Poverty, Social Spending, and IMF Programs: Myth vs. Reality

WASHINGTON, D.C.: An oft-repeated claim is that the IMF is responsible for increasing human misery in developing countries - in particular, by forcing countries to cut spending on programs like health and education. But riots and repetition do not make such claims true. At best, such accusations are out of date; at worst, they are ideological grandstanding.

The record, indeed, is clear: in 66 countries with IMF programs, between 1985 and 1998, per capita spending on health and education rose by more than 2% per year after inflation. These numbers reflect the fact that IMF advice to countries facing budgetary pressures emphasizes the importance of sustaining expenditures on health and education. The Fund urges that savings be found in unproductive spending - meaning excessive military spending, subsidies for the well-to-do, and inefficient administrative practices. Indeed, military spending (in the 41 countries where the IMF has data) fell by almost 1% of GDP between 1993 and 1997.

Low-income countries have posted larger gains in health and education spending than other countries under IMF programs. This difference will become even more pronounced as increasing amounts of debt relief are delivered under the Initiative for Heavily-Indebted Poor Countries (HIPCs), because a principal condition for this assistance is that money saved is channeled into poverty reduction.

In the past year, 10 of the 41 eligible countries have been granted debt relief under this initiative; we expect another 10 to start receiving debt relief by the end of this year. Early participants like Bolivia and Uganda are seeing their debt service payments fall by as much as 1% of GDP, providing scope for a substantial increase in health and education spending. In Tanzania, next year’s budget provides for a 44% increase in poverty-related spending.