Policy autonomy or Belt tightening? The implication of IMF policy support to Tanzania

1. Policy autonomy or Belt tightening?The implication of IMF policy support to Tanzania Dr. Peter Bujari Executive Director (HDT)

2. Scope of presentation • Role of the IMF in Low-Income Countries • IMF Programs – Indirect but significant impact on health spending, including HRH • Evidence on impact of IMF policies; IEO • IMF influence in Tanzania • Result of influence • Paradigm shift; time to act

3. *Disclaimer* IMF policies do not DIRECTLY determine the quantity or quality of sector financing. They INDIRECTLY impact sector spending by influencing the size of the national budget and by promoting policies that limits shared economic growth.

4. How Is the IMF Influential? 1. Advising countries on macroeconomic policy: IMF programs help determine national economic policies 2. “Signaling effect”: IMF program = access to assistance 3. Program negotiations are “transparency-challenged”

5. Rules of IMF Programs • Neo-liberal economic model • Goals: • Small deficits • Low inflation (5-7%) • Priority on macroeconomic stability • Less emphasis on public investments for human needs e.g. targeted program such health, education, agricultural sector • Sees limited role for governments vs. the private sector

6. IMF Program Targets • Fiscal targets – Impact budget size • “Fiscal space” • Fiscal targeting indirectly impacts sector spending through impacting size of the national budget • Fiscal policy that’s too risk averse can eliminate options for key spending ( e.g. limited domestic borrowing)

7. Cause and effect of IMF policies

8. Limited fiscal space

9. What evidence?---1 -- The New York Times. “Africa at the Summit,” 2005 “There is a desperate need for greater policy coherence in a period when many national governments, including Washington, are sensibly exhorting African governments to spend more on primary health care and education while international financial institutions largely controlled by those same Western governments have been pressing African countries to shrink their government payrolls, including teachers and health care workers.”

10. Evidence------ 2 (IEO) • In particular, new evidence documents that IMF policies restrict spending of new aid funds in sub-Saharan Africa and that IMF policies are correlated with worse disease outcomes. • 29 sub-Saharan African countries experienced some increases in foreign aid 1999-2005.

11. IOE Findings --- 3 • On average, 37% of all additional aid was indirectly diverted to increase foreign currency reserves; another 37% was diverted to reduce domestic debt; only 27% was actually spent.

12. Key findngs--3 • Countries with less than 2 ½ months of reserves put 95% of increased aid into reserves; countries with high reserves absorbed 100%. • Countries with more than 5% inflation put 85% of increased aid into debt reduction. Countries with inflation below 5% put 21% into debt reduction.

13. Evidence..4 in Tanzania • IMF in deals with macro economic indictors incl growth, inflation, exchange rates, interest rates, balance of payment and fiscal deficit. • IMF is involved in budget policy and resource projection • Evidence indicate that IMF is actively involved in setting budget ceiling to ensure government spending is within agreed targets measured as % of GDP

14. As a result….. • Government has limited or no room for domestic financing of the budget deficit • Foreign aid is “absorbed” than “spent”( in 2006 McKinley et al found that 100% of aid went into reserve • From 1995 to 2005, 16% of graduate were hired by government ( Hire and pay more) • Sectors are operating with less HR, health sector operating with 65% less HR • Small national budget, small sector budget e.g Health, education, agriculture etc

15. Implication ….The inadequacy of human resource leads to inability of health workers to provide quality health care, collect data and follow up to patients as well as provision of health education. As a result, many days are spent on treatment and morbidity leads to loss of man-hours to generate livelihoods to alleviate poverty and subsequently taxing for public financing. … …..Small budget in agriculture lead to continued hand hall, inability to subsidies agricultural inputs, rain dependent agriculture… ….Small budget on education leads to poor quality of education due to poor paid teachers, poor infrastructure, limited school facilities and will lead to unproductive work force in future….

16. Paradigm shift… NO choice! • IMF should support broader and deeper debt cancellation, emphasize on confessional lending • The IMF should drop conditionalities and allow more productive domestic spending of aid, which would channel more resources to the domestic goods and services and human resources. • IMF refrain from conventional emphasize on zero domestic financing

17. Paradigm shift…cont • The IMF should explore more flexible mechanisms to accommodate higher levels of domestic financing of the deficit, to support targeted programs such as health, education, agriculture and infrastructure. • The IMF should engage a wider spectrum of stakeholders in the formulation and review of program policies; MDA, civil society, Members of parliament. • Walk the talk ……….

18. Join Us To Develop further Contact: Policy advocacy department info@hdt.or.tz www.hdt.or.tz