Public Spending on Health Care under IMF-Supported Programs

By Sanjeev Gupta and Baoping Shang

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Government policies matter when it comes to public health. And when a country’s economy is suffering a severe economic crisis, the decisions become even more critical.  Over the past few decades, protecting social programs and spending on health has been a cornerstone of the IMF’s support for countries. 

Healthy channels in IMF supported programs

A number of studies have found that IMF support for countries’ reforms, on average, either preserve or increase public health spending (see box). One study finds that the effect of IMF programs is considerable—they increase public health spending by about 1 percent of GDP over a 5-year period. The reforms implemented under the programs are essential to put the economies of these countries on an even keel. Without reforms, a country’s economy could collapse, along with its public healthcare system.

While one recent study suggests a few ways in which IMF support may impede spending on public health, their impact is offset by other important factors through which the IMF’s support for a country positively affects public health spending.

Here is a closer look at the different ways IMF support to a country in crisis can help it get back on its feet, and fund social protection programs like health care:

• Higher long-term economic growth. Economic and financial stability promoted in IMF-supported programs can help governments raise revenue to finance health care.

• More donor support. IMF support can help countries receive more financing from other donors, which increases the resources available to finance priority spending on health and other social programs.

• Tax reforms. IMF programs typically emphasize tax reforms that increase revenues, which gives the government more money to spend on health care in a sustainable way. The number of countries with tax reforms has increased rapidly since 2007. This paper shows the positive link between IMF support, reforms, and revenues for 126 low-income and middle-income countries. The potential for raising the revenue ratio is almost one percentage point of GDP in a given year.

• Social spending protection. The explicit incorporation of minimum levels of social spending in IMF-supported reforms has encouraged countries to raise health spending. The number of requirements on social expenditure as well as public investment in low-income countries has increased substantially over recent years. The IMF’s Independent Evaluation Office found that 29 of 30 recent reform programs incorporated these minimum levels. The emphasis on growth-enhancing public expenditure—including education and health spending—in country reforms supported by the IMF also helps raise spending on public health.

• More efficient spending. Improving the overall efficiency of spending can help governments finance spending on education, health, and investment. For example, phasing out energy subsidies—which typically benefit the rich more than the poor—have been an important element to save money in various countries. In recent years, the number of requirements that help improve budget execution and control—and thus public spending efficiency—has increased considerably. In the area of public investment, the measures include introducing more rigorous appraisal, selection, and approval of investment projects, and strengthening management and monitoring of project implementation. Furthermore, higher public health spending efficiency means that governments can achieve better health outcomes with the same level of health spending.

There are other ways the IMF can help a country in a crisis with health spending. For example, the recent experience of the countries affected by the Ebola epidemic—Guinea, Liberia, and Sierra Leone—shows the positive influence of IMF financial support. Since September 2014, the IMF has provided emergency financial assistance to the three countries totaling US$378 million, to help respond to the Ebola outbreak. The IMF’s response helped the governments’ make room in their budgets, which is crucial to boost health spending, and provided a catalytic role vis-à-vis donors, whose assistance was largely directed at health spending.

There is certainly still room to improve the design of IMF support to countries in crisis. When it comes to public health, the empirical evidence generally points to positive outcomes.

Literature on public health spending

 Does the IMF constrain health spending in poor countries? Evidence and an Agenda for Action

What happens to social spending in IMF-supported programmes?

 Does conditionality in IMF-supported programs promote revenue reform?

 Revisiting the IEO Evaluations of The IMF’s Role in PRSPs and the PRGF (2004) and The IMF and Aid to Sub-Saharan Africa 

IMF Response to The Ebola Crisis

The impact of IMF conditionality on government health expenditure: A cross national analysis of 16 West African nations