The International Monetary Fund (IMF) and the World Bank began their Annual Meetings in the Moroccan city of Marrakesh on October 9. Finance ministers and central bank governors from 190 countries are in attendance, with the meetings likely to address prevailing economic crisis in the global economy. The meetings are set to wrap up on October 15.
Since 2020, successive economic shocks have led to loss of USD 3.6 trillion of the global output, stated IMF chief Kristalina Georgieva in a speech on October 5, meant to kick off the series of meetings from October 9-15. Noting that low-income countries had been hit the hardest, she added that this trend was due to their “extremely limited capacity to buffer their economies and support the most vulnerable”.
What Georgieva’s speech did not acknowledge is the enduring role of the IMF and the World Bank in hollowing out state capacity to address socio-economic challenges. With more than half of low-income countries facing debt distress, the US-dominated Bretton Woods institutions have continued to push their age-old, failed policies of austerity, characterized by cuts to essential public services, subsidies and benefits.
“With little or no fiscal space left– and with rising debt servicing costs– many governments are facing tough decisions. It means prioritizing spending and communicating clear medium-term fiscal plans to build credibility and reduce debt levels,” Georgieva said.
The IMF chief cited the energy subsidy “reform” in Nigeria as one such example of a “tough decision” in the right direction. What is not included is that the move led to fuel prices rising by almost three times in the country.
According to a new analysis released by Oxfam International, 57% of the world’s poorest countries, which are home to about 30% of the world’s population, will have to cut their public spending by USD 229 billion over the next five years.
At the same time, based on the current terms of various loans, low and lower-middle income countries will be forced to pay almost USD 500 million every day in interest and debt repayments from now until 2029.
With entire countries on the verge of bankruptcy, spending on debt repayments has outstripped health care spending by four times in the most impoverished countries.
“The World Bank and IMF are returning to Africa for the first time in decades with the same old failed message: cut your spending, sack public service workers, and pay your debts despite the huge human costs,” said Oxfam’s interim Executive Director, Amitabh Behar. This week also marks the first time since 1973 that the IMF and World Bank are holding their annual meetings on the African continent.
“The IMF is forcing poorer countries into a starvation diet of spending cuts, driving up inequality and suffering,” Behar added.
With the failure of decades of neoliberal structural adjustment on full display, the IMF has tried to use various smokescreens to distort the potential impact of its directives— more “a crisis of public relations”, if anything. Loan agreements are called “homegrown” and much emphasis is placed on what the Fund calls “social spending floors”, which refer to thresholds set for public spending.
However, Oxfam laid out in its report that for every one US dollar that the IMF urged governments to allocate for public spending, it directed them to cut six times more via austerity measures.
“Rather than canceling unpayable debts, rich countries want to use the Annual Meetings to fiddle with the Bank’s balance sheet to squeeze out money for yet more loans…In the next room, poorer countries are still being told to slash spending on public services and social programs critical to fighting poverty, reducing inequality, and realizing the rights of women and girls,” Oxfam’s interim Executive Director denounced.
Much of the burden of raising revenues placed on governments tends to take the form of expanding Value-Added Tax while cutting “regressive” subsidies. Meanwhile, foreign capital and the wealth of the rich is left largely intact.
In a separate report titled the “Middle East and North Africa Gap [MENA]: prosperity for the rich, austerity for the poor”, Oxfam noted that the richest 0.05% in the region saw their wealth increase by 75% to reach almost USD 3 trillion by the end of last year. Instead of taxing this wealth, governments resorted to cut maternity benefits, pensions and public sector salaries, the report says, citing examples of Jordan, Egypt, and Tunisia respectively.
Half of the total income generated in the MENA region since the 1990s has gone to the top 10%, with only 11% left for people in the bottom 50%. “The prevalence of informal employment in the region- accounting for about 60% of total employment- is directly linked to the meager share of economic growth captured by the bottom half of the population,” the report states.
International financial institutions, for their part, have pushed for measures that lead to the dismantling of comprehensive and universal public schemes in favor of targeted safety nets that end up excluding most of the population. These measures include direct cash transfers that are based on effectively arbitrary classifications of people into levels of poverty.
As Behar stated, “Austerity is an ideological fiction that has wrought incalculable damage…Who will deliver babies and save lives later when nurses and doctors in public hospitals lose their jobs now?”
