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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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imf programs and health spending

IMF Programs and Health Spending

David Goldsbrough

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

slide2
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”)
slide3
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

emerging messages
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.
cross country evidence on 3 issues
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?
slide6
Shares of government spending going to health have increased slightly more in ‘non-program’ countries—but 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

fiscal targets in imf supported programs
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)

slide8

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.

slide9
“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)

have inflation targets under the prgf been excessively conservative
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
slide11

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.

slide12
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
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