IMF Executive Board Supports New Strategy for Engagement on Social Spending
IMF News, June 14, 2019
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Bibliographic details
- Published: June 14, 2019
Overview and context
- Press Release No. 19/217
- Date: June 14, 2019
- Contact: PRESS OFFICER: Maria Candia; Phone: +1 202 623-7100; Email: MEDIA@IMF.org
- On May 2, 2019, the Executive Board discussed a policy paper titled A Strategy for IMF Engagement on Social Spending to guide IMF engagement on social spending issues.
- The strategy was informed by background analysis, broad consultations, and the Executive Board‑endorsed recommendations of the 2017 Independent Evaluation Office (IEO) Report on “The IMF and Social Protection.”
Key findings and rationale for the strategy
- Interest in social spending intensified over recent decades, especially after the global financial crisis, due to concerns about rising inequality and the need to support poor and vulnerable households.
- Social spending is a key policy lever for meeting commitments under the 2030 Sustainable Development Goals (SDGs) and for addressing emerging challenges from demographic shifts, technological developments, and climate change.
- The IMF has scaled up work on social spending:
- Analytical work highlighted the relationship between inequality and growth, the role of social spending in promoting sustained and inclusive growth, and the resource requirements for achieving the SDGs in education and health.
- Surveillance and lending operations increasingly emphasized inclusive growth, including through use of social spending “floors” in IMF‑supported programs.
- Enhanced engagement on inequality issues in surveillance and increased technical assistance to expand fiscal resources for social spending.
Strategy components and guidance
- The paper sets forth a strategy based on best practices to make IMF engagement on social spending more systematic and effective. Core elements include:
- Engagement guided by an assessment of the macro‑criticality of a specific social spending issue and consideration of that issue in an IMF‑supported program context, and by the existence of in‑house expertise.
- Enhanced collaboration with International Development Institutions (IDIs).
- Strengthened program design and conditionality.
- Clearer guidance on the use of targeted and universal transfers within a broader discussion on social safety net effectiveness.
- Better communications, including leveraging input from a broad set of stakeholders.
- Implementation will be accompanied by granular and gradually evolving guidance to staff, reflecting the evolving nature of social spending issues and emerging lessons from cross‑country experiences.
Executive Board assessment and guidance to staff
- Executive Directors welcomed the proposed strategy and noted the Fund’s considerable progress on social spending.
- Directors emphasized multiple roles of social spending:
- Protecting vulnerable groups.
- Supporting social and political stability.
- Addressing inequalities of income and opportunity.
- Smoothing consumption over the life cycle.
- Stabilizing demand during economic shocks.
- Contributing to commitments under the 2030 SDGs.
- Directors agreed social spending can become macro‑critical through three key channels: fiscal sustainability, spending adequacy, and spending efficiency, and called for a sufficiently granular framework to assess macro‑criticality.
- Directors urged staff to:
- Provide policy advice on sustainable financing of social spending with increased focus on the quality of such spending for improving social outcomes.
- Underpin surveillance and program policy advice with in‑depth analytical work and support capacity development where necessary.
- Provide technical assistance to improve data availability and quality and to help create fiscal space—through domestic revenue mobilization and improved spending efficiency—to finance increases in social spending where needed.
- Consider distributive effects of taxation and other revenue sources together with effects of social spending.
- Clarify Fund advice on universal versus targeted benefits, with use depending on country preferences and circumstances and consistent with fiscal and administrative constraints.
- Strengthen program design and conditionality in PRGT and GRA‑supported programs with greater focus on measures to offset adverse effects of adjustment on poor and vulnerable households, and enhance the political and social sustainability of programs.
- Ensure evenhandedness in conditionality and appropriately sequence reforms to cushion impacts on the vulnerable, informed by a country’s macro‑fiscal context, political economy considerations, and social objectives.
- Improve collaboration with IDIs (notably the World Bank), with the Fiscal Affairs Department acting as a hub to help country teams draw on IDI and other external resources and engage early to align institutional priorities.
- Improve communications to explain social spending issues in the broader macroeconomic setting, explain policy trade‑offs and financing constraints, and emphasize country ownership.
Next steps and deliverables
- Directors noted the need for more granular guidance for implementation and looked forward to the forthcoming Staff Guidance Note to be issued by end‑2020.
- The Staff Guidance Note should explain in greater detail how to consistently apply key concepts, including macro‑criticality, in country‑ and sector‑specific settings and will be prepared with consultations with relevant stakeholders.
IMF press release, June 14, 2019
