Press Release No. 17/209

IMF Executive Board Reviews Social Safeguards in Low-income Countries

June 6, 2017

• Poverty reduction is a core objective of IMF programs in low-income countries
• Staff paper finds that IMF-supported programs in low-income countries protect health and education spending
• Paper recommends increased efforts to strengthen social safety nets in low-income countries

On May 26, 2017, the Executive Board of the International Monetary Fund (IMF) discussed a staff paper titled “ Social Safeguards and Program Design in PRGT and PSI-supported Programs . ” The paper considers how poor and vulnerable groups can be protected in Fund-supported programs in low-income countries using measures to safeguard and improve public spending on these groups.

Poverty reduction is a core objective of IMF programs in low-income countries. Hence, the 2009 reform of the Poverty Reduction and Growth Trust (PRGT) called for PRGT facilities to support policies that safeguard and, where possible, increase social and other priority spending. The Fund recommended including a program target on such spending in PRGT-supported programs wherever possible. The Fund also recommended the use of measures to mitigate any adverse effects of program measures on the most vulnerable. The staff paper looks at experience with spending targets and countervailing measures to improve social safety nets, which are jointly described as “social safeguards.”

The paper finds that targets for social and other priority spending were included in virtually all Fund-supported programs in low-income countries, and met in more than two-thirds of cases; health and education spending have typically been protected. Moreover, real per capita public spending was forecast to rise by 15 percent on average and 43 percent featured fiscal expansion at the time of program approval. In other areas, specific reform measures to strengthen social safety nets have been used only sparingly.

The paper recommends tightening the specification of program targets on social and other priority spending to improve the effectiveness of such spending. The focus should be on targeting spending where the benefit and impact on the poor is greatest. In addition, the paper recommends increased efforts to strengthen social safety nets, which are generally underdeveloped in low-income countries.

Collaboration with the World Bank and other development partners to draw on their expertise is needed to strengthen spending targets and social safety net measures, and should take place at an early stage, ideally during surveillance discussions. These early discussions would include a stocktaking of existing social policy instruments, an assessment of how to implement measures in a fiscally sustainable way, and an analysis on the distributional impact of macroeconomic policies.

The current staff paper will be followed by a guidance note for staff on how to best address social safeguards concerns in both surveillance and program discussions with low-income countries.

Executive Board Assessment [1]

Executive Directors welcomed the opportunity to review the experience with the use of social safeguards measures in PRGT and PSI‑supported programs, while recognizing that a more comprehensive assessment of the effectiveness of social safeguards would require further analysis, including from outside the Fund. They generally welcomed the findings in the staff paper that Fund‑supported programs with low‑income countries had helped to safeguard social spending in most programs, as reflected in indicative targets generally being met. At the same time, Directors saw scope to strengthen the effectiveness of these safeguards in protecting the poor and most vulnerable. In this regard, they generally supported staff’s proposals to improve the design of social safeguards measures in PRGT and PSI‑supported programs. Directors looked forward to the upcoming IEO evaluation on the “IMF and Social Protection,” and encouraged the staff to draw on Board‑endorsed policies based on its findings when preparing the staff guidance note that would help clarify how to treat social safeguards measures in Fund‑supported programs and surveillance. They indicated that the lessons learned from these experiences, as well as broad consultations with external stakeholders, could usefully feed into the holistic review of low‑income facilities scheduled for early‑2018. Directors also stressed the importance of pro‑active outreach and clear communications on the work of the Fund in this area and on collaboration with other development partners and stakeholders.

Directors welcomed the use of program floors for social and other priority spending as an important safeguard for outlays favoring vulnerable groups. They called for careful definition of the types of expenditures included in program floors to prioritize safeguarding resources for vulnerable groups, especially in cases where fiscal space is limited and the short‑term needs of the poor are significant. At the same time, Directors indicated that country authorities should retain flexibility in setting spending targets, to better reflect national priorities. They encouraged staff to support the adoption of spending targets by advising on questions of coverage, on how to strengthen the quality of spending, and on strategies for creating the fiscal space necessary to support such spending.

Directors welcomed the adoption in Fund‑supported programs of concrete measures to strengthen social safety nets, noting that such reforms may require time to design and implement. In general, staff should consider national capacity to operate social safety nets, and should seek to strengthen such capacity, where appropriate, with technical assistance and training provided by the Fund and other development partners.

Directors underscored the merits of early and consistent engagement with country authorities, development partners, and other external stakeholders, including civil society organizations, on social safeguards issues. Where social safeguards have the potential to affect domestic or balance‑of‑payments stability, staff should provide analysis and advice as part of Fund surveillance, with input from development partners where possible. This would provide a strong foundation where there is subsequent engagement under a Fund‑supported program, including by taking stock of existing social safety nets; identifying safeguards gaps; exploring technical assistance and training needs; identifying and addressing data gaps; and developing strategies for increasing fiscal space, where necessary.

Directors called for closer and more effective collaboration with the World Bank and other development partners, drawing on the specialist expertise of these agencies and catalyzing their support. Collaboration can also help in identifying possible adverse distributional effects of policy measures and the need to mitigate these through social safeguards.

Directors supported the recommendation to strengthen the documentation of social safeguards measures in country documents for PRGT and PSI‑supported programs. They indicated that documentation should cover policy goals for social safeguards; the design of safeguards measures; the factors explaining realized outcomes regarding spending targets and social safety net reform measures; and the corrective policy measures taken, or to be taken, in response to missed program goals. In addition, collaboration with the World Bank, other development partners, and external stakeholders could also be reflected in documents. Where Fund‑supported programs include policy measures with a potentially adverse distributional impact, Directors called on staff to document the steps taken to protect vulnerable groups, with input from other development partners and external stakeholders, where possible.