IMF paves way for new era of austerity post-COVID-19

84 percent of the International Monetary Fund’s (IMF) COVID-19 loans encourage, and in some cases require, poor countries hard hit by the economic fallout from the pandemic to adopt more tough austerity measures in the aftermath of the health crisis, warned Oxfam today.

New analysis by Oxfam finds that 76 out of the 91 IMF loans negotiated with 81 countries since March 2020 ―when the pandemic was declared― push for belt-tightening that could result in deep cuts to public healthcare systems and pension schemes, wage freezes and cuts for public sector workers such as doctors, nurses and teachers, and unemployment benefits, like sick pay. 

“The IMF has sounded the alarm about a massive spike in inequality in the wake of the pandemic. Yet it is steering countries to pay for pandemic spending by making austerity cuts that will fuel poverty and inequality. These measures could leave millions of people without access to healthcare or income support while they search for work, and could thwart any hope of sustainable recovery. In taking this approach, the IMF is doing an injustice to its own research. Its head needs to start speaking to its hands,” said Chema Vera, Oxfam International’s Interim Executive Director.

The IMF’s own research shows austerity worsens poverty and inequality, yet it is encouraging countries which receive loans to roll back inequality-busting measures put into place since the beginning of the pandemic:

• Ecuador: healthcare and burial services collapsed in April, yet the government has been advised by the IMF to backtrack on increases in healthcare spending and stop cash transfers to people unable to work. The IMF and Ecuador recently agreed a $6.5 billion loan, which includes cuts to fuel subsidies which poor people rely on. A year ago, Ecuador’s president, Lenín Moreno, was forced to cancel a disputed IMF-backed austerity package after protests left several dead. 
   
• Nine countries including Angola and Nigeria are likely to introduce or increase the collection of value-added taxes (VAT), which apply to everyday products like food, clothing and households supplies, and fall disproportionately on poor people. Unemployment in Nigeria has surged to 27 percent, the highest in at least a decade.
   
• 14 countries including Barbados, El Salvador, Lesotho and Tunisia are likely to freeze or cut public sector wages and jobs, which could mean lower quality of healthcare and fewer nurses, doctors and community workers in countries already short of healthcare staff. Tunisia had just 13 doctors per 10,000 people when COVID-19 struck. In Costa Rica, protests have erupted against the government for seeking a $1.75 billion loan from the IMF in exchange for austerity measures, including public sector wage freezes.

Oxfam and Development Finance International (DFI) analysis released last week revealed that governments’ failure to tackle inequality ―through support for public services, workers rights and a fair tax system― left them woefully ill-equipped to tackle the COVID-19 pandemic. The IMF has contributed to these failures by consistently pushing a policy agenda that seeks to balance national budgets through cuts to public services, increases in taxes paid by the poorest, and moves to undermine labor rights and protections. As a result, when COVID-19 hit, only one in three countries, representing 22 percent of the global workforce, had safety nets for workers to fall back on if they lost their job or became sick. 

“The IMF’s austerity drive will hurt the countries it claims to help. The IMF must not repeat the mistakes it made in the aftermath of the 2008 financial crisis where ordinary people paid the price for austerity measures. Instead, the IMF should press countries to boost investments in universal health and education, and ensure the richest individuals and large corporations pay their fair share of tax,” added Vera.

If Egypt had implemented a two percent wealth tax from 2010, it could have raised $20 billion in tax revenues ―equivalent to all IMF loans to Egypt during the same period― which could have been invested in improving public healthcare and rebuilding social protection systems.

Meanwhile, the World Bank has mobilized $6 billion for its COVID-19 Fast Track Facility and has pledged $160 billion in emergency funding centered on healthcare and social protection ―but it has refused to cancel the $3.77 billion (or $10 million a day) in debt owed to it by 73 of the world’s poorest countries this year. 64 countries, including Kenya, Pakistan and Zambia, spend more on debt repayments than healthcare.

New Oxfam analysis of World Bank health emergency response projects approved between April and end of June 2020 finds that just 8 out of 71 projects aim to eliminate healthcare fees, which are prohibitive in at least 56 of these countries. Out-of-pocket healthcare expenses hit the poor and women the hardest and, prior to the pandemic, pushed 100 million people into poverty every year.

“If people can’t afford testing and care for COVID-19 and other health needs, the virus will continue to spread unchecked and more people will die. Out-of-pocket healthcare expenses were a tragedy before the pandemic, and now they are a death sentence,” added Vera.