Fiscal space for universal health and social protection post Covid-19 pandemic: How to prevent austerity

2 October 2020 | Minutes

Enlarging the pie, rather than fighting for the crumbs.

This Civil Society Policy Forum session was sponsored by the Global Social Justice Program at the Initiative for Policy Dialogue, Columbia University and co-sponsored by WEMOS, the Bretton Woods Project, ActionAid, ITUC, CSBAG, Eurodad and Bread for the World. A video of the session has also been made available by the IMF. 


  • Moderator: Emma Burgisser, Gender Project Manager, Bretton Woods Project
  • Isabel Ortiz, Director, Global Social Justice Initiative for Policy Dialogue
  • Myria Koutsoumpa, Global Health Advocate, WEMOS
  • David Archer, Head of Participation and Public Services, ActionAid
  • Cathy Pattillo, Assistant Director, Fiscal Affairs Department

Emma Burgisser (Moderator): We’re here today because, while we’ve seen some governments being able to significantly increase spending to respond to the Covid-19 pandemic in the short term – many in the Global South have not been in that position and are facing vast financing needs and high levels of debt and deficits. As we start moving from the emergency financing to longer term recovery plans, it has never been more clear that governments need the fiscal space to enact sustained, expansionary countercyclical fiscal policies that can finance universal public health and social protection systems and that are required to meet the SDGs.

If we don’t use this moment of the most serious health and economic crisis to radically rethink then I think we’re missing a crucial opportunity.David Archer, ActionAid International

And yet, that is not the policy response we are seeing the IMF prescribe at country level. While there have been some top-level statements on the need for a fair and green recovery, and the need for temporary increases in health spending, the agreements made between the IMF and now over 80 countries over the last few months reveal that the IMF has overwhelmingly been prescribing for developing countries to swiftly return to rigid fiscal consolidation as soon as 2021 in many cases. This has become incredibly concerning to a large community of civil society actors and organisations, because counting on fiscal consolidation in this way once again puts the burden of the recovery on the most vulnerable and marginalised – rather than the creditors and other major financial interests – and that is frankly unacceptable.

So we’re here today to discuss how to learn from the mistakes of past crises and prevent another decade of austerity – and what it will really take for the IMF to move away from these types of prescriptions once and for all.

Isabel Ortiz (Global Social Justice Initiative for Policy Dialogue): (see powerpoint presentation here) Given high levels of debt and fiscal deficits, there is a high risk of a new round of fiscal consolidation or austerity cuts. This policy has negative social impacts, especially on women. The pandemic has revealed the weak state of public health systems – generally overburdened, underfunded and understaffed because of earlier austerity policies and privatisations. Need to continue to invest in health, not all about supporting emergency care, but governments need sustained financing for general health as well. The pandemic has increased poverty and inequality, countries need to be able to support jobs and social protection. Instead of looking at cuts, the IMF needs to look at how to expand fiscal space to increase social spending.

Isabel Ortiz presented findings from her paper, co-written by Matthew Cummins, Austerity: The New Normal A Renewed Washington Consensus 2010. Ortiz presented measures appearing in IMF country reports, compared findings from 2018-19 with reflections on the rapid financing during Covid-19 pandemic.

1) Social security reforms: 86 countries in 2018-19 were discussing social security/pension reforms, cutting hard-earned benefits and eroding public systems. In Jordan in 2020, cutting employer contributions to social security (the so called “labor taxes”).

2) Wage bill cuts or caps in as many as 80 countries – cutting salaries of civil servants, many teachers, health workers in 2018-9. Seen it reappearing in rapid financing in 2020 in Tunisia and other countries.

3) Labour flexibilisation – worsening workers conditions in 79 countries in 2018-19, now recommended by the IMF to Costa Rica in 2020 and other countries.

4) Subsidy reduction in 78 countries in 2018-19, in 2020 reappears in advice for Ecuador, especially surprising after large protests in Ecuador after this measure was proposed.

5) Scaling down/targeting of social protection in 77 countries in 2018-19 and again in 2020,  Nepal for example.

6) Emphasis on consumption tax increases, like VAT which is regressive.

7) Strengthening public-private partnerships and privatisation of state assets in 60 and 59 countries respectively in 2018-19, and again in 2020 e.g. Ecuador, Ukraine.

Now is the time to prevent austerity, it is the wrong path because of its negative social and gender impacts.

How to prevent austerity? Fiscal space options exist even in the poorest countries, supported by policy statements of the IFIs and UN agencies, include:

1) Increasing tax revenues, including increasing income and wealth taxation, corporate taxation and financial sector taxes. (e.g. Mongolia. Brazil, Zambia).

2) Increasing social security coverage and contributory revenues. Instead of cutting employers contribution, we need to extend coverage and bring informal sector into formal (Argentina Brazil, Uruguay).

3) Fighting illicit financial flows; these arere illegal (e.g. money laundering, tax evasion), countries can do this, will result in significant large public funds.

4) Restructuring/managing debt (e.g. Ecuador, Iceland, Iraq); given high sovereign debt levels, important to promote debt forgiveness/relief.

5) Aid and transfers – Global Fund for Universal Social Protection Floors, e.g. less spending on military, more on aid.

6) Tapping into fiscal and foreign exchange reserves e.g. Chile, Norway.

7) Adopting a more accommodative macroeconomic framework (e.g. tolerance to some inflation, fiscal deficit).

8) If re-allocating public expenditures, then focus on replacing high-cost and low- social-impact expenditures (eg. defense – Costa Rica, Thailand).

9) At international level, issuing new SDRs.

These options must be discussed openly in national dialogues, with all relevant stakeholders, including unions, employers, governments, CSOs. Ministers of Finance/Planning should have all possible fiscal scenarios and options, assessment of social impacts (including gender and distributional impacts), risks and trade-offs, fully explored.

Instead of having a minimalistic budget, countries can have a larger budget. We have to prevent austerity, watch out that we don’t end in a new round of fiscal consolidation.

Myria Koutsoumpa (WEMOS): Myria presented a graph (see powerpoint presentation here) that showed the absolute General government health expenditure – domestic, compared to the international benchmark, comparing government expenditure in sub-Saharan African countries to how much it would be if 5 per cent of GDP was spent on health. Important to note that even if countries allocate 5 per cent GDP to health, this is still not going to be enough. To reach the benchmark would also require huge increases of the GDP.

What is the WHO’s approach to fiscal space for health? The WHO outlines several steps 1) Conductive macroeconomic conditions, 2) Reprioritisation of health within the government budget. 3) An increase in health sector-specific resources (e.g. earmarked taxation). 4) An increase in the efficiency of existing health expenditure 5) Health sector-specific grants and foreign aid.

To achieve SDGs, LMICs would require extra US$371 billion per year by 2030. Even with projected increases in domestic health spending an annual gap of max US$ 54 billion remains.

The IMF’s influence in WHO’s work prominent. Last year’s WHO symposium on Health Financing for UHC in Montreaux, WHO put a lot of emphasis on public financial management and efficiency, which is also one of the IMF’s forms of technical assistance to countries.

Discussed options to expand fiscal space from the WHO include: 1) Earmarked income and consumption taxes. However, the WHO in its own research has shown that sin taxes have very limited potential in raising resources for health, they are not predictable, and they do not have the prospect of leading to sustained, long-term expansion in fiscal space for health. 2) Public financial management reforms and improving efficiency, but this way also has relatively small gains: ‘expected efficiency savings in Africa show a median potential efficiency gain of USD 8 per capita per annum’.

Previous WHO reports are not able to give a monetary value to the gains. 3) Reprioritisation of health in government budgets, which is still limited budget in many LMICs. These are important, but are they sufficient?

There is very little consideration of the other ways to preserve fiscal space for health – especially when it comes to challenging the macroeconomic environment. Ministries of health are encouraged to stay within limits of their ministry to focus on public efficiency gains and health taxes. These remove health from the high-level macroeconomic discussions that ministries are having with the IMF and, in a way, de-politicise health.

What countries really need is to enlarge the ‘pie’ of domestic resources overall to create fiscal space for health. There are sources that remain untapped and undiscussed, Africa losing more from illicit financial flows (USD 89 billion per year) than what it receives in development aid, and more than the financing gap for health-related SDGs for all LMICs (54 billion a year). Debt service repayment takes in Africa 12 per cent on average, while domestic allocation to health is 6 per cent of government revenue on average.

Mainstream approaches to economic growth are not leading to higher well-being and the achievement of SDGs. Question mainstream economics and measure development by an indicator of well-being, not only the GDP. Stop discouraging sector ministries to engage in these processes. Push for alternatives that increase public resources. To increase public pressure, build cross-sectoral alliance across civil society groups, trade unions join forces with others. We do not want to compete with resources for education, social spending, but to expand the overall public resource envelope. Call on the IMF to expand fiscal space, not these other solutions, finances should be for health need rather than vice versa.

David Archer (ActionAid International): I want to lay out 4 problems and 4 solutions. On Tuesday Kevin Gallagher shared details of the COVID recovery index at webinar organised by IEO. This tracks IMF practice in IMF emergency loans at country level in relation to 3 commitments made by Kristalina and the IMF Board health expenditure / support the vulnerable / greening the recovery.

The failure to shift investments towards a green recovery is a worrying early finding but in relation to health expenditure the index shows good initial progress. Spending has risen on health. However 4 key issues / problems:

  1. Has the IMF reflected on its role in holding down spending in previous years, so countries were ill prepared – this needs to be evaluated. Our data in April showed one key way in which health spending held down has been constrains to public sector wage bills – frozen or cut in 78 per cent of LICs. Even where there were intentions to protect health or education personnel the consequence was often to freeze spending – even where there were serious shortages of doctors, nurses and teachers. It is nearly impossible to hold down overall spending on wage bills without constraining health and education personnel.
  2. What are the priorities in health spending? These are spelt out more in the 2020 Guidance on Health Spending Priorities. This focuses most on items like intensive care beds, stock of respirators or other necessary equipment. It is mentioned almost as an afterthought that this might also ‘entail significant human resource and staffing costs’. This is echoed in the IMF’s How to Notes on ‘How to operationalise IMF engagement on social spending during and in the aftermath of COVID’. These HOW TO notes talk about 3 periods – containment, stabilisation and recovery. In that note the focus is on critical medicine, food and other supplies – and on social protection. Crucially, whilst there is reference to personal protective equipment for essential workers there is only one brief reference to the hiring additional personnel. The overall thrust is on equipment and supplies – which are crucial – but there is little or no focus on essential workers themselves – to their pay or conditions or the serious need to recruit more of them. This may have equity issues. Those who benefit from intensive care beds and respirators and more likely to urban middle class – whilst the rural poor might benefit more from increased staffing in health centres and for public health outreach.
  3. How long will this last? Even the IMF’s own documents cast doubt on this. Even in the containment period the steer in the How To document is that any spending must be looked at ‘in the context of fiscal sustainability’ with countries lacking fiscal space encouraged to explore other financing (from aid or concessional loans). In the stabilisation period countries should start to assess the medium-term affordability of the crisis response measures (fiscal sustainability). Once we get to the recovery period it is observed that ‘countries might seek to significantly scale back spending on health services. This is what we are finding in ActionAid and Oxfam in our recent review and analysis of IMF Covid emergency loans – that whilst there is some opening up of short term health spending, the overall trajectory remains unchanged – with an expectation of a return to fiscal consolidation within a relatively short period. There is little suggestion that medium term alternatives are being explored. Faced with the biggest health and economic crisis for many generations the IMF seems to offer no new thinking – and the default to austerity Our analysis on this will be published in the next fortnight.  Surely at the very least the IMF should learn from the IEO evaluation of the financial crisis which flagged that the return to fiscal consolidation was far too rushed.
  4. What is the knock-on effect of the priority on health on other essential sectors? There are concerns beginning to emerge that the priority on health and social protection – both crucial of course – is squeezing spending on other public services. If there is still an expectation of fiscal sustainability, overall budgets are not increased – so countries have to rob Peter to pay Paul – increase health spending for example at the cost of education spending. There are alarm bells ringing already for education with the fall in GDP and fall in tax revenues likely to create gaps of hundreds of billions of dollars. If schools are to reopen safely with social distancing then rural schools with over 100 children per class urgently need more teachers!

So what are the solutions?

  1. Deeper, wider and longer debt cancellation so countries can spend resources already in their hands on fighting the health and economic crisis triggered by Covid. This must reach all countries and we need cancellation not suspension. And we need a longer term set of standards requiring transparency and accountability from both debtors and creditors in relation to future loans.
  2. An emergency issuance of SDRs – as the IMF have themselves sought and recommended. The main block seems to be the US government -so let us hope for a change in 33 days
  3. More ambitious and progressive tax reform – increase tax to GDP by 5 per cent in 5 years – best route to sustainably doubling spending on health, education and social protection. It can be done and must be a priority. And there needs to be immediate action on excess profits and big tech companies who get away without paying tax in countries where they have millions of users – which is the core asset of their business model.
  4. Action on public sector wage bills – a fundamental re-think / evaluation by the IMF and mobilisation in countries to demand Ministries of Finance resist these constraints and recognise that investment in the public sector workforce is part of the solution. We need people to think outside the box, revalue the public sector, recognise its crucial role in redistributing wealth and opportunity and achieving the SDGs. Let us not forget that the majority of frontline public sector workers are women – this a key way to expand women’s participation in the workforce and to redistribute unpaid care and domestic work.

In summary, surely this is the moment for a fundamental re-think by the IMF – to move away for past policies, norms and practices which have left so many countries so ill-prepared for the health and economic crisis. There needs to be a fundamental reframing – moving away for GDP growth as the only measure that matters; factoring in women’s unpaid care and domestic work which remains invisible in economic measurements but profoundly significant in people’s lives; factoring in natural resource constraints; and factoring in the fulfilment of human rights and development goals. What use is a stable economy that perpetuates gross injustices and inequalities? Let us build and value economies that truly care for both people and the planet.

Catherine Patillo (IMF): So much that was said that I really agree with. I’m going to talk about the Covid-19 context, the IMF’s approach to fiscal space assessments, and then some discussions on how to expand. Before Covid-19, developing countries had huge needs for the sustainable development goals, need for big financing both on the domestic and international side. Not just Covid shock, but the shock from the recession, reduced remittances, remittances, foreign direct investment, reduced access to markets.

The fiscal response has been unprecedented across the globe. $11 trillion in June and increasing. Has been very different in different types of countries given the availability of space and financing. Advanced economies, response has been very forceful with very large spending, but response in low income countries has been much smaller, as countries have not had the ability to finance. There has been increased health spending, including lots of other measures, using their capabilities – like cash transfers, mobile and digital means for increasing support to vulnerable people. Room for discretionary fiscal policy without endangering market access and debt sustainability – IMF categorises countries into these groups.

For a bit of context of the IMF’s fiscal space framework, fiscal space is defined in this assessment framework as the room for discretionary fiscal policy, without endangering market access and debt sustainability. That means higher spending or lower taxes, or more fiscal stimulus for instance. The Fund then has a quantitative assessment across a number of indicators, categorising countries in different groups of ‘fiscal space’, ‘fiscal space at risk’, ‘some fiscal space’ or ‘substantial fiscal space’. The principles of the framework are that it uses a quantitative and indicator based, consistent method across countries to analyse the fiscal space. But it serves as a guide, judgement is essential, the country level assessment really influences the bottom line. It does not say anything about how or when to use fiscal space. It tells you something about space, but there’s a different process about when or how to use space, depends on lots of things, like the cyclical position of the economy. When in a deep recession, countercyclical fiscal policy is very powerful. Multipliers, effectiveness etc. It’s a helpful tool in simulation – if countries did more expansion or slowed consolidation – what would be the impacts.

Focusing on how to increase fiscal space. Domestic resource mobilisation is key (as has been mentioned, many low income countries are below raising 15 per cent of GDP in tax revenue, which makes it hard to finance development and growth) – the approach needed is very holistic, focusing on tax policy and tax administration and the big benefits that can come from broadening the tax base, improving tax administration, increasing non collection from non-commodity taxes from commodity exporters. There is this potential then to realise these large increases.. The Fund has been working on medium term revenue strategies, which are whole of government approaches that first identify big spending needs, then look at the revenue needed and bringing the entire government to bear for country-owned medium term strategies. The second area is thinking about spending efficiency gains and prioritisation. Tools the Fund has been developing that give expenditure assessments frameworks that allow to give a monetary size about what could be gained through efficiency measures. Space to be gained there.

Combatting illicit and tax flows. We agree there is a potential large impact to working to combat these flows that have all of these negative impacts. IMF has been working to combat these and will continue to emphasise the need to combat these. Lots of workstreams – improving measurement and statistics.

Support of financing and capacity development and debt. The Fund is very active in new environment in new modes of engagement through remote and in tax. Key for countries to have the fiscal space for a strong recovery. IMF lending 80 countries – 270$ billion committed debt – supporting Debt Service Suspension Initiative (DSSI) – 44 of 73 eligible countries benefiting (freed up 0.4  per cent pf GDP during 2020 – 5$ billion to spend on health and addressing the needs of vulnerable people). 29 poorest countries – grant relief. This has been key to give countries fiscal space to fight Covid-19.

I would conclude there but mention this dialogue is really helpful to the Fund and for holding us accountable to the consistency between our high level policy messages and what is happening on the ground. What our key messages have been is that countries should do what ever it takes and keep the receipts. Then, in the stabilisation phase, for those countries that are in that phase we’re pressing for the need not to remove fiscal stimulus too soon, to maintain it in 2021. For countries with severe financing constraints, then this discussion we’re having now is key. How do you address those financing needs through reprioritisation through efficiencies, financing support from the international community and debt relief, and ensuring those countries with pressing financial are able to continue fiscal support as needed.


Question from Emma Burgisser: Question to Catherine. A lot of us are very concerned about some of this language coming from IMF staff, not just in emergency financing documents, but also new programmes being agreed with rigid fiscal targets, we are asking for the fund to reconsider those targets really carefully. Some of the way to ameliorate the impacts of that is ex-ante impact assessments. We know IMF had been working on that before Covid-19 pandemic, it was looking at some of the gendered impacts of some policy advice (see Bretton Woods Project, The IMF and Gender Equality: Operationalising Change). I am curious to know whether given this changed environment and these new risks, whether to Fund has plans to scale up that work and really integrate ex-ante­ impact assessments into the process of determining of fiscal targets?

Question from David Archer: What we have not seen is a fundamental rethink of what should be happening to economies 3, 4, 5 years from now – what would be the type of advice that the IMF would give to countries. Or are we just going back to normal as if everything is ok and fiscal consolidation / austerity are the only option?

Leo Baunach (International Trade Union. Confederation): Something that was raised is that one of the most transformative proposals is the Global Fund for Universal Social Protection, and then for the IMF to finance resources for universal social protection? What are the concrete policy changes we can see from the IMF to turn the page on the suppression of the public wage bill?

Answer: Catherine Patillo (IMF): On impact assessments, as noted the Fund had been doing quite a bit of work across country teams both to look at distributional and gender impacts. Also incidence analysis on the Commitment to Equity (CEQ) has got integrated in the Fund. Looking at both the macroeconomic and the distributional impacts. Part of the architecture now and will continue. Our partnership with UN Women has been really valuable on the gender impact assessment work.

On the rethink question, it is fundamental we are looking at ways countries need to recognise resilience. Addressing health needs really important. On how do we make sure that health, resilience to climate change adaptation needs are built into wages countries are thinking, role of public investment – our fiscal monitor will highlight in climate change adaptation, in green infrastructure. Work to be done to look at all the ways countries need to improve social protection coverage.

Answer: David Archer: There is really useful data on wage bills and shortages of education and health workers from UNESCO and WHO but that data does not drive decision-making. Becomes marginal – should we not be moving to a position where filling such clearly documented and serious gaps drives economic decision making?  At the moment  these fundamental development goals are an afterthought and are not driving economic decision-making. We have called for an Independent Evaluation Office review of the IMF’s policies  on the public sector and  public sector wage bills. It feels as if there is a groupthink across IMF that sees the public sector as part of the  problem and not part of the solution. This is a moment this has to change.

Question: Isabel Ortiz: How are you trying to work with IMF country staff and teams so they are more aggressive in search for fiscal space?  Need to look at equitable options – is that happening can CSOs help in any manner? To Myria, you showed WHO extremely orthodox, what about turning to others global organisations like the International Labour Organisation (ILO) and UN Women?

Answer: Myria Koutsoumpa, I would like WHO to be more in line with what ILO and UN Women is saying. A Global Fund for Social Protection is a systemic response, not the usual vertical response to health needs. We need to be more systematic and intersectional. Looking to leaving no one behind. Looking at the way we count the people so people do not fall between the lines. As someone noted on the chat,  the technical jargon involved in these conversations prevents the non-economists to push for the message widely – we are talking about health advocates, health unions. This is not going to happen if they are not invited in the discussion, for example with the IMF at country level. If we are talking about inclusion, we need to approach those who are experts.

Question: Roosje Saalbrink (Womankind Worldwide): It is important to understand the triple burden women are experiencing, at risk of regressing decades of women’s rights. Really essential IMF policy and programmes do not reverse women’s rights further than is already the case. When talking about multiplier effects, would be interested in how to the IMF is seeing investments in social services and what these multipliers are – thinking of care work. Report from UK group the Women’s Budget Group’s gender-equal commission points out that investing in the care sector is more green in line with affair just transition, more money and jobs for women. Gender responsive budgeting around increasing transparency. Diverse women’s voices are part of discussion and decisions, especially not finance ministries. To ask the IMF, how many gender impact assessments have been done so far, we’ve only seen a handful?

Question: Nadia Daar (Oxfam International): I wanted to ask about how we can really create fiscal space now? There are a range of options for countries right now for countries that are not able to take on more debt – even concessional loans have to be repaid. Options available are aid through grants which is only available for certain numbers of countries. There needs to be debt cancellation not just debt suspension.

Question: Bhumika Muchhala (Third World Network): With regard to the political economy landscape where there is a degree of self-restraint from finance ministers and has become normalised, habitual to reduce fiscal space within their countries. Emerging markets countries, and some low-income countries are not actively seeking debt relief because they are fearful of not being able to attract international and very real imperative of access to developing markets. What is the IMF’s approach to it is very real signalling effect over the decades, through Article IV surveillance report, macroeconomic impacts assessment – what is the discussion within IMF and with developing country finance ministries on their very legitimate anxiety on access?

Answer: Catherine Patillo (IMF): On gender responsive budgeting and gender impact assessments, I can get you the specific number. In the middle east, countries interested in the development of gender responsive budgeting as part of overall public management. You made good points on need for attention to unpaid care and you will see in some of that in the IMF’s analysis of WEO.

For country teams it is very helpful when multilateral analysis useful to use in country work. As David Archer points out, on importance of different kinds of health, again very much agree with that that resilience that countries need to build capacity for frontline health workers and rural health. Country teams in Africa are discussing.

On the political economy landscape, countries are trying to balance access to international capital markets and that they feel if they continue to benefit from international capital markets at favourable borrowing costs. Potential given very low interest rates, together with lots of other financing and taking advantage of the DSSI. IMF country teams are trying to make sure countries who are eligible and are trying to access debt service. On SDRs – this is under discussion, both the issuance and redirection of existing SDRs.

Concluding remarks

Isabel Ortiz: Thank you, we revised a number of options for fiscal space. They are all very important. None can be dismissed at this critical time – they must be discussed in national dialogues. Of the nine options of alternatives to austerity have been discussed, some are more equitable than others, and its particularly important to pay attention to them. These include raising tax revenues, tackling illicit financial flows, debt forgiveness and relief or restructuring, aid transfers and of course increasing social security contributions and coverage.

David Archer: If we don’t use this moment of the most serious health and economic crisis to radically rethink then I think we’re missing a crucial opportunity. It surely time to forget about simplistic measure of GDP in the context of climate change and the invisibility of unpaid work in that GDP. Surely time to find ways of measuring and valuing economies based on whether they help countries achieve development goals and human rights obligations – and whether they help us build societies that can care for both people and the planet.