In his speech yesterday at a CGD event, IMF managing director Rodrigo de Rato addressed long-standing criticisms by NGOs and others that budgetary ceilings in IMF-supported programs unduly limit health and other social sector spending in poor countries:
The Fund is also strongly committed to making sure that countries have the fiscal space they need to expand social programs, especially in health and education. I want to remove any misconceptions about our views on this...Fund-supported programs have for many years focused on the need to maintain poverty-reducing, especially health and education spending, including in times of fiscal stringency...When additional donor grants are made available for such spending, fiscal targets in IMF-supported programs will be adjusted to ensure such money can flow to the programs supported by donors, so long as the resources can be put to effective use.
De Rato's statement is a welcome reiteration of an IMF commitment to greater fiscal flexibility when a scaling-up of aid is in prospect. But, as always, the devil is in the details. The IMF's comparative advantage is in promoting macroeconomic stability, but how exactly is this stability defined when the benefits from additional aid-financed spending may not be know for a long time? What exactly is a sustainable path for a country's fiscal deficit following debt relief, given that sustainability has to be judged over the long term? Answering these questions requires judgments about many factors -- the effectiveness of spending, the sustainability and predictability of aid, longer-term growth prospects -- that are highly uncertain and where the IMF does not necessarily have a comparative advantage. For example, who decides whether "resources can be put to effective use" and on what basis?
The real question, then, is how, in practice, have macroeconomic frameworks been set, given these uncertainties? Have the frameworks been "too tight" as some critics allege and on what criteria should we judge? In the discussion following his speech, de Rato rightly emphasized that all policy choices involve tradeoffs, so budget constraints cannot be just ignored, no matter how desirable the objective. But have policy instruments used in many IMF-supported programs -- such as wage ceilings -- caused harmful side effects for health, even if this was not their intention and even if programs tried to protect such spending?
The Center for Global Development's Global Health Policy Research Network is setting up a working group to explore these issues. The Working Group on IMF-Supported Programs and Health Expenditures, which I chair, will investigate how macroeconomic policies under IMF programs in low-income countries have interacted with the management of health spending in a context of scaled-up aid. The Working Group will explore what actually happened under programs on the key issues where the IMF role has been criticized and will make practical recommendations for improvements that could be directed at the IMF, donors, recipient countries, or other stakeholders. I welcome comments and suggestions about this new research agenda.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise.
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