IMF austerity measures affecting delivery of public services — ActionAid’s report

IMF austerity measures affecting delivery of public services — ActionAid’s report
Officials of ActionAid, Education International and Public Services international at the launch of the report

Experts in the finance and tax industry have in recent times raised alarm and cautioned government on the looming debt crisis. A new report released by ActionAid Ghana in partnership with Public Services International and Education International has confirmed the concerns and red flags raised by these industry players.

The new report is in line with ActionAid Ghana’s Mission Priority four which focuses on how to improve citizen’s participation, public accountability, effective mobilisation and fair redistribution of public resource towards gender- responsive public services.

Titled ‘The Public Versus Austerity: The wage bill constraints’, the report analyses trends in public sector wage bill in education and health sectors and freezing or depreciation of wages, and trends of the overall public sector wage bill as a percentage of government budget, revenue or GDP. It also examines the links between Ghana’s debt servicing and public sector wage bill and how these are related to the advice of the International Monetary Fund (IMF) – under the public sector wage rationalisation policy to contain and reduce the wage bill.

According to the report, although Ghana’s public-sector wage bill has increased significantly over the last decade or so, the pace of growth has not matched the increasing need for the critical workforce required in the public sector, especially in education and health, thus, severely affecting the delivery of quality public services.

The report further reveals that the inability of government to absorb more public-sector workers stems from the growing rigidities in the budget as a result of sharp increases in debt service, in particular interest payments.

Austerity measures

The report reveals that as part of the IMF sponsored fiscal consolidation programme launched in 2015, the government accepted the key programme conditionality of public sector wage rationalisation policy to contain and reduce the wage bill. The conditionalities, according to the analyses, included the government implementing a hiring freeze across most government agencies, and the cap on nominal wage increases.

The health and education sectors experienced much severer control with respect to hiring. For instance, healthcare or educational institution cannot hire without financial clearance from the Ministry of Finance and the relevant ministry. These restrictions affected and continues to affect the provision of critical gender responsive social services such as health, education, sanitation, and water.

The report observed that the fast-rising public debt and debt servicing costs have also constrained government’s fiscal space to expand employment in health and education sectors- indicating a “deprioritisation of public services in favor of debt servicing.”

The report further noted that “the COVID-19 crisis has revealed the extent to which public services have been under-funded for a generation across Africa, with women in the poorest communities often having to take the strain to fill the gaps through unpaid care and domestic work.”

It indicated that the contraction in public services is adversely impacting women the more as they form majority of the frontline workers such as teachers, nurses, midwives, doctors and other education and health workers. These, coupled with the increasing women’s unpaid domestic and childcare services, are pushing women more into poverty and undermining the progress on human rights – a situation that significantly threatens the realisation of the Sustainable Development Goals.

Public debt servicing

The report revealed that the percentage of government revenue being spent on debt servicing (above 40 per cent between 2016 and 2019 and over 55 per cent in 2020), far exceeds the IMF’s sustainable threshold of 12 percent and the 18 percent IMF’s country-specific limit for Ghana. This alarming situation has constricted government’s fiscal space in providing and expanding gender-responsive public social services such as education, health, social protection, water, and sanitation – further deepening the already existing gender inequality and women’s unpaid domestic services.

The report further revealed that Ghana is spending 59 per cent of its revenue in debt servicing, making the country the second highest in the world. These statistics which are analysed data from the Ministry of Finance between 2016 and 2020 suggests an increasing public debt as against declining GDP growth.

The report indicated that on average, between 2016 and 2020, over 40 per cent of government’s domestic expenditure and 26 per cent of its total expenditure were in debt service alone. This is 1.74 times (17 per cent) and 1.6 times (16 per cent) higher than the shares of domestic expenditure and total expenditure in both public education and health wage bills. The situation as it stands now is not healthy for Ghana’s economic development as it hampers its efforts in achieving majority of the SDGs.

The report further indicates that the amount spent by the government on public sector wage (including health, education, social protection, security services, sanitation, public works, administration etc.) is almost the same as the amount spent on interest payments on debts. Compared to its peers, Ghana has one of the lowest compensations for workers to expenditure ratio (35.6 percent) in 2019 but shows the highest percentage of interest payments over total expenditure (31.7 percent) in the same period.

Role of IMF and government

The underfunding of these critical services is in contravention of the International Covenant on Economic, Social and Cultural Rights (ICESCR), ratified by 171 UN member states including Ghana. The ICESCR requires that, governments must devote their “maximum available resources” (Art 2(1)) to progressively achieve the full realisation of socioeconomic rights for all (Center for Economic and Social Rights, 2020).

To fully mitigate the impact of the COVID-19 pandemic and secondly, to avert the public sector wage bill caps/freezes on gender responsive public services provision, it is recommended that the IMF should move away from policy advice that gives absolute primacy to short-run macro-stability but rather what help the country move towards long-term planning so that they can factor in the returns to longer-run investments in education, health, social protection and sanitation programmes.

ActionAid also recommends that the government should, as part of its long-term planning, determine staffing and pay levels that are consistent with their public sector wage bills and allow for the operation of a motivated and professional teaching force on a sustainable basis. It also urged the government to renegotiate with development partners (IMF and World Bank in particular) for a mechanism that ensures that debt servicing does not surpass 18 percent of government revenue.

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