Almost 85% of the 107 loans provided by the International Monetary Fund (IMF) to 85 national governments to fight the pandemic-triggered crisis may call for fiscal austerity measures during the recovery period, a briefing paper released by Oxfam has noted. Oxfam, a global movement fighting inequality to end poverty and injustice, has warned post-pandemic austerity will impact society unevenly, hurting individuals who have already been adversely affected by the pandemic.
Fiscal austerity
Fiscal consolidation or, in other words, austerity or fiscal adjustments, refers to state policies that aim to decrease budget deficits and sovereign debt. More often, austerity means a contraction in public spending, the implementation of or rises in regressive consumption taxes such as VAT, a reduction or capping of wage bills, pension system reforms, and other fiscal regulations.
The briefing paper titled “Adding fuel to the fire: How IMF demands for austerity will drive up inequality worldwide” introduces the results of an analysis based on the IMF COVID-19 loans of US$107bn distributed between 1 March 2020 and 15 March 2021. The study reveals that the IMF recommended 73 countries to follow the path of fiscal consolidation in order to shrink growing public debt. Hence, IMF loan agreements include preconditions regarding reductions and freezes in wage bills in 31 countries, the expansion or implementation of value-added tax in 14 countries, and general public expenditure cuts in 55 countries.
Of the 85 countries approved to receive a loan from the IMF, 73 plan to modify regulations during the recovery period while, according to the paper, 26 public administrations, primarily in Africa and the Latin American and the Caribbean region, had already intended commencing or restarting fiscal consolidation in 2020 and 2021.
Reasons for alarm
Oxfam warns that both the between and within-country inequalities that are already being aggravated by the coronavirus pandemic will be widened further due to the austerity policies recommended by the IMF. In particular, Oxfam notes that COVID-19 has already impacted countries’ efforts to meet sustainable development goals. As low-income countries fight the challenges brought about by the pandemic, they struggle to reduce poverty rates and inequalities.
By introducing austerity measures, countries risk worsening their ability to reach their social spending targets. This, in return, will further deteriorate their efforts to meet the sustainable development goals. Furthermore, Oxfam comments that austerity measures strictly conflict with sustainable development goal 10 – to reduce inequalities within and among countries – as the impacts of these policies will be strongly felt by women, poor households, and the vulnerable. As countries have not yet fully recovered from the pandemic and continue to fight waves of COVID-19, fiscal consolidation may cripple their recovery efforts, become a burden on the shoulders of the poor but leave the rich relatively unscathed.
Oxfam vision
To mitigate the possible impacts, Oxfam has recommended alternative measures and suggests that the IMF make core macroeconomic decisions through inclusive and transparent national dialogues by closely collaborating with donors and give governments more flexibility on macro-economic targets such as inflation and fiscal deficits. On the other hand, Oxfam advises that countries should heavily tax rich people by introducing wealth taxes and capital gains taxes. Furthermore, Oxfam notes that the IMF should support countries to restructure their debts, to create a foundation to secure quality, universal, free public services and universal social protection, and to generate the essential fiscal space through the allocation of a new US$650bn Special Drawing Rights.
