Africa’s austerity apocalypse

The rowing acceptance of what critics of structural adjustment programs have been arguing for decades, (seems to have had minimal impact on the IMF's actions.

Vanderbijl Park, South Africa. Image: World Bank.

For the IMF to publicly wonder whether neoliberalism may have been oversold is like the egg-industry admitting that it may not have always been perfectly clear whether their practices of caging hens in batteries placed the well-being of animals first. As we all know by now, last month the IMF admitted that it may have overestimated the virtue of structural adjustment measures in promoting economic development. Africa is a Country’s own Grieve Chelwa remarked that while the IMF’s essay, titled “Neoliberalism Oversold?” gives one hope that the IMF is finally coming around to the position that its policies caused a lot of damage across the world, and that “perhaps the Fund will be more cautious this time around as it intervenes in resolving the nascent debt crisis in Africa,” what appeared as an apology was a bit weak and awfully late.

And then, we stumbled upon “The Decade of Adjustment: A Review of Austerity Trends 2010-2020,” a 2015 study that made us wonder whether the IMF is sorry at all. (The study was carried out by the International Labour Organization, Columbia University’s Initiative for Policy Dialogue and the South Centre, who looked into over 600 IMF country reports and government spending projections of a total of 187 countries.)

What “The Decade of Adjustment” suggests is that unless the Fund has dramatically changed its approach the past couple of months (something their Chief Economist has subsequently questioned), far from backpedalling on austerity, the Fund keeps pushing low-income countries towards policies that prioritize fiscal adjustment, spending cuts and privatization. Their growing acceptance of what critics of structural adjustment programs have been arguing for decades, (that it depresses growth, well-being and employment, particularly in low-income countries) seems to have had minimal impact on their actions.

The authors predict what may best be described as an “Austerity Apocalypse” the next few years, with South-East Asia and Sub-Saharan Africa likely to be the worst affected. If things play out as the authors predict (but urge against), the wage cuts, lay-offs, subsidy reforms and other austerity measures that have hit us the past five years, were only the prelude to what’s coming. “Overall,” the report notes, “austerity is expected to impact more than two-thirds of all countries during 2016-2020, affecting more than 6 billion persons or 80 per cent of the global population by 2020.” They continue: “In total, we project that fiscal adjustment will cause the loss of 7 per cent of global GDP and of approximately 12 million jobs over the 2015-2020 period,” with 4,7 million jobs lost in high-income countries alone and 2,4 million in low-income countries.

Across Sub-Saharan Africa, the main adjustment measures that are implemented and considered for the next few years are subsidy reform and wage bill cuts and caps, followed by increases in consumption taxes and other social welfare cuts. Ghana and Mauritania are examples of countries that, as the report notes, have already raised their Value Added Tax (VAT) by 2.5 and 2 per cent respectively.

Rather than just reflecting what governments told the IMF about their policy plans, the hundreds of documents that were reviewed in the report reinforce wide-spread concerns about how the IMF actively pushes low income countries (not just debtors) to spend less and privatize more through the annual surveillance consultations that governments subject themselves to as members of the Fund. Connecting their own findings to other recent analyses, they write that the “IMF’s role in influencing policy through surveillance” appears as the main incentive for low-income governments to walk (or run, rather) down the austerity road, noting that despite “the large incidence of poverty” in Sub-Saharan Africa, many countries “are advised to narrow-target their existing social protection programs.” For instance Burundi, Botswana, Mauritius, Mozambique, Namibia and Togo are among countries that have been advised to further squeeze their safety nets.

The Fund’s operations, they conclude, “have not yet reflected [the] findings” of the “numerous studies [that] highlight the fallacious basis of austerity programs,” including the IMF’s own recent research that “acknowledges that fiscal consolidation has adverse effects on both short and long-term unemployment, private demand and GDP growth, with wage-earners hurt disproportionately more than profit- and rent-earners.”

Quite obviously, these measures fly right in the face of the new development goals of the UN (the 2030 Agenda) and the AU (the 2063 Agenda), which are supposed to end poverty, ensure healthy lives and promote wellbeing for all. They will most certainly not make it easier for Sub-Saharan Africa’s working poor (around 38 %) to lift themselves out of poverty or bring down its excessively high vulnerable employment rate, estimated at 76.6% (see page 54). With low wages reported as the number one reason for public protests in 2014 , with working conditions and public service delivery a close 2nd and 3rd, the prospect of ever more austerity spells disaster for the poor.

The authors argue that the IMF’s recommendations and their rationale around fiscal balances not only deviate “public attention from the unsolved root cause of the crisis, which is excessive deregulation of financial markets, as well as from logical global solutions, like a sovereign debt workout mechanism that deals fairly with both lenders and borrowers,” they will also interfere with the employment-generating growth, something that African countries particularly need.

The notion that there is no money for safety nets, decent jobs, quality education and health care simply is a myth. Just by tackling the illicit financial activities of transnational corporations and rich individuals alone, Africa could win (back) about $50 billion a year. That’s why, in addition to debt restructuring, the authors see progressive tax reforms as a far more effective and just approach than austerity, a position that’s shared by many tax justice advocates and African governments alike. There’s some hope to be gleaned from the fact that their insistence is at least pressuring the IMF, the World Bank and the OECD (who basically controls global tax rules) to take some steps. But if we are to avoid the apocalyptic predictions of “A Decade of Adjustment,” a whole lot of tax justice surveillance will be needed.

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