December 2018
UNHEALTHY
CONDITIONS: IMF LOAN CONDITIONALITY AND ITS IMPACT ON HEALTH FINANCING
The
IMF practice of attaching policy conditions to its loans for crisis-hit
countries continues to trigger outrage and protest. A new report by
Eurodad which investigates the conditions attached to the IMF loans
for 26 country programmes that were approved in 2016 and 2017 found
that in at least 20 of those countries people have gone on strike
or taken to the streets to protest against government cutbacks, the
rising cost of living, tax restructuring and wage bill reforms pushed
by IMF conditionality.
By
Gino Brunswijck
They have good reasons to complain. The fact that the
IMF (International Monetary Fund) imposes reforms undermines sovereignty,
democratic decision-making and ownership for reforms in affected countries.
The type of reforms that the IMF imposes through programme conditionality
affects governments’ ability to provide public services, their capacity
to fulfil their human rights obligations towards citizens, and ultimately
impacts on people’s living conditions.
This new study on IMF conditionality assesses first how intrusive
IMF programmes are. We took a thorough look at the IMF’s conditionality
databases, as well as at relevant programme documents, in order to
assess how many conditions the IMF is actually imposing. We counted
the conditions for loans approved in 2016/17 and compared the findings
with our previous study that covered IMF programmes approved in 2011
to 2013.
We found that the number of IMF conditions is increasing. This finding
stands in stark contrast to IMF’s own stated intentions of streamlining
conditionality, and focusing on macro-critical conditionality.
• The average number of structural policy conditions per
loan is 26.8 conditions for 26 countries, including those in reviews.
The programmes approved in 2011 to 2013 had only 19.5 conditions per
loan. In addition, this research also counted quantitative conditionalities,
which previous Eurodad research did not. These accounted for, on average,
an additional 8.7 quantitative conditions per programme.
• Conditionality can significantly increase after a programme has
been approved, due to conditionalities added during reviews. Even
countries that start with modest conditionality requirements can be
confronted with a high conditionality burden in less than two years
following loan approval, caused by ‘conditionality escalation’.
• The IMF is increasingly using ‘hidden’ forms of conditionality.
Besides the explicit conditionality that appears in databases and
annexes to loan documents, the IMF bundles conditionality. Policy
measures embedded in the narrative of IMF programme documents are
de facto conditionality even though they are not explicitly so.
• The largest IMF facilities in terms of loan volume continue
to have a large number of conditions attached. The two main types
of IMF programme – Extended Fund Facility and Stand-By Agreement –
account for 83 per cent of the total value and have an average of
30.3 conditions per loan.
Looking at the type of conditions, the study finds that
the IMF programmes continue to be pro-cyclical and oblige borrowers
to implement austerity: 23 out of 26 programmes are conditional on
fiscal consolidation. The majority of borrower countries are forced
to restrict their spending and/or increase their taxes as a result
of the loans, contradicting IMF claims that its programmes do not
emphasise fiscal contraction. Shrinking fiscal space constrains the
ability of governments to deliver on their development commitments
and human rights obligations.
Comparing cases over time, we found that the majority
of countries in our 2016/2017 sample were repeat borrowers from the
IMF. This suggest that programme conditionality has in most cases
been ineffective, perhaps even counterproductive, when it comes to
restoring long-term debt sustainability. From this, we can conclude
that IMF programme design is based on overly optimistic views on debt
sustainability. Most of the countries that faced payment difficulties
would have been better off restructuring their unsustainable debts
in order to create fiscal space, instead of requesting IMF bailout
loans that came with harsh austerity conditions attached.
In a second step, this research identified knock-on effects of IMF
conditionalities on health system financing and access to health services.
The adjustment measures potentially directly affecting healthcare
are those mandating budget cuts and public sector employment reductions.
Budget constraints as a consequence of loan conditionality risk compromising
a country’s capacity to scale up public investment to provide essential
health services, while public employment reductions have a heavy impact
on the health sector and the enjoyment of the rights to health.
Eurodad’s research found:
• In the absence of debt relief, countries struggle to
finance health services; debt service costs as a share of the total
budget are higher than health spending in eight of the countries studied.
Rapidly growing debt service costs threaten to crowd out health spending.
• In many countries, for instance Chad and Gabon, austerity
measures have sparked cuts in the health sector, which has had a grave
impact on health service delivery and health personnel. This has reduced
access to health services for the population as out-of-pocket payments
have increased.
• Long periods of austerity risk causing protracted underinvestment
in social services. For instance, in Guinea and Sierra Leona – which
are both emerging from crippling health crises brought on by the Ebola
epidemic – the current programmes call for wage bill freezes or reductions.
• All low-income countries face challenges in terms of
raising sufficient resources for health systems to reach the essential
requirements for universal health coverage (UHC). However, 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.
A fundamental change in approach is needed. This report
makes the following recommendations:
• Creating fiscal space through debt restructuring must
be the first option when countries face a protracted debt problem,
instead of lending with conditionality. The IMF’s debt sustainability
assessments should be complemented with independent Human Rights Impact
Assessments (HRIA), in order to assess debt burdens and their implications
on countries’ abilities to finance internationally agreed development
goals and to fulfill their human rights obligations. These HRIA, conducted
before approving loans and designing programmes, should guide the
IMF and its Member States’ policy choice towards debt restructuring,
or borrowing from the IMF, or a combination of both.
• The IMF should respect democratic ownership and stop
applying conditions to loans other than the repayment of the loan
on the terms agreed. In this respect, the IMF should extend the use
of instruments such as the Flexible Credit Line and Precautionary
and Liquidity Line, and remove the remaining ex ante conditionality
attached to them. Requiring no conditionality other than the repayment
of the loans on the terms agreed is a far better model to deal with
temporary balance of payment and liquidity needs. – Third World Network
Features.
To
read a summary version of the report please click here.
For
the full report, please click here.
-ends-
About the author: Gino Brunswijck is Senior Policy and Advocacy Officer
at Eurodad.
The
above article is reproduced from Eurodad.org, 28 November 2018.
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