Austerity Measures: To resuscitate or CHOKE economies?

BY JAMES KAHONGEH

For weeks now, doctors in Kenya have been engaging in a nationwide industrial action, protesting the government’s refusal to implement a Collective Bargaining Agreement (CBA) signed in 2017.  

The medics, on strike since March 2024, are demanding payment of salary arrears, pay increment, recruitment of trainee doctors and lack of a comprehensive medical cover for themselves. The government vows not to honour the 2017 CBA, dismissing it as void.   

In recent months, the cost of living in Kenya has shot through the roof. The price of basic commodities such as food are now beyond the reach of many poor Kenyans. The government has increased taxes on most products while tripling fees for most of its services, notably licenses, permits, passports and other documents.  

Services are sluggish and inefficient. The economy is slowing to a halt. Kenyans are between a rock and a hard place.   

Meanwhile, the President, his deputy and other senior state officers have had a salary jump of up to 14 percent in the last one year alone, even as the country’s economy tosses and turns in a whirlwind. With millions of Kenyans buried deeper under the rubble of poverty.   

‘‘As the International Monetary Fund (IMF) and the World Bank converge for the 2024 Spring Meetings this week, nothing quite illustrates their epic failure quite like the current state of Kenya’s economy.’’ 

The situation, though, is not unique to Kenya.  

Economies across Africa and most of the developing world are in a spin, with some at risk of total collapse as inequality between the rich and the poor grows.   

Most of these countries are victims of adverse IMF-instigated fiscal policies that elevate a handful of people while consigning more than 80% of the population to squalor in the name of austerity. 

But what is austerity? 

Austerity is characterised by economic measures implemented by a government to reduce public-sector debt. This is done to curtail government spending. For countries unable to fund their budget through government revenue, this is done to reduce the budget shortfall. 

In most cases, austerity measures come with tax increases and significant cuts in programmes by the government. This leads to an acute decline in the quality of social services, and even their disappearance. 

Ironically, some of the sectors targeted for government budget cuts are also the most sensitive in an economy. These include education, healthcare and social protection.   

‘‘While reduced spending may control a government’s appetite for debt, withdrawing funding for critical services weakens economies and worsens the agony of common people.’’ 

For workers, reduced government spending means reduced disposable income amid a high cost of living. Less money for citizens means less spending power and, consequently, a contracted economy.  

Coupled with sluggish growth, few new jobs created, and no new wealth generated, a cycle of poverty is perpetuated. 

Typically, austerity measures:  

• Increase income taxes 

• Limit unemployment benefits 

• Lower the minimum wage  

• Extend the eligibility age for retirement 

• Limit health care benefits 

• Freeze or reduce government employees’ wages 

• Decrease funding for social or welfare programs 

Experts term them a harsh measure that impacts citizens. Whereas they remain contentious globally, the IMF has been pushing them on African economies for decades, effectively violating the continent’s right to develop. 

In a fast-changing world, the experts say, the Bretton Woods institution is still steeped in elitism that promotes unjust systems that perpetuate economic inequalities and neocolonialism. 

Is IMF a champion of African development or its stumbling block?

For years, the IMF has unfairly determined loan beneficiaries, including the interest rate charged and the conditions for obtaining such loans.  

Countries with close diplomatic ties with Germany, France and the UK are privileged over those who do not enjoy such ties. The more isolated countries are diplomatically, the harsher the conditions for loans. The harsher the austerity measures.  

IMF is also believed to use its power to unduly influence voting at the United Nations General Assembly (UNGA) by arm-twisting developing nations. 

While these conditions are awful enough, it is the requirement to reform country economies that highlights IMF’s injustice for fueling economic inequality. Today, most African economies are still recovering from the downtime of the structural reforms prescribed by the IMF 30 years ago.  

Reform of the institution is long overdue, analysts emphasise. They insist the IMF must recognise Africa and the Global South’s right to develop by suspending all austerity measures forced on them.  

Any reforms that do not upset the apple cart are not good enough, they warn. Any reforms that seek to institute austerity measures for developing nations are unwelcome.  

Instead, the IMF should promote bold, structural and transformative solutions at-scale, not small, superficial solutions that hurt citizens in vulnerable countries.