Report Shows How IMF-Imposed Austerity Hurts Poor Countries Already Reeling From Iran War

The US-Israeli war with Iran has exacerbated economic hardship across the world. It's especially bad for the developing nations currently being forced to implement austerity programs by the International Monetary Fund.

Under IMF loan programs, countries struggling with debt are required to reduce government budget deficits by introducing spending cuts and tax increases that tend to hurt their poorest citizens. They often include cuts to public services and welfare programs, caps on government workers' salaries, and the elimination of subsidies that keep basic needs affordable.

According to a report out Monday from Oxfam—amid the IMF's annual meeting in Bangkok this week—24 of the 28 nations currently receiving IMF loans have been forced to implement austerity measures. Some of them, like Sierra Leone and Guinea-Bissau, are among the poorest nations in the world.

Even before the war—which has caused oil prices to soar and driven inflation worldwide—people in many of these countries were struggling to meet their basic needs and facing severe economic pressure: 51% were food insecure, and 57% lacked access to clean cooking fuel.

Emergency government programs have been able to backstop the worst effects for up to 130 million of the world's poorest people, according to a report published before the meeting by the United Nations Development Program.

But as those countries run out of resources, many are being forced to pivot, and the stiff requirements imposed by the IMF may exacerbate the hardship.

In Ecuador and Guinea-Bissau, the IMF is requiring governments to cut spending, raise taxes, or both to the equivalent of roughly 4% of the nations' annual gross domestic product (GDP).

The terms are even harsher for Sierra Leone, where the government is required to cut spending or raise costs equivalent to more than five times its annual healthcare budget.

A loan approved last week for Bolivia requires the government to slash as much as 8.5% of its GDP from the deficit—about twice its annual healthcare spending. The country has already been forced to eliminate a diesel subsidy that drove high prices down for consumers and businesses.

The IMF has acknowledged that these cuts are likely to make the strain worse for many low-income countries already suffering from the war, but said they had "no choice" but to cut spending or restructure their debts.

Oxfam International executive director Amitabh Behar noted that during previous crises like the Covid-19 pandemic and the war in Ukraine, the IMF has enacted tools to ease the burden on nations in debt by providing emergency loans and access to foreign currency without requiring additional borrowing.

"But this time, the fund is taking a very different path," he said. "Instead of helping countries withstand another major shock, it is doubling down on austerity—forcing them to cut back on the very spending that can help protect people and recover—and leaving them even more vulnerable to the next crisis."