1. 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. 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”)www.cgdev.org

3. 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. 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. 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. 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) 19982004Change 1998-2004 Low-income countries 8.7 9.10.2 --program 8.2 0 --non-program 9.510.51.0 Sub-Saharan Africa 8.6 8.80.2 --program 8.1 8.20.1 --non-program9.4 9.90.5 Source: Authors’ calculations based on WHO data

7. 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. 8 Table 3. Fiscal Targets in IMF-Supported Programs, 1995-2005 (Group Means, in Percent of GDP) Level at t -1 Change* t 0 - t -1 t +2 - t -1 General government balance, including grants** ESAF (1995-1999) -8.5 2.2 4.4 “early” PRGF (2000-2002) -8.2-0.4 2.3 “late” PRGF (2003-2005) -6.5-0.1 Total government expenditures** ESAF (1995-1999)25.8-0.3-1.7 “early” PRGF (2000-2002)28.1 0.4-0.2 “late” PRGF (2003-2005)25.3 1.5 0.8 *Positive change means increase in surplus or decline in deficit. **Classified by year in which 3-year arrangement was approved.

9. 9 “Pessimism” about grants under the ESAF has disappeared but recent programs are not assuming substantial increases Level at t -1 Change t 0 - t -1 t +2 - t -1 Grants ESAF (1995-1999) 3.8-0.1 “early” PRGF (2000-2002) 3.9 0.7 0.2 “late” PRGF (2003-2005) 4.5 0.7 0.1 Table 4. Projections for Grants in IMF-Supported Programs, 1995- 2005 (Group Means, in Percent of GDP )

10. 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. 11 Table 5. Inflation Targets in PRGF-Supported Programs, 2000-2005 (Number of IMF Arrangements) Initial inflation rate in t -1 (percent ) Targeted inflation in t +1 (percent) 3% or below3-5%5-10%10-20%Above 20% Total 3% or below136 19 3-5%431 8 5-10%155 11 10-20%2121 6 Above 20%121 4 Total 2016102 48 Source: Calculated from the tables in Appendix 2 of background note.

12. 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