Journal Issue

Social dimensions of IMF financing

International Monetary Fund. External Relations Dept.
Published Date:
January 2002
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By pursuing its mandate to promote international monetary cooperation, the balanced growth of international trade, and a stable system of exchange rates, the IMF contributes to sustainable economic and human development. The IMF recognizes that successful macroeconomic programs must also include policies that directly address poverty and social concerns and that, to support these objectives, IMF-supported programs must integrate social sector spending that focuses on improving the education and health status of the poor.

The reason for attention to social policy issues is twofold: it reflects the recognition that “country ownership” is necessary if the programs are to succeed and that good health and education contribute to, and benefit from, growth and poverty reduction.

In pursuing this aspect of its work, the IMF collaborates extensively with other institutions, including regional development banks, the United Nations Development Program, the International Labor Organization, the World Health Organization, and, especially, the World Bank. Drawing on their expertise, the IMF advises countries on how social and sectoral programs aimed at poverty reduction can be accommodated and financed within a growth-enhancing macroeconomic framework. It does so by identifying not only unproductive spending that should be reduced to make more money available for basic health care and primary education, but also key categories of public expenditure that must be maintained or increased. Through policy discussions and technical assistance, the IMF also plays a role in improving the transparency of governments’ decision making and their ability to monitor poverty-reducing spending and social developments.

Poverty and social impact analysis

The IMF is committed to integrating poverty and social impact analysis in PRGF-supported programs. The purpose of this analysis is to assess the implications of key policy measures on the well-being of different social groups, especially the vulnerable and the poor.

When such analysis indicates that a particular measure (for example, currency devaluation) may adversely affect the poor, such effects would be addressed through the choice or timing of policies, the development of countervailing measures, or social safety nets. Safety nets built into IMF-supported programs have included subsidies or cash compensation for particularly vulnerable groups; improved distribution of essential commodities, such as medicines; temporary price controls on some essential commodities; severance pay and retraining for public sector employees who have lost their jobs; and employment through public works programs.

For those countries that are able to do so, poverty and social impact analyses ideally should be undertaken in making policy choices in the development of poverty reduction strategy papers (PRSPs). For those countries where national capacity is weak, the IMF will draw on poverty and social impact analysis done by the World Bank and other development partners in the PRSP process.

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