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International Monetary Fund. Fiscal Affairs Dept. and International Monetary Fund. Strategy, Policy, & Review Department
The International Monetary Fund’s engagement on social safety net (SSN) issues is likely to expand as member countries respond to growing challenges in the economic and fiscal landscape. SSNs play a crucial role in protecting households from poverty, promoting inclusive growth, and maintaining social stability. This technical note discusses (1) the different channels through which SSN spending may become macro-critical, (2) how to assess the importance of these channels, and (3) the types of policy responses that are appropriate and the trade-offs involved in choosing among them. To facilitate a more comprehensive assessment of SSN spending, the paper also examines the complementary role of labor market programs (for example, unemployment benefits and active labor market programs). The paper emphasizes the importance of early engagement and coordination with development partners with expertise on social safety nets and with different stakeholders when formulating policy advice.
International Monetary Fund. Fiscal Affairs Dept. and International Monetary Fund. Strategy, Policy, & Review Department

the IMF. The views expressed in this paper are those of the authors and do not necessarily represent the views of the IMF, its Executive Board, or IMF management. ISBN: 979-8-40022-250-4 (Paper) 979-8-40022-254-2 (ePub) 979-8-40022-259-7 (PDF) JEL Classification Numbers: H53; I38; J13; J18; G28; O23 Keywords: Fiscal Policy, Social Protection, Social Safety Nets, Spending adequacy, Spending Efficiency, Fiscal Sustainability Authors’ email addresses: fbrollo@imf.org (corresponding author) dcoady@imf.org gpalomba

International Monetary Fund. Fiscal Affairs Dept., International Monetary Fund. Strategy, Policy, &, and Review Department

existence of in-house expertise. The key channels through which social spending can become macro-critical are fiscal sustainability, spending adequacy, and spending efficiency. The strategy encourages early engagement with the authorities and envisages that staff continues developing policy advice on sustainable financing of social spending and increases the focus on the quality of such spending for improving social outcomes, drawing on the expertise of IDIs. Collaboration with IDIs would be improved. The IMF’s Fiscal Affairs Department (FAD) would act as a hub

International Monetary Fund. Fiscal Affairs Dept., International Monetary Fund. Strategy, Policy, &, and Review Department

systematic than with IDIs. For countries with an IMF-supported program, conditionality (both quantitative and structural) on social spending was regularly used. Two main lessons emerge from the analysis . A key takeaway is that all macro-criticality dimensions (fiscal sustainability, spending efficiency and spending adequacy) may be potentially important for ensuring that social spending systems support inclusive growth and stability, and an a priori narrow focus should be avoided. Also, outreach and communication efforts need to be strengthened to include a broader set

International Monetary Fund. Fiscal Affairs Dept., International Monetary Fund. Strategy, Policy, &, and Review Department
This paper uses case studies to explore the nature and extent of past IMF engagement on social spending issues and to draw lessons for future engagement.
International Monetary Fund. Fiscal Affairs Dept., International Monetary Fund. Strategy, Policy, &, and Review Department

) Context Fund Acvitity Main Macro-criticaly Channel Main Social Spending Topic Addressed 1 Surveillance/Program Fiscal sustinability Spending efficiency Spending adequacy Bolivia Surveillance ✓ ✓ ✓ Social Assitance, Health, Education Cyprus Program ✓ ✓ Pensions, Social Assistance, Health, Education Ghana Program ✓ ✓ ✓ Social Assistance, Education Italy Surveillance ✓ ✓ ✓ Pensions, Social Assistance, Health, Education Jamaica Program ✓ ✓ Social

International Monetary Fund. Fiscal Affairs Dept. and International Monetary Fund. Strategy, Policy, & Review Department

Social Spending Strategy, this paper provides guidance to staff on when and how to engage on SSN issues both in surveillance and program work. The IMF’s engagement on social spending issues, which includes SSN spending, is guided by an assessment of their macro-criticality in surveillance and program contexts, as well as in the context of capacity development. The macro-criticality of SSN spending can arise through one or a combination of three, often interrelated, channels—spending adequacy, spending efficiency, and fiscal sustainability. Spending adequacy refers to

International Monetary Fund

adequate, yet also efficient and financed sustainably. Spending adequacy. Spending efficiency. Fiscal sustainability. These are the yardsticks we will use to assess the macro-criticality of social spending. We expect this new strategy to lead to more effective IMF engagement on social spending issues, and to strengthen the quality and consistency of our policy advice. It collects best practices gleaned from years of engagement on social spending issues and lays out a clear road map for consistently applying these best practices to our engagement. Over the next year