Mongolia and Kyrgyzstan lose out in their struggle with the IMF over the targeting of child benefits

All those supporting inclusive social protection will be sad to hear that, in the past couple of months, Kyrgyzstan and Mongolia have both lost out to the International Monetary Fund in their struggles to establish universal child benefits. The IMF has obliged both countries to target their schemes at those living in poverty, thereby substantially reducing their effectiveness. Below, I outline a brief summary of the latest events.

Mongolian child

Mongolia’s Child Money Scheme

Mongolia first introduced its universal child benefit – the Child Money programme – in 2006. Since then, it has constantly had to fight against pressures from international agencies to either abolish or target the scheme (see Kidd 2015, page 9). The Child Money programme has been very effective, reaching around 99 per cent of children who have received US$10 per month at a cost of only 1.4 per cent of GDP.

For the past year or so, the IMF and its allies have, once again, been exerting considerable pressure on Mongolia to target the Child Money programme, making targeting a condition – or, as they say, “a structural benchmark” – for the disbursement of loans from a range of development ‘partners’ [1]. These loans are considerable and include a US$425 million Extended Loan Facility from the IMF itself alongside US$100 million from the Asian Development Bank, US$120 million from the World Bank and US$280 million from Japan.

In early 2017, the IMF demanded that the Government of Mongolia target the Child Money programme to the poorest 40 per cent of households [2]. While it appears that the Government initially agreed to this demand, in July 2017 – following an encouraging increase in government revenues – the Mongolian Cabinet decided to re-introduce universal coverage. A key reason was its recognition that the introduction of targeting was unpopular with citizens. As the Mongolian Government stated in a letter to Christine Lagarde: “Given widespread dissatisfaction with the ambitious and rapid move to targeting of benefits we had undertaken, we decided to use our substantial revenue over-performance to suspend the targeting and provide benefits to all children, regardless of income level [3]”. Furthermore, the Government argued that many families were facing significant financial pressures and were in real need of support from the Child Money benefit.

The IMF and its partners were not convinced and continued to put pressure on Mongolia to target, withholding the disbursement of the promised loans. Apparently, the targeting of the Child Money programme was the only condition that Mongolia had not complied with but, nonetheless, the IMF was insistent. Mongolia tried to compromise on 80 per cent coverage of children, but this was not accepted.  Eventually, it was agreed that the programme would be targeted at 60 per cent of children and the targeting commenced in January 2018. As a result, the IMF, ADB, World Bank and Japan released the funds from their loans.

The IMF would probably argue that it is not reducing overall spending on social protection, since the savings from the Child Money programme will go into a food stamp scheme for the poorest families. Indeed, it argues that the Child Money programme will be “better targeted” once it is given to only 60 per cent of families [4]. Yet, as any student of social protection should know, accurate poverty-targeting is impossible and that the most effective means of reaching those living in poverty is via universal schemes (see Kidd et al 2017). The result of the IMF’s intervention will, therefore, be that many of Mongolia’s poorest families will miss out on both the Child Money and food stamp programmes: overall, over 400,000 children will now be denied income support. As Nick Freeland has explained, the reintroduction of targeting is an example of the Social Protection Flaw  promoted by neo-liberals, rather than the Social Protection Floor that has been agreed by all countries at the United Nations.

The widespread unpopularity of targeting in Mongolia will be a threat to the stability of the Government. As has happened in other countries, as a result of being forced to target the poor, the Government’s popularity will be hit. Indeed, it may lose the next election since any sensible opposition will campaign on the basis of reintroducing universality. It is also highly likely that, as with other poverty-targeted benefits, due to the unpopularity of the schemes, over time the budgets and value of the transfers will fall, thereby further harming those living in poverty.

The Government of Mongolia has not given up on reintroducing a universal programme. In November 2017, it informed Christine Lagarde: “We will continue to review our social assistance programs with development partners including ADB and JICA, while maintaining full consensus on how best to increase the coverage and maximise the effectiveness of those programs [5].” Mongolia’s Executive Director to the IMF also declared: “The authorities would … like to discuss with staff and development partners the ongoing effectiveness of the Child Money program, which is being reduced in coverage to target 60 percent of children. Increasing poverty, and a 15 percent reduction in the average household income over two years, has put great pressure on families in Mongolia, and Child Money could provide a reliable source of income for families to ensure that basic needs can be met.”  These statements indicate that the Government of Mongolia understands the concept of effectiveness in targeting much better than its development ‘partners’.

There is, of course, the question of whether the IMF has exceeded its mandate. By its own admission, it has not asked Mongolia to reduce its spending on social protection so there is no impact on Mongolia’s macro-finances. Instead, the IMF has meddled in internal social policy decisions which go well beyond its remit. Ironically, Ms. Lagarde, on 31st January 2018 – after she had been informed about the IMF’s ‘success’ in Mongolia – stated: “We do need to recognise …. that the ultimate responsibility for taxation and spending measures rests with national governments and legislatures, and there are limits to how much the IMF can influence decisions that belong to the realm of the sovereign[6].” However, in the case of Mongolia, the IMF’s influence appears boundless (although it does help to be able to threaten countries by withholding loans).

Let us hope that the Government of Mongolia – and democracy – finally wins out in this ideological struggle with development partners that has been on-going for more than 10 years.

Kyrgyzstan’s Universal Child Benefits

Readers of our blogs will know that Kyrgyzstan recently passed a law to introduce universal child benefits to replace the country’s ineffective poor relief scheme, the Monthly Benefit for Poor Families (MBPF). Analysis by the OECD (2017) had demonstrated that the proposed universal child benefits would be much more effective than the MBPF in both reaching the ‘poor’ and tackling poverty. Indeed, the MBPF – which uses a proxy means test to target recipients – has performed little better than random selection.

Little information is available on the process behind the Government of Kyrgyzstan’s decision to target its child benefits since the latest reports on the IMF’s missions to Kyrgyzstan have not yet been released. Nonetheless, we know that, between October 26th and November 8th 2017, the IMF visited Kyrgyzstan to undertake a review of its loan programme, the Extended Credit Facility (ECF). In the IMF’s own words: “The mission emphasised the importance of targeting as the most efficient and equitable way of utilising the limited resources of the social benefits program. In this context, the mission encouraged the authorities to explore ways to introduce targeting into the recently adopted universal child allowance law [7].” And, in a press release on 31st January 2018, the IMF triumphantly announced that the Government of Kyrgyzstan had agreed to ‘amend the law on universal child allowances to reintroduce targeting.’

We do not know what shape this targeting will take and the proportion of children to be excluded. We also are unaware whether the IMF used threats to withhold loans, as it did in Mongolia, or the extent to which it allied with other development ‘partners’ (although we know from informants that the targeting of the child benefits was supported by the World Bank). One thing we can guarantee, however, is that many of the poorest children will be denied access to much needed financial support given the very poor quality of the proxy means test in Kyrgyzstan.

Implications for the international community

For the past 25 years, Stephen Kidd has worked as a consultant and adviser on social development and social protection. He is currently a Senior Social Policy Specialist at Development Pathways and has previously worked for DFID as a Senior Social Development Adviser, including leading its Social Protection and Equity and Rights policy teams, and as Director of Policy and Communications at HelpAge International. He has significant leadership experience and has worked in over 25 developing countries.

For the past 25 years, Stephen Kidd has worked as a consultant and adviser on social development and social protection. He is currently a Senior Social Policy Specialist at Development Pathways and has previously worked for DFID as a Senior Social Development Adviser, including leading its Social Protection and Equity and Rights policy teams, and as Director of Policy and Communications at HelpAge International. He has significant leadership experience and has worked in over 25 developing countries.

So, what are the implications for the international community? It seems clear that the IMF and its partners are interfering in national policy discussions and using their power to influence decisions and subvert democracy. It is also worrying that the rest of the international community – including key UN agencies which purport to support inclusive social protection – appear to have remained silent despite the IMF’s actions clearly harming children and families in both countries. We should expect more from them, as should Kyrgyzstan and Mongolia, both of which should be able to look to the UN to protect them from outside threats.

A recent IMF internal evaluation criticised the institution for its simplistic understanding of social protection and its reliance on the World Bank for technical advice. Yet, the IMF appears to be ignoring the lessons from its own evaluation and continues to impose damaging social protection policies on low and middle-income countries, based on a 19th Century Poor Relief model. When will the IMF learn that, ‘Benefits for the poor are poor quality benefits?’ Surely, this simple message is not too hard to understand.

[1] IMF Country Report No. 17/396, December 2017

[2] IMF (2017) Article IV Report

[3] Letter to Christine Lagarde dated 30th November 2017

[4] See page 17 of IMF Country Report No. 17/396, December 2017

[5] Letter to Christine Lagarde dated 30th November 2017

[6] Letter from Christine Lagarde to UN Experts on the topic of IMF’s approach to social protection.

[7] IMF press release of November 9th, 2017.

9 Responses to “Mongolia and Kyrgyzstan lose out in their struggle with the IMF over the targeting of child benefits”

  1. Reagan Kaluluma Reply

    It is very unfortunate that developing countries have limited barging power to work out strategies that mitigate or reduce poverty by protection citizens from shocks. The most affected are the least economically empowered citizens. Mongolia is one of the examples where national governments are overpowered by multi-nations corporations . Structural Adjustment Programs which were heavily marketed ended up disempowering the same citizens the powerful corporations claimed they intended to protect.

  2. Due to the IMF extended funding facility in Mongolia, all taxes, fuel price and commodity prices had been raised and it leads to an increase in poverty, inequality and disparity. The IMF is focusing only on the macro economic indicators and eliminates the universal social protection in Mongolia.

  3. In the early years of planning about universal provision of social service in Mongolia I was invited to to a conference there. Unfortunately I didn’t make it. I was supposed to present my paper on Targeting and Universalism.

    Who gives these people so much power over the life and death prospectus of people?

  4. Something seems missing in the Mongolia story. It appears to be IMF with World Bank, ADB and JICA versus a united Mongolian government wanting to keep the universal child benefit. Usually, IMF has some local allies. Then I found this: “The general elections held in June 2016 are a critical opportunity to ensure that social protection remains a priority for the new Government amidst the current serious economic downturn. In August, the newly elected Government has announced a number of measures to reduce public expenditures, including re-introducing the income targeting of the Child Money Programme. This move implies reducing coverage to 60 per cent of children – using an existing household database which was created through proxy means testing of households for a smaller programme (the food stamps programme)” as per http://www.social-protection.org/gimi/gess/RessourcePDF.action?ressource.ressourceId=54117. What gives?

  5. Geoff Gottlied and Edward Gemayel Reply

    Dear Stephen,

    Thank you for your article on the critically important issue of social protection. The Fund’s view is that ensuring inclusion is key to achieving growth and economic stability over the longer term. For this reason, we have been devoting increased attention to distributional issues and social protection in recent years.

    The recent report by the Independent Evaluation Office (IEO), which you reference, indicates that the Fund has made significant progress in advancing its engagement on social protection, while noting that there is room to do better. One of the IEO’s recommendations—which received broad support from the Board and is now included in the Management Implementation Plan (with an expected date of early 2019)—is to establish a clear strategic framework to guide the Fund’s engagement on the issue. Among others, the strategic framework will look at one of the issues you raise: the Fund’s position on universal and targeted approaches to social protection.

    In developing this new framework, we will consult with the relevant international organizations, civil society organizations, labor unions, and experts. We hope we can consult with you to benefit from your expertise on this issue.

    In the meantime, we would like to add some clarification on our advice to Mongolia (see Staff Report here The most recent IMF staff report on Mongolia can be found here. http://www.imf.org/en/Publications/CR/Issues/2018/04/04/Mongolia-Staff-Report-for-the-Third-Review-Under-the-Extended-Fund-Facility-Press-Release-45783) and the Kyrgyz Republic. In both countries, in the context of significant macroeconomic challenges (including very high public debt and a large fiscal deficit) and needed fiscal adjustment, the IMF and its development partners have, in agreement with the authorities, prioritized protecting social spending and strengthening protection of the most vulnerable households.

    In Mongolia, the envelope of social spending has been protected since the start of the program (at 2% of GDP, it compares well to peers as the average in middle income countries is 1.6% GDP) and now a social spending floor has been included in the program to ensure such spending is protected going forward. The IMF, the authorities and donor partners have also been working to improve the effectiveness of social protection assistance, as the authorities themselves concluded that only 20 percent reached the poor in 2016. Efforts are ongoing to consolidate the vast number of tiny programs to limit administrative costs and increase benefits. Our partners have also recommended to focus the Child Money Program on the poorest 40% and use the savings to increase spending on the food stamps programs. This was not based on the views that targeting is always better but on a number of Mongolia specific factors including an improved ability to target, an appeal system to help correct gaps in the coverage of the poors, and the fact that the main targeted program, food stamps, had already been shown by the ADB to have a significant impact on food security. While the authorities were initially supportive of moving away from universal coverage of Child Money Program, their views have evolved since program approval. Recognizing this change in preference, the sharp increase in poverty level since 2014, and the broader improvement in the fiscal situation, the program first agreed on increasing the share of the population to receive Child Money to 60% and has just agreed to increase the coverage to 80%.

    In the Kyrgyz Republic, the IMF and the government agree that the current safety net, characterized by low coverage of the poor and low level of benefits, needs to be strengthened. The IMF is not opposed in principle to universal benefits. But given the high level of debt, the absence of a plan to finance a universal program, short-term constraints on increasing domestic revenue mobilization, and competing demands on fiscal resources, our concern is that the plan to introduce a universal child allowance risks crowding out other priority spending (e.g. health, education, and infrastructure investment) that is crucial for inclusive growth and poverty reduction over the medium term. Furthermore, under the current universal child allowance program the social benefits received by vulnerable groups have dropped compared to under the previous targeted system. For a universal child benefit program to be sustainable, a long-term strategy for a significant increase in revenue capacity would be needed.

    Geoff Gottlieb, IMF Mission Chief for Mongolia and Edward Gemayel, IMF Mission Chief for the Kyrgyz Republic

  6. Stephen Kidd Reply

    Barry: thanks for your comment. I think that we’ll find that the government announcement to target 60% of children was made as a result of the pressure from the ADB, IMF, and World Bank. The government later moved back to retaining the universality of the Child Money programme, once it realised how unpopular a measure it would be. Stephen

  7. Stephen Kidd Reply

    Dear Geoff and Edward,

    First of all, I’d like to thank you for replying to the blog on the targeting of child benefits in Mongolia and Kyrgyzstan. It is a very positive sign of openness, accountability and willingness to dialogue. However, while we appreciate your explanations, they do leave a number of points unanswered while generating a range of other questions. I’ll go through the key points one by one.

    MONGOLIA

    1. You indicate that only 20 per cent of social protection (or assistance) spending was reaching the poor in Mongolia (although, in contrast, in 2017 the World Bank claimed that the poorest 20 per cent of households receive 34 percent of total social welfare transfers). It would be useful to see how these calculations were done as I have been informed by another international organisation in Mongolia that this was a miscalculation. But, this should also be compared to another Government’s claim that, in 2016, almost 99 per cent of ‘the poor’ were in receipt of ‘public transfer programmes’, a remarkable achievement and almost certainly the result of programmes offering universal coverage (such as the Child Money programme, pensions and disability benefits). Further, as we’ve explained in other publications – see this paper for example – a fixed group called ‘the poor’ is a fictional construct. Household incomes change rapidly – as do the identity of the households comprising ‘the poor’ – so basing key social policy decisions on a fictional construct is probably not good practice. Indeed, given that the vast majority of the population in Mongolia is probably living on low and insecure incomes – and in need of social protection – removing 60 per cent of households with children from the Child Money programme will almost certainly damage the wellbeing of many vulnerable families (especially given the weak targeting methods employed – see below).

    2. You state that: ‘Our partners recommended focusing Child Money Program on poorest 40 per cent.’ So, presumably you are noting that the IMF merely followed the advice of partners (was this the ADB and World Bank?) rather than undertaking its own independent analysis. I could show you many examples of the World Bank offering highly questionable ‘advice’ so I would caution the IMF to be wary of depending on other institutions that are well-known advocates for poverty targeting, especially when taking decisions that could harm hundreds of thousands of children.

    3. You claim that Mongolia had an ‘improved ability to target’ while the IMF’s Structural Benchmark for its loan to Mongolia claims that the Food Stamp programme is better targeted than the Child Money programme. Yet, as I understand, the Food Stamp programme uses a proxy means test (PMT). As the international evidence clearly shows, the PMT mechanism is a highly inaccurate and arbitrary mechanism. So, the Food Stamp programme almost certainly generates significant exclusion errors (for example, the World Bank found that a programme of similar size in Indonesia, which uses a PMT, excluded 93 per cent of intended beneficiaries). In contrast, the universal Child Money programme has almost zero exclusion of children living in poverty. So, how can the Food Stamp programme be better targeted than the Child Money programme? And, how will introducing a PMT to the Child Money programme improve its targeting, given that it already has no exclusion errors but, with the PMT, will exclude a high proportion of eligible children?

    4. You state that there is an ‘appeal system to correct gaps.’ Yet, there is no evidence anywhere in the world of proxy means tests being accompanied by effective appeals mechanisms: the errors are just too high to allow proper appeals while any effective appeals mechanism would have to uses a different (and much more accurate) targeting mechanism to check the PMT result – rather than just re-doing the PMT survey – given the high design errors within PMTs. Is this the case in Mongolia? And, has there been any analysis to assess the effectiveness of the appeals mechanism?

    5. You state that the Food Stamp programme had a significant impact on food security. While I can understand that giving food to families living in poverty can impact on their food security, it’s difficult to believe that a programme reaching only around 2 per cent of households nationally could have a significant impact on food security nationally. Furthermore, according to the ADB, in 2012, the Food Stamp programme offered only MNT 5,000 per month per child compared to the MNT 20,000 per month per child offered by the Child Money programme, which suggests that the Food Stamp programme would have less impact on child wellbeing than the Child Money scheme. While there may be good reasons for expanding the Food Stamp scheme – it’s not unusual for countries to implement small poor relief programmes to accompany their core inclusive, lifecycle, social protection system (incorporating old age pensions, disability benefits and child benefits) – it is difficult to see why this should be done at the expense of the highly effective Child Money programme and the livelihoods of 60 per cent of households with children.

    6. While you say that the authorities were initially supportive of moving away from universality, could you clarify whether this was in the context of their being threatened with the withholding of loans? And, given that the Mongolian authorities have been in a struggle with international donors for over 10 years regarding the targeting of the Child Money programme, it is strange that, for a short period of time, they suddenly embraced targeting before reverting back to supporting universality. Are you sure that your staff weren’t just hearing what they wanted to hear? Furthermore, if the decision to target was a government decision, why did the IMF feel the need to insert this as a condition into its loan and withhold funding?

    Introducing targeting into the Child Money programme is likely to be political suicide in Mongolia. It is no surprise that the Government would prefer to maintain the universality of the scheme. In the second round of the Presidential elections of 2017, the Government promised to make the Child Money programme universal once more (retroactive to the beginning of the year) yet, despite this, the IMF continued to threaten to withhold loans if targeting was not implemented. This was a refusal to respect the promises made by the Government to the citizens of Mongolia.

    So, a key question to be answered is whether the IMF exceeded its mandate. Given that the IMF had no concerns with the overall level of investment on social protection, is it its role to enter into detailed policy design by forcing the government to abandon its commitment to a universal child benefit and move funds into the tiny Food Stamp programme?

    One result of the interference of donors is that the design of the Child Money programme has varied considerably over a short period, from targeted to universal and back again, as well as targeting different proportions of children. This really does not seem to be a great way to do policy and must be very confusing to citizens.

    Kyrgyzstan

    1. You state that: ‘our concern is that the plan to introduce a universal child allowance risks crowding out other priority spending.’ Does the IMF have any evidence that the Government planned to reduce health, education and infrastructure investment? Did the IMF consider whether savings could be made in other areas of government spending? Or, did the IMF examine whether investing in child benefits would have been an effective means of stimulating short, medium and long-term economic growth, which could have generated more taxes? Was targeting really the only option especially given the inefficacy of the Monthly Benefit for Poor Families (MBPF), Kyrgyzstan’s targeted poor relief scheme? Would it not have been better to undertake a comprehensive analysis of options to determine the best direction forward for the national social protection system rather than – as seems to have happened – just proposing poverty targeting? Targeting just seems to be the default option rather than being based on any strong evidence.

    2. You state that the social benefits received by vulnerable groups have dropped compared to the previous targeted system. This is debatable. While the value of transfers received by individual households on the MBPF may be lower than with the child benefits – and some may have been excluded – according to the European Union around 83 per cent of households in the poorest decile are excluded from the MBPF. The introduction of the universal child benefits would have not only meant a very significant increase in the proportion of households in the poorest decile receiving support. Furthermore, the EU estimated that the universal child benefits would have reduced the poverty gap by 22.2 per cent compared to the 5.3 per cent reduction achieved by the MBPF. So, unless the EU is wrong, it is difficult to see how ‘vulnerable groups’ would have been worse off with the introduction of the universal child benefits. A few individuals may have been worse off but this could have been addressed in the design.

    In summary, it is encouraging that you state that the IMF is not opposed in principle to universal benefits. Yet, in both Mongolia and Kyrgyzstan, the decision to impose targeting does not appear to have been based on strong evidence. I would encourage the IMF to take a more in-depth – and, importantly, independent – examination of both contexts and, on the basis of evidence, make recommendations (and not threats) to both governments on how to strengthen their national social protection systems.

    Stephen Kidd

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