Front Matter

Author(s):
Ritha Khemani, Sanjeev Gupta, Calvin McDonald, Louis Dicks-Mireaux, and Marijn Verhoeven
Published Date:
January 2000
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    © 2000 International Monetary Fund

    Production: IMF Graphics Section

    Typesetting: Jack Federici

    Figures: In-Ok Yoon

    Cataloging-in-Publication Data

    Social issues in IMF-supported programs / Sanjeev Gupta …

    [et al].– Washington, D.C. : International Monetary Fund, 2000.

    p. cm. — (Occasional paper, 0251-6365 ; no. 191)

    Includes bibliographical references.

    ISBN 1-55775-873-5

    1. International Monetary Fund. 2. Social policy. 3. Expenditures, Public. I. Gupta, Sanjeev. II. International Monetary Fund. III. Occasional Paper (International Monetary Fund); no. 191.

    HG3881.5.I58S664 2000

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    Contents

    The following symbols have been used throughout this paper:

    • … to indicate that data are not available;

    • — to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist;

    • – between years or months (e.g., 1994–95 or January-June) to indicate the years or months covered, including the beginning and ending years or months;

    • / between years (e.g., 1994/95) to indicate a crop or fiscal (financial) year.

    “Billion” means a thousand million.

    Minor discrepancies between constituent figures and totals are due to rounding.

    The term “country,” as used in this paper, does not in all cases refer to a territorial entity that is a state as understood by international law and practice; the term also covers some territorial entities that are not States, but for which statistical data are maintained and provided internationally on a separate and independent basis.

    Preface

    As part of its mandate, the IMF seeks to create the conditions necessary for sustained high-quality growth, which encompasses a broad range of elements. These include sound macroeconomic policies, growth-enhancing structural reforms, good governance, and social policies such as cost-effective social safety nets and targeted social expenditures. Over the years, the IMF and the international community have increasingly recognized that macroeconomic and structural policies have important social implications, which in turn have ramifications for the domestic ownership of economic and reform agendas and promoting sustainable growth. In particular, social safety nets aimed at cushioning the adverse social impact of adjustment programs on vulnerable groups have become increasingly important. Also, there has been greater focus on the prioritization of public spending on areas of social policies that promote growth through poverty reduction, specifically with regard to increased access of the poor to education, health, and economic opportunity. The IMF has, therefore, taken a progressively more active stance on social policies to ensure that they are well integrated into IMF-supported programs and IMF policy advice. A key element of the IMF’s involvement in social policies has been collaboration with other relevant international agencies, especially the World Bank, in order to draw upon their social policy expertise.

    This paper—the most recent of a series of reviews of the IMF’s involvement in social issues undertaken since the late 1970s—reviews the IMF’s policy advice in two key areas of social policy: social safety nets and public spending on education and health care. It was initiated as part of the work by the World Bank and IMF to strengthen the poverty focus of adjustment programs in low-income countries, in particular within the framework of the Initiative for Heavily Indebted Poor Countries (HIPCs). This review looks at such social policies in IMF-supported programs in two broad groups of countries. The first group comprises a sample of up to 65 countries that implemented IMF-supported programs between 1985 and 1997. The second group comprises a sample of up to 12 countries that implemented programs under the IMF’s Enhanced Structural Adjustment Facility (ESAF), including under the HIPC Initiative, during the latter part of the 1990s. The paper pulls together the main lessons from this experience and sets out proposals for strengthening the social content of IMF-supported programs including through mechanisms to strengthen World Bank–IMF collaboration in the social policy area. An earlier version of the paper was discussed by the IMF Executive Board on September 13, 1999; a summary by the Chairman of this Board discussion appears following the review.

    Soon after these and other discussions (at the IMF and World Bank) on how to strengthen the poverty focus of adjustment programs in low-income countries, it was agreed at the IMF–World Bank 1999 Annual Meetings to put poverty reduction at the center of adjustment programs supported by the international community in the poorest countries. To implement this significant shift in policies, poverty reduction was made one of the central objectives of the ESAF, which was renamed the Poverty Reduction and Growth Facility (PRGF) on November 22, 1999; this will also be a key element of the enhanced initiative for debt reduction. A central feature of the PRGF is the Poverty Reduction Strategy Paper (PRSP)—one of the policy recommendations of this review—which articulates a country’s comprehensive strategy for poverty reduction and integrates macroeconomic, structural, and social policies. The PRSP will be nationally owned and prepared through a broad participatory approach.

    A number of IMF staff guided and contributed to this paper. In particular, the authors would like to thank Jack Boorman, Vito Tanzi, Peter Heller, Thomas Leddy, Ke-young Chu, and Russell Kincaid for substantial comments on earlier drafts; Hamid Davoodi, Frank Engels, Tetsuya Konuki, Henry Ma, and Gustavo Yamada for contributions to various sections of the paper; and Randa Sab and Erwin Tiongson for providing statistical assistance. The authors are also grateful to staff of departments within the IMF and the World Bank for feedback on the earlier versions. Cecilia Pineda, Larry Hartwig, and Cecilia Lon performed the administrative tasks related to the production of the paper and Jeanette Morrison of the IMF’s External Relations Department edited the Occasional Paper and coordinated its production.

    Overview

    This paper reviews the IMF’s policy advice in two key areas of social policy: social safety nets and public spending on education and health care. While the IMF has been helping countries promote sustainable economic growth, and thereby reduce poverty through macroeconomic policy advice, it has also been strengthening its dialogue with member countries on the social implications of its advice. This paper offers preliminary conclusions on how to improve the integration of IMF policy advice on social safety nets and public social spending into program design1 within a sustainable macroeconomic framework.

    In the family of international organizations, the social components of country programs are primarily the responsibility of the World Bank and other organizations, not the IMF. The World Bank has primary mandates, responsibilities, and expertise on social issues. Whenever feasible, the IMF has drawn, and will continue to draw, upon the work of the World Bank and other organizations. Hence, enhanced inputs from and closer collaboration with these organizations are essential. Another important element is more dialogue with civil society groups, in particular labor unions and nongovernmental organizations (NGOs).

    Social Safety Nets

    The design of social safety nets and the timing of their establishment in countries have been influenced by both social protection needs and constraints. The needs reflected the specific adverse social effects of reform measures and the characteristics of affected groups. The constraints reflected the availability of social policy instruments such as old age pensions and unemployment insurance, and administrative and financing capacity. Whenever social policy instruments were available, the foremost challenges have been to ensure their targeting and to increase their financing.

    This review identifies three key requirements for strengthening social safety nets in IMF-supported programs:

    • more comprehensive ex ante analysis of the likely social impact of key macroeconomic and structural reform measures; such analysis needs to be undertaken before or at the time of program formulation;

    • adequate follow-up of performance and monitoring of safety nets during program implementation to ensure that intended poor groups receive sufficient support; and

    • introducing appropriate social policy instruments before the onset of crises and economic reforms.

    IMF staff needs to rely on the expertise of the World Bank and other organizations in conducting the ex ante analysis. IMF staff reports should discuss such analysis and also the performance of social safety nets. When the World Bank or other relevant international institutions are unable to provide needed advice within a suitable time frame, IMF staff should attempt to fill the gap. These situations, however, should be infrequent.

    Public Spending on Education and Health Care

    On average, in the past decade, education and health care spending has increased—in real per capita terms, as well as in relation to GDP—in countries with IMF-supported programs. For many countries, these increases have been accompanied by improvements in a broad range of social indicators. Still, countries differ considerably on spending relative to GDP for both education and health care and on the speed of improvement of social indicators, reflecting in part differences in the efficiency of public spending.

    There is scope for improving the efficiency and targeting of existing spending on education and health care as a means of improving social indicators. This improvement could be achieved through, among other things, strengthening budget formulation and implementation capacity, increasing resources spent on primary education and basic health care, and reducing excessive out-of-pocket expenses borne by the poor in the form of user charges for primary education and basic health care. To consolidate the progress already made, this review identifies some steps that should be taken in programs supported by the IMF for

    • establishing quantitative targets for education and health care spending more systematically, particularly for primary education and for basic health care; these targets should be reported in IMF staff papers for the Executive Board, and efforts should be made to strengthen the monitoring of such spending:

    • occasionally setting performance criteria on minimum spending thresholds; and

    • in some circumstances, monitoring budgetary allocations for selected key inputs, such as books and medicine (although an excessive level of detail in IMF-supported programs would be neither feasible nor appropriate).

    These steps should be taken, in collaboration with the World Bank, by building on the progress that has already been achieved. IMF staff should continue to assess budgetary allocations for social sectors, relying on available World Bank input, in particular on timely Public Expenditure Reviews (PERs). To help promote social reform, IMF-supported programs could use as reference points the targets established by the authorities for selected intermediate social indicators (e.g., primary and secondary school enrollment rates and immunization rates). Especially where social indicators are failing to improve, despite increases in public spending, IMF staff should report to the Executive Board on discussions with the country authorities. World Bank, NGOs, and other institutions.

    World Bank-IMF Collaboration

    World Bank–IMF collaboration could be significantly improved by better integrating macroeconomic and social objectives, policy measures, and related work agendas, A shared understanding of the key social and macroeconomic issues is essential.

    • Such collaboration could take place through the formulation of a poverty reduction strategy together with the country authorities in a participatory process. The main elements of the strategy would be set forth in a Poverty Reduction Strategy Paper (PRSP), which would be endorsed by the government, the World Bank, and the IMF. The PRSP would set out medium-term macroeconomic, structural, and social policies consistent with the government’s poverty reduction objectives. An IMF- or Bank-supported program should be consistent with the policy framework contained in the country-strategy paper.

    • When timely World Bank input is either not available or insufficient, program design should allow for the fuller integration of relevant social policies at a later stage (e.g., at the time of program reviews), as additional analysis becomes available.

    The PRSP should include several components that would facilitate World Bank-IMF collaboration. These components, which would reflect the two institutions’ respective operational responsibilities in a country, should contain policy advice, financing needs, and work programs, in particular in the context of IMF-supported programs and World Bank lending operations.2 Through this process, an iterative dialogue between the staffs of the IMF and the World Bank would be intensified, assuring the consistency between a macroeconomic framework and a cost-effective strategy for sustainable growth with poverty reduction.

    The social policy components of the countries’ Comprehensive Development Frameworks (CDFs) could also be integrated into their macroeconomic programs. In this regard, drawing upon the advice of the World Bank, the authorities should formulate, at an early stage of their macroeconomic programs, comprehensive social strategies that include specific action plans that provide a much-needed road map from objectives to policies. High-level poverty monitoring units in governments could help strengthen coordination at the local, national, and international levels and collect data for monitoring social progress.

    Data and Institutional Capacity

    IMF staff should make an effort to identify and highlight data weaknesses in the area of social spending indicators and social protection arrangements. This would help draw the authorities’ attention to the urgent need to redress the data weaknesses in collaboration with the World Bank and other international agencies. In this regard, IMF staff should also assess the scope for technical assistance. Greater attention could also be given to inputs prepared by civic groups, NGOs, and donors.

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