CIPR | Center For Inter-American Policy & Research

Tulane University

Protecting the Poor paper by Dr. Lustig and Dr. Birdsall

October 24th, 2017

The IMF on Protecting the Poor during Fiscal “Consolidations”: Better Late Than Never
by Nancy Birdsall and Nora Lustig

Inequality and inclusive growth were high on the agenda of the Annual Meetings of the International Monetary Fund and World Bank earlier this month. We are glad about that, but the under-reported story here is that this prominence marks a dramatic shift in the IMF over the last two decades in the IMF’s approach to the relevant challenges for the poorest countries, including on the issue of social safety nets and social expenditures.

The IMF is waking up on how to help countries manage fiscal reforms AND protect the poor

In the 1990s and early 2000s, the IMF was still largely living up to its nickname “It’s Mostly Fiscal.” Distributional matters were considered a matter of politics and under the purview of national governments—and for analytic and policy work a matter for the World Bank. (In 2002 a report of the IMF’s Independent Evaluation Office recommended that during Article IV consultations, staff ask whether authorities had identified social programs they would like to protect in the event of a crisis. Several Board members resisted that recommendations, viewing it as “impractical“—and infringing on World Bank responsibilities.) And as recently as 2007, this CGD report (led by the former head of the IMF’s IEO) found that IMF programs in African countries, in part because they systematically understated expected future donor support for health programs, made recommendations for fiscal consolidation that were not necessary, and for reductions in civil service numbers that ended up with governments, faced with conditionality on civil service spending cuts, hitting the health sector (and possibly the education sectors) hard.

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