World Economic Outlook neglects impact on poor

Contrary to the positive picture painted by the International Monetary Fund in its 2010 World Economic Outlook, poor countries are being forced to cut back on their economic crisis-response spending too soon, international agency Oxfam said today.

April 21, 2010


The IMF's 2010 World Economic Outlook finds that `Sub-Saharan Africa is weathering the global crisis well, however Oxfam Canada policy coordinator Mark Fried said: `The IMF's overly-optimistic attitude is based on a measurement of growth rates, not on what poor countries are having to do which is cut budgets. Poor countries are cutting vital spending to bail themselves out. This is exactly the opposite of what's needed. The IMF must work with developing country governments to help them ramp up rather than cut health or education spending.


New budget data from 56 poor countries surveyed by Oxfam - including detailed breakdowns of social spending in just over half of these countries - shows that poor countries have had to slash education, health, agriculture and social protection spending.

  • Budgets in 2010 are being cut on average by 0.2 per cent of GDP.
  • Two-thirds of the countries for which social spending details are available (18 out of 24) are cutting budget allocations on one or more of the priority social sectors of education, health, agriculture and social protection.
  • Education and social protection are particularly badly affected, with average spending levels in 2010 lower even than those in 2008.


Rich countries are failing to provide the support needed to prevent these cuts. Oxfam has found that the economic crisis has left 56 poor countries with a combined fiscal hole' (that is, a shortfall in budgetary revenue) of $65 billion in 2009 and 2010. Despite promises by the G20 and donor countries to help poor nations survive the crisis, just 13 per cent of this revenue gap has been filled by grants. Given this failure by the international community, poor countries were forced to resort to expensive domestic borrowing to finance spending in 2009; now they are cutting spending prematurely to avoid a new debt crisis.

This comes on the heels of the OECD's report that development aid fell $3.5 billion in 2009, and World Bank calculations that 50,000 more children in Sub-Saharan African countries may have died last year because of the financial crisis.

`The IMF has said a Financial Transaction Tax, otherwise known as the Robin Hood Tax, is possible. The G20 now needs to deliver it. At rates of around 0.05 per cent per currency transaction, a tax would raise hundreds of billions of dollars annually. Otherwise, this poor country fiscal gap risks becoming a black hole into which the education, health and future prospects of the world's poorest will disappear, Fried said.