AFRICA BEING PUSHED TO THE LIMITS: How the bid to meet IMF requirements creates a fertile ground for inequality.
By Lusungu Kacheche Dzinkambani
African countries started their Covid-19 recovery period in a very parlous economic state. Poor people’s income fell sharply during the pandemic and according to UNECA, the pandemic forced 55 million into poverty in 2020. At the same time, Africa’s debt burden has accelerated to crippling levels. In 2021, total public debt (external and domestic) averaged 68.3% of GDP, from 61.5% in 2019, IMF. An Oxfam report outlines that debt servicing accounted for 51% of budget revenue in 2021, limiting them from spending enough on social services such as health and education.
As outlined in the Africa briefing paper on commitment to reduce inequality, even when countries allocate high proportions of their budgets to social spending, the amounts spent per capita and coverage of the poorest citizens remains low. For instance, on average, Africa spends 16.3% of government budgets on education which is more than Latin America, East Asia, and South Asia. Despite this commendable ratio of spending, results on the ground are limited. For instance, in 14 of African countries fewer than 1% of the poorest children finish secondary school. This calls for governments and development partners to collaboratively adopt and push for policies that ensure the citizens are protected from the economic crisis. However, this is not the case as some African nations are instead being encouraged by IMF to adopt austerity measures to continue paying their debts while not enough is being spent on their citizens.
An Oxfam analysis revealed that in the second year of the pandemic, between March 16, 2021, and March 15 2022, the IMF approved a further 23 loans to 22 countries most of which have conditionalities relating to austerity. For instance, in 2021, 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. Cameroon and Senegal were required to introduce or increase the collection of value-added taxes (VAT), which burden is disproportionately felt by poor people, and Sudan, where nearly half of the population is living in poverty, has been required to scrap fuel subsidies which will hit the poorest hard through higher transport and food prices.
Take my own country Malawi, for example. In May 2022, during its engagement with the IMF on Extended Credit Facility program, the country devalued its currency – the Malawi Kwacha – by 25%. The IMF commended the move through their comment that ‘the authorities’ recent decision to normalize the foreign exchange market to help address foreign exchange availability is welcome’.
The devaluation was enacted despite it’s likely harm on Malawi’s citizens and against the advice of key economists. For instance, Thomas Munthali, the Director General for the National Planning Commission, and Frank Ngalande, in a paper titled ‘Is Devaluation an Option for Malawi’s Current Debt Challenges’ recommended otherwise, highlighting that for Malawi, a net importer of basic and essential commodities such as food, a devaluation impacts negatively not just on the economy, but also on the livelihoods of the common person.
The devaluation came at a point when the quality of life for Malawians had already been deteriorating, due to the rise in price of goods caused by the war in Ukraine, two phases of cyclones, the effects of the COVID-19 Pandemic and high debt servicing. In this situation, imported products like food and fuel will go up making them inaccessible to the poor. The devaluation, which has been implemented without any plans for cushioning the impact on poor people, is widening inequality, and sending more people into extreme poverty. I know of many families in Malawi, most of them female headed, that could not afford one meal per day before devaluation. My heart cringes at the thought of what is happening to them with the current inflation situation without universal social protection.
For all countries, the IMF should support and encourage governments to facilitate inclusive national dialogue and consultations on macro-economic reforms that will affect people’s lives. These kinds of dialogues allow reaching a national broad agreement on reforms that would improve the economic situation while reducing inequality and would ensure national ownership that will increase the likelihood of successful recovery. Instead of the usual stringent fiscal targets and spending cuts, the IMF should implement its own recommendations that it voiced in its research and publications on the need for more progressive measures such as increasing progressive taxation and instituting wealth taxes to mobilize revenues as an alternative to wage cuts and increasing VAT and others. They should be listening to their own research that shows austerity leads to greater inequality and hampers growth. They should also give to Africa the same advice they give to European countries, such as the one expressed by the IMF Managing Director to European leaders that they should not endanger its economic recovery with the ‘suffocating force of austerity’. Above all, with the current economic situation in Africa, the IMF should aim at helping low- and middle-income African countries with debt restructuring and cancellation to free up vital resources for a just and inequality reducing recovery.
Only with a fundamental and large-scale attempt to resolve this debt crisis can African nations have a hope of tackling poverty and inequality and building a better future out of these catastrophic times.
Author: Lusungu Kacheche Dzinkambani is the Just Economies and Inequality Lead at Oxfam Pan Africa Program and African Union Liaison Office.
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