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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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.

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: (under “working groups”)

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

  • 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

  • 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?

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

  • 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)

  • 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.

    “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?

    • 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

    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.

    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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