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Development & Aid

Africa, Now Squeezed to the Bones

The IMF has made some encouraging improvements in paying attention to social protection, health, and education, but it needs to do much more to avoid, in its own words, “repeating past mistakes”, says new report. Credit: Charles Mpaka/IPS

The IMF has made some encouraging improvements in paying attention to social protection, health, and education, but it needs to do much more to avoid, in its own words, “repeating past mistakes”, says new report. Credit: Charles Mpaka/IPS

MADRID, Apr 19 2023 (IPS) - As many as 45 African countries –out of the Continent’s 54 nations–, all of them grouped in what is known as Sub-Saharan Africa, have now been further squeezed to their bones, as funding shrinks to lowest ever levels, and as a portion of the so-called aid goes back to the pockets of rich donor countries.

See what happens.

In its April 2023 World Economic Outlook, the International Monetary Fund (IMF) talks about a rocky recovery. In its reporting on that, it lowers global economic growth outlook as ‘fog thickens.’

“Donors have turned their aid pledges into a farce. Not only have they undelivered more than 193 billion dollars, but they also funnelled nearly 30 billion dollars into their own pockets by mislabeling what counts as aid"

It says that the road to global economic recovery is “getting rocky.’ And that while inflation is slowly falling, economic growth remains ‘historically low,’ and that the financial risks have risen.

 

Squeezed

Well. In its April Outlook, the IMF devotes a chapter to Sub-Saharan Africa, titled “The Big Funding Squeeze”.

It says that growth in Sub-Saharan Africa is expected to slow to 3.6 percent as a “big funding squeeze”, tied to “the drying up of aid and access to private finance,” hits the region in this second consecutive year of an aggregate decline.

If no measures are taken, “this shortage of funding may force countries to reduce fiscal resources for critical development like health, education, and infrastructure, holding the region back from developing its true potential.”

 

Some arguments

According to the IMF:

  • Public debt and inflation are at levels not seen in decades, with double-digit inflation present in half of countries—eroding household purchasing power and striking at the most vulnerable.
  • The rapid tightening of global monetary policy has raised borrowing costs for Sub-Saharan countries both on domestic and international markets.
  • All Sub-Saharan African frontier markets have been cut off from market access since spring 2022.
  • The US dollar effective exchange rate reached a 20-year high last year, increasing the burden of dollar-denominated debt service payments. Interest payments as a share of revenue have doubled for the average SSA country over the past decade.
  • With shrinking aid budgets and reduced inflows from partners, this is leading to a big funding squeeze for the region.

The giant monetary body says that the lack of financing affects a region that is already struggling with elevated macroeconomic imbalances.

 

Unprecedented debts and inflation

In a previous article: The Poor, Squeezed by 10 Trillion Dollars in External Debts, IPS reported on the external debt of the world’s low and middle-income countries, which at the end of 2021 totalled 9 trillion US dollars, more than double the amount a decade ago.

Such debts are expected to increase by an additional 1.1 trillion US dollars in 2023, thus totalling 10.1 trillion US dollars.

Now, the IMF reports that “public debt and inflation are at levels not seen in decades, with double-digit inflation present in about half of the countries—eroding household purchasing power and striking at the most vulnerable.”

In short, “Sub-Saharan Africa stands to lose the most in a severely fragmented world and stresses the need for building resilience.”

Like many other major international bodies, the IMF indirectly blames African Governments for non adopting the “right” policies and encourages further investments in the region, while some insist that the way out is digitalisation, robotisation, etcetera.

 

The big contradiction

Here, a question arises: are all IMF and other monetary-oriented bodies’ recommendations and ‘altruistic’ advice the solution to the deepening collapse of a whole continent, home to around 1,4 billion human beings?

Not really, or at least not necessarily. A global movement of people who are fighting inequality to end poverty and injustice, grounded in the commitment to the universality of human rights: Oxfam, on 13 April 2023 said that multilateral lender’s role in helping to insulate people in low- and middle-income countries from economic crises is “incoherent and inadequate.”

For example, “for every $1 the IMF encourages a set of poor countries to spend on public goods, it has told them to cut four times more through austerity measures.”

 

Countries forced to cut public funding

Then the global civil society movement explains that an important IMF initiative to shore up poor people in the Global South from the worst effects of its own austerity measures and the global economic crisis “is in tatters.”

New analysis by Oxfam finds that the IMF’s “Social Spending Floors” targets designed to help borrowing governments protect minimum levels of social spending— are proving largely powerless against its own austerity policies that instead force countries to cut public funding.

“The IMF’s ‘Social Spending Floors’ encouraged raising inflation-adjusted social spending by about $1 billion over the second year of its loan programs compared to the first year, across the 13 countries that participated where data is available.”

 

IMF’s austerity policies

By comparison, the IMF’s austerity drive has required most of those same governments to rip away over $5 billion worth of state spending over the same period, warns Oxfam.

“This suggests the IMF was four times more effective in getting governments to cut their budgets than it is in guaranteeing minimum social investments,” said incoming Oxfam International interim Executive Director, Amitabh Behar.

“This is deeply worrying and disappointing, given that the IMF had itself urged countries to build back better after the pandemic by investing in social protection, health and education,” Behar said.

“Among the 2 billion people who are suffering most from the effects of austerity cuts and social spending squeezes, we know it is women who always bear the brunt.”

 

A fig leaf for austerity?

In its new report “IMF Social Spending Floors. A Fig Leaf for Austerity?,” Oxfam analysed these components in all IMF loan programs agreed with 17 low- and middle-income countries in 2020 and 2021.

Oxfam’s report: “The Assault of Austerity” found inconsistencies between countries. There is no standard or transparent way of tracking progress and many of the minimum targets were inadequate.

The IMF has made some encouraging improvements in paying attention to social protection, health, and education, the report goes on, but it needs to do much more to avoid, in its own words, “repeating past mistakes”.

 

The farce of aid budget

In another report titled “Obscene amount of aid is going back into the pockets of rich countries,” Oxfam informed that on 12 April 2023 the Development Assistance Committee of the Organisation for Economic Cooperation and Development. (OECD DAC) published its preliminary figures on the amount of development aid for 2022.

According to the OECD report, in 2022, official development assistance (ODA) by member countries of the Development Assistance Committee (DAC) amounted to USD 204.0 billion.

This total included USD 201.4 billion in the form of grants, loans to sovereign entities, debt relief and contributions to multilateral institutions (calculated on a grant-equivalent basis); USD 0.8 billion to development-oriented private sector instrument (PSI) vehicles and USD 1.7 billion in the form of net loans and equities to private companies operating in ODA-eligible countries (calculated on a cash flow basis), it adds.

Total ODA in 2022 rose by 13.6% in real terms compared to 2021, says the OECD.

“This was the fourth consecutive year ODA surpassed its record levels, and one of the highest growth rates recorded in the history of ODA…”

 

The rich pocketing ‘obscene’ percentage of aid

In response, Marc Cohen, Oxfam’s aid expert, said: “In 2022, rich countries pocketed an obscene 14.4 percent of aid. They robbed the world’s poorest people of a much-needed lifeline in a time of multiple crises.

“Donors have turned their aid pledges into a farce. Not only have they undelivered more than 193 billion dollars, but they also funnelled nearly 30 billion dollars into their own pockets by mislabeling what counts as aid”.

 

Rich countries inflating their aid budgets

“They continue to inflate their aid budgets by including vaccine donations, the costs of hosting refugees, and by profiting off development aid loans. It is time for a system with teeth to hold them to account and make sure aid goes to the poorest people in the poorest countries.”

 
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