Last year, the IMF tried to counter long-running accusations that its programmes damage health outcomes in developing countries, but the independent evidence points in the opposite direction. The question is whether the IMF will use this year’s reviews of its lending to switch approach and start helping Sustainable Development Goal (SDG) three to “ensure healthy lives and promote well-being for all at all ages.”
An IMF blog from March last year claimed that: “A number of studies have found that IMF support for countries’ reforms, on average, either preserve or increase public health spending.” However, the evidence provided was weak. Of the six studies referenced, one, by Oxford and Cambridge university researchers, which we discuss below, flatly contradicts this claim. Two were not related to health expenditure: one looked at revenue, not expenditure, and the second had a broader remit and contained no new evidence on the IMF and health. One was over a decade old and did not directly support the claim; while another was a link to an IMF page on the Ebola crisis. In fact the only referenced study that supported the claim was written by the staff who authored the blog.
In another blog, the IMF Managing Director, Christine Lagarde stated that “our latest research shows that health and education spending have typically been protected in low-income country programs.”
Again, it’s worth looking into the evidence cited to back up this claim, which is provided by an internal review of the IMF’s programmes in LICs. The review covered the period since a change in the Fund’s policy in 2009 which mandated the use of conditionality to protect social spending.
Essentially, the IMF is arguing that this policy change has had two impacts. Firstly, that IMF programmes are no longer associated with austerity. Secondly, that the IMF has used conditionality to ring-fence social spending. Unfortunately, neither of these claims hold up well under scrutiny. We examine the first below, and will detail the second in a forthcoming blog.
The internal review’s claim that “LIC programs are broadly divided between those entailing fiscal expansion and those seeking fiscal consolidation” is not supported by the evidence in the review. This graph, taken from the review, gives totals for the number of IMF programmes in LICs according to whether they mean cuts in expenditure or increases, with a small number, that are ‘fiscally neutral,’ having neither. This shows that 34 of the 68 programmes studied mandated cuts in government expenditure while fewer (29) supported fiscal expansion.
However, including all types of IMF programmes is misleading. It makes sense to compare the two main types of IMF programme alone: the Extended Credit Facility (ECF) for medium to long term lending, and the Standby Credit Facility (SCF) for shorter term lending. Here the gap is quite large, with 28 programmes associated with budget cuts versus 17 with expansion. The other two programmes excluded in this comparison are the Policy Support Instrument– which is advisory and entails no IMF lending, and the Rapid Credit Facility – an emergency programme for countries in trouble, which unsurprisingly has a majority of programmes that increase expenditure.
The second problem is that the statistical analysis in the review showing “no evidence that fiscal adjustment policies in LIC programmes come at the expense of health and education spending,” is disputed by independent experts. Researchers at Oxford and Cambridge Universities published a review of the IMF’s claims, finding that “the methodological strategy employed in the IMF analysis is unsound.” The researchers ran their own analysis, covering the same years as the IMF study and found that “an additional year of IMF programme participation decreases health spending, on average, by 1.7 percentage points as a share of GDP.”
This chimed with an earlier study by the same researchers of IMF programmes between 1995 and 2015 in 16 West African countries which found that “IMF policy reforms reduce fiscal space for investment in health, limit staff expansion of doctors and nurses, and lead to budget execution challenges in health systems.”
The IMF’s concern not to be seen to be impacting health expenditure in the poorest countries can be viewed as an improvement. However, it is clear that IMF conditionality can constrain expenditure on health and other related services, and is at odds with the SDG commitment to achieve universal health coverage.
The next scheduled review of IMF funding to low-income countries is planned this year. Unfortunately, judging by the questions posed in a public consultation last year, the IMF review may be missing the point. The impacts on health and other social expenditure arise not primarily because of the access to IMF financing – which the questions focus on – but on the conditionality attached to that financing. More promisingly, the IMF 2018 Executive Board work programme also promises a review of conditionality, but, as yet, there is no public information on the scope of this review.
It is time for a much broader reform of IMF conditionality. Eurodad’s detailed study, in 2014, found that the IMF conditions are often highly controversial and intrusive on key economic policy issues that should be the crux of democratic debate in country, not mandated from Washington. Crucially, we also found that “almost all the countries [that had IMF lending programmes during the period studied] were repeat borrowers from the IMF, suggesting that the IMF is propping up governments with unsustainable debt levels”.
As the IMF warns that a new debt crisis may be developing, it is time to table real solutions that increase fiscal space for health and social protection, including cracking down on tax dodging, and the creation of an independent debt work-out mechanism to tackle the unsustainable and illegitimate debt that holds many countries back.
The IMF must stop its damaging conditionality practices. A simple way to do this would be by extending the approach of its little-used Flexible Credit Line to all IMF facilities – requiring no conditionality other than the repayment of the loans on the terms agreed. Only bold steps such as this will remove the conditionality that is at the heart of so much of the damage that the IMF can do in developing countries.