How can social conditions in sub-Saharan Africa be improved? Does higher social spending mean better social outcomes? This working paper from the International Monetary Fund (IMF) analyses the correlation between social indicators in sub- Saharan Africa (SSA) and government spending. The hypothesis tested is that countries with higher social spending have higher social indicators. Three alternative measures of government social spending are used, per capita, as a percentage of GDP and as a percentage of total government expenditure. The social indicators used are health and education outcomes.
There have been some improvements in certain social indicators in SSA, but this is by no means universal. Spending per capita and as a percent of GDP are related to social outcomes, but the share of social spending in budgetary allocations does not appear to correlate with outcomes. Against a background of declining foreign assistance cost effectiveness in social spending is of paramount importance.
The main finding of the study was to confirm the link between per capita spending or spending as a percentage of GDP and social indicators. Other key points include:
- Controlling for national situations (proxied by income in US dollars) improves the regression.
- In SSA there have been marked improvements in literacy, child mortality and immunisation, and rather more marginal outcomes for life expectancy, school enrolment rates. These figures will have been impacted by HIV rates.
- Time trends in social spending show a rise, but also a marked volatility. This volatility may be linked to fluctuations in exchange rates and foreign aid flows. Overall, foreign aid to the region has decreased.
- All indicators of spending rose sharply at the end of the period – this may be in anticipation of HIPC implementation, or possibly improvements in tracking and reporting social spending.
- Education indicators respond better than health indicators to higher government spending. With the exception of female secondary school education, none of the indicators of social spending is very powerful in explaining social outcomes.
- Per capita external assistance to SSA countries has declined since the early 1990s. This may have had immediate or lag impacts on social indicators.
The findings of this study are designed to improve policy makers understanding of how social indicators may respond to changes in spending. Specific recommendations include:
- Policy makers should not regard increasing shares of budget allocations as sufficient conditions to declare social allocations as adequate.
- Absolute budgetary allocations are preferable to budgetary shares in improving health and education.
- Donors should consider carefully the different alternative measures of social spending in terms of their potential implications on local social indicators.
- Decisions on social spending should be guided by cost effectiveness.
- Decisions on social spending targets can be enhanced if targets are defined in terms of social spending indicators with higher correlation to desired outcomes.
- When making funding decisions, donors should take into account the relative social policy implementation records of aid recipient countries.
