Protecting the Most Vulnerable under IMF-supported Programs
April 13, 2015
Under IMF-supported programs, the Fund helps governments to protect and even increase social spending, including social assistance. In particular, the IMF promotes measures to increase spending on, and improve the targeting of, social safety net programs that can mitigate the impact of some reform measures on the most vulnerable in society. Below are some examples from the major regions of the world of how IMF-supported programs seek to protect social spending in a way that is both fiscally-sustainable and cost-effective.
- Under the IMF-supported program, the government revamped its social protection programs in 2011 and increased its budget allocation to social protection to 0.5 percent of GDP in 2014.
- Mozambique is piloting the UN’s “Social Protection Floor Initiative,” which started in 2011. Under this initiative, the IMF provided analysis of available fiscal space while the ILO and UNICEF offered technical expertise on social protection schemes.
- To leverage fiscal space in designing sustainable social protection schemes consistent with the 2011–14 poverty reduction strategy, the current IMF-supported program includes a quarterly indicative target floor on priority spending reflecting about half of all spending.
ASIA AND PACIFIC: Bangladesh
- The Bangladesh authorities remain committed to achieving the Millennium Development Goals, and the inclusive growth targets under their Sixth Five-Year Plan (2011-2015). As part of these efforts, the government’s policy program under the IMF-supported Extended Credit Facility (ECF) arrangement, approved in April 2012, contains a quantitative target to protect priority social spending by keeping it constant as a share of GDP.
- The IMF-supported program also aims to boost fiscal space for priority social spending via medium-term revenue reforms and the reallocation of regressive spending on universal subsidies towards well-targeted social safety net programs.
- Pension cuts were targeted at the highest pension recipients and those receiving supplemental pensions. A one-off social dividend was distributed in 2014 to those most in need.
- The IMF-supported program includes a comprehensive review of all social benefit programs to consolidate duplication, and improve targeting, and the introduction of a nation-wide minimum income support program. In this context, the authorities introduced a pilot means-tested minimum income support program in November 2014.
- Greece has launched employment programs that target unemployed youths and jobless households, and is expanding public and social work programs and training programs to fight long-term unemployment, supported by EU structural funds.
- Spending cuts in health focused mainly on reducing prices for pharmaceuticals, where Greece had one of the highest per capita outlays in the OECD in 2008. At the same time, several schemes have been put in place to provide free healthcare access, including health vouchers, poverty booklets, and universal health care coverage for the uninsured.
LATIN AMERICA AND CARIBBEAN: Haiti
After the devastating earthquake that hit the country in early 2010, the IMF approved $268 million (4 percent of GDP) in post-catastrophe debt relief (PCDR) in July 2010 to free up resources for Haiti to meet its exceptional reconstruction needs. Also, the IMF continued to provide concessional financing under a three-year ECF-supported program approved in July 2010, which expired on December 28, 2014.
- Part of the PCDR resources have been used to provide affordable social housing and to build institutional capacity aimed at strengthening the quality of public spending.
- To boost social spending, the IMF-supported program includes a quantitative target on poverty-reducing expenditures, including on health, education and agriculture. This helped social spending double between 2009 and 2014, with anti-poverty spending standing at about 4 percent of GDP.
- The IMF supports other actions taken in the context of the program, including (i) a comprehensive education program financed by the Haitian government to bring all children aged 6 to 12 to school over a period of four years (about 25 percent each year); (ii) a conditional cash transfer program in favor of women in very poor neighborhoods in the Port-au-Prince area; and (iii) a food production and distribution program in poor neighborhoods to alleviate the impact of natural risks and promote agricultural projects as well as food distribution.
- Starting from 2015, the authorities plan to use part of the savings generated from a fuel subsidy reform to provide a subsidy targeted to public transportation (0.25 percent of GDP) through a social tariff protecting the most vulnerable from price volatility.
MIDDLE EAST AND CENTRAL ASIA: Jordan
Jordan has implemented several measures under its IMF-supported national program:
- Cash transfers were introduced in November 2012 to mitigate the social impact of the removal of general fuel subsidies. The transfers amount to about US$100 per person per year; they are capped at a maximum of six family members. Initially, all families with an annual income below JD 10,000 (US$14,700) (70 percent of the population) were eligible for the transfers, but eligibility criteria are now being extended to include assets (land, car and real estate ownership), with a view to better target the poor segments of the population.
- Electricity tariff reform is being implemented in a socially acceptable way. All households were exempted from the tariff increase implemented in mid-August 2013, and the increase in early January 2014 affected only rich households as will future increases (to be implemented at the beginning of each of the following years).
- Access to finance for small and medium-sized enterprises and low-income individuals is being improved. The licensing of the first credit bureau is underway. Also, the new legislation on secured lending currently before parliament and the creation of a registry of collateral assets should allow small businesses to utilize their movable assets as collateral. The World Bank approved a US$70 million loan for small and medium-sized enterprises (US$50 million disbursed to date), and a similar loan from the European Bank for Reconstruction and Development is being negotiated.
- The authorities are considering replacing the general food subsidy on wheat flour by a targeted subsidy to prevent abuse.