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The IMF’s Role in Helping Protect the Most Vulnerable in the Global Crisis

In this difficult environment, the IMF is helping governments to protect and even increase social spending, including social assistance. In particular, the IMF is promoting measures to increase spending on, and improve the targeting of, social safety net programs that can mitigate the impact of the crisis on the most vulnerable in society. Below are some examples of how recent IMF-supported programs seek to protect social spending in a way that is both fiscally sustainable and cost-effective.

In this difficult environment, the IMF is helping governments find the necessary budgetary savings while ring-fencing social spending on the most vulnerable in society. Below are some examples of how recent IMF-supported programs have sought to protect social spending.

Armenia Higher social spending. The IMF-supported program includes increase in social spending of about 0.3 percent of GDP.
Belarus Strengthening the social safety net. Belarus has a high level of social spending of about 13.5 percent of GDP. To protect the most vulnerable people against the effects of reduced subsidies and the economic downturn, housing assistance for families with 3 or more children, non-cash housing subsidies for low-income families, and unemployment assistance will be raised. The authorities are also discussing with the World Bank measures to reduce social risks that might arise as the economy slows and unemployment increases.
Burundi Strengthening the social safety net. The current PRGF arrangement seeks to mitigate the impact of higher food and oil prices on the poor by enhancing social safety nets (food security and school feeding programs, and distribution of seeds and fertilizers to smallholders). This program was originally designed to counter the effects of the food and fuel price shock, which preceded the global economic crisis.
Costa Rica Higher social spending. Fiscal policy is geared toward mitigating the adverse effects of the drop in private demand during 2009. The authorities plan to use available fiscal space to increase spending on education and labor-intensive infrastructure projects. They are expanding a conditional cash transfer program and non-contributory pensions (total transfers of 1 percent of GDP). Capital investment is slated to increase by 0.8 percent of GDP, mainly for infrastructure projects.
Côte d'Ivoire Higher social spending. A key objective of the PRGF that was approved in March 2009 is to create fiscal space for poverty reduction in a post-conflict environment. To that end, the government has identified 32 specific expenditure categories that have the biggest impact on the poor, and will ensure that such pro-poor spending will grow from 6.9 percent of GDP in 2008 to 8.3 percent of GDP in 2011 (indicative floor on the level of pro-poor spending in the PRGF-supported program).
El Salvador Better targeting. The authorities have eliminated the non-residential subsidies on electricity in early March, thereby creating fiscal space (of up to 0.3 percent of GDP) to increase social pending. Such savings could be used to expand the coverage of Red Solidaria (a cash transfer program) to the 100 poorest municipalities in the country and implement targeted programs for health, education, and mitigation of damages from tropical storms. For the upcoming program review (slated for end-July 2009), an IMF team is looking at eliminating or reducing transport and electricity subsidies and using part of the savings for well-targeted measures to compensate the poorest segments of the population.
Guatemala Higher social spending. Social spending is slated to increase by 0.6 percent of GDP (from 4.4 percent of GDP in 2008 to 5.0 percent in 2009). The authorities’ social protection policy aims at enhancing current programs to offset the effect of the crisis on the poorest people in society. To address extreme poverty, emphasis will be placed on four flagship government programs. A key conditional cash transfer program that was initiated in 2008 (Mi familia progresa) will be expanded to reach 500,000 families and 0.3 percent of GDP in 2009.
Hungary Better targeting. The fiscal strategy aims at protecting the poor, for instance by limiting cuts in pensions to pensioners receiving amounts above a specific level, canceling increases in disability pensions while increasing benefits for the poorest disabled, and reducing family allowances, but only for families above a certain threshold. The government is working with social partners when designing fiscal policies. At the same time, spending programs have been created to maintain employment and project jobs and to temporarily guarantee mortgage payments for unemployed people.
Iceland Higher social spending. So far in 2009, automatic stabilizers have been operating with few limits, which means Iceland’s extensive social safety net is helping to cushion the blow for the most vulnerable groups. The government is in the process of identifying a number of policy options to carry out needed fiscal adjustment during the second half of 2009. Consensus building will feature prominently during this process.
Latvia Higher social spending and better targeting. In the December 2008 IMF-supported program, Latvia’s expenditure adjustment departs significantly from typical fiscal consolidations by protecting social spending and capital outlays. Social spending is targeted to increase by 1.5 percent of GDP between 2008 and 2009, moving closer to EU/OECD averages. That said, targeting could be improved and social safety net spending is about ½ percent of GDP below European average. This is largely due to income inequalities between local governments, which will be partially addressed under a planned local administration reform. The program also includes health sector reform, and additional measures to improve the targeting of the social benefits system.
Pakistan Higher social spending and better targeting. Strengthening the social safety net is a key priority under the IMF-supported program. Cash transfers to poor people are projected to increase from 0.4 percent of GDP in 2008-09 to 0.6 percent in 2009-10. A recently announced wheat procurement program for 2009-10 may involve expenditures that will exceed the 0.3 percent of GDP already included. The government is also collaborating with the World Bank to develop specific measures to strengthen the social safety net and improve targeting to the poor.

Most recently, the slowing economy, additional donor support, and the need to protect priority expenditures, have resulted in a preliminary agreement between the IMF and the authorities to relax the fiscal deficit target for 2009/10 to 4.6 percent of GDP (compared to the original target of 3.4 percent of GDP) to provide for additional spending associated with donor support (of up to 1.2 percent of GDP). This relaxation would provide fiscal space to absorb additional donor support, boost growth, and increase social, development, and security spending, including for internally displaced persons.

Romania Higher social spending. The Fund-supported program provides room for additional spending of RON 250 million (amounting to 0.05 percent of GDP) in 2009 and RON 500 million (0.1 percent of GDP) in 2010 to improve social protection for the most vulnerable groups during the economic downturn.
Senegal Better targeting and higher social spending. Notwithstanding a difficult budgetary situation, the Fund-supported program protects social spending, which aims to reach the PRSP targets by 2010. Based on a Poverty and Social Impact Analysis (PSIA) conducted in 2008, the authorities sought to mitigate the impact of the food and fuel price shock by establishing a targeted subsidized rate for small electricity users (implemented in August 2008) and redirecting agricultural subsidies towards supporting an expansion of production of higher-yielding crops, such as rice (rice production rose sharply during the last campaign). With support from development partners, the authorities intend to explore the scope for introducing a conditional cash transfer system, which would provide support to poor families conditional upon investment in human capital, such as sending children to school or visiting health centers.
Seychelles Better targeting. The current stand-by arrangement introduced a cash transfer program, aimed at protecting the most vulnerable segments of the population, replacing untargeted product subsidies.
Ukraine Higher social spending and better targeting. The Fund-supported program includes a substantial increase in social spending during the recession (0.8 percent of GDP). Measures include (i) protection of the poor against gas prices increases through the life-line tariff and housing and utility allowance; (ii) protection of the unemployed through the unemployment insurance system; and (iii) expansion of two well-targeted social safety programs identified by the World Bank. Unemployment insurance is available to many who could lose their jobs. The system covers about 20 million people and provides monthly cash transfers for up to one year, at a minimum benefit of about 60 percent of the minimum wage. Housing and utility allowances are available to those who spend more than 20 percent of their income (15 percent for pensioners) on utilities. Gas tariffs are already set to provide a “lifeline” to smaller users (indeed, half the population falls into this category). Finally, there is a program to provide income support to poor households. The World Bank considers this program as one of the best targeted programs in Ukraine.


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