ActionAid to Bretton Woods twins: It’s 50 years of failure

Thursday October 12 2023

Activists hold placards during a demonstration against poverty and climate change on the first day of the annual meetings of the International Monetary Fund and the World Bank Group in Marrakesh, Morocco on October 9, 2023. PHOTO | AFP


The International Monetary Fund’s policy advice to African countries over the past five decades have been inherently flawed, outdated and have done more harm than good to the continent’s economies, international charity ActionAid says.

The Johannesburg-based NGO says a scrutiny of IMF’s policy recommendations for some 10 African countries, which often accompany financial assistance, shows that the directives are severely hurting economies and deepening economic challenges instead of helping.

Their new research titled Fifty Years of Failure: The International Monetary Fund, Debt and Austerity in Africa, highlights how the global lender’s policy prescriptions, which African governments have little to zero autonomy to reject, have failed to improve their economies, instead hurting livelihoods of millions of people.

“These policies are outdated and not fit for the challenges of the 21st Century,” reads the study published this week.

“Decisions affecting the life and welfare of hundreds of millions of people are taken behind closed doors with ministries of finance, who have little scope to resist the conditions imposed and the coercive policy advice offered.”

Read: Africa’s creditors come calling as debt distress looms large


'Coersive' targets

The report specifically criticises the effectiveness of austerity measures prescribed to African countries – including Kenya, Uganda and Tanzania – as a way to ‘fix’ struggling economies and achieve debt sustainability.

IMF’s push for African countries to cut their fiscal deficits and public sector wage bills over the next few years to pull out of the debt crises, are, in fact, hurting the African populace, ActionAid says.

Of the 10 countries scrutinised by the report – including Kenya, Uganda and Tanzania – IMF projects eight awill marginally slim their fiscal deficits over the next few years, an indication of better financial management and less public spending.

However, ActionAid says, the projections “are not just attempts to foretell in a neutral way what may happen in the future, but rather act as coercive targets or conditions that governments are expected to achieve if they are to be seen to be on the right track.”

According to ActionAid, fiscal deficit reductions and other austerity measures reduce needed social and development spending, and in turn lead to shortage of workers in crucial sectors such as healthcare and education.

The report also criticises measures prescribed by the IMF to contain inflation, which normally involve hiking central bank rates and a slowdown in State spending to reduce the amount of money in circulation.

“Any new investments in the public sector workforce, whether recruiting more staff or paying staff more, are seen as likely to increase inflation and are thus frowned upon,” ActionAid notes.

The charity suggest that countries should, instead allow moderate inflation rates of between 10 to 20 percent over the medium term, while gradually increasing public investment in priority areas, as there’s no economic justification for “reducing inflation to such low levels in developing countries.”

Read: IMF, World Bank hold first meetings in Africa in 50 years

Another flaw

Another flaw that ActionAid finds with IMF’s policy prescriptions for Africa is their advice on the use of value-added taxes to raise tax-to-GDP ratios for countries. The NGO says these are regressive and further widen inequality.

“Rather than proposing reforms that would target the wealthiest individuals and companies, the burden is placed on those who are already struggling,” ActionAid says in the report.

The charity notes that African countries are struggling now more than they were fifty years ago as a result of the “flawed” policy recommendations.

“Despite following the IMF’s advice over decades, many African governments now find themselves facing a deeper debt crisis than ever before. Yet the IMF policy advice remains fundamentally unchanged,” the report says.

The global NGO wants the IMF to “move away from the failed neoliberal economic model, and immediately stop imposing outdated austerity policies and constraints to public sector wage bills.”

They have also advised African governments to pursue alternative economic paths that will “place quality public services, social and economic justice at the heart of building sustainable and truly sovereign states.”