“Increase social spending”: IMF urges Middle East

By Rahul Vaimal, Associate Editor
  • Follow author on
Representational Image

Governments in the Middle East and Central Asia need to increase investment in areas such as social protection, education and public health, where the coronavirus pandemic has revealed vulnerabilities, the International Monetary Fund (IMF) said.

Social spending calculates the extent to which countries take responsibility for promoting the quality of living for disadvantaged or vulnerable groups. Social spending includes cash benefits, the provision for free goods and services for the eligible and tax deductions for social purposes.

Read More: Global economy recovering better than predicted: IMF

The US-based multilateral lender said in a study titled ‘Social Spending for Inclusive Growth in the Middle East and Central Asia’, which was published recently, that the region, spanning almost 30 countries from Mauritania to Kazakhstan, still lags behind global peers in terms of social spending and “socioeconomic outcomes.”

“The pandemic has further magnified these challenges and brought into sharp focus the urgent need for higher social spending, particularly on health and social protection, to save lives and protect the most vulnerable,” it said.

The IMF has predicted that as the pandemic has hit industries such as tourism and trade, real gross domestic product across the region will shrink by 4.7 percent this year. In the meantime, low oil prices and crude production cuts are straining regional oil exporters’ finances and reducing remittances.

The health crisis has revealed long-standing weaknesses in health infrastructure and social safety nets for many nations, but their capacity to tackle these issues is now facing financial constraints.

Lower social spending

In general, social spending in the region is lower than in other parts of the world, with governments spending around 10.4% of GDP on average, compared to an average of 14.2% in emerging markets. Countries in the oil-rich Gulf, the Fund said, invest less than advanced economies.

Spending on social protection averaged 4.9 percent of GDP in the region, compared to 6.6 percent in emerging markets. However, the difference in per capita social protection spending within the GCC is high, ranging from $280 in Qatar to $7,200 in Kuwait.

On average, the IMF said that countries in the region spend six percent of GDP on healthcare, three percent of which is public spending and three percent of which is private spending.

The region’s public education spending is also lower than that of its global peers. On average, 3.5 percent of GDP is spent on education by governments in the Middle East, while global emerging markets spend up to 4.2 percent.

While most countries have raised social spending in response to the pandemic, without developing new revenues or utilizing resources more effectively, this may not be sustainable.

“Even without increasing outlays, boosting the efficiency of spending would help significantly improve socioeconomic outcomes. For example, life expectancy at birth could increase by three years in Kuwait if the existing resource envelope was spent at the efficiency level of advanced economies,” said IMF.