Health spending, suggestive studies and the IMF’s guilt-by-association

Larry Elliot of The Guardian reports this morning that “Oxford University-led research finds signs that tough loan conditions imposed by IMF has led to health aid being diverted for other uses”.

Wow? Research from Oxford University? This must be true.

Alas, the devil is still firmly seated in the details. I took a gander at the study this morning, titled International Monetary Fund and Aid Displacement (International Journal of Health Services, 41 1: 67-76). You can find a temporarily ungated version here.

It is an interesting paper, but rather limited in its ability to provide a causal story. The authors compare the growth in health spending in countries that have been borrowing from the IMF since the mid-1990s to those that haven’t, and conclude that there is less `divergence’ (what we used to call fungibility) in countries which don’t take IMF loans.

There is an urgent, painfully obvious problem with concluding anything causal here: countries which decide to accept IMF loans are likely to be very different than those that don’t, and these differences are going to have impacts on health spending, above and beyond the restrictions imposed by IMF conditions.

The authors do recognize this, but they don’t make a big deal about it (they do say included some more controls in alternate specifications, but they don’t bother reporting them!).

A final important point is that countries seeking IMF support are likely to differ from countries that are not, and a request for an IMF loan is often associated with severe economic problems. Nonetheless, even in such circumstances,it is reasonable to expect aid from donors to have at least some positive impact on health funding, especially given that health needs are often greatest at such times.

Unfortunately, I don’t think all of us would consider that a reasonable expectation. There are further issues with this study, which is similar to the study on fungibility that ruffled some feathers last year which David Roodman subsequently demolished.

That doesn’t stop both The Guardian from making a very roundabout conclusion that it might be the IMF’s fault that some countries aren’t meeting their MDG targets:

In an investigation of more than 100 low and middle-income countries, the report sought to explain why increased aid spending had left many countries well off track to hit the United Nations millennium development goals (MDGs) for health, which include a two-thirds reduction in infant mortality and a three-quarter decline in maternal mortality.

They said one likely explanation was that the curbs on public spending stipulated by the fund were encouraging governments in poor countries to use health aid for other needs. Countries that did not borrow from the IMF were found to have channelled 45 cents into health systems for every dollar of aid received.

What needs to happen? The Guardian economics editor needs to start reading articles in non-economic journals with the same skepticism he would apply to econometric studies in economic journals, especially before he begins drafting articles which go about the painstaking task of desperately trying to suggest to the reader that there is a causal story without actually saying it – articles with headlines like “IMF loans `Divert aid from public health’”.

What we also need to see is more push back from academic bloggers. Newspapers will forever keep making causal conclusions from studies which can’t make the same claims, we need to call them out when they do so.

A final important point is that countries seeking IMF support are likely to
differ from countries that are not, and a request for an IMF loan is often associated
with severe economic problems. Nonetheless, even in such circumstances,
it is reasonable to expect aid from donors to have at least some positive
impact on health funding, especially given that health needs are often greatest
at such times.

In Need of Sexing Up: Audit

The art of defenestration.

Sidney J. Mussberger did not want to talk about the Audit.

We’ve said before that some of the most important issues in development are the least romantic and photogenic. One of the issues missing a glass slipper is audit. Let’s be frank for a moment: audits are boring. They are boring to do, boring to read about (except in the rare occasion that they bring to light spectacular mismanagement of funds) and they are boring to talk about, except in their most condensed forms. I have never been the most patient meeting attendee, but two things are guaranteed to have me pining for the release of defenestration: macroeconomic data reconciliation meetings and audit meetings.

Yet, I actively seek out both. Beneath the stolid veneer of number crunching, these are the areas where the Government’s intentions for economic management and the use of public funds are best revealed in their most unforgiving light. After the complaints, arguments and counterarguments that the Lancet article about resource management brought up, this is a timely point to make. The only really legitimate argument that can be made against Governments substituting aid money for their own spending in a sector is if the allocation of funds by Government is grossly inappropriate – otherwise the complaints make a mockery of good budget management and the concept of local ownership of development processes. Yet for all the cry and hue, it’s interesting that no-one has actually looked and examined how many of the countries ‘guilty’ of reallocation have been audited.

If a Government is audited, it should be relatively clear where money has gone. Once this is the case, the whole fungibility argument becomes obsolete: it doesn’t matter what money facilitates bad spending. Bad spending should be minimized regardless. If this is done and reveals no horrorshows, then fungibility of aid is not an issue: all spending is at least justifiable, with no money spent on a new Range Rover for the Minister of Finance’s nephew or a shopping expedition to Paris for the First Lady. The role of donors here is crucial, because it must be played very carefully. A donor that bullies the Government into submitting to an audit by auditors appointed by the donors will face a serious backlash: it is not their Government or money to audit (they can of course audit their own programmes) and they are infringing upon the sovereignty of the state in question. Any canny politician can easily spin this as a case of ‘modern imperialism’ and reject the audit findings, however well-intentioned they were.

Rather, a donor can only advocate for an audit to be initiated by a third party, following legal procedures put into law by the Government. The donor’s role here is to remove all excuses for not holding the audit: to train the supreme audit body, to make sure they have the equipment they need, to provide the legal experts to make sure that the laws governing audit are drafted adequately. This is all fairly obvious and very common. But this is of course only half the story. If the audit is released without any explicatory documents and very little press, its impact outside a small coterie of finance geeks and development agencies will be minimal. The power of audit is to stimulate accountability, and a Government should be accountable to its electorate, those who pay tax to fund it and expect services in return.

This is the insight that lies behind the recent increase in interest in demand-side accountability. Essentially, the idea here is to give civil society groups the ability to scrutinise the myriad information that a Government can produce and to articulate the demands of the electorate better. Again, this is a tricky role for donors to play, because it leaves them open to charges of political partiality. What they must do, therefore, is focus on providing skills to all parties that desire them – and not advice. In Tanzania and Malawi, I have noticed an upswing in this kind of work, and initial signs that NGOs and CSOs are engaging more with budget processes, audit and the like are encouraging. This is probably the one area where I think donors tend not to spend enough time working with non-Government actors. Continue reading

The Society Wedding of the Year

What do you do for money, honey?

Bingu wa Mutharika, the President of Malawi, has just remarried, a few years after the death of his first wife, Ethel. The Times is reporting that it was quite a bash. Bingu arrived in true P. Diddy style, emerging from a white Chrysler flown in from South Africa for the occasion wearing a white tuxedo with white gloves, having driven over two roads specially built to take the bride and groom to Civo Stadium for their restrained and tasteful nuptials. The bridal party arrived in a fleet of new Mercedes’, and the whole wedding is alleged to have cost about GBP 2 million, part of which paid for a twenty-eight tier wedding cake.

Apart from the identity of the joker who convinced Bingu that he looked good in his white tux, the big question here is where the money came from. If these were state funds, it is a perfect example of the kind of spending that the fungibility article from the Lancet raised fears of, and which I discussed last week. Is aid money facilitating this kind of opulence? Two things need to be true before we can conclude this. Firstly, it must be the case that the President used state funds for his wedding. This isn’t clear. The Times article offers the following, neither part of which is particularly convincing:

Senior officials, speaking on condition of anonymity, have claimed that the president used public funds for the celebrations, an accusation that the government denies…

The Malawian government’s information minister rejected claims that public money had been used to pay for the wedding. “The [£2m] cost of the wedding has been met by the president himself and friends who wish him well,” he said.

The second issue is whether, even if state funds were used, aid money made any difference. It’s quite possible that the same wedding would have taken place, with the same cost, but with developmental spending suffering even more. If this is the counter-factual, then aid money isn’t facilitating bad spending but mitigating the damage it causes.

With regards to the first issue, as I said in the comments section of Matt’s post on fungibility, audit is where we should be focusing: a comprehensive audit should give us a very good idea of whether or not this money came from Government coffers or Bingu’s personal wealth, together with those of his supporters, some of whom are so fervent I have witnessed them running after his Presidential vehicle waving huge framed posters of him as he disappears from view. I’m going to discuss audit in a bit more depth later this week, but to their credit, the Times does mention the findings of a recent audit of Malawi’s Government expenditure in its article:

A report by the country’s auditor general [showed] that more than £800,000 of public funds had been spent on goods and services between 2003-05 which could not be accounted for.

The drawback? Despite the article being written by a Malawian (Mabvuto Banda, judging by the name, is at least of Malawian heritage), the article fails to point out that the audit reports it refers to relate to a previous Government, that of Bakili Muluzi. Members of this Government have already been investigated and indicted on corruption charges, and further arrests and investigations are always possible.

The fungible and the furious

New, unpleasant information requires careful analysis, not knee-jerk reactions

Last week the medical journal Lancet released an article suggesting that, on average, governments that receive more  health aid divert tend to shift domestic resources away from health.

The paper made some headlines and upset aid critics and much of the global health community. A part of this has to do with a misunderstanding of what the findings mean – a confusion which isn’t helped by  those that propagate incorrect and sensationalist interpretations of the study.

However, a lot of the anger over the results comes from those that do understand the implications of the study, but are angered by an apparent divergence in priorities between the global health community and recipient governments. Both Ranil and Owen Barder talk about this in more detail, although I’ll go through some similar arguments.

These are my scattered thoughts on the whole issue.

Continue reading