Transcript David Goldsbrough

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 wellintegrated 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’ countries—but not
statistically significant
Table 2. Share of General Government Expenditures going to Health in Countries with and without IMFSupported Programs, 1998-2004. (Group means, in percent of total govt. spending)
1998
Low-income countries
2004
Change
1998-2004
8.7
9.1
0.2
--program
8.2
8.2
0
--non-program
9.5
10.5
1.0
8.6
8.8
0.2
--program
8.1
8.2
0.1
--non-program
9.4
9.9
0.5
Sub-Saharan Africa
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)
Level at t-1
Change*
t0 - t-1
t+2 - t-1
General government balance, including
grants**
ESAF (1995-1999)
-8.5
2.2
4.4
“early” PRGF (2000-2002)
-8.2
-0.4
2.3
“late” PRGF (2003-2005)
-6.5
-1.0
-0.1
ESAF (1995-1999)
25.8
-0.3
-1.7
“early” PRGF (2000-2002)
28.1
0.4
-0.2
“late” PRGF (2003-2005)
25.3
1.5
0.8
Total government expenditures**
*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)
Level at t-1
Change
t0 - t-1
t+2 - t-1
Grants
ESAF (1995-1999)
3.8
-0.1
-1.0
“early” PRGF (2000-2002)
3.9
0.7
0.2
“late” PRGF (2003-2005)
4.5
0.7
0.1
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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)
Targeted inflation in t+1
(percent)
Initial inflation rate in t-1
(percent)
3-5%
3% or below
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6
3-5%
4
3
1
8
5-10%
1
5
5
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10-20%
2
1
2
1
6
1
2
1
4
16
10
2
48
Above 20%
Total
20
5-10%
10-20%
Above
20%
Total
3% or below
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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

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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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