A bad track record

IMF loans in Africa

Aug 13, 2024

Hi there,

In this week’s edition, I’m bringing you highlights from a report that looks into how loan programs with the International Monetary Fund have played out across countries on the African continent, and what implications they have had for development and human rights. Other stories are included as well but they will stay on the shorter side.

To new subscribers, welcome!

My name is Maya Misikir, and I’m a freelance reporter based in Addis Abeba. I write Sifter, this newsletter where I send out the week’s top 5 stories on human rights and news in Ethiopia.

Now, to the news.

Finance: is Ethiopia an exception?

The Ethiopian government introduced a market-based foreign exchange system at the beginning of the month. Over the past two weeks, the Birr has devalued drastically – it has fallen from about 58 Birr to the dollar to 111 Birr.

I wrote two updates on what this change in the foreign exchange policy has brought about including how prices on goods increased hours after the new policy came to life. Thousands of businesses that had raised prices exorbitantly or hoarded items were shut down.

Last week, police raided Addis Abeba’s biggest open market, Merkato, and confiscated nearly 800,000 liters of edible oil, according to a story in The Washington Post. The government has also imported millions more liters of edible oil, and other essential items, in anticipation of the economic toll this latest policy will have on many people.

The IMF’s Managing Director, Kristalina Georgieva, described these reforms as a “landmark moment for Ethiopia,” according to the same story.

What better way to understand this “landmark moment” than to look at what IMF loan agreements have looked like in other countries on the African continent?

Changing to a market-based foreign exchange system was one of the many conditions to secure this credit facility from the IMF. What other conditions usually come with an IMF loan agreement and what has that looked like in other African countries? What are the human rights implications on health, education, and especially on already vulnerable communities including women?

Below are highlights from a report published by ActionAid in October last year which looked at IMF loan documents across 10 African countries: Ghana, Kenya, Malawi, Nigeria, Senegal, Sierra Leone, Tanzania, Uganda, Zambia, and Zimbabwe.

The report found that ‘the IMF continues to enforce cuts to public spending that hurt women and disadvantaged groups most acutely.’

But why?

As worded in this other opinion piece on Ethiopia Insight, the IMF, ‘lends money to countries that will pay it back’. To ensure this, repayment is usually made the top priority for governments, and this in turn translates to cuts to development projects.

Here’s an excerpt on what the report calls the IMF’s ‘cult of austerity’:

The IMF’s insistence that countries prioritise debt repayments, rather than seeking a systemic solution to debt, is a major obstacle to spending on health, education and climate action.

The report shows that 8 out of 10 countries have recently been advised to cut or freeze public sector wage bills (government employees’ salaries).

The cut in government spending impacts, ‘frontline workers in health, education, and other sectors’; in other words, no new recruitments will be made, salaries mostly remain the same and, in some cases where they are increased, it’ll be by margins that are not adequate to live on. (The Ethiopian government has said that low-income government employees will see an increase in their salaries to cushion the impact of these changes.)

This, of course, has a gendered impact. Why? Because it is women who make up, ‘the majority of frontline public sector workers and tend to be on the most vulnerable employment contracts.’

Most of the negotiations between the Ethiopian government and the IMF happened behind closed doors, but this is not new to the way the IMF deals. Here’s an excerpt from the report.

Decisions affecting the life and welfare of hundreds of millions of people are taken behind closed doors with ministries of finance, who have little scope to resist the conditions imposed and the coercive policy advice offered.

What are the ways countries are then encouraged to raise revenue? Through levying regressive taxes like VAT, which in turn passes the burden to people in poverty, instead of ‘reforms that would target the wealthiest individuals and companies’.

Parliamentarians in Ethiopia passed a new VAT law in June which now levies this tax on items that used to be exempt (including transportation services as well as the supply of potable water and electricity).

Six of the ten countries in the report allocated over 18 percent of their national budgets to debt servicing. This is a critical threshold where public spending of government starts getting cut drastically.

The IMF makes ‘projections’ on what these governments it loans money to, spend on various operations. But there’s nothing predictive about the ‘projections’ according to the report, which says they are instead, ‘coercive targets or conditions that governments are expected to achieve if they are to be seen to be on the right track.’ This brings up questions on sovereignty, it adds.

What happens when countries don’t meet targets? The periodic installments in the loans are one way to ensure compliance. The deal with Ethiopia is a four-year credit facility worth $3.4 billion; 1 billion of which will be disbursed immediately. The rest is to be given out over the coming four years.

The IMF is also known to hold consultations, a way to put a ‘a tight leash’ on countries when targets are not on track (in Kenya and Uganda, recent loan agreements included this 'consultation clause’).

The article in Ethiopia Insight talks about how the IMF loan is considered a “seal of approval”. Right after the Ethiopian government secured the IMF loan agreement, the World Bank pledged 16.6 billion US dollars.

The World Bank is ‘a champion of privatization’ says the report, and privatization makes access ‘based on the ability to pay and often leads to millions losing access to essential service.’

The Ethiopian government plans to privatize state-owned companies, including, water utility services under a public-private partnership arrangement.

It is also known, says the report, that these IMF ‘advised’ austerity measures have not gone down well with citizens. In the case of Kenya and Nigeria right now, they are the cause behind countrywide protests. In Kenya, the Finance Bill of 2023 was recently declared unconstitutional, one year later, ‘due to flawed public participation’.

But even in cases where the loan agreements have been done without the necessary engagement with stakeholders, the report says that there’s time to, ‘keep up the pressure, tracking the programme, exposing injustices that arise, and arguing for alternative, more equitable and progressive paths to be followed in future.’

If you want to understand the new legal changes that came with the latest shift in the foreign exchange market policy and how they compare to the older way of doing business in Ethiopia, go here.

The opinion piece on the loan agreement on Ethiopia Insight here, and the full report by ActionAid, entitled, ‘Fifty Years of Failure, The International Monetary Fund, Debt and Austerity in Africa’, here.

Human rights: violence against women is getting worse

The conflicts across the country have worsened the violence that women are facing across the country, especially as conflicts grow in numbers and gain momentum.

I spoke to human rights activists and civil society organizations working in different parts of the country and wrote a piece for The New Humanitarian that looks into what women in conflict and post-conflict areas are forced to bear including the culture of silence that further victimizes women in the name of family “honour”.

Here’s an excerpt on that:

Women can be double victims. An entrenched cultural idea of a woman’s “purity” often stigmatises survivors – forcing them into silence. They are left alone to bear the burden of what they have been forced to endure as communities become desensitised to the horror.

The story talks about how these conflicts have shifted attention away from women’s rights issues in the country, and how this, in turn, has resulted in an uptick in harmful traditional practices, like female genital mutilation and early marriages.

The full story, on The New Humanitarian, here.

Infrastructure: mediation efforts continued

Earlier in July, I wrote an update when Turkey first stepped in to mediate between Ethiopia and Somalia following a rift that was caused by Ethiopia’s port deal with Somaliland.

Representatives from Ethiopia and Somalia had a meeting scheduled in Ankara for the second round this week, according to a story on Reuters.

Here’s an excerpt from the story on what Turkish Foreign Minister Hakan Fidan said:

Fidan's announcement came a week after he visited Addis Ababa and met Ethiopia's Prime Minister Abiy Ahmed.
"We discussed these issues with Prime Minister Abiy in detail," Fidan said.
"Tensions between Somalia and Ethiopia would come to an end with Ethiopia's access to the seas through Somalia as long as Ethiopia's recognition of Somalia's territorial integrity and political sovereignty is secured."

The full story, on Reuters, here.

Press freedom: it’s been over two years

The Ethiopian Mass Media Professionals Association has put out a call asking for the release of journalists imprisoned for two years without any verdict.

Here’s an excerpt from a story on Addis Standard:

The association issued a press release after its newly elected executives visited Kaliti and Kilinto prison facilities in the capital Addis Abeba, on 11 August 2024, where they met several detained journalists, some of whom the association confirmed to have been detained for over two years without verdict.

The full story, on Addis Standard, here.

Reshuffles: this should be a series

There’s a new head at the Ethiopian Capital Markets Authority, and she’s a legal expert with former ‘roles in public prosecution, anti-corruption, and economic crime affairs.’ Hana Tehelku has replaced the founding Director-General of the Authority, Dr. Brook Taye, who’s heading over to lead the Ethiopian Investment Holdings.

Here’s an excerpt from a story on Addis Fortune on Ethiopian Investment Holdings.

Chaired by the Prime Minister, it was incorporated in 2022 with a capital of 100 billion Br and oversees nearly 30 state-owned enterprises, including heavyweights like Ethiopian Airlines and Ethio Telecom. These enterprises collectively hold over 150 billion dollars in assets, with investments amounting to approximately 275 million Br in the Ethiopian Securities Exchange (ESX).

The full story, on Addis Fortune, here.

That’s all for this week. I’ll be back next week with more updates!

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Sifter