As governments prepare their budgets, the familiar dispute between finance ministries and social-sector departments should be reconsidered: spending on health, education and social protection is not separate from economic policy, but central to it.
Health ministers arrive with evidence of overcrowded hospitals, medicine shortages and doctors leaving for better-paid jobs abroad. Education ministers point to crowded classrooms and untrained teachers, while social protection officials outline how many vulnerable households could benefit from modest increases.
Finance ministers approach the negotiations with figures on debt repayments, weak revenues, deficit targets and the demands of creditors and rating agencies. To them, every request competes for limited resources. To social ministers, the finance ministry is the barrier between their departments and the communities they serve.
Political scientist Aaron Wildavsky described budgeting as a contest between treasury guardians and spending advocates. But that view assumes finance ministries protect the economy while social ministries merely spend on society. The distinction is misleading.
The tension is partly institutional. Finance departments focus on annual budgets and medium-term fiscal targets, while the benefits of education, healthcare and early-childhood investment can take decades to emerge. A child who remains in school may later become a more productive worker, healthier parent and larger taxpayer, but those gains seldom appear in a short fiscal framework.
Accounting systems reinforce the divide. Roads, dams and power stations are recorded as capital investment, while teachers’ salaries, nurses’ wages and cash transfers are treated as recurrent spending. Yet infrastructure delivers less without trained engineers, healthy workers and literate traders.
External pressure can deepen the problem. During fiscal adjustment programmes, reducing teacher allowances or delaying health facilities may be easier than reforming a state enterprise or expanding the tax base.
Evidence from Ghana and South Africa shows that social programmes can generate economic returns. Secondary-school scholarships awarded by lottery in Ghana in 2008 increased school completion and healthier behaviour, while women who received them earned more years later. Ghana’s Livelihood Empowerment Against Poverty programme led beneficiaries to save more, lend more and become more creditworthy. South Africa’s old-age pension increased employment among younger household members by helping finance job searches, migration and childcare.
Ghana’s National Health Insurance Scheme, funded largely through a levy on goods and services, similarly links social protection, public finance and economic activity. Earlier, the country’s provident fund for formal-sector workers became its largest source of investment finance by the mid-1970s, helping fund roads, schools and water systems.
The costs of separating the two areas are also clear. Admission quotas introduced to control Ghana’s teacher-trainee allowance helped produce a lasting shortage of trained basic-school teachers. Replacing the allowance with student loans, partly to meet fiscal commitments, triggered protests from trainees and unions, became an issue in the 2016 election and was reversed in 2017.
User fees introduced in public healthcare during the 1980s under the “cash and carry” system reduced access for poorer households. The apparent savings later surfaced as illness, lost working days and declining trust in government. Ghana’s 2023 Extended Credit Facility with the IMF included a social-spending floor, recognising the need to protect vulnerable sectors, although such floors still frame them as costs rather than investments.
Finance ministers nevertheless have legitimate concerns. Debt crises hurt poor households most, badly designed programmes can waste money, and departments may misuse resources. Rejecting poorly targeted schemes, inflated payrolls or programmes without evidence is part of the finance ministry’s role.
The answer is joint stewardship. Budgets should assess spending by its contribution to development, rather than rely on the capital-recurrent divide. Finance and sector ministries should appraise programmes together, extend fiscal planning to include the cost of underinvestment, and place economists in social ministries and social-policy experts in finance departments.
Adjustment programmes should protect proven investments, not only impose minimum spending floors. New Zealand’s 2019 wellbeing budget, which required ministries to make joint bids around shared priorities, offers one example.
Thandika Mkandawire argued that social policy should support production, protection, reproduction, redistribution and social cohesion. Finance ministers and social ministers may view the same future through different lenses, but they are working on the same economy.
Michael Kpessa-Whyte is Associate Professor of Public Policy & Governance at the Institute of African Studies, University of Ghana, Legon, and Director-General of Ghana’s State Interests and Governance Authority. He is also a scholar of African social policy and a Co-Principal Investigator of the Gender Equitable Transformative Social Policy for Africa project at the University of Ghana.
