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IMF Programs and Health Spending

This presentation discusses the relationship between IMF-supported programs and health spending in low-income countries. It explores the impact of policy choices and instruments used in programs on the health sector. The presentation also highlights the need for more research and analysis in understanding the macroeconomic effects of scaling up health spending.

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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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