When Reality Doesn’t Bite—Misconceptions about the IMF and Social Spending
IMF Blog, August 31, 2011
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Bibliographic details
- Authors: Benedict Clements, Sanjeev Gupta
- Published: August 31, 2011
Overview
- Authors: Benedict Clements, Sanjeev Gupta
- Date: August 31, 2011
- Core claim: Contrary to the frequent assertion that IMF-supported programs force cuts in social spending and hurt the most vulnerable, the study concludes that IMF-supported programs boost education and health spending in low-income countries for as long as countries are engaged with the IMF.
Data and empirical approach
- Dataset: Public spending on education and health in 140 countries between 1985 and 2009.
- Method: Statistical techniques that isolate the impact of an IMF-supported program from other determinants of social spending (age profile of the population, income levels, macroeconomic conditions).
Key findings
- Social spending increased at a faster pace in countries with IMF-supported programs compared to those without, particularly for low-income countries with programs.
- This faster pace holds for:
- social spending in relation to GDP,
- social spending as a share of total government spending,
- increases in per capita social spending after adjusting for inflation.
- Acceleration over time in low-income countries:
- The median annual increase in education and health spending in low-income program countries since 2000 was more than double the average increase during 1985-1999.
- The rate of increase since 2000 implies that education and health spending, as a share of GDP, would increase each decade by 0.7 percentage points and 0.6 percentage points, respectively.
- Because GDP is also growing rapidly in these economies, the rate of spending growth since 2000 suggests that education and health spending per person, after adjusting for inflation, would rise by about 50 percent and 60 percent, respectively, over a 10-year period.
- Program-specific estimated impacts (controlling for other factors):
- Over a five-year period with IMF-supported programs, education spending increases in low-income countries by about ¾ percentage point of GDP.
- Over a five-year period with IMF-supported programs, health spending increases in low-income countries by about 1 percentage point of GDP.
Channels through which IMF-supported programs facilitate higher social spending
- Reforms that increase government revenues: on average, program countries increase revenues at a brisker pace than non-program countries, helping create “fiscal space.”
- Mobilization of donor financing facilitated by IMF-supported programs.
- Programs that lead to higher growth, thereby generating greater fiscal space.
- Emphasis on using additional resources—including those generated by debt relief—to support poverty-reducing spending, contributing to rising shares of education and health spending.
Policy implications and caveats
- IMF-supported programs are compatible with countries’ efforts to boost critical social spending to improve social outcomes.
- IMF engagement is not the only determinant of social spending; age profiles, income levels, and macroeconomic conditions also matter and are accounted for in the analysis.
- Improving the targeting and efficiency of public spending remains important to make spending a more powerful instrument for bettering the lives of the poor.
When Reality Doesn’t Bite—Misconceptions about the IMF and Social Spending, Benedict Clements and Sanjeev Gupta, August 31, 2011.
Content in this bundle
- 083111a
- Staff Discussion Note
