Expenditure Ceilings Imposed on Poor Countries Must be Lifted to Achieve the Millennium Development Goals

  • Date: Dec 14 2005
  • Policy Number: 20053

Key Words: Developing Countries

Agreements with international lending institutions, including the International Monetary Fund and the World Bank, have created external limits on government spending (including spending on health services) in highly indebted poor countries, in an attempt to promote market reforms and economic growth. These limitations have had the consequence of severely restricting government investments in the health and education sectors of poor countries, thereby threatening health care systems and reducing the numbers of people who access social and health programs at all levels. The American Public Health Association stands opposed to limits on health expenditures imposed by outside lenders.

There is an urgent need to accomplish the Millennium Development Goals to: 1) eradicate extreme poverty and hunger; 2) improve maternal health; 3) achieve universal primary education; 4) combat HIV/AIDS, malaria and other diseases; 5) promote gender equality and empower women; 6) ensure environmental sustainability; 7) reduce child mortality; and 8) develop a global partnership for development.

The World Bank and International Monetary Fund have expressed their support for meeting the Millennium Development Goals. The U.N. Millennium Project Report stated that absent major increases in domestic spending on the part of poor countries (totaling at least 4 percentage points of GDP through 2015), along with external funding of public interventions on the order of 10-20 percent of GNP, the Millennium Development Goals cannot be met. The U.N. Millennium Project Report also found that International Monetary Fund (IMF) programme design has paid almost no systematic attention to the Millennium Development Goals when considering a country's budget or macroeconomic framework. In the vast number of country programmes supported by the IMF since the adoption of the goals, there has been almost no discussion about whether the plans are consistent with achieving them.

The IMF and World Bank are attempting to achieve poverty reduction by promoting macroeconomic stability and economic growth. Also, the macroeconomic policies advocated by the IMF and World Bank are intended to put a lid on monetary inflation, which hurts the poor. However, the levels of increased public spending required for the additional teachers, doctors, nurses and health workers needed to meet the Millennium Development Goals by 2015 will not be possible under the current limitations on government spending.

Most debt of impoverished countries is held by the World Bank and IMF, who as lenders exercise enormous leverage over the economic structures and policies of poor countries. In the year 2000, APHA adopted a policy statement (International Multilateral and Bilateral Debt Relief 2000-26) urging the cancellation of odious debts to poor countries, as these debts were often for the personal gain of illegitimate governments. The June 2005 G8 conference included an agreement to cancel some of this debt. However, despite the replacement in 1999 of the structural adjustment process with the Poverty Reduction and Growth Facility, macroeconomic policies associated with IMF and World Bank loans and debt forgiveness, in particular budget expenditure ceilings, continue to constrain funding required to reduce poverty and promote human development. Also, despite a widespread disagreement among economists and in the economics literature on the question of an acceptable level of inflation, the tight monetary policies associated with IMF loans (particularly the policy of low-inflation targets) continue to set the parameters within which public spending in impoverished countries is constrained at levels that are often unnecessarily and unjustifiably low. UNAIDS and the World Health Organization have expressed concern about the continuing impact of IMF economic policies that lead directly to unnecessarily-low budget expenditure ceilings on fighting AIDS and promoting health. The U.N. Millennium Project Report expresses confidence that the negative macroeconomic implications of increased assistance flows are manageable and are far outweighed by the benefits of scaled-up investments in the Millennium Development Goals so long as aid is predictable and provided as grants.

While many poor African countries (that comprise 34 of the 42 highly indebted poor countries) succeeded in improving their health care systems in the first decades after independence, these systems have subsequently foundered in part owing to economic system structural adjustment policies that accompanied World Bank and IMF loans, which often led to reduced expenditures on health. , , Direct and substantial investments in poverty reduction and human development are vital to improvements in health, will promote economic growth, and can be achieved while maintaining macroeconomic stability.

Therefore, APHA:

  1. Urges the World Bank and IMF to demonstrate how their current macroeconomic policy formulations for poor countries, particularly the monetary policy of low-inflation targeting, can be consistent with the need for massive investments in health, education, and other social sectors, including wage increases for health care workers; 
  2. Urges the World Bank and IMF to work with economic planners and line ministries in poor countries to accommodate in their budgets the necessary massive investments in health, education and other social sectors required to meet or exceed the Millennium Development goals and other national goals;
  3. If the investments necessary to achieve the Millennium Development Goals cannot be made within current macroeconomic formulations promoted by the World Bank and IMF, urges the U.S. government to use its voice and vote to ensure that the World Bank and IMF adopt fiscal, monetary and structural economic policies that are consistent with the spending increases needed to achieve rules that are aligned with the Millennium Development Goals investment needs and, further, urgently begin to work with poor countries to enable them to dramatically increase investments necessary to achieve these Goals under the revised policies; 
  4. Urges the World Bank, IMF and U.S. Treasury to recognize that because investments in health increase worker productivity, health should be considered a productive sector of the economy; 
  5. Urges the World Bank, the IMF, and the U.S. government to rapidly evaluate any specific assertions that IMF or World Bank conditions or staff have blocked any spending needed to achieve the Millennium Development Goals or other national health goals, to make public their findings, and to take corrective action if necessary; 
  6. Urges the World Bank, IMF and U.S. Treasury to support only those macroeconomic policies and lending conditions that permit and facilitate the significantly increased spending required in poor country health and development sectors to achieve the Millennium Development Goals; and
  7. Urges the U.S. and other wealthy nations to provide long-term and predictable funding to low-income countries to ensure the external funding interventions required to help poor countries meet the Millennium Development Goals.