Bring Out the Punching Bag Again: The IMF, Aid, and Public Spending on Health

January 19, 2011
Stuckler and co-authors bring back the old debate on the IMF and the “additionality” of aid with respect to public expenditure on health arguing thatWorld Bank and IMF macroeconomic policies…could be causing the displacement of health aid.This controversial conclusion was picked up by The Guardian as part of a series on global health funded by the Bill & Melinda Gates Foundation, under the sensational headline Poor countries with IMF loans divert aid from public health.But as Matt Collin points out in his blog, there is little to link the headline with the paper’s findings.First, the paper ignores the substantial economics literature on incentives and fungibility in aid (and recent blog extravaganza here and here with respect to health).  This literature makes a convincing argument that fungibility is the natural response of a rational government to an inflow of earmarked aid, so it should hardly be surprising that $1 of aid produces less than a $1 of public spending. Even so, a recent paper by Nicolas Van de Sijpe, far better documented than Stuckler et al, actually finds that fungibility is quite low in health, particularly taking into account that off-budget aid flows for technical cooperation represent the bulk of external assistance. (note: this is not necessarily a good thing)Second, the paper fails to document the econometric strategy used to reach their conclusion, in spite of serious critiques related to the establishment of causality (here, for example). Whether or not a country has an IMF program is influenced by its initial fiscal position, which in turn influences health spending. Comparisons of health spending in countries with and without programs are subject to statistical biases in different directions, which are again influenced by the same factors that affected a country’s decision to enter an IMF-supported program in the first place. Martin and Segura-Ubiergo (2005) made a well-documented attempt to take account of such potential biases and, using panel data controlling for other influences on social spending, find that the presence of an IMF program tends either to maintain or slightly increase health spending, though effects are small.  A 2007 CGD study found that trends in government health spending outside of sub-Saharan Africa were similar in program and non-program countries, while within sub-Saharan Africa, the average increase in health spending as a share of GDP was larger for the group of program countries.  Stuckler et al neither cite these studies nor document their econometric strategy.Finally, the paper grossly overstates the influence of the IMF on public spending allocation decisions. A 2007 CGD working group led by David Goldsborough examined the channels and effects of IMF programs on health spending. That work concluded that the IMF could: (i) be less conservative and risk-averse with respect to aid expansions in its medium-term macro forecasts (though the recent financial crisis perhaps suggests the opposite), (ii) provide more clarity to IMF staff on their obligation to explore alternative aid scenarios with counterparts; and (iii) reduce the use of wage bill ceilings in all but most extreme cases.  However, the working group found and recommended that decisions about health spending clearly and appropriately fall to recipient government policy-makers.Global health folks, can we move on from beating up the IMF? What’s the option – no IMF lending when a country loses market access and faces falling revenues? Imprudent fiscal policy given the enormous volatility of health aid flows, perhaps resulting in disruptions to routine immunization and ART? And on the MDG argument, read these papers on the limited realism of the targets (here and here) – it’s not just the money that matters.


CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.