Operational Guidance Note for IMF Engagement on Social Spending Issues

© 2024 International Monetary Fund OPERATIONAL GUIDANCE NOTE FOR IMF ENGAGEMENT ON SOCIAL SPENDING ISSUES IMF staff regularly produces papers proposing new IMF policies, exploring options for reform, or reviewing existing IMF policies and operations. The Report prepared by IMF staff and completed on April 8, 2024, has been released. The staff report was issued to the Executive Board for information. The report was prepared by IMF staff. The views expressed in this paper are those of the IMF staff and do not necessarily represent the views of the IMF's Executive Board. The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents. Electronic copies of IMF Policy Papers are available to the public from http://www.imf.org/external/pp/ppindex.aspx International Monetary Fund Washington, D.C. April 2024 OPERATIONAL GUIDANCE NOTE FOR IMF ENGAGEMENT ON SOCIAL SPENDING ISSUES EXECUTIVE SUMMARY The Strategy for IMF Engagement on Social Spending was endorsed by the Executive Board in May 2019. Social spending plays a critical role as a key lever for promoting inclusive growth, addressing inequality, protecting vulnerable groups during structural change and adjustment, smoothing consumption over the lifecycle, and stabilizing demand during economic shocks. Social spending policies have also been playing an important role in tackling the structural challenges associated with demographic shifts, gender inequality, technological advances, and climate change. This note provides operational guidance to staff on when and how to engage on social spending issues. It builds on a series of notes on IMF engagement on specific social spending issues developed since the publication of the 2019 strategy paper and provides guidance on when and how to engage on social spending issues, in the context of surveillance, Fund-supported programs, a nd capacity development. More specifically, the note: •Clarifies the scope, identifies the key challenges, and lays out a roadmap to guidestaff when engaging on social spending issues;•Provides practical guidance in assessing the macrocriticality of a specific socialspending issue in the surveillance context and determining when to engage and theextent of engagement in surveillance, programs, and capacity development;•Discusses key considerations in formulating policy advice and designing socialspending conditionality, including social spending floors;•Details capacity development support by the Fund in the area of social spending;and•Outlines approaches to strengthen and leverage collaboration with externalstakeholders and design outreach strategies.This guidance note will be periodically updated to reflect the evolving nature of social spending issues and the building up of knowledge, including at the Fund. April 8, 2024 OPERATIONAL GUIDANCE FOR IMF ENGAGEMENT ON SOCIAL SPENDING ISSUES 2 INTERNATIONAL MONETARY FUND Approved By Guillaume Chabert (SPR) Ruud De Mooij (FAD) Prepared under the supervision of Boileau Loko and Geremia Palomba (both SPR) by a team led by Baoping Shang (SPR), and consisting of Iacovos Ioannou, Deeksha Kale, Tomohide Mineyama, Hector Perez-Saiz, Marta Spinella, and Dawit Tessema (all SPR); Nick Carroll, Emine Hanedar, Zsuzsa Munkacsi, and Mauricio Soto (all FAD); and Nadine Abou-Khaled (STA). Research assistance was provided by Dan Zheng, and editorial and administrative assistance by Emelie Stewart. CONTENTS Glossary_____________________________________________________________________________________________ 4 BACKGROUND_____________________________________________________________________________________ 6 A FRAMEWORK FOR FUND ENGAGEMENT ON SOCIAL SPENDING ISSUES __________________ 7 WHEN TO ENGAGE ON SOCIAL SPENDING ISSUES ____________________________________________ 11 A. Assessing Macrocriticality in Surveillance ______________________________________________________ 11 B. Engagement in Surveillance, Programs, and Capacity Development ___________________________ 18 HOW TO ENGAGE ON SOCIAL SPENDING ISSUES IN COUNTRY WORK _____________________ 19 A. Formulating Policy Advice in Surveillance and Programs ______________________________________ 19 B. Specific Issues on Social Spending in IMF-Supported Programs _______________________________ 25 C. Capacity Development __________________________________________________________________________ 32 EXTERNAL COLLABORATION AND OUTREACH ________________________________________________ 34 A. Collaboration with External Development Partners ____________________________________________ 34 B. Outreach and Communication __________________________________________________________________ 36 BOXES 1. Defining Social Spending and the Implications for Fund Engagement __________________________ 7 2. Social Spending and Gender Inequality____________________________________________