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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.

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IMF Programs and Health Spending

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  1. IMF Programs and Health Spending David Goldsbrough Presentation at Global Conference on Gearing Macroeconomic Policies to Reverse the HIV/AIDS Epidemic, November, 2006.

  2. 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”)

  3. 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

  4. 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.

  5. 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?

  6. 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

  7. 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)

  8. 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.

  9. “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)

  10. 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

  11. 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.

  12. 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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