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87 % of IMF Loans Force Austerity on Crisis-stricken Countries – Study

Developing nations that have been denied fair access to vaccines and are facing some of the world’s worst humanitarian crises must implement strong, new austerity measures that will increase poverty and inequality, as a result of 87 percent of the International Monetary Fund’s (IMF) COVID-19 loans.

According to a new Oxfam study, 13 of the 15 IMF loan plans agreed during the second year of the epidemic demand new austerity measures like food and fuel surcharges or spending cuts, which might jeopardize essential public services. Six other countries are being encouraged by the IMF to take similar steps.

The IMF provided billions in emergency loans to developing nations in 2020 to help them deal with COVID-19, frequently with few or no conditions attached. Recently, IMF chief Kristalina Georgieva urged Europe not to endanger its economic recovery with “the suffocating force of austerity”. Yet, over the past year, the IMF has gone back to imposing austerity measures on lower-income countries.

IMF Managing Director Kristalina Georgieva recently encouraged Europe not to endanger its economic recovery with “the suffocating force of austerity”. Nonetheless, the IMF has returned to enforcing austerity measures on low-income nations in the last year.

In a statement, Oxfam International’s Senior Policy Advisor, Nabil Abdo noted that, “This epitomizes the IMF’s double standard: it is warning rich countries against austerity while forcing poorer ones into it. The pandemic is not over for most of the world. Rising energy bills and food prices are hurting poor countries most. They need help boosting access to basic services and social protection, not harsh conditions that kick people when they are down.”

Kenya and the IMF agreed a $2.3 billion loan program in 2021, which includes a three-year public sector pay freeze and increased taxes on cooking gas and food. More than 3 million Kenyans are facing acute hunger as the driest conditions in decades spread a devastating drought across the country. Nearly half of all households in Kenya are having to borrow food or buy it on credit.

  • 9 countries including Cameroon, Senegal and Surinam are being required to introduce or increase the collection of value-added taxes (VAT), which often apply to everyday products like food and clothing, and fall disproportionately on people living in poverty.
  • Sudan, where nearly half of the population is living in poverty, has been required to scrap fuel subsidies which will hit the poorest hardest. The country was already reeling from international aid cuts, economic turmoil and rising prices for everyday basics such as food and medicine before the war in Ukraine started.
  • Over 14 million people need humanitarian assistance (almost one in every three people) and 9.8 million are food insecure in Sudan, which imports 87 percent of its wheat from Russia and Ukraine.
  • 10 countries including Kenya and Namibia are likely to freeze or cut public sector wages and jobs, which could mean lower quality of education and fewer nurses and doctors in countries already short of healthcare staff. Namibia had fewer than six doctors per 10,000 people when COVID-19 struck.

Oxfam and Development Finance International (DFI) released a new report yesterday that found that 43 out of 55 African Union member states face public expenditure cuts totaling $183 billion over the next five years. If these cuts are implemented, their chances of achieving the UN’s Sustainable Development Goals will likely disappear. A study of IMF COVID-19 loans by Oxfam in 2021 revealed that the Fund encouraged 33 African countries to pursue austerity policies in the aftermath of the health crisis. The pandemic has not ended but these policies are already taking shape across Africa.

The research also reveals that African governments’ failure to tackle inequality – through support for public healthcare and education, workers’ rights and a fair tax system – left them woefully ill-equipped to tackle the COVID-19 pandemic. The IMF has played a role in these failures by promoting a policy agenda that attempts to balance national budgets by cutting public services, raising taxes on the poorest, and weakening labor rights and safeguards. As a result, when COVID-19 struck, 52 percent of Africans lacked access to healthcare, and 83 percent lacked safety nets in case they lost their job or fell ill.

“The IMF must suspend austerity conditions on existing loans and increase access to emergency financing. It should encourage countries to increase taxes on the wealthiest and corporations to replenish depleted coffers and shrink widening inequality. That would actually be good advice”, Abdo added.

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