Does the IMF Constrain Health Spending in Poor Countries?

July 23, 2007
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Baby on scaleInternational Monetary Fund (IMF) programs have often been too risk-averse in low-income countries, preventing them from exploring more ambitious, but still feasible options for higher government spending including in the health sector, according to David Goldsbrough, a visiting fellow with CGD.

Controversy surrounds IMF-supported programs in low-income countries and their effect on the health sector. Because having an agreement with the IMF is often a pre-requisite for access to other types of financing, including official debt relief, many low-income countries have IMF programs. Critics argue that the programs unduly constrain health spending at a time when more donor money may be available.

"IMF influences on health spending are indirect but potentially significant," David Goldsbrough reports in a new CGD Brief reviewing the findings of CGD's working group report "Does the IMF Constrain Health Spending in Poor Countries? Evidence and an Agenda For Action".

Goldsbrough says that while the IMF has "no mandate at all on health sector issues" because governments decide what share of resources to spend on health, "IMF activities often have important indirect effects on the health sector, especially in countries that enter into specific agreements with the IMF on their macroeconomic policies."

The CGD working group on IMF-Supported Programs and Health Spending comprised fifteen experts from policy-making positions in developing countries, academia, civil society, and multilateral organizations. CGD president Nancy Birdsall called the report "a major contribution with dispassionate analysis and clear recommendations--for the IMF, the World Bank, the governments of countries working within IMF programs and civil society organizations."

An IMF staff response posted on its website welcomes the report as "a significant input to enhance our understanding of the policy choices facing low-income countries," but argues the report should have taken a "more nuanced view" of several issues including the need for macroeconomic stability as a prerequisite for sustainable and poverty-reducing growth.

In its policy analysis and in case studies of Mozambique, Rwanda and Zambia, the working group explored IMF assumptions about aid flows, and whether caps on the overall public sector wage bill used in many IMF programs, especially in Africa, constrain the ability of health sector leaders to recruit and retain health workers. It also examined whether the IMF's mode of operations limits the number of stakeholders involved in discussions about national spending priorities.

Recommendations for the IMF include: helping countries explore a broader range of feasible options for the fiscal deficit and public spending; clarifying the IMF's role in analyzing alternative aid scenarios; dropping wage bill ceilings in most cases; and becoming more transparent and pro-active in discussing the rationale for policy advice.

Lessons for other stakeholders focus on the need to build better connections between the health sector and overall budgetary processes. They include sharpening national priority setting processes, including the capacity of ministries of health to improve budget planning.

The report findings also suggest that donors should improve the predictability of aid, make longer-term commitments, and provide more timely, sector-specific analysis related to increased spending.

Civil society organizations involved in budgetary and health advocacy issues are pressed to give greater attention to monitoring and influencing the setting and implementation of annual budgets.

These findings and more will be discussed at an upcoming event launching the working group report in early fall 2007.