

### Ongoing Reform Agenda and Measures Implemented (2013–19)
- IMF support: reforms supported by two IMF arrangements during 2013–19 (Stand-By Arrangement and Extended Fund Facility); programs included a floor on social spending elevated to a quantitative performance criterion starting in September 2018.
- 2013–15: initial multiyear reforms included (1) an increase in the level of social spending from 2015 and (2) dialogue on a pension reform to eliminate sizable budget transfers to pension funds.
- 2016–19: four main workstreams:
  1. Increasing social spending
     - Spending on social programs (excluding general subsidies, key ministries’ wage bills, and transfers to the social security system) increased from 1.6 percent of GDP in 2016 to 2.8 percent of GDP in 2019.
     - Specific measures:
       - Raised PNAFN benefit levels (0.1 percent of GDP) in January 2018 and broadened coverage from 250,000 to 285,000 households (about 10 percent of the total population compared to 15 percent of the population below the poverty line) since June 2018.
       - Improved supply of free and subsidized health care (0.1 percent of GDP) since March 2019.
       - Provided financial support for unpaid energy bills and investment in health care infrastructure (0.2 percent of GDP) in 2019.
       - Augmented seasonal cash transfers, reduced social tariffs for low-volume electricity users, and augmented social integration programs.
  2. Improving infrastructure for targeting social assistance
     - Adopted the “AMEN” law guiding transition toward a targeting system by early 2019.
     - Built and validated a database registering more than 800,000 households (a quarter of all Tunisian households), half of whom were already surveyed over 2016–19.
     - Issued electronic cards for medical care with a unique social identifier and a payment card for cash transfers to current beneficiaries of health care and PNAFN programs.
     - Developed interoperability with social security registries, a scoring model, and modular administration software.
  3. Addressing liquidity pressures in social security funds
     - First-stage reform of the public pension fund (CNRPS) effective May 2019: higher contribution rates for employers and employees and a gradual increase by two years in the retirement age from 60 to 62.
     - A government decree applying the same reform elements to the private pension plan (CNSS) remains pending.
     - From 2020 onward, authorities expect no further need for transfers to the public pension fund beyond the yield of the social solidarity contribution.
     - Additional measures: changes in the contribution system (contributions now directly channeled to the public health fund rather than through the public pension fund), reinforced recovery efforts by pension funds, and some arrears clearance by the government.
  4. Boosting spending efficiency through institutional and governance reforms
     - Advanced anti-corruption legislation (including laws to protect whistleblowers and improve access to information), strengthened social accountability, and more space for civil society.
     - Work remains on effective law implementation, increased resources for prosecution, and improving the independent judiciary.
     - Efforts to improve public administration quality and effectiveness, including digitalization for targeting.

### Social Spending Composition (2019) — Selected Figures from Annex Table 13
- Generalized subsidies: 4,938 million Tunisian dinar
  - Energy products: 3,138 million Tunisian dinar
  - Food products: 1,800 million Tunisian dinar
- Social spending (narrow concept): 3,273 million Tunisian dinar
  - Transfers: 1,671 million Tunisian dinar
    - PNAFN: 629 million Tunisian dinar
    - School and university transport: 437 million Tunisian dinar
    - University scholarships: 188 million Tunisian dinar
    - Occasional help for low-income families: 78 million Tunisian dinar
    - Social work: 71 million Tunisian dinar
    - Health care arrears: 64 million Tunisian dinar
    - Pensions (combatants, disabled): 51 million Tunisian dinar
    - Family allowances: 45 million Tunisian dinar
    - Friendly grants: 30 million Tunisian dinar
    - Grants to associations of the disabled: 23 million Tunisian dinar
    - Indemnity: 16 million Tunisian dinar
    - Various social interventions: 14 million Tunisian dinar
    - Home Improvement Fund: 12 million Tunisian dinar
    - Social rehabilitation: 11 million Tunisian dinar
    - Social solidarity fund: 2 million Tunisian dinar
  - Capital investment: 1,602 million Tunisian dinar
    - National Employment Fund: 431 million Tunisian dinar
    - Regional Development Program: 382 million Tunisian dinar
    - Ministry of Education: 293 million Tunisian dinar
    - Ministry of Health: 288 million Tunisian dinar
    - Ministry of Youth and Sports: 80 million Tunisian dinar
    - Ministry of Social Affairs: 44 million Tunisian dinar
    - Ministry of Women and Family Affairs: 20 million Tunisian dinar

### Medium-Term Vision and Next Steps
- Authorities are reflecting on a new comprehensive social safety system to be implemented over the medium term, intending to introduce a social protection floor (“socle social”) as advocated by the ILO.
- The social protection floor aims for:
  - Universal access to essential health care and income security at least at a nationally defined minimum level (horizontal dimension).
  - Progressive achievement of higher levels of protection within comprehensive social security systems (vertical dimension).
- Institutional steps: a first draft law on the Social and Solidary Economy was adopted in the Council of Ministers in December 2019; the medium-term vision was first laid out in Tunisia’s National Development Plan 2016–21.

*Source: Annex 6. Case Studies: Social Spending Challenges in Selected Countries (Tunisia) — ssigmecaea - Annex 6. Case Studies: Social Spending Challenges in Selected Countries*

### Annex 6. Case Studies: Social Spending Challenges in Selected Countries

### Annex 6. Case Studies: Social Spending Challenges in Selected Countries

### Lessons Learned
- Tunisia’s remarkable, yet uneven socioeconomic progress has recently slowed.
- Over the past three decades, living standards and human development indicators have improved and fare above levels seen in peer countries; at the same time, wide economic and social disparities persist across income groups and regions, with adverse effects on social stability and inclusive growth.
- Needs increased in the post-Revolution era, amid a slowdown in growth, stubbornly high unemployment, and persistent structural deficiencies.
- Improving social spending is critical and requires attention to:
  - adequacy of spending, which calls for spending increases given the population’s growing social needs;
  - efficiency of the various programs in achieving the desired socioeconomic outcomes, which often calls for better targeting of beneficiaries;
  - the financial sustainability of the programs in a context of demographic change and budget consolidation.
- Building consensus around social policy reforms is complex, especially in the presence of powerful vested interests, limited fiscal space, and large gaps in infrastructure and technical capacity.
- To create fiscal space, Tunisia started reorienting current spending from the public wage bill and regressive energy subsidies to social and capital infrastructure spending.

### Achievements and Remaining Work
- Recent achievements include:
  - first steps in strengthening social assistance by scaling up benefit levels, widening coverage, and building up administrative capacity for better targeting;
  - an improvement in the financial viability of the social security system that will eliminate or significantly reduce the need for ad hoc budget transfers, mainly through the public pension reform and the shoring-up of funding for the health care fund;
  - some progress on the efficiency of social spending by pursuing institutional and governance reforms.
- Further efforts are needed to achieve a better social safety net; tangible progress will take time.

### Sectoral Challenges and Evidence

Education
- Schools and vocational training fail to address the growing skills mismatch among the low- and high-skilled workers in the face of the evolving needs of the private sector.
- Relative to regional and EM peers, Tunisia produces weak, and since the Revolution even deteriorating educational outcomes as measured by the Program for International Student Assessment (PISA).
- Wage share in education:
  - grew from 88 to 93 percent over 2012–17, leaving only 4 percent for investment.
- Staffing and workload trends since 2005:
  - teacher headcount growth: 1.1 percent per year on average;
  - teachers’ real wages growth: 3.1 percent per year on average;
  - number of students: dropped by 0.5 percent in primary and by 1.7 percent in secondary education.
- Consequences:
  - teacher-student ratio rose to levels seen in high-income countries;
  - teachers’ hourly work declined below that in peer countries;
  - school administration has become a payroll cost driver.

Health
- Regional disparities persist in terms of access, headcount deployment, and management.
- Vulnerabilities arise from out-of-pocket expenditures, notably for the less well-off.
- Technical and allocative inefficiencies stem mainly from:
  - high and rigid wage spending (with more than three-fourths directed to permanent staff);
  - a subsidy system for pharmaceutical products (burdened by deficits and arrears accumulation);
  - little room for preventive care (with curative in- and outpatient care assuming three-quarters of health expenditures already);
  - deficiencies in the referral system.

Labor Market Insertion Programs
- Performance and structural issues:
  - labor market insertion programs perform poorly, with an average placement rate of 20 percent, owing to weaknesses in targeting, governance, and implementation;
  - additional challenges include rigid labor market regulations, insufficient job creation in the formal private sector, high labor taxes, and large disparities between public and private sector compensation.
- Informal sector dynamics:
  - precarious employment in the informal sector has grown, providing no coverage by social security and thus little protection from risks and shocks;
  - growth of informal employment is fueled by poor access to finance and difficulties in crossing over into a highly regulated formal private sector.

### Policy Implications and Priorities
- Strengthen social assistance by scaling up benefits, widening coverage, and building administrative capacity for better targeting.
- Pursue reforms to improve financial viability of social security and health funds to reduce reliance on ad hoc budget transfers.
- Rebalance education spending away from an oversized wage share toward investment and quality-enhancing inputs.
- Address health-sector inefficiencies by reducing rigid wage spending, reforming pharmaceutical subsidies, expanding preventive care, and improving the referral system.
- Reform labor market policies to reduce disincentives to formal job creation, lower labor taxes where appropriate, and improve the effectiveness of labor market insertion programs.
- Recognize that reforms require time and consensus-building amid limited fiscal space and entrenched interests.

### Specific Numerical and Programmatic References
- Tier 1 (minimum income and minimum health coverage for all citizens) estimated cost: 3.5 percent of GDP as estimated by the ILO.
- Education wage share: 88 to 93 percent over 2012–17; investment share: 4 percent.
- Teacher headcount growth since 2005: 1.1 percent per year on average.
- Teachers’ real wages growth since 2005: 3.1 percent per year on average.
- Student enrollment change since 2005: dropped by 0.5 percent in primary and by 1.7 percent in secondary education.
- Labor market insertion programs average placement rate: 20 percent.
- Health spending composition: curative in- and outpatient care assuming three-quarters of health expenditures.

*Annex 6. Case Studies: Social Spending Challenges in Selected Countries (excerpt).*

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_Source: https://www.imf.org/-/media/files/publications/dp/2020/english/ssigmecaea.pdf_