Operational Guidance Note for IMF Engagement on Social Spending Issues

April2024 OPERATIONALGUIDANCENOTEFORIMFENGAGEMENTONSOCIALSPENDINGISSUES IMFstaffregularlyproducespapersproposingnewIMFpolicies,exploringoptionsforreform,orreviewingexistingIMFpoliciesandoperations.TheReportpreparedbyIMFstaffandcompletedonApril8,2024,hasbeenreleased. ThestaffreportwasissuedtotheExecutiveBoardforinformation.ThereportwaspreparedbyIMFstaff.TheviewsexpressedinthispaperarethoseoftheIMFstaffanddonotnecessarilyrepresenttheviewsoftheIMF'sExecutiveBoard. TheIMF’stransparencypolicyallowsforthedeletionofmarket-sensitiveinformationandprematuredisclosureoftheauthorities’policyintentionsinpublishedstaffreportsandotherdocuments. ElectroniccopiesofIMFPolicyPapersareavailabletothepublicfrom http://www.imf.org/external/pp/ppindex.aspx InternationalMonetaryFundWashington,D.C. ©2024InternationalMonetaryFund April8,2024 OPERATIONALGUIDANCENOTEFORIMFENGAGEMENTONSOCIALSPENDINGISSUES EXECUTIVESUMMARY TheStrategyforIMFEngagementonSocialSpendingwasendorsedbytheExecutiveBoardinMay2019.Socialspendingplaysacriticalroleasakeyleverforpromotinginclusivegrowth,addressinginequality,protectingvulnerablegroupsduringstructuralchangeandadjustment,smoothingconsumptionoverthelifecycle,andstabilizingdemandduringeconomicshocks.Socialspendingpolicieshavealsobeenplayinganimportantroleintacklingthestructuralchallengesassociatedwithdemographicshifts,genderinequality,technologicaladvances,andclimatechange. Thisnoteprovidesoperationalguidancetostaffonwhenandhowtoengageonsocialspendingissues.ItbuildsonaseriesofnotesonIMFengagementonspecificsocialspendingissuesdevelopedsincethepublicationofthe2019strategypaperandprovidesguidanceonwhenandhowtoengageonsocialspendingissues,inthecontextofsurveillance,Fund-supportedprograms,andcapacitydevelopment.Morespecifically,thenote: Clarifiesthescope,identifiesthekeychallenges,andlaysoutaroadmaptoguidestaffwhenengagingonsocialspendingissues; Providespracticalguidanceinassessingthemacrocriticalityofaspecificsocialspendingissueinthesurveillancecontextanddeterminingwhentoengageandtheextentofengagementinsurveillance,programs,andcapacitydevelopment; Discusseskeyconsiderationsinformulatingpolicyadviceanddesigningsocialspendingconditionality,includingsocialspendingfloors; DetailscapacitydevelopmentsupportbytheFundintheareaofsocialspending;and Outlinesapproachestostrengthenandleveragecollaborationwithexternalstakeholdersanddesignoutreachstrategies. Thisguidancenotewillbeperiodicallyupdatedtoreflecttheevolvingnatureofsocialspendingissuesandthebuildingupofknowledge,includingattheFund. PreparedunderthesupervisionofBoileauLokoandGeremiaPalomba(bothSPR)byateamledbyBaopingShang(SPR),andconsistingofIacovosIoannou,DeekshaKale,TomohideMineyama,HectorPerez-Saiz,MartaSpinella,andDawitTessema(allSPR);NickCarroll,EmineHanedar,ZsuzsaMunkacsi,andMauricioSoto(allFAD);andNadineAbou-Khaled(STA).ResearchassistancewasprovidedbyDanZheng,andeditorialandadministrativeassistancebyEmelieStewart. ApprovedBy GuillaumeChabert(SPR)RuudDeMooij(FAD) CONTENTS Glossary4 BACKGROUND6AFRAMEWORKFORFUNDENGAGEMENTONSOCIALSPENDINGISSUES7WHENTOENGAGEONSOCIALSPENDINGISSUES11 A.AssessingMacrocriticalityinSurveillance11 B.EngagementinSurveillance,Programs,andCapacityDevelopment18 HOWTOENGAGEONSOCIALSPENDINGISSUESINCOUNTRYWORK19 A.FormulatingPolicyAdviceinSurveillanceandPrograms19 B.SpecificIssuesonSocialSpendinginIMF-SupportedPrograms25 C.CapacityDevelopment32 EXTERNALCOLLABORATIONANDOUTREACH34 A.CollaborationwithExternalDevelopmentPartners34 B.OutreachandCommunication36 BOXES 1.DefiningSocialSpendingandtheImplicationsforFundEngagement7 2.SocialSpendingandGenderInequality10 3.CountryCaseStudiesonAssessingMacrocriticality17 4.PrioritizationAcrossSocialSpendingIssuesinFundEngagement21 5.DepthofEngagement22 6.SocialSpendingReforms:KeyOptionsandCountryCases23 7.Targetedvs.UniversalSocialBenefits24 8.CountryCaseStudiesonSocialSpendingFloor31 9.CollaborationwithIDIs:TheCaseofJamaica37 2INTERNATIONALMONETARYFUND FIGURES 1.ARoadmaponFundEngagement11 2.GovernmentSpendinginHealth,Education,SocialSafetyNetandPensionsby CountryGroup13 3.AnAssessmentofSpendingEfficiencyinHealthandEducation15 4.MainSourcesofFiscalPressuresbyCountryGroup16 5.CoverageofaSocialSpendingFloor:TwoKeyDimensions30 TABLE 1.ExamplesofIMFCapacityDevelopmentinSocialSpending33 ANNEXES I.SocialSpendingData:Measurement,Availability,andChallenges38 II.SocialSpendingDataSourcesforSurveillance41 III.MainIndicatorsofSpendingAdequacy,SpendingEfficiency,andFiscal42 IV.SocialSpendingConditionality:RecentExperiences44References50 CDCapacityDevelopment Glossary COFOGClassificationoftheFunctionsofGovernmentCOMCommunicationsDepartment CSOCivilSocietyOrganization ECFExtendedCreditFacility EFFExtendedFundFacility EMDEsEmergingMarketandDevelopingEconomiesEMEEmergingMarketEconomy FADFiscalAffairsDepartment GFSGovernmentFinanceStatistics GFSMGovernmentFinanceStatisticsManualGRAGeneralResourcesAccount IADBInter-AmericanDevelopmentBankIDIInternationalDevelopmentInstitution ILOInternationalLaborOrganization IMFIn