The IMF should support the financing of universal social protection, health and education

A new IMF framework on social spending misses an opportunity to align with international standards and end a focus on short-term spending cuts, narrow targeting and wage suppression.

At the International Labour Conference, IMF Managing Director Christine Lagarde unveiled an institutional view on social spending that will guide Fund staff on social protection, health and education. This responds to an IMF Internal Evaluation Office report noting that the institution was increasingly out-of-step with “the rights-based approach to social protection espoused by UN agencies including the ILO.”

“The institutional view does not take a decisive step to align the IMF with the goal of social protection for all, including floors. Nor does it put the IMF in a position to fully support the Sustainable Development Goals on universal health coverage and free, equitable and quality primary and secondary education,” commented ITUC General Secretary Sharan Burrow.

The IMF view is primarily focused on social assistance. These benefits, generally targeted to the poorest, are often advocated by the IMF as a measure to mitigate its conditionality and policy advice including austerity and the expansion of regressive taxation such as Value-Added Taxes. The institutional view argues that regressive taxes can be offset by more progressive social transfers.

The Fund’s approach to social assistance and reducing spending has led to the promotion of narrow targeting through proxy means testing in many developing countries that erroneously excludes large numbers of recipients, and cuts or limits to pension benefits in borrowers including Greece and Ukraine. The difficulties of narrow targeting are acknowledged but do not result in a clear change in policy.

The institutional view is thin on details about health, education and essential forms of social protection beyond assistance, such as pensions. Cooperation is particularly foreseen with the World Bank, which has a record of promoting pension privatisations that ended in declining or stagnating coverage and fiscal failure. Private schemes used as a substitute for public provision tend to reduce the protection of women and precarious workers, are less effective at risk sharing and avoid the responsibility of states under international standards to provide social security.

Responding to criticism that austerity imposed by IMF loan conditions damaged social spending, the Fund introduced non-binding social spending floors in recent years. In 2018, Argentina became the first case of a binding loan condition to maintain a minimum floor of spending on certain social assistance programmes. However, additional social programmes have been added to the calculation of the floor beyond those included in the original definition. Overall social spending in Argentina has decreased under the IMF loan programme.

The International Labour Conference discussion of the General Survey concerning the Social Protection Floors Recommendation No. 202 highlighted how pressures from the IMF to cut social spending and reduce the coverage of social protection have impeded the ability of states to deliver on their commitment to deliver adequate, comprehensive social protection systems consistent with ILO standards.

In the past, the IMF has been more open to social protection floors, working jointly with the ILO after 2010 to support financing of national floors. Throughout the creation of the institutional view, the ITUC advocated for the IMF to support countries in financing comprehensive social protection systems and close coordination with the ILO.

The strategy indicates that IMF pressure on countries to reduce the public wage bill will continue, despite the role of well-trained and adequately compensated teachers, health workers, social workers and more in delivering quality, efficient public services.

“The focus on spending efficiency could quickly become another front in IMF-led wage suppression in the public sector. The institutional view should result in a shift toward assisting countries with progressive taxation and measures to ensure real efficiency through the development of a professional public workforce that implements international goals on social protection, education and health,” said Sharan Burrow.