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IMF unlikely to impose punitive social conditionalities on Jamaica
By Al Edwards
Friday, August 07, 2009
The Jamaican Government has announced it has no choice but to return to the International Monetary Fund (IMF) for the second time in 33 years, as it confronts the spectre of being unable to meet its financial obligations. It is seeking US$1.2 billion and hopes this will go some way to alleviate the predicament the country now faces. Jamaica has not always had the best of relationships with the IMF and what is of concern is the terms and conditions Jamaica will have to meet in order to be a beneficiary of IMF loans.
There are those who speculate that the Government will have to take drastic measures to address the crime situation, with receipts from criminal activity accounting for six per cent of GDP. Then there is the question of the treatment meted out to homosexuals, which many First World countries that provide financial aid to Jamaica regard as unpalatable and a breach of human rights. Prime Minister Bruce Golding will not be drawn on whether the Constituency Development Fund (CDF), which provides J$2.4 billion for Members of Parliament to draw on for critical constituency development projects, will continue to exist as it presently does.
"We are going to protect health, education and security, and the social safety net; as to what will happen to the CDF, which falls among the rest, I can't say at this time," Golding told journalists last week.
The public sector wage bill continues to be a major drag on the national purse and some fear that the IMF may well insist that this be reduced, throwing many people on the unemployment heap. The official unemployment rate now stands at 11 per cent and the consequential social unrest resulting from increased unemployment is something no government would want to confront. However, the IMF has made it clear that it has no intention of dictating draconian social spending cuts and will look at the merits of each country.
Golding appears to share this sentiment, saying, "Our assertion that the IMF is far less strident is something that I maintain. They are no longer as inflexible as they used to be," he said, adding that the IMF has tailored assistance depending on the specific needs of a country.
In addressing the matter, the IMF put out a fact sheet last month entitled, The IMF's Role in Helping Protect the Most Vulnerable in the Global Crisis.
The fact sheet reads: "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 programmes that can mitigate the impact of the crisis on the most vulnerable in society. Below are some examples of how recent IMF-supported programmes seek to protect social spending in a way that is both fiscally sustainable and cost-effective."
The IMF maintains that it 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 programmes have sought to protect social spending.
Armenia
Higher social spending. Despite a fall in fiscal revenues, social spending under the IMF-supported programme will increase from 5.7 per cent of GDP in 2008 to 7.3 per cent of GDP in 2009, mainly as a result of higher spending on pensions, which make a significant contribution to reducing poverty in Armenia. In addition, programme conditionality includes a commitment by the government to strengthen the targeting of social safety nets in close collaboration with the World Bank.
Belarus
Strengthening the social safety net. To protect the most vulnerable people against the effects of reduced subsidies and the economic downturn, housing assistance for families with three 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.
Bosnia and Herzegovina
The programme aims to cushion the effects of the global economic crisis and of the fiscal adjustment on the vulnerable groups by avoiding cuts to pensions and reforming the social safety net. The rights-based benefits system will be overhauled with the help of the World Bank to improve targeting and tighten eligibility criteria.
Burundi
Strengthening the social safety net. The Poverty Reduction and Growth Facility (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 programmes, and distribution of seeds and fertilisers to smallholders). This programme 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 aims to mitigate 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 labour-intensive infrastructure projects. They are expanding a conditional cash transfer programme and non-contributory pensions (total transfers of one per cent of GDP). Capital investment is slated to increase by 0.8 per cent of GDP, mainly for infrastructure projects.
Côte d'Ivoire
Higher social spending. A key objective of the PRGF-supported programme 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 per cent of GDP in 2008 to 8.3 per cent of GDP in 2011 (indicative floor on the level of pro-poor spending in the PRGF-supported programme).
El Salvador
Better targeting and higher social spending. The authorities eliminated the non-residential electricity subsidy in early March, thereby creating fiscal space (of up to 0.3 per cent of GDP) to increase social spending. The new government is in the process of implementing its General Anti-Crisis Plan, which includes, among other things, a temporary employment programme, the expansion of a rural conditional cash transfer programme (Red Solidaria), and the creation of a similar programme for the urban poor. The IMF team is supporting the authorities' efforts to refocus transport, gas, and water 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 per cent of GDP (from 4.4 per cent of GDP in 2008 to five per cent in 2009). The authorities' social protection policy aims at enhancing current programmes 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 programmes. A key conditional cash transfer programme that was initiated in 2008 (Mi familia progresa) will be expanded to reach 500,000 families and 0.3 per cent of GDP in 2009.
Hungary
Better targeting. The fiscal strategy aims at protecting the poor and low-income earners from the impact of the global crisis. Measures include preserving the purchasing power of low-income civil servants despite the nominal freeze of the public sector wage bill, replacing a universal housing subsidy by a targeted scheme to help the needy have access to adequate housing, cancelling increases in disability pensions while increasing benefits for the poorest disabled, and creating a social fund to provide temporary relief to those particularly affected by the crisis and who would not otherwise be eligible for sufficient social transfer. The government is working with social partners when designing fiscal policies. At the same time, spending programmes 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 stabilisers 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 has identified a number of policy options to carry out needed fiscal adjustment beginning in the second half of 2009. Consensus building has featured prominently in this process.
Latvia
Strengthening the social safety net. The IMF has been working with the authorities and the World Bank to refine cost-cutting measures to make sure they can deliver the necessary adjustment without putting the most vulnerable groups at a disadvantage. These efforts have resulted in a comprehensive strategy to improve the social satety net. Measures include guaranteed minimum income payments covering health co-payments for the most vulnerable, increasing funds for emergency housing support, protecting schooling for six-year-olds, and promoting job creation through active labour market policies.
Pakistan
Higher social spending and better targeting. Strengthening the social safety net is a key priority under the programme. Cash transfers to poor people are projected to increase from 0.4 per cent of GDP in 2008-09 to 0.6 per cent in 2009-10. A recently announced wheat procurement programme for 2009-10 may involve expenditures that will exceed the 0.3 per cent of GDP already included. The government is 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 per cent of GDP (compared to the original target of 3.4 per cent of GDP) to provide for additional spending associated with donor support (of up to 1.2 per cent 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 IMF-supported programme provides room for additional spending of RON 250 million (amounting to 0.05 per cent of GDP) in 2009 and RON 500 million (0.1 per cent 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 IMF-supported programme protects social spending, which aims to reach the Poverty Reduction Strategy Paper (PRSP) targets by 2010. With support from development partners, the authorities are introducing targeted cash transfers to protect young vulnerable children of poor families.
Serbia
Protecting and better targeting social spending. Social spending remains protected from nominal budget cuts. Serbia has a well developed and targeted social protection system, and the revised budget also increased the allocation for unemployment benefits.
Seychelles
Better targeting. The current Stand-By Arrangement introduced a cash transfer programme, aimed at protecting the most vulnerable segments of the population, replacing untargeted product subsidies.
Tajikistan
Higher social spending. Under the IMF-supported programme, the authorities aim to raise social- and poverty-related spending from 7.3 per cent of GDP in 2008 to 8.7 per cent of GDP in 2009, and further to 10 per cent of GDP by 2012. In 2009, the increase falls partly on transfers to households to help them deal with the projected decline in disposable income on account of a 35 per cent decline in remittance inflows. In addition, the new spending will strengthen Tajikistan's health and education systems. Under the three-year PRGF arrangement, the authorities have also committed to reforming the agriculture sector with a view to creating employment opportunities and raising farmers' income potential.
Ukraine
Higher social spending and better targeting. The IMF-supported programme includes a substantial increase in social spending during the recession (0.8 per cent 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 programmes 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 per cent of the minimum wage. Housing and utility allowances are available to those who spend more than 20 per cent of their income (15 per cent 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 programme as one of the best targeted programmes in Ukraine
By Al Edwards
Friday, August 07, 2009
The Jamaican Government has announced it has no choice but to return to the International Monetary Fund (IMF) for the second time in 33 years, as it confronts the spectre of being unable to meet its financial obligations. It is seeking US$1.2 billion and hopes this will go some way to alleviate the predicament the country now faces. Jamaica has not always had the best of relationships with the IMF and what is of concern is the terms and conditions Jamaica will have to meet in order to be a beneficiary of IMF loans.
There are those who speculate that the Government will have to take drastic measures to address the crime situation, with receipts from criminal activity accounting for six per cent of GDP. Then there is the question of the treatment meted out to homosexuals, which many First World countries that provide financial aid to Jamaica regard as unpalatable and a breach of human rights. Prime Minister Bruce Golding will not be drawn on whether the Constituency Development Fund (CDF), which provides J$2.4 billion for Members of Parliament to draw on for critical constituency development projects, will continue to exist as it presently does.
"We are going to protect health, education and security, and the social safety net; as to what will happen to the CDF, which falls among the rest, I can't say at this time," Golding told journalists last week.
The public sector wage bill continues to be a major drag on the national purse and some fear that the IMF may well insist that this be reduced, throwing many people on the unemployment heap. The official unemployment rate now stands at 11 per cent and the consequential social unrest resulting from increased unemployment is something no government would want to confront. However, the IMF has made it clear that it has no intention of dictating draconian social spending cuts and will look at the merits of each country.
Golding appears to share this sentiment, saying, "Our assertion that the IMF is far less strident is something that I maintain. They are no longer as inflexible as they used to be," he said, adding that the IMF has tailored assistance depending on the specific needs of a country.
In addressing the matter, the IMF put out a fact sheet last month entitled, The IMF's Role in Helping Protect the Most Vulnerable in the Global Crisis.
The fact sheet reads: "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 programmes that can mitigate the impact of the crisis on the most vulnerable in society. Below are some examples of how recent IMF-supported programmes seek to protect social spending in a way that is both fiscally sustainable and cost-effective."
The IMF maintains that it 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 programmes have sought to protect social spending.
Armenia
Higher social spending. Despite a fall in fiscal revenues, social spending under the IMF-supported programme will increase from 5.7 per cent of GDP in 2008 to 7.3 per cent of GDP in 2009, mainly as a result of higher spending on pensions, which make a significant contribution to reducing poverty in Armenia. In addition, programme conditionality includes a commitment by the government to strengthen the targeting of social safety nets in close collaboration with the World Bank.
Belarus
Strengthening the social safety net. To protect the most vulnerable people against the effects of reduced subsidies and the economic downturn, housing assistance for families with three 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.
Bosnia and Herzegovina
The programme aims to cushion the effects of the global economic crisis and of the fiscal adjustment on the vulnerable groups by avoiding cuts to pensions and reforming the social safety net. The rights-based benefits system will be overhauled with the help of the World Bank to improve targeting and tighten eligibility criteria.
Burundi
Strengthening the social safety net. The Poverty Reduction and Growth Facility (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 programmes, and distribution of seeds and fertilisers to smallholders). This programme 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 aims to mitigate 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 labour-intensive infrastructure projects. They are expanding a conditional cash transfer programme and non-contributory pensions (total transfers of one per cent of GDP). Capital investment is slated to increase by 0.8 per cent of GDP, mainly for infrastructure projects.
Côte d'Ivoire
Higher social spending. A key objective of the PRGF-supported programme 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 per cent of GDP in 2008 to 8.3 per cent of GDP in 2011 (indicative floor on the level of pro-poor spending in the PRGF-supported programme).
El Salvador
Better targeting and higher social spending. The authorities eliminated the non-residential electricity subsidy in early March, thereby creating fiscal space (of up to 0.3 per cent of GDP) to increase social spending. The new government is in the process of implementing its General Anti-Crisis Plan, which includes, among other things, a temporary employment programme, the expansion of a rural conditional cash transfer programme (Red Solidaria), and the creation of a similar programme for the urban poor. The IMF team is supporting the authorities' efforts to refocus transport, gas, and water 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 per cent of GDP (from 4.4 per cent of GDP in 2008 to five per cent in 2009). The authorities' social protection policy aims at enhancing current programmes 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 programmes. A key conditional cash transfer programme that was initiated in 2008 (Mi familia progresa) will be expanded to reach 500,000 families and 0.3 per cent of GDP in 2009.
Hungary
Better targeting. The fiscal strategy aims at protecting the poor and low-income earners from the impact of the global crisis. Measures include preserving the purchasing power of low-income civil servants despite the nominal freeze of the public sector wage bill, replacing a universal housing subsidy by a targeted scheme to help the needy have access to adequate housing, cancelling increases in disability pensions while increasing benefits for the poorest disabled, and creating a social fund to provide temporary relief to those particularly affected by the crisis and who would not otherwise be eligible for sufficient social transfer. The government is working with social partners when designing fiscal policies. At the same time, spending programmes 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 stabilisers 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 has identified a number of policy options to carry out needed fiscal adjustment beginning in the second half of 2009. Consensus building has featured prominently in this process.
Latvia
Strengthening the social safety net. The IMF has been working with the authorities and the World Bank to refine cost-cutting measures to make sure they can deliver the necessary adjustment without putting the most vulnerable groups at a disadvantage. These efforts have resulted in a comprehensive strategy to improve the social satety net. Measures include guaranteed minimum income payments covering health co-payments for the most vulnerable, increasing funds for emergency housing support, protecting schooling for six-year-olds, and promoting job creation through active labour market policies.
Pakistan
Higher social spending and better targeting. Strengthening the social safety net is a key priority under the programme. Cash transfers to poor people are projected to increase from 0.4 per cent of GDP in 2008-09 to 0.6 per cent in 2009-10. A recently announced wheat procurement programme for 2009-10 may involve expenditures that will exceed the 0.3 per cent of GDP already included. The government is 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 per cent of GDP (compared to the original target of 3.4 per cent of GDP) to provide for additional spending associated with donor support (of up to 1.2 per cent 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 IMF-supported programme provides room for additional spending of RON 250 million (amounting to 0.05 per cent of GDP) in 2009 and RON 500 million (0.1 per cent 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 IMF-supported programme protects social spending, which aims to reach the Poverty Reduction Strategy Paper (PRSP) targets by 2010. With support from development partners, the authorities are introducing targeted cash transfers to protect young vulnerable children of poor families.
Serbia
Protecting and better targeting social spending. Social spending remains protected from nominal budget cuts. Serbia has a well developed and targeted social protection system, and the revised budget also increased the allocation for unemployment benefits.
Seychelles
Better targeting. The current Stand-By Arrangement introduced a cash transfer programme, aimed at protecting the most vulnerable segments of the population, replacing untargeted product subsidies.
Tajikistan
Higher social spending. Under the IMF-supported programme, the authorities aim to raise social- and poverty-related spending from 7.3 per cent of GDP in 2008 to 8.7 per cent of GDP in 2009, and further to 10 per cent of GDP by 2012. In 2009, the increase falls partly on transfers to households to help them deal with the projected decline in disposable income on account of a 35 per cent decline in remittance inflows. In addition, the new spending will strengthen Tajikistan's health and education systems. Under the three-year PRGF arrangement, the authorities have also committed to reforming the agriculture sector with a view to creating employment opportunities and raising farmers' income potential.
Ukraine
Higher social spending and better targeting. The IMF-supported programme includes a substantial increase in social spending during the recession (0.8 per cent 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 programmes 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 per cent of the minimum wage. Housing and utility allowances are available to those who spend more than 20 per cent of their income (15 per cent 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 programme as one of the best targeted programmes in Ukraine
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