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IMF loan conditions make situation worse for crisis-hit countries, shows new study

Added 29 Nov 2018
  • Study shows IMF is increasing number of loan conditions – leading to more influence in countries’ economic policies
  • Fiscal austerity is still a central feature of most IMF programmes
  • Most countriesare repeat borrowers, revealing that conditionality is ‘not working’

Thursday November 29 2018

The IMF is attaching an increasing number of conditions to its loans to crisis-hit countries – and many of these promote harsh austerity measures which are damaging countries’ ability to provide essential services to their citizens, for example health services.

New research , published today by the European Network on Debt and Development (Eurodad), examines the conditions for loans approved in 2016-17 and finds that out of 26 countries that received loans, an average of 26.8 conditions are attached, many of which directly or indirectly affect a government’s capacity to provide public services. This is despite IMF claims that it is ‘streamlining’ its conditions and that its programmes do not emphasise fiscal contraction.

The Fund is due to publish a review of its policies on loan conditionality in the next few months.

Report author Gino Brunswijck, Senior Policy and Advocacy Officer at Eurodad, said: “In 20 out of the 26 countries that received IMF loans in the period studied, people have gone on strike or taken to the streets in protest against government cutbacks, the rising cost of living, tax restructuring or wage reforms resulting from IMF loan conditions.

“Our research shows that most of these countries are repeat borrowers from the IMF, which suggests that programmes are often ineffective, or even counter-productive, when it comes to resolving debt crises. Instead of promoting fair and sustainable solutions, the IMF is ramping up its conditions and intruding into policy areas that are normally the domain of democratic decision-making for the good of a population. By doing so, the IMF protects and bails out creditors, and puts the burden of adjustments on vulnerable people.”

The report found that:

  • The average number of IMF conditions have increased to 26.8. A previous Eurodad study, which covered IMF programmes approved from 2011-2013, found 19.5 conditions per loan. The number of conditions can increase significantly after a loan has been approved, as new conditions are often added during reviews.
  • 23 out of the 26 programmes studied are conditional on fiscal consolidation, leading to austerity. The majority of countries are required to restrict their spending and/or increase taxes as a result of the loans.
  • The IMF is increasingly using ‘hidden conditionality’. Besides explicit conditionality that appears in databases and annexes to loan documents, policy measures are often embedded into the narrative of IMF programme documents.

This report also examined the impact of conditionality on health care. It reveals that in eight of the countries studied, debt service costs as a share of the total budget are higher than health spending, implying that debt relief could have freed up fiscal space for poor countries to invest substantially more in health services and other development goals.

Gino Brunswijck said: “In many countries, such as Chad and Gabon, austerity measures imposed by IMF loans have sparked cuts to the health sector, which has had a grave impact on health service delivery and personnel. Furthermore, the social spending floors that are part of IMF programmes, and that are supposed to shield vulnerable groups, are at levels below what is needed to guarantee basic healthcare. This makes it difficult for countries to reach the Sustainable Development Goals in relation to health.”

Eurodad recommends that:

  • Creating fiscal space through debt restructuring must be the first option when countries face a protracted debt problem. The IMF’s debt sustainability assessments should be complemented with independent Human Rights Impact Assessments (HRIA) so that governments are able to assess when a debt problem became so severe that it undermines their ability to finance essential services and protect the human rights of their people.
  • The IMF should respect democratic ownership and stop applying conditions to loans other than repayment of the loan on the terms agreed. The IMF should extend the use of instruments such as the Flexible Credit Line and Liquidity Line which come with limited or no economic policy conditions attached, and remove the ex ante conditionality attached to them.

ENDS

To read the full report go to this link.  To read a briefing summary go to this link. 

Media contact: Julia Ravenscroft, Communications Manager at Eurodad: +32 486356814/ jravenscroft@eurodad.org

 

Notes to editors: 

Eurodad (the European Network on Debt and Development) is a network of 47 civil society organisations (CSOs) from 20 European countries. Eurodad works for transformative yet specific changes to global and European policies, institutions, rules and structures to ensure a democratically controlled, environmentally sustainable financial and economic system that works to eradicate poverty and ensure human rights for all.