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IMF calls for more social spend

Waheed Abbas/Dubai
Filed on September 29, 2020
IMF said countries in the region spend six per cent of GDP on healthcare, of which three per cent is public expenditure and three per cent is private. - Reuters

Social spending in the region is generally lower than in other parts of the world.

Middle East countries should increase spending on social protection and key strategic sectors such as education and healthcare for inclusive growth as the Covid-19 pandemic has magnified the need for higher social spending, the International Monetary Fund said on Tuesday.

Social spending in the region is generally lower than in other parts of the world, with governments spending about 10.4 per cent of GDP on average, compared to a 14.2 per cent average in emerging markets. Countries in the oil-rich Gulf also spend less than advanced economies. Social protection spending averaged 4.9 per cent of GDP in the Gulf region as against 6.6 per cent in other emerging markets.

The difference is also striking in terms of purchasing power parity (PPP) per capita spending, where, for example, emerging markets in the Middle East, North Africa and Pakistan spend an average of $1,220 on social outlays compared to $1,978 spent by emerging markets globally, IMF said in the Social Spending for Inclusive Growth in the Middle East and Central Asia report.

However, the variability of social protection spending in PPP per capita terms in the GCC is high, ranging from $280 in Qatar to $7,200 in Kuwait.

"Most countries in the region substantially increased social spending in response to the Covid-19 crisis," said Antoinette Sayeh, deputy managing director of IMF.

She added that to reach the UN Sustainable Development Goals (SDGs), the median country in the Middle East needs to spend an additional 5.3 per cent of GDP per year by 2030 to achieve five critical SDGs covering human, social, and physical capital, and many Middle East and Central Asian countries would need even more spending.

"Public finances have been significantly stretched to deal with existing needs as well as the human cost of the pandemic and to contain its economic fallout," said Sayeh. "In many countries, financing constraints limit the availability of budgetary resources," she added.

Anurag Chaturvedi, secretary of the Institute of Chartered Accountants of India (ICAI) - Dubai Chapter, said the social spending has ripple effects on the GDP because an increase in this segment boosts the country's economy.

"Social spending positively affects private consumption. The government should set an objective around increasing social and economic participation. Many countries have introduced mandatory employer and employee contribution as a percentage of their wage towards social spending fund (e.g. public provident fund) which is made available to people when they need it. This will deliver significant long-term productivity growth and savings to not only governments but to everyone in the value chain," added Chaturvedi.

This way, he said, government can enforce social spending with joining hands with private sector.

On average, IMF said countries in the region spend six per cent of GDP on healthcare, of which three per cent is public expenditure and three per cent is private.

Public education spending in the region is also lower than global peers. On average, governments in the region spend 3.5 per cent of GDP on education, whereas global emerging markets are at 4.2 per cent. GCC countries spend less on education, relative to GDP, than their advanced economies counterparts, but they spend relatively more in terms of PPP US dollars per capita spending. - waheedabbas@khaleejtimes.com


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