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© 2023 Brian Stauffer for Human Rights Watch

(Washington DC) – The International Monetary Fund, with a global debt crisis looming, is setting conditions for its loans that risk undermining people’s economic, social, and cultural rights, Human Rights Watch said in a report released today. The conditions are compounding problems related to rising inequality.

The 131-page report, “Bandage on a Bullet Wound: IMF Social Spending Floors and the Covid-19 Pandemic,” analyzes loans approved from March 2020, at the start of the Covid-19 pandemic, until March 2023 to 38 countries, with a total population of 1.1 billion, and finds that the vast majority are conditioned on austerity policies, which reduce government spending or increase regressive taxes in ways likely to harm rights. It also finds that recent IMF initiatives, announced at the beginning of the pandemic, to mitigate these impacts such as social spending floors are flawed and ineffective in addressing the harms caused by the policies. The report features a case study of Jordan, where a series of IMF programs have introduced sweeping economic reforms over the past decade, but mitigation measures have been inadequate to address the harm to rights.

“Escalating protests in Pakistan against rising costs linked to IMF demands, which follow similar protests in other countries, should serve as a wake-up call to the IMF ahead of its upcoming Annual Meetings in October,” said Sarah Saadoun, senior researcher and advocate on economic justice and rights at Human Rights Watch. “Despite its promises at the beginning of the pandemic to learn from past mistakes, the IMF is pushing policies that have a long track record of exacerbating poverty and inequality and undermining rights.”

The IMF’s own internal research indicates that these policies also are generally not effective for reducing debt, which is their chief objective. IMF’s World Economic Outlook published in April 2023 observed that fiscal consolidations – a term usually linked to austerity programs –
“do not reduce debt ratios, on average.”

International financial institutions and governments have international human rights obligations to respond to economic crises in ways that protect and advance rights in both the short and long term. Austerity measures that broadly reduce government spending on essential public services or significantly increase regressive taxes have a well-documented history of undermining rights.

The United Nations Human Rights Council has adopted guiding principles to ensure economic recovery measures that further “the benefit of the whole population, instead of only a few.” These prohibit 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.

Yet, 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:

  • Twenty-two programs include measures to contain or reduce public wage bills, generally through freezing hires or capping or lowering salaries, compromising governments’ ability to deliver quality public services that are guaranteed as rights. Such measures persist despite IMF guidance, approved in 2007, discouraging public wage caps other than in exceptional circumstances, where they are “justified in a transparent manner.” Few programs include any such justification.
  • Twenty-three programs include advice or measures to increase revenues from value-added taxes, an indirect tax that tends to be regressive and exacerbate inequalities since the rate is the same for people regardless of income.
  • Twenty programs remove or reduce consumption-based subsidies on fuel or electricity or develop plans to do so without adequately investing in social security or other compensatory measures or in clean sources of energy. Fossil fuel subsidies direct enormous amounts of public resources to artificially reduce the costs of fossil fuels, and removing them is necessary to confront the climate crisis and shift toward a social contract that better fulfills economic and social rights. However, unless adequate compensatory measures are put in place in advance, the removal of the subsidies has a particularly acute effect on people on low incomes as it forces them to pay a higher share of their income that they need to realize their rights for transport and goods and services tied to energy prices.

Measures to mitigate the impact of austerity measures typically include incorporating what the IMF refers to as “social spending floors,” which typically set minimum government spending targets in areas such as education, health care, and social protection, as well as some efforts to improve social protection, which are programs intended to address income insecurity.

While the increased attention to social spending and social protection is positive, the floors lack objective or consistent criteria to make them effective, Human Rights Watch said. The scope of the floors varies widely, from including dozens of programs across multiple ministries to being limited to select cash transfer programs. Most do not include information that enables comparison with previous spending. Moreover, with rare exceptions, they only set spending targets, which IMF staff may waive without requiring approval from its board of executive directors.

Moreover, measures to improve social protection, generally designed in collaboration with the World Bank, fall short of human rights standards. Social protection is key to fulfilling the right to social security, but rather than promote universal systems, which provide income security to everyone throughout their life, every IMF program reviewed that sought to improve social protection pursued means-testing, which limit benefits to people living in poverty, or even in extreme poverty. Studies have shown means-testing prone to high error rates, corruption, and social mistrust. Means-tested programs exclude large segments of the population who live in precarious conditions but cannot prove that they meet eligibility criteria, as well as many of those they are aiming to reach.

The IMF should conduct sweeping reforms to effectively support governments to build economies that allow everyone to realize their economic, social, and cultural rights. It should redesign social spending floors to address systemic flaws, commit to supporting universal social protection programs, and stop promoting means-tested programs. It should also commit to formally recognize a duty to respect, protect, and fulfill all human rights, including socioeconomic rights, in all its work, without discrimination.

“The IMF’s experiment of trying to offset the harm caused by austerity programs simply isn’t working,” Saadoun said. “It needs a new approach that makes the fulfillment of economic and social rights the starting point.”

Jordan: Higher Poverty, Persistent Debt

Jordan, which has had a series of IMF programs since 2012, is an early example of IMF efforts to offset the harm caused by austerity with social spending floors and means-tested cash transfers. Under these programs, the government removed fuel and bread subsidies, increased consumption and income taxes, and overhauled electricity tariffs.

A government report acknowledged that investment in social assistance decreased between 2011 and 2017 after the government ended the subsidies, generating 788 million JD (US$1.1 billion) in savings during that time.

In 2019, the government, with World Bank support, established a means-tested cash transfer program that was incorporated into an IMF social spending floor. Yet, in 2022, it reached no more than 120,000 beneficiary households, or around 5 percent of Jordan’s population of roughly 11 million. With poverty increasing from 15 to 24 percent between 2018 and 2022, the program only reached around one in five Jordanians living under the poverty line. Previous Human Rights Watch research has found that the algorithm the program relies on to select beneficiaries is arbitrary, discriminatory, and prone to error.

An agricultural worker with six children told Human Rights Watch she applied twice for assistance and was rejected both times. She and her husband each earn 10 JD ($14) for a day’s work (an equivalent of $280 for 20 days of work per month); the minimum wage in Jordan is 260 JD ($367) per month and a living wage for a typical family, according to one calculation from 2020, is around 600 JD ($846) per month. “We’re basically starving,” she said. “There was a period of time when we only had two bags of rice and we’d ration it.”

To add salt to the wound, Jordan’s debt-to-GDP ratio is now higher than when the IMF approved the first program in this series a decade ago.

Key Recommendations

The IMF should take concrete measures to prioritize the fulfillment of economic and social rights. It should, in particular:

  • Systematically conduct and publish human rights impact assessments of proposed policies before approval to ensure they pursue those most effective at reducing poverty and inequality and advancing human rights. These assessments should be made public before loan approval to facilitate a meaningful public debate, particularly among those most likely to be affected. The IMF should continue to conduct and publish such assessments at each review.
  • Redesign social spending floors, specifically:
    • Avoid trade-offs in social spending (for instance, increasing education spending by reducing healthcare funding) by including two separate floors:
      • A broadly defined social spending floor, disaggregated by sector, that ensures that spending on, for example, health, education, and social protection are, at a minimum, in line with international benchmarks as a percentage of GDP and of national budgets.
      • A floor that ensures adequate compensation for any unavoidable negative impact on rights resulting from the programs, demonstrating how the mitigation measure, such as increased social security spending or coverage, avoids, at a minimum, any retrogression in the level of enjoyment of rights.
    • Consider replacing “floors,” which are revised ad hoc in each review, with “goals” to be achieved by the end of the program, and a plan developed from the outset to achieve specific benchmarks in each review.
  • Commit to promoting universal social protection systems.

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