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The authors are with the Expenditure Policy Division of the IMF’s Fiscal Affairs Department. Taline Koranchelian contributed significantly to this paper, and Larry Cui and Martin Hommes provided excellent research support. Guidance, comments, and suggestions from Peter S. Heller, Simonetta Nardin, Shamsuddin Tareq, and other IMF colleagues in different departments helped shape this paper and our thinking on the issues discussed here. All remaining errors and omissions are our own.
Strengthening human resources would not in itself be sufficient to remove human resources bottlenecks for meeting the MDGs. Other steps include the need to increase complementary nonwage current spending in step with or ahead of new hiring and to address an inefficient distribution of human resources. South Africa, for example, had to ramp up nonwage current spending (e.g., for teaching materials) to enhance the efficiency of wage spending in education. In contrast, in Yemen, a key constraint is an inadequate supply of doctors and teachers in rural high-poverty areas, which raises the issue of whether sufficient financial incentives can be offered for workers to relocate. Financial incentives are also key to retaining qualified staff. For instance, recent newspaper articles have pointed to the emigration of qualified nurses from Sub-Saharan Africa to developed countries like the United Kingdom (e.g., http://www.cnn.com/2004/WORLD/africa/08/03/nurses.uk/index.html and http://news.bbc.co.uk/1/hi/health/3083041.stm).
Appendix I lists the countries with Poverty Reduction and Growth Facilities (PRGFs) during 2003–05. The PRGF is an IMF lending facility under which loans are extended to PRGF-eligible LICs in support of their poverty reduction strategies (International Monetary Fund, 2005a).
This finding is in line with other empirical work. For example, a recent survey by the Center for Global Development (2005) drawing on 353 responses from health-sector professionals, did not find that restrictions related to IMF-supported programs impeded implementation of policies related to HIV/AIDS prevention, treatment, and care. While “IMF caps” were listed as a concern in only one percent of the responses, the five leading concerns were related to lack of political will (29 percent); poor national coordination (28 percent); shortcomings of the health care delivery system (14 percent); national absorptive capacity constraints (8 percent); and policy confusion (7 percent).
Following the 2002 Monterrey conference, where donors committed to improving the level and quality of financial support to reach the MDGs, net Official Development Assistance (ODA) from OECD member states went up by 15 percent in real terms during 2001–04, reaching US$80 billion in 2004. In 2005, net ODA is estimated to have increased by 23 percent in real terms, to US$98 billion. Based on official promises, the OECD estimates that its member countries will increase net ODA through 2010 by a further 31 percent in real terms, to US$128 billion (OECD-DAC, 2006).
The importance of public wage restraint under fixed exchange rates is reflected in the convergence criteria for the countries of the monetary union of West Africa (WAEMU), which stipulate that government wages should not exceed 35 percent of domestic fiscal revenues.
For an overview on wage bill conditionality in PRGF-supported programs during 2003–05, see Appendix II.
Non-PRGF Fund-supported arrangements have occasionally included conditionality on employment. For example, the current Stand-By Arrangement with Turkey includes limits on new hiring.
In part as a result, Mali did not breach the WAEMU criterion on wages (see footnote 7).
Average wage bills increased in seven of the eight countries with quantitative PCs; the exception is Dominica, where the wage bill declined from an average of 17 percent of GDP in 2000–02 to 14 percent of GDP in 2003–05.
As of May 2006, six active PRGFs include PCs on wage bill ceilings (Dominica, Ghana, Guyana, Honduras, Malawi, and Nicaragua). Two other PRGF-supported programs (Chad and Kenya) include such PCs, but are presently inactive and performance under these programs has not been assessed recently.
A structural benchmark is a weaker form of conditionality than a PC. Specifically, if a benchmark is missed, no waiver is needed to continue disbursements under an IMF-supported program (see Box 2).
Wage bill developments are also monitored in these countries. For example, in Tajikistan, the need to increase substantially the salaries of government workers in 2004 led to a discussion between the government and Fund staff about how to address these pressures.
The term “program review” refers to a periodic reassessment (often quarterly) of actual macroeconomic performance vis-à-vis projections and the parameters of the program. During a program review, the macroeconomic projections are updated, and the program parameters are revised as needed to take into account the latest projections.
In principle, the adjuster could also be asymmetric, that is, accommodate aid inflows that are larger than anticipated, while not lowering the ceiling in case of disbursement delays.
A waiver is only needed when a PC is breached, not when another target, like a benchmark, is not observed.
Vertical programs are multidonor funds that focus on a specific health issue, such as HIV/AIDS. Examples include the World Bank’s Multicountry AIDS Program (MAP); the Global Fund to Fight AIDS, Tuberculosis, and Malaria; and the U.S. President’s Emergency Plan for AIDS Relief (PEPFAR).