Background papers to the "Strategy for IMF Engagement on Social Spending"


Background papers to the "Strategy for IMF Engagement on Social Spending"

Background Paper I. Consultation with Third Parties: An Overview of Results1

This paper summarizes comments received from civil society organizations (CSOs), unions, academics, economists, social spending experts, and international development institutions (IDIs) (hereafter “participants”) and indicates how they were reflected in the main Board paper or will be dealt with in other ways.

Most participants: agreed with using a broad definition of social spending; requested that the strategy be consistent with providing social protection to all, not just the poor; and would have preferred if the Board paper provided specific policy guidance. They suggested that social spending is always macro-critical, highlighting its role in tackling inequality, promoting social cohesion, and stabilizing the economy. They asked that the Fund work closely with other IDIs beyond the World Bank such as the International Labour Organization (ILO), various United Nations (UN) bodies and the World Health Organization (WHO), and with local CSOs. They encouraged the Fund to consider social spending as a long-term investment, not a cost to be contained, and saw the Fund’s value-added value in helping countries create the fiscal space for social spending. Most participants advised the Fund to be less biased toward targeted transfers and more supportive of universal transfers.

A. Introduction

1. Consultation with academics, economists, CSOs, unions and IDIs was an integral part of developing the proposed strategy for IMF engagement on social spending. This was motivated by their strong interest2 in the Fund’s policies on social spending, their expertise in this issue, and the role they play in informing the design and implementation of social spending systems at the country level.

2. The consultation process encompassed numerous stages:

  • At the IMF Spring Meetings 2018, CSOs and unions were invited to attend (i) a townhall style discussion with staff working on the strategy; and (ii) a CSO policy forum panel discussion with representatives from the World Bank, the ILO, and the International Trade Unions Confederation (ITUC), to express their views on the Fund’s role on social spending issues. Their observations helped shape the stages of Board paper’s design.

  • A consultative group consisting of 12 representatives3 from Non-Governmental Organizations (NGOs), unions, as well as academics, economists, and social protection experts with strong expertise on social protection, health, education and related aspects of taxation and gender equality was created in April 2018. The group was consulted at all stages of the process.

  • An online consultation open to any interested stakeholders in English, French, Arabic, Bahasa, and Spanish ran from May to July 2018 on the IMF’s external website. Responses were received from a wide range of stakeholders including CSOs, unions and IDIs. They are available online.4

  • Unions were consulted during the ITUC-WB/IMF meetings in Washington D.C., USA, in March 2018 and in March 2019, and at the ITUC-Asia Pacific Symposium on Equitable and Sustainable Development in Asia and the Pacific in Bali, Indonesia, in October 2018. Staff participated in the 2018 ITUC conference on Financing Social Protection in September 2018 in Brussels, Belgium. ITUC representatives were also part of the consultative group.

  • A high-level panel discussion on “Social Protection and the Future of Work” took place at the IMF Annual Meetings in October 2018 with Ms. Sharan Burrow (ITUC Secretary General), Ms. Nora Lustig (Samuel Z. Stone Professor of Latin American Economics and Director of the Commitment to Equity Institute (CEQ) at Tulane University), Mr. Nicholas Barr (Professor of Public Economics at the London School of Economics), Mr. Michal Rutkowski (World Bank Senior Director for Social Protection and Jobs), moderated by Mr. David Lipton (IMF First Deputy Managing Director). An ITUC–IFI symposium, also organized as part of the 2018 Annual Meetings, discussed the IMF’s work on social protection, with an emphasis on labor organizations’ views. The December 2018 IMF Finance & Development Magazine is dedicated to the same issue.5

  • A one-day workshop was held with leading academics in the field of social spending at the London School of Economics (LSE) in November 2018. The workshop focused on emerging challenges for the design of social protection systems; the role and design of social insurance and assistance; the pros and cons of universalism and targeting; and financing of social protection.

  • Staff consulted bilaterally with IDIs, in particular, the ILO, UNICEF, and the World Bank, and met with the UN Special Rapporteur on Extreme Poverty and Human Rights Philip Alston to share information for his report on the IMF and its impact on social protection.6 Staff also started in early 2018 to regularly attend the UN Social Protection Inter-Agency Cooperation Board (SPIAC-B).7

  • The concerns identified by participants evolved throughout the stages of the consultation process. The comments received were considered and addressed in developing the Board paper (henceforth “the paper”).

3. The following sections provide an overview of the inputs received, organized into broad themes, as well as an indication of how the issues raised during the consultation process were incorporated into the paper or will be taken up in other ways (such as the proposed Guidance Note). Section B provides third parties’ views on the scope of the strategy and the Fund’s definition of social spending. Section C summarizes their inputs on the rationale and timing of the Fund’s engagement. Section D presents their views on how the IMF should cooperate with other IDIs, CSOs, and unions. Section E discusses their views on the role of the IMF in social spending, including the use of social spending floors in Fund-supported programs, while section F focuses on the issue of universal and targeted approaches to social spending.

B. Scope of the Framework and Definition of Social Spending

4. All participants welcomed the development of a strategy that would provide guidance on a more effective IMF engagement on social spending issues. Several participants regretted that the paper focused on the process and would have preferred guidance on Fund’s policy on specific areas such as pensions reform, minimum wages, or unemployment insurance. They hoped this would be addressed in the upcoming guidance note and be subject to further consultation.

IMF policy advice in the various areas of social spending (social protection, education and health) is based on existing Fund Board policy papers (including on sector-specific policy advice and tools), which are listed in the listed in Box 7 of the main Board paper. This advice will be summarized in a Guidance Note if and when the IMF’s Executive Board has endorsed the strategy. In drafting the Guidance Note, there might be areas where the Fund guidance may need to be refined reflecting the evolving nature of social spending issues and as the Fund gains more experience.

5. Most of the participants agreed with the Fund’s decision to focus on a broader definition of social spending, including social protection, education and health spending, though they suggested that the strategy should go beyond “basic” education and health.8 They urged the Fund to stress that these three elements are interdependent (e.g., there can be no income security without health security and proper education and vice versa) and to ensure that social protection remains a central part of the strategy, not a second-order priority. In that regard, they recommended that the strategy discuss more specific social insurance benefits (such as old age pensions, disability, and maternity benefits) and analyze the impact of IMF-supported programs on social protection spending, not just on health and education spending.

The paper acknowledges the inter-dependent nature of the different social spending components in promoting inclusive growth. It recognizes that the definition of “basic” will differ according to country circumstances and that countries typically expand the definition of “basic” as they develop. The issue of sector-specific policy advice and resources available to support country-team engagement will be summarized in the Guidance Note.

6. Some participants suggested that the Fund include spending in other areas such as water, sanitation, childcare, housing, minimum wages, investment in physical infrastructure, and the prevention and mitigation of disasters as they are relevant to achieving the Sustainable Development Goals (SDGs).

This paper focuses on social spending (social protection, education, and health). Countries can define a broader set of priority spending areas that they wish to pursue in support of inclusive growth, many of which will be complementary to social spending. In particular, some of the issues identified, such as childcare subsidies and social housing, may sometimes fall under the definition of social protection. As with social spending objectives, in both its surveillance and program activities the IMF can play an important role in helping countries achieve these objectives if they are macro-critical,9 including by creating fiscal space.

7. Many participants advised the Fund not to focus only on social protection for the vulnerable and the poor segments of the population (“charity approach”), but to view social protection as a key instrument to address risks, challenges and contingencies that everyone faces across the lifecycle. Economic and social changes affect everyone and the social pooling of risk is key to the sustainability of social protection schemes. These participants stressed that the concept of the “poor” is a fictional concept in most low- and middle-income countries where the majority of the population is living on low and insecure incomes and would benefit from social protection.

The paper recognizes the difference between social assistance (aimed at protecting households from poverty) and social insurance (aimed at protecting the broader population from various risks throughout the life cycle). With respect to targeting, the paper clarifies that this refers specifically to social assistance transfers. The issue of policy advice in both these areas will be taken up in the Guidance Note.

C. Rationale and Timing for IMF Engagement

8. Several participants questioned the Fund’s intention to anchor its engagement on social spending issues only in the macro-criticality of such spending. They considered that the importance of social spending for promoting growth, tackling inequality, maintaining social stability, as well as the central role of social spending in various international agreements endorsed by the UN (such as the SDGs), are sufficient reasons for the Fund to always engage on social spending. These participants argued that the Fund should therefore look at social sector spending trends and performance in all Article IV consultations and be always mindful of the impact of its policy advice on social spending, for example, by doing ex-ante impact analysis.

The IMF is committed to supporting its member countries in achieving their social objectives, consistent with its mandate to support macroeconomic and financial stability (see discussion in the third Section of the Main Paper). What is important to note is that country’s preferences on social objectives can differ substantially; for instance, some member countries have signed up to various international agreements while others have not. Both the mission chiefs’ survey and the text mining analysis undertaken for the Board paper confirm that the IMF is engaged on social spending issues with many of its member countries in both its surveillance and program activities. The strategy highlights existing good practice to make this engagement more systematic. In particular, the paper also recognizes the need to support the Fund’s engagement on social spending with sound analytical work drawing on the analysis and expertise of other IDIs where warranted.

9. Many participants viewed the Fund’s definition of macro-criticality as offering little operational guidance. They asked the Fund to provide a clear, operationally meaningful definition to macro-criticality in the strategy. Participants also requested that once the definition is agreed, a technical dialogue on how to assess macro-criticality take place at the country level with governments and development partners.

The Guidance Note will provide illustrative examples to help guide teams to evaluate the macro-criticality of different social spending components. Staff will also consider appropriate fora for discussing sectoral policy advice with external stakeholders.

10. Most participants thought that the Fund should use a wide definition of macro-criticality for the purpose of addressing social spending. The role social spending can play in reducing inequality; promoting inclusive growth; and as shock absorber should be included in the Fund’s assessment of what makes social spending macro-critical. And the Fund should also focus on other factors, such as the impact of social spending on smoothing incomes, increasing household incomes and demand, formalizing labor markets, increasing people’s capacity to cope with climate change, reducing gender inequality, improving productivity, strengthening social and political stability, and meeting the SDGs. Participants at the LSE workshop also emphasized the role of social spending in addressing persistent poverty and the challenges posed by global long-term trends, such as ageing populations, rapid technological change, and globalization.

The various roles of social spending, including in helping the vulnerable in the context of an adjustment program, are recognized in the paper. Recognizing the evolving nature of social spending issues and as the Fund gains experience, the paper anticipates that the Guidance Note will be regularly updated.

D. Cooperation with Development Partners and Civil Society

11. There was a consensus that, because of limited resources and expertise, the Fund should refrain from taking a leading role on social spending issues, especially in terms of designing social protection schemes. The Fund should increase engagement with and rely more on IDIs with expertise on this issue. Beyond the World Bank, the Fund should work closely with UNICEF and UNESCO (education), the WHO (health), and the ILO (social protection). The strategy should provide guidance on the role of these IDIs, their expertise and how they can be effectively engaged. By improving staff’s knowledge of the country context and leveraging IDIs’ expertise and resources, this would ensure that the Fund arrives at better recommendations. IDIs themselves called for a more intense and regular inter-agency cooperation on the institutions’ overall policy stance and regarding technical advice provided in specific country cases. They encouraged the Fund to adhere to the ILO Convention 10210 and recommendations 20211 and to routinely attend the UN Social Protection Inter-Agency Cooperation Board (SPIAC-B) or the Universal Social Protection 2030. Only some participants recommended that the Fund also develop in-house expertise on social spending issues.

The IMF supports countries in achieving their social objectives when consistent with its core mandate for promoting macroeconomic and financial stability. In this context, the paper envisages strengthening collaboration with a broad set of stakeholders (including various IDIs) with social spending expertise. This is consistent with the views expressed by the IEO in their evaluation of social protection. The Paper also emphasizes the need to ensure that the IMF has sufficient in-house expertise to appropriately engage with development partners.

12. The Fund was strongly encouraged to work with CSOs, local experts, unions and faith-based groups when formulating its policy recommendations. This would improve staff’s understanding of the country context and their policy advice. Some thought that the Fund could play a catalytic role in nurturing a national dialogue on social spending.

The importance of a two-way communication with national and international stakeholders is recognized in the paper, as is the catalytic role the IMF can play in promoting dialogue on social spending issues, including through its analytical work.

E. The IMF’s Role and Approach

13. Most of the participants felt strongly that the new strategy should result in the Fund moving from a short-term approach where social spending is perceived as a cost that needs to be contained or cut, to an approach focused on the long-term economic value of social spending. Therefore, when the Fund is looking at the fiscal sustainability of social spending, it should pay more attention to the long-term impact and benefits. For example, inclusive social protection is often seen as being costlier than poverty targeting programs in the short term. But in the long term, due to stronger political support (as they benefit everyone in the population, not just the poor), inclusive social protection is often more fiscally sustainable (i.e., the budget allocated to such spending is maintained and governments find resources to fund them) and has better outcomes. This also means that the Fund should take a more careful stance on issues like pension reforms or cutting employer social security contributions, where IMF advice looking at the immediate fiscal costs and not the long-term objective of balancing equity and sustainability has run the risks of making social protection systems unsustainable in the long term.

The paper discusses the long-term investment nature of social spending and its role in promoting both growth and equity, and the complementary nature of the different social spending components in this regard. When significant fiscal adjustment is needed in the short term due to financing constraints, adjustment measures should focus on raising revenue and increasing spending efficiency and progressivity where possible and appropriate. For instance, as highlighted in the paper, where there are large social spending gaps (for example in LIDCs), IMF-supported programs are typically designed to protect initial levels of social spending and create fiscal space. To this end, the paper also notes the Fund’s Technical assistance (TA) on medium-term revenue strategies.

14. Participants encouraged the IMF to engage earlier in the process and to view income security as a continuous objective, rather as an objective only in a crisis context.

The paper highlights the need to engage early with member countries on social spending issues.

15. Most participants saw the Fund’s value-added in providing policy advice on creating fiscal space for implementing internationally agreed social protection goals. Creating fiscal space should not imply reducing benefits or coverage but ensuring appropriate benefits and coverage, which can be financed through additional revenue (e.g., by helping countries making their tax and revenue systems more effective and progressive). One participant suggested that the Fund work with other agencies to establish minimum expenditure targets and provide suggestions on how to mobilize the necessary resources through progressive taxes.

The paper strongly brings out the role of the IMF in helping countries create the fiscal space needed to sustainably finance social spending objectives. This reflects that the Fund is one of the primary providers of TA in tax policy, revenue administration, and public financial management, which has increased significantly over the last decade.

16. The Fund’s role in making social spending more efficient and equitable, and in undertaking analyses of the tradeoffs between different policy options, was also seen as important.

This is reflected in the paper, including in the discussion around the different channels through which social spending can be macro-critical (fiscal sustainability, spending adequacy, and spending efficiency).

17. Regarding the Fund’s program engagement:

  • Most participants thought that the IMF should refrain from making the specific design of social protection systems a condition for its support. They saw these as decisions of the governments and areas where other organizations have more expertise.

    The paper clarifies that conditionality needs to be critical for program success, and social spending conditionality may need to be developed in collaboration with other IDIs.

  • Participants welcomed the Fund’s use of social spending floors but regretted that current floors are applied in vague terms, are often too limited in scope, and vary much between countries. Participants thought that all social spending should be ring-fenced through social spending floors and expanded as needed during periods of crisis or austerity. They also urged the Fund to define the content of its social spending floors more accurately while keeping the flexibility to tailor them to governments’ needs. For social protection, these floors could be based on the ILO Social Protection Floors Recommendation, 2012 (No. 202), which provides an internationally agreed framework that has also been incorporated into the SDGs (target 1.3).

    The paper highlights the importance of effective use and documentation of conditionality, including spending floors. Floors need to be tailored to the specific objectives of individual Fund-supported programs and be critical to the program success, reflect country-specific circumstances, and be based on the availability of data. Where data quality is an issue, conditionality can be used to address this during the program. To this end, the paper acknowledges that quality data, disaggregated by key components, are crucial for evaluating policies and pressures, formulating policy advice, and monitoring spending outcomes; and that the IMF’s GFSM2014 and COFOG statistical standards provide a useful conceptual and operational framework for enhancing data quality. Social spending floors can be used to protect existing social spending or to increase social spending.

  • Participants felt that social spending floors are not sufficiently enforced. They suggested that these floors be turned into binding performance criteria (not just indicative targets).

As established under the IMF Guidelines on Conditionality, when assessing whether a program review can be completed, the Executive Board will take into consideration the member’s observance of performance criteria (PCs), indicative targets (ITs) and structural benchmarks (SBs), etc. Social spending targets can be established as a PC, but not if there are concerns about the quality of data. The paper discusses importance of improving quality and timeliness of social spending data for better policy analysis and program monitoring (see also response under the previous bullet on data quality).

F. Universal and Targeted Approaches to Social Spending

18. Participants saw the Fund as having, like the World Bank, a bias in favor of targeted social benefits based on means testing. This perceived bias was deemed to be at odds with the SDGs and other agencies’ views (e.g., ILO, UNICEF).12

The paper clarifies the views of the IMF on the appropriate use of universal and targeted social assistance transfers. The Fund does not have any bias in favor of one approach. Rather, it sees these approaches as complementary tools for achieving social objectives. The paper and a background note dedicated to the issue acknowledge the difficulties in implementing targeting of transfers in some countries, and at the same time emphasize that a greater reliance on universal-type transfers typically involves fiscal costs which need to be financed through efficient and progressive taxation.

19. A greater emphasis on ensuring universal access to social protection benefits (not just in health and education but also in pensions or other transfers) was preferred by various participants who encouraged the Fund adopt this approach more often. Participants pointed out that targeting social benefits using means testing has flaws, including large exclusion errors, and a high implementation cost for recipients and countries that have limited administrative capacity. They argued that targeted programs only for the poor are likely to get limited political support (because they only benefit a small part of the population) and therefore are unsustainable in the long term. One contributor also made the point that social protection should be focused on getting people to participate in economic activity, rather than “drip feeding” cash transfers to keep poverty low (especially when this holds the poor in unproductive employment). Another stressed that when all paid in, all gained, creating broad public support and strengthening the social contract. The Fund’s perceived concerns with “leakage to the rich” in the absence of targeting was seen as unwarranted as government could make this choice for political reasons and, if they see this “leakage” as an issue, could address it through the tax system.

The paper and a dedicated background note recognize that the appropriate use of targeted and universal-type transfers will depend on country economic, political, and social circumstances and constraints. It describes the advantages and disadvantages of the universal versus the targeted approach, highlighting trade-offs for policy makers.

20. Several participants, including several academics at the LSE workshop, stressed that the dichotomy between universal and targeted was overly simplistic. For them, the focus should not be on specific schemes but on national systems that can include both targeted transfers and universal transfers. Targeting should not be limited to the use of proxy-means targeting. Most of the social protection schemes are targeted in one way or another, either by income or to vulnerable groups (such as children).

The paper reflects these nuances, in particular in Background Paper IV.


Prepared by Nicolas Mombrial (COM) and Csaba Feher (FAD).


Mr. Peter Bakvis, Washington representative ITUC (retired), Washington D.C; Mr. Nicholas Barr, Professor of Public Economics, LSE; Ms. Miriam Brett, International Development Project Finance Manager, Bretton Woods Project; Mr. Michael Cichon, ex-ILO Director (retired), Professor of Social Protection at United Nations University; Ms. Carolina Dantas, Social Protection Officer, ITUC’s Americas region; Ms. Diane Elson, Professor of Sociology, University of Essex and Institute of Development Study; Mr. Barry Herman, Visiting Senior Fellow at the Graduate Program in International Affairs of The New School in New York; Mr. Daniel Horn, Adviser to the Global Coalition on Social Protection Floors; Mr. Stephen Kidd, Director Development Pathways; Ms. Nora Lustig, Samuel Z. Stone Professor of Latin American Economics and Director of the Commitment to Equity Institute (CEQ), Tulane University; Mr. Tavengwa Nhongo, Executive Director, Africa Platform For Social Protection; Ms. Sandra Polaski, Global Development Policy Centre, Boston University and ex-Deputy Director General for Policy, ILO.


Report of the Special Rapporteur on extreme poverty and human rights focus on the IMF and its impact on social protection


The 2017 IEO Report focused on the narrower concept of social protection.


For the definition of “macro-critical” for purposes of this set of papers, see the Main Paper.


The ILO Social Security (Minimum Standards) Convention, 1952 (No. 102) establishes worldwide-agreed minimum standards for all nine branches of social security. These branches are: medical care; sickness benefit; unemployment benefit; old-age benefit; employment injury benefit; family benefit; maternity benefit; invalidity benefit; and survivors’ benefit. See


The ILO Social Protection Floors Recommendation 2012 (No.202) establishes guidance to its members on establishing and maintaining social protection floors as fundamental element of their national security systems.


A summary of arguments raised by some social protection experts against using means testing can be found here: