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Wednesday, 02 December 2020

Middle East should increase social spending in light of COVID-19 challenges: IMF

An increase in public spending on education, health, and social protection could dramatically boost these countries’ human development scores

Doaa A.Moneim , Tuesday 29 Sep 2020
IMF
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Although Middle Eastern and Central Asian countries have made significant strides regarding social spending that covers health care, employment and education, they are still facing immense challenges relating to these issues, especially amid the ongoing COVID-19 crisis, the International Monetary Fund said in a new report published on Tuesday.

The report, titled “Social Spending for Inclusive Growth in the Middle East and Central Asia,” found that the region’s countries still lag behind their global peers in socioeconomic outcomes and in their levels of public social spending.

Moreover, the report showed that a 10 percent increase in social spending per capita could close 20-65 percent of the human development index (HDI) gap between countries in the region and their global counterparts, which reflects how public spending on education, health, and social protection can have a meaningful impact on socioeconomic outcomes.

It also found that the gap in outcomes between the region’s countries and global peers is larger than that in spending, suggesting that not only the amount but also the efficiency of social spending may need to be enhanced.

On this point, the report suggested that increasing the efficiency of spending in the region could, without any increase in outlays, eliminate one-third of the HDI gap, stressing that spending efficiency is linked strongly with indicators of institutional capacity and governance.

Given that the ongoing COVID-19 crisis has hit all economies severely, the pandemic has underscored the need for robust health systems and effective frameworks to channel cash transfers to vulnerable households, the report notes.

In addition, it has forced a swift and concerted national and multilateral response to ensure adequate public spending on health and social protection in order to cushion the human and economic losses.

Beyond the crisis, more equitable access to education and health care can contribute to human capital accumulation and inclusive growth. Ensuring that a country has enough fiscal space to undertake adequate investment in human capital and can do so efficiently is key to preserving fiscal sustainability and enabling long-term growth, according to the report.

On Egypt, the report notes that the government addressed the current challenges through appropriating a total of $6.13 billion in order to alleviate the impact of the pandemic, including $528 million which was allocated to back the health care sector by providing immediate medical supplies and disbursing bonuses to medical staff working on the frontline of the crisis.

In addition, monthly grants for three months totalling $93 (EGP 1,500) were extended to day-labourers and irregular workers, while pensions were increased by 14 percent and targeted cash transfers were also set up to reach vulnerable families, according to the report.

The report stressed that social spending in the region is generally lower than in other parts of the world: governments in the region devote 10.4 percent of GDP on average to social spending, compared to an emerging market average of 14.2 percent.

It also found that the social spending level in low-income countries in the MENAP region – including Egypt -- is particularly low, averaging 8 percent, compared to the global low-income country average of 14 percent of GDP.

The difference is also striking in terms of purchasing power parity (PPP) per capita spending, where, for example, Emerging markets in the MENAP region spend an average of $1,220 on social outlays compared to $1,978 spent by emerging markets globally.

For the region’s countries to be able to attain their sustainable development goals (SDGs) agendas, the report emphasised their need for additional spending, adding that the median country in the Middle East and Central Asia needs to spend an additional 5.3 percent of GDP per year by 2030 to achieve five critical SDGs covering human, social, and physical capital, and many countries in the region need even more spending.

Public health spending is generally lower in the region than in global peers, while private expenditure on health is relatively large.

“On average, countries in the region spend 6 percent of GDP on health care, of which 3 percent is public expenditure and 3 percent is private. Private health expenditure in Caucasus and Central Asia (CCA) and low-income countries in MENAP comprises about 71 percent of overall health expenditure,” reads the report. 

 

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