The Urgent Need for IMF Reform: Illustrations from the Middle East and North Africa
Written by: Shereen Talaat and Leila Oulhaj
PUBLISHED AT: CNCD 11.11.11 on the 1st of February 2023
For decades, the International Monetary Fund’s programmes have focused on macroeconomic and financial stability, with little attention to improving people’s living conditions. In the Middle East and North Africa, living conditions have continued to deteriorate, especially with the combined effects of the pandemic, Russia’s invasion of Ukraine and climate change. Profound reform is urgently needed.
Eleven years after the Arab Spring revolutions, the picture is disappointing. Syria, Libya and Yemen have been torn apart by endless wars, while the rights of Palestinians continue to be violated by the Israeli occupation.
Other countries are plagued by regimes that disrespect freedoms and human rights. Egypt is now controlled by a repressive regime, while Morocco struggles to find answers to growing inequalities and silences critical voices. Jordan is also increasingly resorting to repression because of its poor economic and social prospects. As for Tunisia, after ten years of democratic transition, the country has not lived up to its commitments as it has taken another step towards authoritarianism. Finally, in Lebanon, the clientelist and corrupt ruling class seems unable to stop the erosion of the economy and the financial stability of the country.
In this context, it is necessary to question the interventions of international financial institutions in the region over the past decades, particularly the International Monetary Fund (IMF).
Neoliberalism, a dysfunctional recipe
In the 1970s and 1980s, most countries in the region came under pressure from international financial institutions, including the IMF, to adopt a neo-liberal development model based on exports and foreign direct investment. To reduce their trade deficits, non-oil exporting countries had to borrow on the international market. These loans were accompanied by IMF conditionalities in the form of structural adjustment programmes based on neo-liberal measures, such as cuts in public spending, privatisation, currency devaluation, higher interest rates and trade liberalisation2.
These conditionalities, combined with various crises, have triggered a deterioration in living conditions. According to the World Bank, while 2.7% of the population3 lived in extreme poverty in 20114, this figure rose from 3.8% to 7.2% between 2015 and 20185. The informal sector, which occupies a significant place6, leaves the most disadvantaged social categories and most women without any social or legal protection. This is why the austerity measures that accompany IMF programmes affect them more7.
Multiple crises without questioning IMF programmes
Moreover, the region is one of the most vulnerable to the effects of global warming. The symptoms are visible in the depletion and degradation of coastal ecosystems, rising temperatures, declining agricultural yields, increasing desertification, water stress and water shortages8. Not to mention the effects of Russia’s invasion of Ukraine, which can be summed up as increased inflation, poverty and malnutrition in a region highly dependent on imports for its food security.
However, the deterioration in living conditions has not led to any significant changes in the IMF’s programmes, even though the 2011 revolutions seemed to have made the IMF aware of the importance of the social dimension. For example, in 2012, then IMF Director Christine Lagarde said that the Fund had learned from these events: “Numbers don’t tell the whole story and we need to look at exactly what is behind the numbers. Who benefits from growth? Who benefits from the subsidies? How are the fruits of growth distributed in a given country?”.9
A region on the brink of default
Debt is one of the most visible symptoms of the crises in the region. Lebanon had already declared itself in default on its debt in March 2020, for the first time in its history, when the Covid-19 pandemic broke out. Two years later, Tunisia is ranked as the third country with the highest risk of default, while Egypt comes fifth and Morocco eighteenth10. Many other countries in the region could join this list as their currencies depreciate. Indebted countries “are likely to find it more difficult to refinance their debt or issue new debt in an environment of tighter financing conditions as the world’s central banks seek to contain inflationary expectations”.11
The risk of a country defaulting is a criterion for understanding its economic situation but also the conditions in which its population lives. Indeed, in such a case, it means that a state no longer has the capacity to pay what it owes to its creditors. One of the direct consequences is that the country is deprived of resources to meet the needs of its population, such as health or education. This means that it is no longer able to provide essential public services. In addition, it means that it can no longer borrow and that austerity measures are put in place, further affecting the most vulnerable and the middle classes and increasing inequality. When we talk about a country defaulting, we must understand that it is a whole system that is failing to ensure dignified living conditions for its population.
Additional fees make the debt situation even worse
Furthermore, the IMF’s policy of additional fees12 results in higher costs for governments. The IMF imposes additional charges on indebted countries. In addition to the usual interest payments and service charges, countries have to pay additional fees that depend on the amount borrowed and the duration of the loan. The IMF considers that these fees act as a disincentive to the prolonged use of the amount borrowed, but it must be recognized that these policy forces countries that are already facing enormous difficulties to pay significant additional amounts13. For example, for the year 2022, the payment for the five largest IMF borrowers14 (Argentina, Ecuador, Egypt, Pakistan and Ukraine)15 amounts to USD 2.7 billion of these charges (in addition to loan payments). These charges are all the more surprising given that one of the objectives of IMF financing is “to provide countries with sufficient flexibility to implement adjustment policies in an orderly manner, thereby restoring conditions conducive to stable economies and sustainable growth”.16
Such overburdening only exacerbates the situation, “exacerbating the devastating effects on women and girls”17. They are also counterproductive because they “are levied on borrowers least able to bear them. Surcharges increase borrowing costs, with surcharged interest rates being two to four times higher than the IMF’s normal interest rate for borrowers, which is around 1%” .18
This policy of additional fees is denounced by some countries such as Argentina and Pakistan, which have lobbied for its abandonment or for the IMF to temporarily waive it. They are supported by international civil society and in particular the Global Action Campaign for the Abolition of Additional Fees19. On 12 December 2022, the item was discussed by the IMF Board, leaving the prospect of reform. But this was nipped in the bud by, among others, the United States, Germany, and Switzerland, who opposed any change. Their argument? The IMF must maintain its financing model because of the global economic context20. The IMF had the opportunity to show that the living conditions of the populations concerned were indeed taken into account. But the institution did not seize it, nor did it specify whether a revision could be considered in the coming months.
Hope for reform?
IMF programmes in the MENA region have not been adapted to the realities of the people, despite the existence of indicators that show that their living conditions continue to deteriorate. This should come as no surprise: the neo-liberalism that guides these programmes (and their conditionalities) has only continued over the decades, especially during crises, reflecting a stubbornness to maintain the old recipes, even though the IMF’s own studies show their limitations.
There is an urgent need for short and medium-term solutions. In the immediate term, the IMF must end its policies of additional fees and macroeconomic conditionalities and take better account of country governance (rule of law, corruption, reliability of data used) while paying special attention to women and youth.
However, it is necessary to go further and reform this institution in order to put in place programmes that guarantee the achievement of Sustainable Development Goals and financing mechanisms adapted to current and future challenges. A truly multilateral and systemic response, involving all countries in the decision-making process, is urgently needed to build a just and sustainable world.
Written by:
- Shereen Talaat, co-director for the Middle East and North Africa at the Arab Watch Regional Coalition.
- Leila Oulhaj, Research and Advocacy Officer on Tax Justice and Financing for Development at CNCD-11.11.11.
2See “Structural Adjustment” on the CNCD website 11.11.11: https://www.cncd.be/+-Ajustement-structurel-+
3World Bank, Poverty and shared prosperity 2018. Piecing together the poverty puzzle, International Bank for Reconstruction and Development / The World Bank, 2018.
4That is, the population that has less than USD 1.9 per day.
5Banque mondiale, Rapport 2020 sur la pauvreté et la prospérité partagée. Revers de fortune, Groupe de la Banque mondiale, October 2020
6The size of the sector in the region is 22%, as a percentage of GDP (Franziska Ohnsorge et Shu Yu (eds.), The Long Shadow of Informality: Challenges and Policies, International Bank for Reconstruction and Development / The World Bank, 2021).
7From access to clean water and sanitation to education and childcare (Christina Laskaridis, « The Gendered Impacts of the IMF’s Harmful Surcharges Policy », Center for economic and policy research, 15 April 2022).
8By 2050, the amount of water available per capita will be halved (Ferid Belhaj et Ayat Soliman, « La région MENA souffre d’insécurité alimentaire, mais des remèdes existent », La Banque mondiale/BIRD/IDA, 25 September 2021).
9Tarek Radwan, The impact and influence of international financial institutions on the Middle East & North Africa, Friedrich Ebert Stiftung, 2020, p. 118.
10 The full list is available at: https://www.bct.gov.tn/bct/siteprod/tableau_statistique_a.jsp?params=PL130040
11World Bank, « Confrontation avec la réalité : prévisions de croissance dans la région Moyen-Orient et Afrique du Nord en période d’incertitude », International Bank for Reconstruction and Development/World Bank, Avril 2022.
12Or « surcharges ». For more information: https://www.eurodad.org/a_guide_to_imf_surcharges
13Michael Galant and Aliza Khan, « “Examining the Gendered and Other Impacts of IMF Surcharges” Event Transcript », Kvinna till Kvinna Foundation/ Arab Watch Coalition/ Bretton Woods Project/ Center for Economic and Policy Research, 17 May 2022; FMI, « Fiche technique. Accord de confirmation du FMI », International Monetary Fund, March 2016.
14 That is, the additional charges imposed on countries with large debts to the IMF. In addition to the usual interest payments and service charges, countries have to pay additional fees that depend on the amount borrowed and the duration of the loan. The IMF considers that these fees act as a disincentive to the prolonged use of the amount borrowed (Michael Galan and Aliza Khan, « “Examining the Gendered and Other Impacts of IMF Surcharges” Event Transcript », Kvinna till Kvinna Foundation/ Arab Watch Coalition/ Bretton Woods Project/ Center for Economic and Policy Research, 17 May 2022; FMI, « Fiche technique. Accord de confirmation du FMI », International Monetary Fund, March 2016).
15Dan Beeton and Shereen Talaat, « Now Would Be a Good Time for the IMF to Do Away with Unfair and Unnecessary Surcharges », Center for economic and policy research, 22 April 2022.
16FMI, « Fiche technique. Prêts du FMI », International Monetary Fund, February 2021.
17Christina Laskaridis, « The Gendered Impacts of the IMF’s Harmful Surcharges Policy », Center for economic and policy research, 15 April 2022.
18Dan Beeton and Shereen Talaat, « Now Would Be a Good Time for the IMF to Do Away with Unfair and Unnecessary Surcharges », Center for economic and policy research, 22 April 2022.
19See, in particular, the statement signed by the CNCD-11.11.11 and Arab Watch: https://debtgwa.net/statements/eliminate-imf-surcharges-immediately
20Andrea Shalal, « IMF shareholders deeply divided on whether to suspend surcharges on some loans », Reuters, 13 December 2022.