‘IMF prescriptions might be sinking African countries into debt’

21 May, 2023 - 00:05 0 Views
‘IMF prescriptions might be sinking African countries into debt’

The Sunday Mail

Enacy Mapakame

The region needs to be cautious of the advice and interventions by large international money lenders such as the International Monetary Fund (IMF) as they potentially suffocate countries like Zimbabwe and the rest of the continent sinking them deeper into debt.

According to the IMF, 22 African countries have been identified as debt distressed, while the continent owes a cumulative $644 billion in debt to external creditors as at 2021.

But experts note that policies from the World Bank and IMF implemented by African countries, intended to control inflation and generate foreign exchange to help pay off the IMF debts, “often result in increased unemployment, poverty and economic polarisation thereby impeding sustainable development.”

Historically, programmes implemented by the IMF in countries such as Zimbabwe, Uganda, Senegal and Cote d’Ivoire, have done more harm than good, swaying them into crisis, characterised by severe austerity measures and poor social service delivery.

Speaking at the fifth Zimbabwe Annual Debt Conference virtually, African Forum and Network on Debt and Development (AFRODAD) executive director, Mr Jason Braganza, reminded delegates how the money lenders were like wolves in sheep’s skin in Africa.

He said the debt crisis affecting Zimbabwe and Africa was not by accident, but by design as the advice the region received from large lenders were designed to benefit them, while hurting the region.

“We operate in a system that is biased towards our friends from the global North who provide policy advice that is used to be biased towards and benefit the multinational corporations,” he said in a virtual presentation.

“It’s not surprising that the debt crisis is happening and the policy advice is to maximise profit at the expense of the continent,” he said.

This year alone, the region will pay up to US$68 billion in debt service. In other words, the region owes 24 percent of its combined GDP to debt in 2023.

Between 2019 and 2020, the Sub Sahara African region transferred US$10,5 billion and US$1,04 billion to Chinese and private lenders respectively. The World Bank data indicates the total debt servicing between 2023 and 2024 will rise to US$32 billion up from US$21 billion in 2022.

“The stats show the difficult road ahead, the continent will be under another deep fiscal consolidation and austerity programmes under the auspices of the IMF.

“IMF programmes have deep seated consequences and indeed the IMF has admitted this deep crisis will have an effect on education and health services delivery,” he said.

But the problems have not started today. In Zimbabwe, the economy was relatively steady with rapid growth in the 1980s before the country got involved with the World Bank and IMF, as the economy’s real growth averaged almost 4 percent per year during that period.

Between 1980 and 1988 Zimbabwe’s life expectancy increased from 56 to 64 years due to increased Government spending on healthcare. However, the country started the structural adjustment programme in 1991 after taking a loan of US$484 million from the IMF to energise rapid economic growth.

The IMF imposed conditions upon Zimbabwe, among the policy changes were: cuts in fiscal deficit; tax rate reductions in private sectors (mainly to the advantage of the transnational corporations); and the deregulation of financial markets. It also required the removal of protections from the manufacturing sector and deregulation of the labour market, lowering the minimum wage and elimination of the guarantees on employment security.

Manufacturing thus went down by 14 percent between 1991 and 1996, real GDP per capita declined by 5,8 percent while real GDP fell by about 1 percent, although the IMF predicted 18 percent GDP growth over the same period, according to a paper by Dean of Law Achievers University, Nigeria Kingston Gogo Kato.

Real per capita expenditure on primary and secondary education fell 36 percent and 25 percent respectively while wages and salary for teachers and educational staff fell by between 26 percent and 43 percent during that period.

Nominal and real interest rates were high and volatile throughout the period, with nominal rates often exceeding 40 percent while total private investment fell 9 percent in real terms. Spending on health care declined as a share of the budget from 6,4 percent to 4,3 percent at a time there was an increasing need for health care as HIV-AIDS disease was at its peak.

In Uganda, however, where slight macroeconomic stability has occurred, volatile external finance has been largely responsible.

“Moreover, stability has been achieved mostly at the great expense of domestic investment even in basic infrastructures which are central to sustainable growth and development,” says Kingston Kato.

To deal with the challenges, Africa needs to speak with one voice and negotiate better deals that are sustainable and promote development.

“It’s a moment that as a continent we must stand together and speak with a common voice and common position on how we as a continent are going to address the situation. When we work together as a continent, it’s amasing what we can achieve,” said Mr Braganza.

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