IMF lending and austerity post Covid-19
Eurodad has just published a new report on the impact of the crisis in developing countries:
Arrested development: International Monetary Fund lending and austerity post Covid-19
The report reviews 80 IMF lending arrangements approved since March 2020. The analysis illustrates a dismal decade ahead for developing countries. an insufficient and inadequate multilateral response to the Covid-19 pandemic which will lock a large number of countries in a decade-long crisis of debt and austerity. IMF austerity is on track to arrest development efforts in the next decade.
The report is released in support of the call to end IMF austerity supported by more than 500 CSOs from across the globe.
Main findings of the review:
Austerity: Harder, faster, wider. Tax increases and expenditure cuts are to be implemented in all 80 countries by 2023. Between 2021 and 2023, these countries will implement austerity measures worth on average 3.8 per cent of GDP. The adjustment will be front-loaded, leaving no time to recover. More than half of the projected measures, equivalent to 2 per cent of GDP, will take place in 2021. The synchronized nature of the adjustment calls into question the likelihood of a strong recovery as forecasted by the IMF.
Slashing public services: Reduction of public expenditure accounts for three quarters of the total adjustment. Expenditure is set to decline by 2.6 per cent of GDP between 2021 and 2023. At least 41 countries will be left with below pre-crisis public expenditure levels. The cuts are substantial relative to the provision of public services. 40 countries are expected to implement expenditure cuts equivalent or greater than their current healthcare budget.
Heavier debt burdens and vulnerabilities: 56 countries will be left with higher public debt levels by 2023. 55 will end up with higher debt service payments to their creditors. 30 countries will pay every year an additional amount equivalent to their 2020 Covid-19 packages to their creditors as increased debt service by 2023. IMF Debt Sustainability Assessments (DSA) characterize these debt dynamics as “sustainable” in 76 countries.
Arrested development: The achievement of the SDGs and the commitments of the Paris Climate agreement by 2030 will be irremediably out of reach. For 46 countries for which data is available, public expenditures in 2030 are projected to stabilize at below pre-crisis levels. At the same time, increased debt service requirements will have 20 countries paying their creditors additional amounts equivalent to a Covid-19 response package every year for the rest of the decade.
In addition to these findings, the report analyses the impact of IMF programs on indirect taxation, public sector wage bills and inclusion of climate change and SDGs in IMF program design.
The report includes an online data annex with data for all 80 countries included in the analysis.