Private
finance
Debt
Tax
justice
Aid
Financial
architecture

Ebola-affected countries: IMF cancels almost $100m debt amidst criticism about conditionality

Added 19 Feb 2015
The International Monetary Fund (IMF) announced its intention to cancel almost $100m of debt owed by the Ebola-affected countries Guinea, Liberia and Sierra Leone, and announced it would provide $160m in new loans. Debt justice campaigns welcomed the move, but have demanded that the IMF and other creditors should cancel all outstanding loans. It is still unclear whether the IMF will learn any lessons regarding the quality of its programmes: health experts have expressed harsh criticism about the impact of IMF conditionality on affected countries’ ability to prevent the Ebola outbreak.

Partial debt relief announced
Debt cancellation campaigners celebrated a small victory on 5 February as the IMF finally announced that $95m in outstanding IMF loans to Guinea, Liberia and Sierra Leone will be cancelled. This debt relief is part of an assistance package of $300m in ‘debt relief, grants and loans’ that the G20 pledged in November last year. It is financed through a new IMF facility called the Catastrophe Containment and Relief Trust (CCR)

While the IMF’s gesture was appreciated by many, as it relieves the affected countries from debt repayments to the IMF over the next years, observers argued that the IMF could have reacted earlier, and should have cancelled all debt. The current debt of Guinea, Liberia and Sierra Leone to the IMF amounts to $410m. A full debt cancellation could have easily been financed through the IMF’s $9bn in reserves that it has accrued through high interest rates on its loans, primarily by Euro crisis countries such as Greece in recent times.

Abu Bakarr Kamara from the Budget Accountability Network in Sierra Leone argued: “The debt relief by IMF is a welcome one for Sierra Leone. However, the devastation caused by Ebola on our health system requires sustained and progressive investment in the health sector for the next five years. Cancelling all Sierra Leone’s debt would contribute greatly to improve our health systems hence contributing towards achieving the Millennium Development Goals.”

Jubilee USA, which has campaigned heavily for the debt cancellation, states that the three countries have a combined total debt stock of over $3bn, so the recently announced relief is just a drop in the ocean. They also stress that “much of that debt comes from dictatorships, civil wars and one-party rule”.

New loans are not the answer
The debt relief is complemented by a new assistance package, which consists mainly of new loans, although many civil society organisations (CSOs) have argued that only grant assistance can help the Western African countries to build effective health systems, and to sustain these systems. Tim Jones, a policy officer at Eurodad member Jubilee Debt Campaign, found that the new loans will quickly outweigh the positive impact of debt relief: “The lending of more money means that Guinea, Liberia and Sierra Leone’s debt will actually increase. Grants should be given to cope with the impact of Ebola, not more loans which leave an unjust debt to be repaid over the next decade.”

The IMF announced that it will provide $160m in new loans as part of this package, and on top of earlier commitments. Despite debt cancellation, the debt of Guinea, Liberia and Sierra Leone to the IMF will increase from $410m to $620m over the next three years, because of the new loans.

This is worrying, as these figures suggest that the countries will remain subject to IMF conditionality for many years to come, and these have had devastating impacts in the past.

Conditionality revisited?
In November last year, a group of researchers from British universities published a much-debated article in The Lancet journal. They found that the weakness of the health systems in the West African region was a key reason for the Ebola outbreak spreading so quickly. All three affected countries were under IMF programmes at the time of the outbreak. In fact, since 1990, the IMF has provided support to Guinea, Liberia and Sierra Leone, for 21, 7 and 19 years, respectively. The scholars argued that the IMF programmes, more precisely the conditionality attached to them, contributed to the weak health systems through three channels: the overall fiscal constraints imposed on the borrower countries; the reductions in public sector employment; and the premature decentralisation of health policy. 

IMF staff who spoke to Eurodad argued that the IMF sets primarily macroeconomic targets and it is up to the borrower countries to decide on spending priorities. However,
The Lancet authors found that all countries met the macroeconomic targets – which entailed prioritisation of debt service, and bolstering of foreign exchange reserves – while they missed social spending targets because public resources turned out to be insufficient to fund all areas. They also pointed at counter-productive micro-interventions by IMF staff, for instance discouraging Sierra Leone’s “Free Health Care Initiative” of 2010 due to its fiscal implications.

While full debt cancellation is one priority for the IMF to deliver, the Ebola lesson should also trigger a review of IMF programme design and conditionality policy.