The International Monetary Fund is setting conditions for its loans that risk undermining people’s economic, social, and cultural rights by reducing government spending or increasing regressive taxes.
This is after a series of analyses by the lender on loans approved from March 2020, at the start of the Covid-19 pandemic, until March 2023 to 38 countries, which found out that the vast majority are conditioned on austerity policies.
"Austerity measures reduce government spending, or increase regressive taxes in ways likely to harm rights,” IMF says in a report.
Dubbed ‘Bandage on a Bullet Wound: IMF Social Spending Floors and the Covid-19 Pandemic’, it also says its recent initiatives, announced at the beginning of the pandemic, to mitigate impacts such as social spending floors, are flawed and ineffective in addressing the harms caused by the policies.
Kenya being one of the beneficiaries of the lender’s loan product, it is likely to be affected by the new conditions, with the lender saying the conditions are compounding problems related to rising inequality in fragile states.
The country recently in July secured a $1 billion (Sh147.9 billion) loan from the lender after approval.
This was after meeting the conditions for continued lending.
It was meant to ease pressure on the government as it embarks on reforming the economy and confronting challenges posed by climate change.
IMF further says the loan initiatives set at the onset of the pandemic have also proved not effective in reducing debt, which was their chief objective.
It observes that fiscal consolidations, a term usually linked to austerity programs, do not reduce debt ratios on average.
On why it has resorted to introducing new loan conditions, the lender says governments together with lenders should uphold international human rights obligations to respond to economic crises in ways that protect and advance rights in both the short and long term.
It reiterates that austerity measures that broadly reduce government spending on essential public services or significantly increase regressive taxes have a well-documented history of undermining rights.
Mirroring this is the United Nations Human Rights Council which has adopted guiding principles to ensure economic recovery measures that further the benefit of the whole population, instead of only a few.
It prohibits governments from pursuing austerity unless strict criteria are met, including avoiding, and where absolutely necessary, limiting and mitigating any negative effect on rights.
To do so, it instructs governments and financial institutions to conduct and publish human rights impact assessments.
While 32 of the 39 reviewed programs included at least one measure that risks undermining rights, only one explicitly sought to assess the impact on people’s effective income," IMF says.
The lender also calls on governments to redesign their social spending floors, specifically by avoiding trade-offs in social spending, for instance, increasing education spending by reducing healthcare funding.