[stop-imf] IMF and healthcare spending

[robert weissman]

A new paper published by friends in the journal Globalization and Health
is interesting for what it says about aid, but is posted here for the
discussion of IMF policy impact on healthcare investments. The abstract
to the paper is followed by the excerpt focused on the IMF.

http://www.globalizationandhealth.com/content/4/1/6

The 'diagonal' approach to Global Fund financing: a cure for the broader
malaise of health systems?

Gorik Ooms email, Wim Van Damme email, Brook K Baker email, Paul Zeitz
email and Ted Schrecker email

Globalization and Health 2008, 4:6doi:10.1186/1744-8603-4-6
Published: =0925 March 2008
Abstract (provisional)

Background

The potentially destructive polarisation between 'vertical' financing
(aiming for disease-specific results) and 'horizontal' financing (aiming
for improved health systems) of health services in developing countries
has found its way to the pages of Foreign Affairs and the Financial
Times. The opportunity offered by 'diagonal' financing (aiming for
disease-specific results through improved health systems) seems to be
obscured in this polarisation. In April 2007, the board of the Global
Fund to fight AIDS, Tuberculosis and Malaria agreed to consider
comprehensive country health programmes for financing. The new
International Health Partnership Plus, launched in September 2007, will
help low-income countries to develop such programmes. The combination
could lead the Global Fund to fight AIDS, Tuberculosis and Malaria to a
much broader financing scope.
Discussion

This evolution might be critical for the future of AIDS treatment in
low-income countries, yet it is proposed at a time when the Global Fund
to fight AIDS, Tuberculosis and Malaria is starved for resources. It
might be unable to meet the needs of much broader and more expensive
proposals. Furthermore, it might lose some of its exceptional features
in the process: its aim for international sustainability, rather than
in-country sustainability, and its capacity to circumvent spending
restrictions imposed by the International Monetary Fund.
Summary

The authors believe that a transformation of the Global Fund to fight
AIDS, Tuberculosis and Malaria into a Global Health Fund is feasible,
but only if accompanied by a substantial increase of donor commitments
to the Global Fund. The transformation of the Global Fund into a
'diagonal' and ultimately perhaps 'horizontal' financing approach should
happen gradually and carefully, and be accompanied by measures to
safeguard its exceptional features.

How and why the IMF gets in the way

Integrating disease-specific interventions into general health services
is easier said than done. Bosman describes how Zambia=92s tuberculosis
control programme suffered immensely because of rapid integration into
general health services. [18]

Uplekar and Raviglione remind us that Halfdan Mahler, the WHO
Director-General who was a force behind the Alma Ata goal of health for
all in the year 2000, warned as early as 1966 that: =93=85integration is no=
t
synonymous with a laissez-faire approach. On the contrary, it requires
maximum involvement of all specialized personnel such as programmers,
organizers, tutors and assessors.=94 [3] Can the resources, professionals
and infrastructure of general health services of developing countries
support the integration of disease-specific interventions?

Answering this question requires evidence or assumptions about whether
donors are willing to commit additional resources to development
assistance for health, setting aside concerns for =91sustainability,=92 and
about whether recipient countries will in fact be permitted to use such
resources. The current policies of the International Monetary Fund (IMF)
present a major obstacle to expanded spending. Although the IMF=92s
importance as a lender of last resort is declining, it must still sign
off on a country=92s macroeconomic policies before a country is eligible
for various forms of development assistance, including debt cancellation
under the Multilateral Debt Relief Initiative (MDRI). The IMF=92s signoff
is also regarded as a valuable seal of approval by foreign investors.

Although the religion of sustainability based on domestic resources has
many believers, the IMF is its high priest. The IMF=92s assumption that
development assistance is, at best, temporary and precarious and its
scepticism about =93fiscal expansion=94 have important consequences for
health systems, notably in terms of ability to hire badly needed health
professionals. In 2007, the IMF=92s own Independent Evaluation Office
(IEO) confirmed the earlier observations of civil society critics that
public sector wage bill ceilings were often recommended by the IMF as an
element of domestic policy and that projections of the aid that
recipient governments could anticipate were consistently conservative
(i.e., low), leading to excessive caution with respect to what the IMF
regarded as the permissible public sector wage bill or domestic primary
deficit. [19]

As the domestic primary deficit is calculated as government revenue
excluding grants, minus current expenditure, it is in effect a ceiling
on the use of general budget support or health sector budget support.
[20] De Renzio and Goldsbrough explain (about Mozambique):
=93Foreign-financed project lending and related expenditures were not
subject to the ceiling, so the program automatically allowed for
fluctuations in aid-financed project spending. However, spending
financed by program aid (general budgetary support or sector-level
support such as that provided to the health sector) was subject to the
ceiling.=94 [20] In other words: vertical financing was not subjected to
the ceiling, horizontal financing =96 which favours channelling foreign
assistance through the state budget of the recipient country (general
budget support or health sector budget support) [21] =96 was subjected to
the ceiling.

Furthermore, the IEO revealed a long-standing IMF practice that explains
how health expenditure ceilings are applied without foreign assistance
for health being refused. One would expect several examples of countries
refusing foreign assistance, whenever donors are willing to provide more
assistance than the expenditure level permitted by the IMF can
accommodate. But the IMF does not prohibit countries from receiving more
foreign assistance; it only prohibits countries from spending more
foreign assistance. Thus, in 29 sub-Saharan countries between 1999-2005,
the IMF permitted, on average, just 27 cents of every incremental dollar
in foreign assistance to be used for programme expenditures, with the
balance used for paying down domestic debt and accumulating foreign
exchange reserves. [19] This non-spending of aid is hardly a recipe for
encouraging donor confidence; indeed, it would seem calculated to
perpetuate the precariousness of foreign assistance, as the IMF itself
admits: =93donors are reluctant to continually provide aid that is saved.=
=94
[22] It also means that even if the ceilings on the public sector wage
bill or on the domestic primary deficit are formally removed, the IMF
can still control current horizontal financing, by requiring that aid be
saved or used for debt reduction rather than spent.

In contrast, vertical financing must be used for specific purposes and
it must ordinarily be added to domestic spending. Of course a recipient
country might try to reduce its own contribution to the targeted
intervention and to divert resources to other pressing needs. For
example, in October 2002 the Ugandan finance ministry ruled that a
Global Fund grant would not be allowed to lead to an increase in
Uganda=92s health expenditure. As Bernard Rivers reported: =93The Ministry
said, in effect, that if the Fund provides this money, the Ugandan
government will spend correspondingly less of its own money on health,
leaving the health budget unchanged.=94 [23] The Global Fund=92s Executive
Director replied =93The use of our money to save somebody else=92s =96 that=
=92s
completely not allowed.=94 [23] Although recent findings suggest that
Uganda has slightly decreased its commitment to the health sector (from
9.7% of government spending in 2004-2005 to 8.3% in 2007-2008), the
Global Fund at least has tried to avoid the extent to which donor
funding substitutes for domestic resources. It is less clear that other
sources of vertical funding have been able to accomplish this. [24]

In practice, lack of transparency about the IMF =91tax=92 makes direct
comparisons of differences in fungibility and additionality between
vertical and horizontal financing approaches difficult. Likewise, claims
that vertical financing is often used inefficiently are difficult to
verify and compare: if the programmes in question had not been vertical,
then the funds might not have been used for their intended purpose at all.

Finally, the Global Fund=92s inclusion of civil society in all stages of
its decision-making process, from the elaboration of proposals to
watching over the implementation, strengthens its ability to ensure
additionality of spending. [25] Whereas health ministries are subjected
to pressure from finance ministries and the IMF, civil society would not
accept those considerations as a legitimate reason for modest ambitions.

As Mead Over, the former Lead Health Economist of the World Bank and
presently Senior Fellow at the Center for Global Development explains
(not with much enthusiasm): =93By effectively converting foreign
assistance from discretionary to entitlement spending, the =91success=92 of
existing AIDS treatment programs has already locked us into a new aid
paradigm.=94 [26] Indeed, for civil society healthcare is an entitlement,
a fundamental human right, not the bonus of charity or discretionary
spending.

  [18] Bosman M: Health sector reform and tuberculosis control: the case
of Zambia. Int J Tuberc Lung Dis 2000. 4 (4): 327-332

[19] International Monetary Fund, Independent Evaluation Office: The IMF
and Aid to Sub-Saharan Africa. Washington: International Monetary Fund;
2007. Available from:
http://www.imf.org/external/np/ieo/2007/ssa/eng/pdf/report.pdf

[20] de Renzio P, Goldsbrough D. IMF Programs and Health Spending: Case
Study of Mozambique. Background Paper, April 2007. Washington: Center
for Global Development. Available from:
http://www.cgdev.org/doc/IMF/Mozambique.pdf

[21] European Commission: Aid Delivery Methods: Guidelines on the
Programming, Design & Management of General Budget Support. Brussels:
European Commission; 2007. Available from:
http://ec.europa.eu/europeaid/reports/budget_support_en.pdf

[22] International Monetary Fund: Fiscal Policy Response to Scaled-Up
Aid. Washington: International Monetary Fund; 2007. Available from:
http://www.imf.org/external/np/pp/2007/eng/060507.pdf

[23] Rivers B: Tanzania and Uganda - Unanticipated Headaches. Global
Fund Observer 2003; Issue 2. Available from:
http://www.aidspan.org/documents/gfo/GFOIssue- 2.htm

[24] =D6rtendahl C: The Uganda health SWAp: new approaches for a more
balanced aid architecture? Report, October 2007. London: HLSP Institute.
Available from:
www.hlspinstitute.org/files/project/178485/UgandaHealthSWAp_Oct07.pdf

[25] Global Fund to fight AIDS, Tuberculosis and Malaria: An Evolving
Partnership: The Global Fund and Civil Society in the Fight Against
AIDS, Tuberculosis and Malaria. Geneva: Global Fund to fight AIDS,
Tuberculosis and Malaria, 2007. Available from:
http://www.theglobalfund.org/en/files/publications/civilsociety/AnEvolvingP=
artners
hip_en.pdf

[26] Over M: AIDS Treatment as an International Entitlement: Are We
Ready for a Global Welfare Paradigm? Blog, September 28, 2007.
Washington: Center for Global Development. Available from:
http://blogs.cgdev.org/globalhealth/2007/09/aids_treatment_as_an.php