IMF Programs and Health Spending

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IMF Programs and Health Spending

• David Goldsbrough
• Presentation at Global Conference on Gearing
  Macroeconomic Policies to Reverse the HIV/AIDS
  Epidemic, November, 2006.

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Center for Global Development has established a
Working Group on IMF programs and Health
Expenditures. Key issues being investigated are

• Has the policy space for feasible choices been
  unduly narrowed in IMF-Supported programs? (e.g.
  tightness of macroeconomic frameworks
  conservatism of aid assumptions).
• Do some of the policy instruments used in
  programs have adverse effects for the health
  sector? (e.g. wage ceilings ways in which
  program design responds to shocks).
• For more details, see www.cgdev.org (under
  working groups)

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• Two background papers already produced
• -The Nature of the Debate Between the IMF and
  Its Critics
• -What Has Happened to Health Spending and Fiscal
  Flexibility in Low-Income Countries with
  Programs?
• Additional Work underway
• -Case studies of Mozambique, Rwanda, and Zambia
• -A review of different approaches to
  protecting priority expenditures

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Emerging messages

• No strong evidence that low-income countries with
  programs have increased or decreased health
  spending more than non-program countries
• Some signs of a gradual shift to greater fiscal
  flexibility in more recent vintages of IMF
  programs
• Aid projections underlying recent programs a
  little more optimistic, but not by much
• Analytical basis for some key elements of program
  design (e.g. the fiscal path) are often sketchy.
  Still not well-integrated with analysis of
  effects of expenditures on real economy, key
  relative prices.
• Excessively low inflation targets are NOT the
  main issue.

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Cross-country Evidence on 3 issues

• What has happened to health spending in
  low-income countries?
• What has happened to Fiscal targets in
  IMF-Supported programs?
• What has happened to inflation targets in
  programs?

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Shares of government spending going to health
have increased slightly more in non-program
countriesbut not statistically significant
Table 2. Share of General Government Expenditures
going to Health in Countries with and without
IMF-Supported Programs, 1998-2004. (Group means,
in percent of total govt. spending)


Source Authors calculations based on WHO
data
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Fiscal targets in IMF-Supported Programs

• We looked at different vintages of IMF
  programs
• ESAF (1995-1999)
• early PRGF (2000-2002)
• late PRGF (2003-2005)
• A gradual shift toward targeting moderately
  higher deficits and higher government
  expenditures in more recent programs
• (see table 3)

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Table 3. Fiscal Targets in
IMF-Supported Programs, 1995-2005
(Group Means, in
Percent of GDP)
Positive change means increase in surplus or
decline in deficit. Classified by year in which
3-year arrangement was approved.
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Pessimism about grants under the ESAF has
disappeared but recent programs are not assuming
substantial increases
Table 4. Projections for Grants in
IMF-Supported Programs, 1995- 2005 (Group
Means, in Percent of GDP)
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Have inflation targets under the PRGF been
excessively conservative?

• Inflation targets under PRGF-supported programs
  were generally low two thirds under 5 by the
  second program year and almost half under 3 (see
  table)
• These low inflation targets largely reflected a
  starting position of low inflation.
• In more than one third of cases where inflation
  was already low (under 5), programs targeted
  some increase
• But few programs are designed to allow
  double-digit inflation to continue
• No obvious shift in inflation targets between
  vintages of programs, except for starting
  positions

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Table 5. Inflation Targets in PRGF-Supported
Programs, 2000-2005 (Number of IMF Arrangements)
Source Calculated from the tables in Appendix 2
of background note.
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The need for humility in making pronouncements
about the macroeconomic effects of scaling-up
health spending

• No obvious fiscal anchor after debt relief
• Cannot divorce judgments about optimal fiscal
  path from choices on expenditure composition and
  their effectiveness
• Information about these effects is limited, so
  key decisions will inevitably involve huge
  uncertainties a question of balancing risks
• Future fiscal contingencies are the key problem,
  but not all policy decisions can or should be
  taken now