A new briefing paper by Oxfam shows that the International Monetary Fund is systematically encouraging countries to adopt austerity measures once the pandemic subsides, risking a severe spike in already increased inequality levels.
Overview
The COVID-19 pandemic has dealt a huge blow to every country, and many governments have struggled to meet their populations’ urgent needs during the crisis. The International Monetary Fund (IMF) has stepped in to offer extra support to a large number of countries during the pandemic. However, Oxfam’s analysis shows that as of 15 March 2021, 85% of the 107 COVID-19 loans negotiated between the IMF and 85 governments indicate plans to undertake austerity once the health crisis abates.
The findings in this briefing paper show that the IMF is systematically encouraging countries to adopt austerity measures once the pandemic subsides, risking a severe spike in already increased inequality levels. A variety of studies have revealed the uneven distribution of the burden of austerity, which is more likely to be shouldered by women, low-income households and vulnerable groups, while the wealth of the richest people increases. Oxfam joins global institutions and civil society in urging governments worldwide and the IMF to focus their energies instead on a people-centred, just and equal recovery that will fight inequality and not fuel it. Austerity will not ‘build back better’.
Summary
Oxfam analysis has found that 85% of the 107 loans negotiated between the International Monetary Fund (IMF) and 85 national governments to respond to the COVID-19 crisis indicate plans to undertake fiscal consolidation, i.e. austerity, during the recovery period. This trend has been observed in the loan documents for 73 of the 85 countries. Oxfam, using publicly available IMF documents, tracked and analyzed these IMF loans approved between 1 March 2020 and 15 March 2021 to gain an understanding of the policy direction that the IMF and countries intend to take in the aftermath of this unprecedented crisis.
Half a billion people are at risk of being pushed into poverty as a result of the pandemic. From the outset, the IMF has warned that the impact of COVID-19 ‘will be profound [...] with increased inequality leading to economic and social upheaval’. This has been confirmed by Oxfam’s research revealing that in in 2020, billionaires’ wealth increased by a staggering $3.9 trillion, while workers lost $3.7 trillion in labour income during the same period. The gap between the top 10% and bottom 80% has widened, and inequalities between high- and low-income countries have become more pronounced, especially in light of the diverging recoveries, as rich countries are recovering faster while low- and middle-income countries are still struggling to secure vaccines for their populations.
The pandemic has aggravated existing inequalities, disproportionately affecting Black people, women, people living in poverty and other vulnerable groups, including refugees, migrants, people with disabilities, older people and Indigenous Peoples. The International Labour Organization reports that the ongoing pandemic has had a more drastic impact on global labour markets than the global financial crisis of 2008, increasing global unemployment almost sevenfold in 2020 and resulting in a significant fall in employment incomes. Both of these outcomes have been unequally felt by women – who faced at least $800bn in lost income globally in 2020 – especially those on low pay and workers in low-skilled jobs.
While the IMF’s initial advice to governments was to spend as much as required to mitigate the severe impacts of the crisis, Oxfam’s research finds that the IMF is encouraging countries to go down the path of austerity after the pandemic subsides. The IMF has historically advised countries facing high deficits and debt levels to adopt fiscal consolidation, despite strong criticism from other global actors, civil society and academia about its dangers, in particular that it has been shown to fuel inequality, a finding consistent with the IMF’s own research.
Oxfam’s analysis of IMF loans finds that 26 governments, primarily in Africa and the Latin American and Caribbean regions, had plans to commence or resume fiscal consolidation as early as 2020 and 2021. The most commonly proposed austerity measures in the IMF loans include wage bill cuts and freezes (31 countries), increases to or the introduction of value-added tax (VAT) (14 countries), and general public expenditure cuts (55 countries).
The burden of austerity is unevenly distributed across society. The most severe impacts are likely to be borne by the same sections of society that have been adversely affected by the pandemic – women, low earners and vulnerable groups. Resorting to austerity risks undoing even more of the pre-pandemic progress towards realizing the Sustainable Development Goals (SDGs), especially SDGs 1 and 10 on ending poverty and inequality, respectively. COVID-19 has already increased inequality in countries across the world; austerity would make this worse.
This paper reiterates the call to the IMF by global actors, civil society and academics to heed its own research and advise governments to adopt alternative policy options to ‘build back better’. These include progressive taxation through wealth taxes and capital gains taxes, the removal of tax exemptions that favour rich people, and tackling illicit financial flows such as tax evasion. On the expenditure side, drawing lessons from both previous crises and the current crisis, the IMF ought to encourage governments to increase social spending as a permanent measure.
Governments should focus on a people-centred recovery through redistributive policies such as free, quality, universal healthcare and education and universal social protection. This is essential given that the full-blown scale of the pandemic and its long-term impacts are yet to be understood, with many countries still struggling to contain the spread of the disease over a year after its outbreak.
Original source / Image credit: Oxfam Policy & Practice