Oxfam to IMF: Your loans should not punish the world’s poorest citizens

With fuel costs on the rise and global food prices set to more than double by 2030, poor people are being hit hardest. Oxfam has major concerns about strings currently attached to IMF loans, especially for low income countries. 

Oxfam’s Sarah Wynn-Williams said: “If the IMF does not reform its loan conditions, it will increasingly be seen as responsible for punishing the world’s poorest citizens.”

Oxfam’s concerns, outlined in a submission to the IMF’s 2011 Review of Conditionality, are:

• An increasingly apparent return to “fiscal consolidation” and tighter fiscal targets after the crisis, which are preventing countries from accelerating progress to the MDGs

• Reduction in flexibility on inflation targets, requiring countries to take increasingly tough monetary and fiscal measures to offset the impact of renewed food and fuel price rises

• Evidence that social spending floors are not being taken seriously in program reviews and therefore having little effect on government spending

• Use of overall wage ceilings (in which social sectors are evidently included as they absorb most of the government wage expenditure in low income countries)

• Very slow and limited progress on the introduction of social protection measures, especially in low income countries

• Continued insistence in some countries on rapid abolition or reduction of fuel or food subsidies, before offsetting social protection measures are in place

• The continued introduction of regressive taxation measures (VAT, sales taxes)

• The lack of systematic analysis of the social incidence of tax and spending changes, as well as fuel and food price rises, on inequality and poverty

Oxfam is urging the IMF to:

• Increase fiscal space for spending in low income countries, by allowing fiscal deficits to remain in the 3-5% of GDP and inflation to remain in the 5-10% range

• Base its macroeconomic (fiscal and inflation) targets and social spending floors on spending levels which would allow the maximum number of countries to attain the MDGs

• Analyze at the earliest stage the impact of the social spending floors, including whether they will be sufficient to meet the MDGs, and why they are or are not being implemented

• Assess and present transparently to its Board the impact of overall wage ceilings on social sector real wage levels and bills across all low income countries with programs

• Conduct Poverty and Social Impact Analyses. A systematic analysis of the social incidence of tax and spending changes, as well as fuel and food price rises, especially their combined effects on inequality and poverty, especially the incomes and spending power of the poorest citizens, as well as the ability of countries to reach the MDG income and food poverty reduction targets

• Dramatically accelerate the introduction of social protection measures and increases in social protection spending, especially in low income countries

• Delay the abolition or reduction of fuel or foods subsidies until offsetting social protection measures are in place, and use increased levels of its own funding and other budget support to finance temporary resulting deficits

• Increase tax revenues by introducing more progressive taxation, focusing on tax avoidance by large corporations and high-income earners, and avoiding wherever possible the introduction of regressive tax measures (or exempting the basic foodstuffs consumed by the poor from such measures)