When Reality Doesn't Bite -- Misconceptions about the IMF and Social Spending

All too often we hear the claim that the programs the IMF supports in low-income countries hurt the most vulnerable by forcing cuts in social spending. This is a misconception.

Our study concludes that, contrary to these claims, IMF-supported programs boost education and health spending in low-income countries for as long as countries are engaged with the IMF.

Let the numbers do the talking

We based our analysis on public spending on education and health in 140 countries between 1985 and 2009. The dataset is the most comprehensive ever assembled to assess this issue. The results show the beneficial effects for social spending in program countries in several respects.

First, social spending increased at a faster pace in countries with programs compared to those without, particularly for low-income countries with programs (see chart). This is true for social spending in relation to GDP and as a share of total government spending, as well as increases in per capita social spending after adjusting for inflation.

Second, the benefits for social spending have accelerated over time in low-income countries.

• The median annual increase in education and health spending in low-income program countries since 2000 was more than double the average increase during 1985-1999. The rate of increase since 2000 implies that education and health spending, as a share of GDP, would increase each decade by 0.7 percentage points and 0.6 percentage points, respectively.
• Because GDP is also growing rapidly in these economies, increases in spending relative to GDP imply large increases in spending per capita. The rate of spending growth since 2000 suggests that education and health spending per person, after adjusting for inflation, would rise by about 50 percent and 60 percent, respectively, over a 10-year period.

Of course, IMF-supported programs are not the only determinants of a country's social spending. Many other factors--age profile of the population, income levels, and macroeconomic conditions--come into play. A fair test of the impact of IMF-supported programs on this spending must take these factors into account.

Using statistical techniques that distill the impact of an IMF-supported program, as distinct from these other factors, we again find that IMF-supported programs have a positive, and even stronger, effect on the rate of increase in social spending in low-income countries. For example, over a five-year period with IMF-supported programs, education spending increases in low-income countries by about ¾ percentage point of GDP; and by about 1 percentage point of GDP for health spending.

Facilitating social spending

The IMF is committed to help protect or increase social spending in the programs it supports in low-income countries. In this regard, there are numerous channels through which programs help spur higher spending in education and health, including:

• Reforms that increase government revenues--on average, program countries increase revenues at a brisker pace than non-program countries--help create "fiscal space."
• IMF-supported programs help countries mobilize donor financing.
• To the extent that programs lead to higher growth, they can help generate greater fiscal space.
• Finally, the emphasis in these programs on using additional resources--including those generated by debt relief--to support poverty-reducing spending contributes to rising shares of education and health spending.

The results suggest that IMF-supported programs are compatible with the efforts of countries to boost critical social spending to improve social outcomes. But, it will be equally important, as many scholars have emphasized, to improve the targeting and efficiency of public spending to make it a more powerful instrument for bettering the lives of the poor.

From iMFdirect blog

 

Comments

[GrahamInCanada]

06:25 PM on 09/01/2011

unconvincing.

if the economy shrinks, and social spending shrinks less than the economy, it will look like it is increasing if you compare it to gdp.

if the government spends more money sending elites to first world countries for health and education, it will look like spending is increasing in per capita terms.

if inflation is high, and the increase in spending is less than inflation, it will still look higher in absolute terms.

unconvincing....

[Viola]

04:52 PM on 09/01/2011

My understanding is that the IMF gets criticized for going into poor countries and forcing them to focus on providing products and commodities for export, simultaneously destroying whatever native agricultural or other assets they may actually already have. IMF loans, pressures, and God-help-Us, "consulting" ends up killing off agricultural diversity and replacing it with western monocultures, usually at the behest of Monsanto. IMF policies force advanced technologies on countries that do not have the infrastructure or skilled labor pool to support the technology, thus making the technology less productive and more expensive.

The IMF isn't concerned with what's best for the country, short, medium and long-term, it's concerned with creating cheap laborers and inexpensive products that can be sold to the west, or bet on by futures traders, etc.

Then, they top it off by getting these countries into impossible-to-repay debt, and finally start doing things like forcing Greece to sell off cultural assets to make good on the debt.

[AngelaQuattrano]

10:52 AM on 09/01/2011

Go status quo!

[contrariandy]

05:04 AM on 09/01/2011

This report strikes me as suspicious an untrustworthy. How about some numbers in real $dollar$ rather than just misleading statistical relationships? Why the chosen time periods? Was GDP up or down during those years?

[padrushka]

04:32 AM on 09/01/2011

This article reminds me of the fox guarding the hen house. The goppers spin questionable intel better than this.

[Tom Langley]

11:50 PM on 08/31/2011

If the IMF has ever been accused of paying for social spending by cutting social spending, it's news to me and anyone else who's head would explode upon seeing such a Mad Hatters claim. This article defends the insanely obvious in a tone of apologetic apoplexy....My reaction, your an idiot without a cause. The objection to the IMF is that it seeks, and accomplishes FIRST - POST HASTE, an private central bank, otherwise known as a "tangible wealth sucking" system, or, sometimes marketed as a "human life is economically fungible" system. So that all left forearms have an economic, and ONLY an economic value as established by the Banksters, (or as truthfully referred to historically, the moneylenders - you know - the headless soul sucking individuals represented in the now ancient play "Merchant of Venice". So, as a defense against a non-sensible claim, what a lovely and well written article. As a defense against your role as a vampire blood sucking squid siphoning off the efforts of all humanity, you just pretty much dodged the question. You shouldn't be a banker,. you should be a nuclear weapons marketeer.

[Alain Lareau]

08:55 AM on 09/02/2011

http://glass7steagall7command7post.wordpress.com/category/pathways-and-methods/

tom what is your time zone?

[Dosadi]

09:12 PM on 08/31/2011

The IMF hurts poor countries by forcing them to accept loans they can never pay off.

An interest bearing loan to a country kills any real growth for that growth is used to pay the interest.

For a good example of the damage this can do see USA.

The USA has a debt that can never be repaid for every dollar in existence is in the form of a loan. To pay the debt off would require us to gather up every dollar in existence and then give it back to the Federal reserve.  But that only covers the principle. To pay the interest we have to take money from some other country for there are never enough dollars in existence to pay the interest. How can it be? You take out a $100 dollar loan. Where does the interest come from sports fans?

[mjk0259]

06:20 PM on 08/31/2011

Yes, the IMF spends huge sums on liquor, drugs and prostitutes when they swoop in to advise countries on how to keep from going bankrupt - this advice generally being dispensed by people from countries that are going bankrupt.

[Tom Langley]

01:03 PM on 09/02/2011

Like the Republican Party at a convention.