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Bretton Woods Observer Summer 2024
A quarterly critical review of developments at the World Bank and IMF

Published by BRETTON WOODS PROJECT
Working with NGOs and researchers to monitor the World Bank and IMF

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1. IMF board’s reluctance leaves Special Drawing Rights as underused
tool in Fund’s toolbox
2. Ecuador ratifies 2008 ban on investor-state dispute settlement
mechanism
3. No false solutions: IMF surcharges must go
Guest analysis by Michael Galant and Alex Main, Center for Economic
and Policy Research
4. ‘Worst ever’ debt crisis puts IDA’s financial model at risk,
underscoring need for ambitious donor contributions to IDA21
replenishment
5. IMF’s Interim Guidance Note on Mainstreaming Gender fails to
address negative gendered impacts of IMF austerity
6. Pakistan’s debt crisis fuelled by more IMF loans
7. World Bank agricultural reform programme facilitates exploitation
of Zambian farmers
8. World Bank’s $1 billion loan to South Africa risks undermining
just transition by doubling down on ‘de-risking’ private capital
9. Economics is political: the IMF’s programme in Egypt can’t succeed
without reforming both Guest Comment by Timothy E. Kaldas, The Tahrir
Institute for Middle East Policy
10. Banga calls energy access a ‘human right’ as he announces World
Bank will provide access for 250 million people in Sub-Saharan Africa
by 2030
11. Tara Povey joins the Bretton Woods Project as new Gender Equality
and Macroeconomics Project Lead

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FINANCE/analysis

IMF board’s reluctance leaves Special Drawing Rights as underused
tool in Fund’s toolbox

SUMMARY
- IMF board belatedly approves SDRs rechannelling via MBDs’ hybrid
capital facilities with firm limits, despite European opposition
- Resilience and Sustainability Trust’s interim review fails to
resolve eligibility concerns, doubling down on problematic ‘green
conditionality’
- Southern governments call for more SDR allocations, as academics
and CSOs continue to call for SDRs reform in order to strengthen
global financial safety net

Amid a growing debt crisis – illustrated by a trend of net-negative
aid flows compared to debt repayments in many Global South countries
– IMF shareholders remain at loggerheads over expanding the role of
IMF Special Drawing Rights (SDRs), the Fund’s reserve asset, in
response to these challenges (see Inside the Institutions, What are
Special Drawing Rights?). The IMF board is not actively discussing a
new SDR allocation, and even relatively conservative proposals for
new SDR-backed hybrid capital facilities at multilateral development
banks (MDBs) have faced opposition from some of the IMF’s most
powerful European shareholders. After a series of delays, the IMF’s
executive board finally approved this use of SDRs on 10 May, but
initially capped the amount of SDRs that can be utilised by such
facilities at 15 billion SDRs (around $22 billion). In a signal of
ongoing hostility to the use of SDRs for development financing
purposes by some IMF shareholders, including Germany, the IMF’s press
release revealed that ‘a number’ of executive directors had opposed
the proposal – a qualifier meaning that between 6 and 9 executive
directors voted against it. As Mark Plant from the Center for Global
Development pointed out in a blog post on 15 May, “opposition to the
proposal, particularly among some European central bankers, is
strong.” However, Plant noted that IMF staff argued in their report
to the board that, “Not approving the current proposal may entail
business and reputational risk [to the IMF].” Staff added this “would
be perceived as intentionally limiting the attractiveness of the SDR”
– in a nod to the IMF Articles of Agreement, which contains language
stipulating that all members must work to ensure the SDR is the
“primary reserve asset in the international monetary system.”
However, SDRs have remained a marginalised tool, historically
speaking, accounting for just 6.8 per cent of global reserves in
mid-2022. SDR rechanneling via the IMF: a vehicle for austerity and
green conditionality Since the 2021 general allocation of $650
billion worth of SDRs (see Observer Autumn 2023, Autumn 2021), the
European Central Bank has twice reiterated its position in statements
to the IMF’s International Monetary and Financial Committee that
under EU rules, EU member states can only rechannel SDRs to IMF-based
trusts, i.e. the Poverty Reduction and Growth Trust (PRGT) and the
new Resilience and Sustainability Trust (RST), established in 2022
(see Observer Spring 2024; Inside the Institutions, What is the IMF
Resilience and Sustainability Trust?). Despite the recent decision by
the IMF board, proposed SDR-backed hybrid capital facilities at the
African Development Bank and Inter-American Development Bank face an
uphill battle to find countries willing to capitalise them via
rechannelled SDRs, amid likely non-participation from EU member
states. Additionally, the US Congress has so far failed to authorise
any SDR rechannelling, including via the IMF, although the US is the
largest recipient of the 2021 SDR allocation as the IMF’s largest
shareholder (the US did allocate $21 billion to the PRGT earlier this
year from non-SDR reserves). Rechannelled SDRs currently primarily
benefit the PRGT and the RST, which have received $55 billion and $45
billion, respectively, in rechanneled SDRs since 2020 and require
countries who access financing to undertake IMF conditionality. The
IMF board also completed an interim review of the RST on 8 May.
Despite climate vulnerable countries in the V20 Group recently
calling for the IMF to reconsider the RST’s eligibility requirements,
which require countries to have a concurrent IMF programme in place
in order to access RST financing (see Dispatch Spring 2024), the IMF
has kicked this issue down the road until a full review of the RST in
2026. An April report published by Netherlands-based civil society
organisation (CSO) Recourse highlighted problematic conditions
included in the initial wave of RST programmes, such as the promotion
of austerity and privatisation and fossil fuel expansion (see
Dispatch Springs 2024). The board’s interim review reinforces this
approach, noting that access to RST financing higher than the
standard 75 per cent of countries’ IMF quotas would be “based on
exceptionally high‑quality reform packages,” reflecting support from
some shareholders for this financing to remain heavily embedded in
IMF conditionality. Back to the future: SDRs ‘development link’
debate remains unresolved, amid highly unequal global financial
architecture The lukewarm endorsement of SDR rechanneling through
MDBs by the IMF board, where European countries in particular remain
over-represented (see Observer Springs 2024), stands in stark
contrast to continued calls from Global South governments for
additional SDR allocations in the face of an increasingly dire
financing outlook. Most recently, as part of the outcome document of
the Third South Summit held in Kampala, Uganda, in January, the G77
and China called for “new issuances of SDRs, driven by the need to
enable the achievement of the Sustainable Development Goals,
including eradicating poverty.” This followed calls from African
finance ministers in 2023 for direct allocations of SDRs to African
countries with weak external positions (see Observer Summer 2023). A
report by the UN High Level Advisory Board on Effective
Multilateralism published in 2023 highlighted a number of measures
that could be undertaken in order to enhance the role of SDRs within
a more resilient global financial safety net. These included annual
allocations linked to global growth rates in order to meet countries’
reserve asset needs, and automatic SDR allocations to countries that
experience shocks, including climate disasters – recommendations
which may be taken up in September’s UN Summit of the Future. These
calls for reform were echoed by a civil society proposal launched in
April by ActionAid USA and the Bretton Woods Project and endorsed by
18 other CSOs. The proposal called for a new SDR allocation to
provide immediate liquidity and act as a bridge to further reforms,
including automatic, needs-based allocations, and reverting back to
the IMF’s pre-2009 classification of SDRs as equity (rather than as a
liability), in order to remove legal hurdles to countries using them.
The proposal noted, “There is an urgent need to create an SDRs system
that is fit for purpose to help all IMF member countries achieve a
feminist, just transition and pursue their development objectives.
This requires SDRs allocations that are more regular, predictable,
and needs-based, as well as reforms that enhance the usability of
SDRs, and increase their liquidity in a manner akin to other types of
reserves.” tinyurl.com/SDRsToolbox

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TRADE/news

Ecuador ratifies 2008 ban on investor-state dispute settlement
mechanism

On 21 April, Ecuador’s citizens voted in a referendum to keep its ban
on investor-state dispute settlement (ISDS) – the mechanism that
resolves disputes between foreign corporations and states. Ecuador’s
ISDS ban came into force after a constitutional popular vote in 2008.
It took 8 years for the country to completely abandon ISDS, first
exiting the World Bank’s International Center for the Settlement of
Investment Disputes (ICSID) – the main forum for investor-state
dispute resolution (see Inside the Institutions, What is the World
Bank’s ICSID?; Update 58). The vote was a victory for a civil society
campaign, which included a global declaration by over 150
organisations and a 12 April open letter supported by 100 groups
globally, highlighting ISDS was “created by and for investors, giving
them access to a private, parallel and privileged judicial channel,
bypassing national justice.” ISDS’s opaque and biased nature has long
been criticised. A July 2023 report by the UN Special Rapporteur on
human rights and the environment, David R. Boyd, noted that ISDS “has
become a major obstacle to the urgent actions needed to address the
planetary environmental and human rights crises.” “Ecuador has long
been a global example on how states can face ISDS,” said Luciana
Ghiotto of Netherlands-based Transnational Institute, “Not only did
it include the ban on ISDS in the 2008 Constitution. It also called
for an audit commission of all its investment treaties and ISDS cases
in 2014 showing the capacities this system has given to corporations
to go treaty-shopping and forum-shopping according to their needs.”
Ecuador joins several countries either renegotiating or rejecting
investment treaties that include ISDS mechanisms, including South
Africa, Indonesia and India. tinyurl.com/EcuadorISDS

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FINANCE/analysis

No false solutions: IMF surcharges must go
Guest analysis by Michael Galant and Alex Main, Center for Economic
and Policy Research

SUMMARY
- IMF surcharges punish countries like Ukraine that are already
struggling under onerous debt burdens
- New proposals to use surcharge income to fund concessional lending
would only entrench an unjust and senseless system
- The IMF’s surcharge policy review offers a window of opportunity to
end surcharges once and for all

The International Monetary Fund (IMF) announced in April that it will
be initiating a review of its controversial surcharge policy. For the
global movement that has sought to discontinue the policy in recent
years, this represents a key window of opportunity. But surcharges
defenders have fallen back on disproven old arguments – and are even
considering new policies that could stand in the way of meaningful
reform. Surcharges are fees that the IMF levies, on top of regular
interest and service costs, on borrowers whose outstanding debt to
the Fund exceeds a certain threshold and/or beyond a specified amount
of time (see Inside the Institutions, What are IMF surcharges?).
Because surcharges only apply to heavily indebted borrowers, the
policy has been criticised as regressive and counterproductive,
further punishing countries already facing crushing debt burdens.
Ukraine, which is currently in the midst of a war, and Pakistan,
which, in 2022, saw one-third of its territory flooded as a result of
climate change, are two of the top five countries most impacted by
surcharges (see Observer Summer 2024). By our organisation’s (the
Center for Economic and Policy Research) estimates, the IMF will
charge its members $9.8 billion in surcharges over the next five
years. Ukraine alone is projected to pay $2.9 billion from 2024 to
2033. Today, 22 countries are affected by these fees, nearly three
times the number before the Covid-19 pandemic. Eleven of these
countries are considered to be particularly vulnerable to climate
change, while 12 are in, or at risk of, debt distress. The fact that
the IMF is conducting an internal review of the policy is a testament
to the growing global pressure to suspend or eliminate surcharges,
including from international civil society, the G77 and G24
developing country groups (see Dispatch Springs 2024), UN bodies, UN
human rights experts, leading economists, and – of particular
significance given the outsized role of the US at the Fund – the US
Congress (see Observer Spring 2022, Summer 2021). But a review alone
is not a guarantee of progress, and much of the discourse surrounding
surcharges – which were developed 40 years after the IMF’s creation
and aren’t contemplated in its Articles of Agreement – rests on
dubious premises. The policy’s proponents contend that surcharges
disincentivise overreliance on the Fund. But this assumes that the
accumulation of debt is driven by a lack of adequate punitive
incentive, and ignores that a major disincentive is already built
into IMF lending: the loss of economic sovereignty resulting from
conditionalities, which are frequently procyclical in nature.
Governments typically only turn to the Fund as a last resort. One
concern that is likely motivating resistance to reform, primarily
from wealthy countries, is that surcharges are a major source of
income for the Fund’s precautionary balances, which are meant to act
as a buffer to protect against potential losses. Given the Fund’s
current lending firepower of $1 trillion, it is debatable whether
these reserves – which the IMF aims to maintain at $25 billion – are
actually needed. But in any case, the Fund’s precautionary balances
target was already hit earlier this year and is projected to increase
further in the years to come, even without surcharge income. So why
force highly indebted countries to continue paying surcharges?
Surcharges as a source of indirect funding for the PRGT – a broken
logic Some countries may have an additional motivation to keep
surcharges in place. The US and other advanced economies have
recently discussed channeling net income from the Fund’s
non-concessional lending to the Poverty Reduction and Growth Trust
(PRGT), a concessional lending facility for low-income countries that
is expected to soon face funding shortfalls due to an expanding
portfolio coupled with declining wealthy country contributions. This
net income would normally go toward the further funding of
precautionary balances. If it is diverted for other uses, then it
becomes more difficult to maintain the balances without relying on
surcharges. In effect, concessional lending meant to help low-income
countries would be financed by a tax on some of the most vulnerable
and heavily indebted (largely middle-income) developing countries in
order to compensate for the failure of high-income countries to meet
the PRGT’s future funding needs. These same high-income countries,
meanwhile, contribute to the conditions that drive indebtedness by
consistently failing to meet their aid and climate finance
commitments to support developing countries. Wealthy countries should
step up their contributions to the PRGT, but if they are unwilling to
do so, there are far better options than a continued reliance on
surcharges – such as the sale or revaluation of a fraction of the
IMF’s vast, and largely untapped, gold reserves. As Nobel laureate
economist Joseph Stiglitz has noted, surcharges go “exactly against
what [the IMF is] supposed to be doing. It’s supposed to be helping
countries…not extracting extra rents from them because of their dire
need.” It never made sense – and may even violate international law –
to rely on the most indebted debtors to finance the Fund’s reserves.
It makes even less sense to cover the shortfalls in wealthy country
contributions through this same reliance on revenue from highly
indebted countries. As the IMF conducts its review of the surcharge
policy over the coming months, it should reject this broken logic.
The upcoming review should not be merely a checked box; it should
involve a thorough, objective assessment of the impact of surcharges
on countries’ economies and on the livelihoods and welfare of
ordinary people. It should examine potential alternatives to funding
precautionary balances down the road. And it should seriously
consider the complete discontinuation of the surcharge policy.
Anything less will be a missed opportunity for meaningful reform.
tinyurl.com/EndSurcharges

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FINANCE/news

‘Worst ever’ debt crisis puts IDA’s financial model at risk,
underscoring need for ambitious donor contributions to IDA21
replenishment

SUMMARY
- Debt crisis likely to overwhelm IDA’s funding model, leaving it
with no choice but to reduce critical grant-based support for
low-income countries or erode its equity base
- Record-breaking capital contributions needed to prevent
deterioration in IDA’s finances in the face of worsening global
conditions

The 21st replenishment of the International Development Association
(IDA21) - the World Bank’s low-income lending arm - due to conclude
in December, takes place amid a worsening debt crisis. Even if IDA21
lives up to calls from World Bank President Ajay Banga for record
breaking funding, the unfolding debt crisis will likely limit IDA’s
ability to provide highly concessional loans and grants to its
low-income country (LIC) members. When an IDA country faces debt
difficulties, its loans can be converted to grants, though this
support is capped according to unpublished country quotas. From 2020
to 2022, as LICs struggled with the exogenous fallout of the Covid-19
pandemic and their debt situations worsened, the ratio of
grants-to-loans in IDA’s portfolio rose from one-fourth to one-third.
IDA began converting loans of moderately debt distressed LICs to
50-year credits instead of its usual mix of credits and grants which,
according to Clemence Landers and Hannah Brown from US-based think
tank Center for Global Development (CGD), should restore grants to a
manageable level. However, according to Development Finance
International, the current debt crisis is the ‘worst ever’, with many
LICs now paying more on debt servicing than on health, education,
social protection and climate combined, meaning this crisis could
place significant strain on IDA’s funding model. The strength (and
weakness) of IDA’s funding model: market-based finance Since its 18th
replenishment (2017-19), IDA has issued market debt backed by its
equity base, mostly comprised of its outstanding loans (see Observer
Winter 2017). This approach has allowed IDA to grow its resources to
$185 billion. In IDA20, $23.5 billion of donor contributions were
leveraged into a $93 billion replenishment, $33.5 billion in
borrowing and $36 billion in reflows via repaid debt from IDA
members. As long as grants are less than contributions, IDA does not
have to dip into its equity base – but if it does, it could cause a
larger contraction in its loan portfolio because its equity is the
basis on which it raises market finance. According to CGD’s
calculations, a moderate worsening of LIC debt dynamics would require
at least $36 billion in grants over the IDA21 replenishment cycle,
requiring an additional $12 billion in contributions compared to
IDA20 to avoid dipping into IDA’s equity base. A significant
worsening would require at least $45 billion in grants over the
replenishment cycle, requiring an additional $22 billion compared to
IDA20. As donor contributions to IDA have fallen by 20 per cent in
real terms over the last decade and, as CGD notes, many large donors
have signalled that reaching even the level of their contributions
for IDA20 may prove difficult, even the moderate debt crisis scenario
could significantly affect IDA. As debt repayments surge and capital
flows turn net-negative, LICs have been forced to rely on IDA for
affordable finance, while high-income countries have persistently
failed to meet their 0.7 per cent GNP target for Official Development
Assistance or agree on a new allocation of SDRs (see Observer Summer
2024, Spring 2024). Quality vs quantity However, concerns about the
size of the IDA21 replenishment should not obscure more fundamental
questions of how effective IDA assistance has been: only 17 out of 81
IDA countries have graduated out of IDA eligibility since 1996 (see
Observer Spring 2024). IDA assistance remains linked to highly
problematic policies that have a strong pro-liberalisation,
deregulation and private sector bias. This has favoured profit
extraction by international investors, been linked to the
financialisation of Global South economies, and has failed to
catalyse economic transformation (see Briefing, Financialisation,
human rights and the Bretton Woods Institutions: An introduction for
civil society organisations). This approach looks set to continue in
IDA21, with the draft policy package released on 17 June containing
numerous references to efforts to crowd in private finance into
climate and development efforts. “IDA is of critical importance for
the 39 African states that rely on its financing. But just ensuring
it can continue current levels of support is not enough,” noted Jane
Nalunga of Ugandan civil society organisation SEATINI. “We need a
better IDA, that actively supports their economic transformation, not
just keeps them on life support, and to do this we need rich
countries to increase their contributions to substantially reduce
IDA’s reliance on market finance.” tinyurl.com/IDAFinancing

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GENDER/analysis

IMF’s Interim Guidance Note on Mainstreaming Gender fails to address
negative gendered impacts of IMF austerity

SUMMARY
- IMF Guidance Note on Gender released in early 2024 offers
non-mandatory advice to staff on incorporating ‘light touch’ and
‘deep dive’ gender analyses - More work is necessary to include
feminist economic policy measures and ensure meaningful engagement
with civil society
- To address gender inequality the IMF must recognise the gendered
impacts of its austerity measures

WThe International Monetary Fund’s Interim Guidance Note on
Mainstreaming Gender is the latest step in the institution’s stated
commitment to mainstream a gender lens across its operations.
Following years of advocacy by civil society organisations (CSOs),
feminists and activists, particularly those from the Global South,
exposing the negative impacts of IMF policy advice and conditionality
on women and girls, the IMF released its first gender strategy in
2022, almost a decade after it extended its remit to cover gender
(see Observer Spring 2022). The IMF’s ‘gender mainstreaming’ occurs
against a backdrop in which progress towards achieving Sustainable
Development Goal 5 on gender equality (SDG5) has been reversed, and
according to the guidance note, “medium-term global growth prospects
are at their lowest levels in decades.” The Note’s instrumentalising
of gender policies as “new engines of economic growth” assumes a
positive correlation between growth and gender equality and, as Farah
Galal from MENA Fem Movement For Economic, Development And Ecological
Justice argues, “frames gender equality purely as a means for
economic growth which cannot be the sole metric for gender justice.”
Decades of IMF-promoted austerity policies have had a demonstrably
negative impact on human rights and have failed to improve
debt-to-GDP ratios – engendering worse outcomes for low- and
middle-income countries (LMICs). Crisis ridden middle-income
countries who heavily rely on IMF borrowing are in addition forced to
allocate a greater percentage of GDP towards debt repayments in the
form of surcharges (see Inside the Institutions, What are IMF
Surcharges?). This cycle of debt and crisis has led to further fiscal
consolidation measures being demanded by the IMF, including shrinking
the public sector, lowering public wage bills and increasing
regressive taxation, which, in turn, has a negative impact on gender
equality. Galal argues that by not recognising this, “the document
fails to address how the IMF’s austerity-based economic reform
programmes and debt burdens disproportionately affect women in the
Global South. These policies frequently result in cuts to social
safety nets, healthcare, and education – areas that are critical for
women’s well-being and empowerment.” Civil society critiques of the
IMF’s 2022 gender strategy and the 2018 ‘How to’ gender note to staff
focused on three main elements of the IMF’s work on gender: lack of a
uniform methodology in identifying gender ‘macrocriticality’ (i.e.
issues the IMF considers key to growth and macro-financial
stability); the robustness and transparency of data collection; and
absence of engagement with feminist economists, civil society and
agencies with gender expertise (see Observer Spring 2022). Core
recommendations are that the IMF should refrain from entering policy
areas that are not within its field of expertise, and should cease
demanding a neo-colonial gender conditionality which infringes upon
the autonomy of countries in the Global South. Instead, it should
abide by a principle of ‘do no harm’ across its work, and consider
alternative policy approaches including counter-cyclical policy
advice that departs from austerity measures (see Briefing, The IMF
and Gender Equality: A Compendium of Feminist Macroeconomic
Critiques). Making women work for the economy, or the economy work
for women? The guidance note is stage two of three of the IMF’s
gender mainstreaming process. It attempts to establish models for the
kinds of issues staff will incorporate into a gender analysis, which
will serve as the basis for stage three’s full guidance note to be
published in 2026. Its guidance to staff is not mandatory, and staff
are advised to incorporate policy advice into the IMF’s three areas
of work: bilateral surveillance (Article IV reports), loan
conditionality and capacity building. The fact that incorporating
gender is not mandatory and the choice between conducting ‘light
touch’ or ‘deep dive’ gender analysis lies with IMF country missions
raises questions about evenhandedness – uniformity of treatment among
countries (see Observer Autumn 2013). The note provides examples of
gender ‘gaps’, which demonstrate engagement with areas of feminist
economics, including informal labour and unpaid care work, although
as Galal argues, it fails to “acknowledge the intersectional nature
of gender with other signifiers like race, class, and geography.”
Other issues covered, such as social and cultural “norms” and legal
status, do not fall under the IMF’s expertise, raising questions
about the robustness of its approach to what constitutes
macrocriticality, which risks instrumentalising rights-based issues
such as gender equal access to social, political and legal
structures. Although progress has been made on the recognition of
some gender issues, the examples of ‘light touch’ and ‘deep dive’
policy advice comprise a narrow field of policy approaches. Private
finance, public-private partnerships (PPPs) and financial inclusion
are uncritically put forward as policy solutions without mention of
the demonstrable harmful impacts that typically accompany them (see
Observer Winter 2023), and where there is reference to the negative
gendered outcomes of broader macroeconomic approaches, the focus is
on mitigation measures such as cash transfers, which have been proven
to be limited in their effectiveness, rather than alternatives.
Finally, the note states that fostering external collaboration is “a
critical pillar of the gender strategy”, yet lacks concrete
requirements for staff to consult with civil society, feminist
economists or the UN human rights system. Galal argues that the
document “positions the IMF as the sole arbiter of what constitutes
’good practices’ for gender integration. This disregards the
expertise and lived experiences of feminist activists and local civil
society organisations in the Global South, reaffirming the optional
nature of the choice to consult with them.” For the IMF’s gender
strategy to meet its stated aims, genuine heterodox or feminist
economic policy measures need to be adopted. Such measures, in
addition to meaningful consultation and transparency in data
collection are crucial for progress to be made towards SDG5 and in
poverty reduction, inequality, and climate and gender justice.
tinyurl.com/IMFGenderNote

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FINANCE/news

Pakistan’s debt crisis fuelled by more IMF loans

SUMMARY
- Pakistan on track to receive its 24th loan from the IMF after the
lender disbursed the last tranche of the country’s latest $3 billion
programme
- IMF’s loan conditionality, focused on fiscal consolidation and
regressive taxation, has a long track record of exacerbating poverty
and inequality, and harming human rights

The IMF has opened discussions with Pakistan on a new loan as its
current $3 billion programme draws to a close. In March, the Fund
approved the “immediate disbursement” of the last $1.1 billion
tranche, urging the government to implement further fiscal
consolidation reforms, such as removing subsidies to export sectors
and reducing import duties in the upcoming budget with potential
negative implications on the local market. The government is seeking
another long-term loan from the IMF in an attempt to escape default,
as the country is still reeling from a severe economic crisis after
the devastating floods that impacted 33 million people more than two
years ago (see Observer Autumn 2022, Winter 2021). With reserves
depleted to $3 billion in February 2023, the loan increased
Pakistan’s foreign reserves to $8 billion, enough to cover over eight
weeks of imports. Its economy is particularly burdened by debt
obligations. The country has a debt-to-GDP ratio of over 70 per cent
and requires between 50 to 60 per cent of the government’s revenues
to pay for debt interest payments. Only default-stricken Sri Lanka,
Ghana and Nigeria are worse off (see Observer Spring 2023). Civil
society organisations have long called for international financial
institutions to cancel Pakistan’s debt and put people’s rights and
needs ahead of debt servicing. When the ‘lender of last resort’
becomes a primary creditor While the IMF highlighted in its final
review of the current programme in May that Pakistan’s “economic and
financial position has improved” in recent months, with reduced
inflation and more stable foreign reserves, these economic indicators
are a ‘mirage’ because perceived stability is due to more loans
coming in. Pakistan is looking to negotiate a larger, long-term loan
to help stabilise economic activity and to request additional
financing from the IMF under the Resilience and Sustainability Trust
(see Inside Institutions, What is the IMF Resilience and
Sustainability Trust?). But in order to do that, the government must
seek parliamentary approval on major economic reforms related to the
energy, power and tax sectors, and on the privatisation of
state-owned enterprises before starting formal talks for another
programme. If secured, the new loan would be the 24th IMF loan for
Pakistan with the country already owing the IMF $7 billion, further
illustrating the failure of IMF reforms to address Pakistan’s
long-term economic issues, while subjecting the country to additional
surcharge penalties for over-relying on IMF funding (see Inside
Institutions, What are IMF surcharges?). The Fund’s loan
conditionality, focused on fiscal consolidation and regressive
taxation, has a long track record of exacerbating poverty and
inequality and harming human rights in Pakistan, according to a
recent Human Rights Watch report. Pakistan was forced to adopt
harmful measures before in order to meet IMF conditions (see Observer
Spring 2022), particularly by raising taxes on the country’s nascent
renewables energy market, threatening its international climate
obligations. As the Fund has itself acknowledged, similar measures
are likely to fuel more protests country-wide over the coming year.
In the latest instance, several thousand people in the northern state
of Azad Kashmir protested over high prices of flour and electricity
between 8 and 14 May, following IMF mandated subsidy cuts and a
switch to a market-based exchange rate. “Still reeling from the 2022
floods, Pakistan was forced into a year of brutal austerity under the
Stand-by Arrangement, pushing Pakistan deeper into debt crisis and
sending over 4 million souls into poverty with food and energy
inflation at a multi-year high. Following an early round of
negotiations on a new loan, the Pakistani government has now been
forced to raise the electricity tariff by another 20 per cent with
the new budget inaugurating a fresh round of subsidy removals and
devastating tax hikes. Despite independent experts and local
coalitions raising the alarm on the unsustainable nature of the
Fund’s fiscal strategies and debt analytics, the Fund has remained
insular insisting on its business as usual approach threatening to
push the nation beyond the point of recovery,” highlights Zain
Moulvi, Research Director at Alternative Law Collective.
tinyurl.com/PakistanLoan

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ENVIRONMENT/news

World Bank agricultural reform programme facilitates exploitation of
Zambian farmers

SUMMARY
- A new Zambian law, supported by the World Bank, infringes on the
rights of smallholder farmers to share and reuse seeds - Research
indicates the Bank’s agricultural development programmes increase
food insecurity, favouring agribusiness that prioritises profitable
export market

Zambian civil society has voiced strong opposition to a new World
Bank-backed seed law, which the government is determined to push
through by the end of June. Groups argue that the law benefits large
profit-driven agribusinesses, while undermining food security by
disadvantaging the smallholder farmers producing most of Zambia’s
food. Parliamentary approval of the Plant Variety and Seeds Act is a
disbursement-linked indicator in the World Bank’s $300 million Zambia
Growth Opportunities Program (ZAMGRO), with the stipulation that the
draft law “will be shared with the World Bank for review
before…approval by the MoA [Ministry of Agriculture] Cabinet.”
Zambia’s seed sector is already aligned with the International Union
for the Protection of New Varieties of Plants’ (UPOV) 1978 revision,
but the proposed law will align it with the 1991 revision. UPOV is a
non-UN treaty body that works to privatise seeds by granting
intellectual property rights to developers of plant varieties, and
according to the Zambia Alliance for Agroecology and Biodiversity
(ZAAB), “significantly strengthens the rights of breeders and further
erodes and, in a sense, criminalises, farmer-managed seed systems.”
The new law’s alignment with UPOV 1991 would infringe on smallholder
farmers’ rights to share and reuse seeds, practices at the heart of
traditional systems of seed use. This is a direct violation of the
2018 UN Declaration on the Rights of Peasants that Zambia ratified,
which states peasants have “[t]he right to save, use, exchange and
sell their farm-saved seed or propagating material.” Eugene Ng’andu
of non-governmental organisation Caritas Zambia said that, “Even
though this new law may not be properly enforced when enacted, it is
concerning that aligning the act to UPOV 91 will place more
restrictions on what farmers are allowed to propagate as compared to
the current act [and this] will undermine traditional farming
practices.” He added that while it is not a crime for plant breeders
to appropriate characteristics of farmers’ indigenous seeds – in
other words, farmers don’t have rights over their own seeds –
breeders’ rights to the seeds they develop from farmers’ seeds are
protected by law, and even accidental cross fertilisation in farmers’
fields could be regarded as theft. World Bank agricultural policy
systematically disadvantages smallholder farmers Smallholder farmers
produce around 96 per cent of Zambia’s maize, a staple crop, while
commercial agriculture focuses on more profitable exports even as
Zambia is facing a record-breaking drought likely linked to climate
change. “These reforms promote commercial agriculture, but not the
country’s food security,” Ng’andu explained. The government’s
agricultural improvement programme, the Comprehensive Agricultural
Transformation Support Programme (CATSP) and the World Bank’s ZAMGRO
promote a one-size-fits-all solution to the problems of Zambia’s
agricultural sector, pushing expensive fertilisers and hybrid seeds
that tie farmers into debt and financial dependence.Ng’andu said
Caritas has seen the benefits of these programmes go to agribusiness,
which supplies fertilisers and seeds, while the needs of individual
farmers were ignored. There is also a narrative, he noted, that
commercial hybrid seeds are needed to address low productivity levels
in smallholder farms, but many factors influence productivity, for
instance the overuse and depletion of farmland, which can be
addressed through agroecological approaches. Research by UK-based
civil society organisation (CSO) CAFOD found the World Bank’s
agricultural policy interventions globally have focused largely on
promoting agribusiness, pushing smallholder farmers to buy hybrid
seeds and fertilisers much like the new Zambian law, while
undermining farmer-led seed systems and ignoring their role in
tackling poverty and enhancing food security (see Observer Spring
2020). As CSOs have pointed out, the World Bank’s promotion of
international agribusiness and the financialisation of agricultural
sectors in the Global South is being achieved at the expense of food
security and food sovereignty (see Dispatch Springs 2024; Observer
Summer 2023). tinyurl.com/ZambiaAgriculture

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ENVIRONMENT/news

World Bank’s $1 billion loan to South Africa risks undermining just
transition by doubling down on ‘de-risking’ private capital

SUMMARY
- World Bank loan conditioned on separating Eskom’s activities and
de-risking private sector participation in electricity provision
- Concerns arise regarding effectiveness of Bank’s private sector led
approach to decarbonisation and just transition

In September 2023, the World Bank agreed a $1 billion development
policy financing (DPF) loan to support South Africa’s low carbon
transition (see Inside the Institutions, What is World Bank
Development Policy Financing?). This support was deemed necessary due
to South Africa’s electricity crisis, characterised by high tariffs,
regular rolling blackouts and the significant debt of the state-owned
utility Eskom, which amounted to 8.6 per cent of GDP in March 2022.
The loan mandates eight reforms across two pillars, aimed at further
privatising South Africa’s electricity sector. Pillar 1 targets the
restructuring of the power sector by supporting the separation (i.e.
unbundling) of Eskom’s activities. Pillar 2 focuses on supporting the
low carbon transition by encouraging private sector investments in
renewable energy – including by removing threshold requirements for
licensing projects that sell electricity directly to private
consumers and extending tax incentives to businesses. Civil society
organisations (CSOs) have been calling for an overhaul of the Bank’s
private sector led approach as part of the Evolution Roadmap,
labelling it a “flawed development paradigm” because “the type of
projects designed to attract profit-seeking private investors and
generate quick returns might not match the public interest and
national or local priorities, or support sustainable economic
transformation” (see Observer Summer 2023). Bank’s problematic
engagement in South Africa’s energy sector continues The DPF deepens
the Bank’s influence in South Africa’s energy sector, following
substantial financial support and policy guidance over the past
decade (see Observer Winter 2022). In 2010, the Bank extended a $3.75
billion loan to Eskom for the construction of the 4800 MW Medupi
coal-fired power plant – its largest ever energy loan (see Observer
Spring 2019). This problem-riddled project has led to criticism from
South African CSOs who have labelled it ‘odious debt’ and called for
its cancellation. Recently, the Bank also played a supporting role in
the country’s Just Energy Transition Partnership (JETP) (see Observer
Winter 2022). Agreed at COP26 in 2021, the JETP is a $8.5 billion
climate finance initiative involving France, Germany, the UK, the US,
the EU and World Bank-hosted Climate Investment Funds. It pools
commercial loans, concessional loans and grants from rich nations
while anticipating private sector coverage of the rest of the
transition financing needs through public-private partnerships
(PPPs). The JETP shows a clear imprint of the Bank’s private
sector-led approach to decarbonisation in low- and middle-income
countries, where it encourages national governments to pursue
de-risking measures to make projects ‘bankable’ for private sector
investment (see Observer Autumn 2023, Winter 2022). This approach is
based on the assumption that billions of dollars of public finance
will unlock trillions of dollars from private investors (see
Briefing, Gambling with the Planet’s Future). The South African JETP
has however fallen short of its promised financing, securing only
one-tenth of the required funds, a challenge seen also in Indonesia
and Vietnam, which have also launched JETPs (see Observer Spring
2024). As of last November, only $308 million of grant-funded
projects under the JETP had progressed to the implementation phase,
while information on loans, which make up a staggering 97 per cent of
donor-backed support, has yet to be disclosed. The fact that most of
the support is being provided in the form of loans denominated in
foreign currencies – making them more expensive – raises further
concerns, especially given South Africa’s (and Eskom’s) current debt
burdens (see Dispatch Annuals 2023). As Gilad Isaacs of the South
Africa-based Institute for Economic Justice argues, “South Africa’s
JETP is a cautionary tale for all Global South countries. The deal
was negotiated in secret, offers very little grant financing, fails
to protect workers in transition sectors, advances privatisation, and
overwhelmingly seeks to guarantee profitable investment opportunities
for private finance. Instead, climate financing should take place
through transparent multilateral process that acknowledge the Global
North historic climate debt.” tinyurl.com/SouthAfricaDPF

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CONDITIONALITY/commentary

Economics is political: the IMF’s programme in Egypt can’t succeed
without reforming both Guest Comment by Timothy E. Kaldas, The Tahrir
Institute for Middle East Policy

SUMMARY
- IMF’s promotion of austerity has played a central role in Egypt’s
persistent crisis
- While Fund categorises Egypt’s debt as ‘sustainable’, last fiscal
year the government spent more on interest payments than on its total
tax revenue
- As the second largest IMF borrower, Egypt’s debt crisis risks
becoming “too big to bail”

The IMF has augmented its loan to Egypt – the Fund’s second largest
borrower after Argentina – from $3 billion to $8 billion. When the
newest programme is over, the IMF will be back again. Since Egypt’s
President Abdel Fattah El Sisi came to power in 2014, Egypt’s
external debt has ballooned from $46.1 billion to $168 billion as of
December 2023. In Egypt, eight years of economic reforms in
coordination with the IMF have failed to deliver macroeconomic
stability and inclusive growth. IMF figures show that since Egypt
started reforms in 2016, GDP in current US dollars has actually
shrunk, going from $351.44 billion in 2016 to a projected $347.59
billion in 2024. In that time, the country has suffered repeated
liquidity crises requiring regular financial support. The official
exchange rate collapsed repeatedly in 2016, 2022 and 2024. Egyptians
have endured punishing levels of inflation over the past decade, with
core inflation last year exceeding 40 per cent while inflation on
food and beverages surpassed 70 per cent. Since 2016, labour force
participation has declined. For women, it has collapsed, dropping to
the 7th lowest level globally according to the World Bank. Millions
of Egyptians have fallen into poverty, with the government refusing
to publish up-to-date figures for several years now. The IMF in
Egypt: financing elite capture So, what did all this borrowing and
nearly a decade of reform buy Egypt? During this period, Egypt has
been one of the world’s top importers of arms. The government is
building a massive $58 billion new capital, a project overseen by a
company owned by Egypt’s military. The new capital is home to
Africa’s tallest tower, the world’s longest monorail, as well as a
new presidential palace that President Sisi has commissioned. Since
coming to power, leveraging the Egyptian state with a heavy
dependence on external borrowing, with the IMF’s support, has been
central to financing President Sisi’s strategy of consolidating
power. In 2023, Bloomberg estimated that Egypt was the second most
likely country to default. However, in their latest report, Fund
staff made generous claims classifying that Egypt’s debt is
sustainable “but not with high probability” (see Observer Autumn
2022, Autumn 2020). To make the math work, the new IMF programme
envisions significant austerity, with measures that include a cap on
public investments to facilitate debt payments, lowering the
debt-to-GDP ratio. The cap on investments is the IMF’s understandable
attempt to rein in the reckless and self-enriching spending by
Egypt’s leaders on vanity projects that has helped nearly bankrupt
the state. The trouble is that growth rates envisioned in the new
programme appear untenable. GDP growth is projected to rise from 4.4
per cent in 2024-25 to 5.6 per cent in 2028-29, but this is while the
IMF predicts anemic investment rates that range from 9.9 to 11.4 per
cent. The Fund appears to be hoping for significant private
investments, which seem unlikely given that the private sector has
been in a persistent state of contraction, the cost of domestic
borrowing is prohibitive, and the purchasing power of the consumer
base has been devastated by a decade of inflation and a collapsing
currency. Moreover, the political conditions that deter investment
remain unaddressed, such as a lack of access to reliable information
due to repression of the press and a heavily co-opted judiciary,
undermining the rule of law. At the core of Egypt’s problems is a
leadership that has leveraged the state for their narrow interests
and stubbornly refused necessary reforms to rescue the country’s
economy not to mention investing in the wellbeing of its inhabitants.
This is a political crisis with economic consequences. The new IMF
programme is unlikely to meaningfully rescue Egypt on either front.
More debt without tackling the political sources of Egypt’s economic
problems means a deepening of the crisis. More IMF Loans: same
approach, same result The IMF, among other financial backers of
Egypt, has played a central role in facilitating this persistent
crisis. Large loans to Egypt were attached to reform programs that
not only failed to address the political context, but actually added
to the deterioration of many of the areas they wanted to see improve,
all while enriching and empowering Egypt’s rulers. The IMF’s
programme design is insufficient to sustainably stabilise Egypt’s
finances and encourage significant private sector-led growth, never
mind reduce poverty, inequality or meaningfully improve social
protection. The IMF isn’t responsible alone for Egypt’s woes, but it
has undeniably helped enable the leadership’s economic malpractice,
that brought Egypt to this harrowing moment. This new programme is an
attempt to find a way out, but too many structural problems remain
unaddressed while others are on track to worsen. When this programme
is over, Egypt’s debt levels will likely remain higher than
projected, inflation will have been higher than projected, and
Egypt’s need for yet another injection of financing is all but
certain. But given that the latest bailout of Egypt from the UAE,
IMF, World Bank and European Commission is estimated to be worth $57
billion, over 15 per cent of GDP, it remains to be seen if Egypt will
continue to be viewed as too big to fail or become, in the words of
former World Bank Economist Ishac Diwan “too big to bail.”
tinyurl.com/EgyptIMF
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INFRASTRUCTURE/news

Banga calls energy access a ‘human right’ as he announces World Bank
will provide access for 250 million people in Sub-Saharan Africa by
2030

During a flagship event at the World Bank and IMF Spring Meetings in
April, World Bank President Ajay Banga stated “electricity is a human
right.” Following this statement, Banga announced that he will make
access to energy in Sub-Saharan Africa a top priority through a new
World Bank commitment to provide energy access to 250 million people
in the region by 2030. Explicit mention of human rights obligations
has long been a taboo subject at the World Bank, with UN Special
Rapporteur on Human Rights and Extreme Poverty Philip Alston
remarking in 2015 that, “For most purposes, the World Bank is
currently a human rights-free zone. In its operational policies, in
particular, it treats human rights more like an infectious disease
than universal values and obligations.” In 2023, civil society groups
called for the World Bank’s Evolution Roadmap process to include the
creation of a holistic human rights policy, and will closely monitor
how the new commitment is operationalised. “I hope that under the
leadership of Ajay Banga, the World Bank can ensure the Evolution
Roadmap process is truly a developmental evolution for the World
Bank, enabling it to effectively meet the current economic crisis
through the adoption of a human rights-based approach that
effectively contributes to the institution’s new mission and vision”,
said Attiya Waris, the UN Independent Expert on foreign debt, other
international financial obligations and human rights. “In this
respect, the Bank’s plan for achieving this new institutional energy
access goal will be an important signal…hopefully protecting the
other human rights of people affected by this.”
tinyurl.com/BangaEnergyAccess

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GENDER/news
Tara Povey joins the Bretton Woods Project as new Gender Equality and
Macroeconomics Project Lead

Macroeconomics Project Lead. Tara will develop BWP’s work on gender
and feminist macroeconomics through the Gender Equality and
Macroeconomics (GEM) project, and continue the work of the gender
team in advocacy targeting the IMF and the World Bank. Her
responsibilities will include tracking and reporting on developments
in the IMF, feminist economist and women’s rights spheres to support
advocacy opportunities and deepen relationships with civil society
partners working on economic justice and women’s rights. Before
joining, Tara was an academic and researcher at the School of
Oriental and African Studies (SOAS) and Goldsmiths, University of
London. Her work focused on the policies of the IMF and World Bank
and their impact on gender-based social movements and civil society
organisations in the Global South. She has published extensively on
social movements, austerity and neo-liberalism in the Middle East and
North Africa, and women’s movements in contemporary Iran. Tara also
has a background in policy and campaigning, previously working as
Policy and Research manager at Refugee Action. Tara holds a PhD in
Middle Eastern Studies from the University of Sydney and has taught
courses in gender and international politics. She is passionate about
Global South and intersectional feminist economic approaches and
exploring ways to undertake advocacy to bring about sustainable,
transformative change. tinyurl.com/WelcomeTara

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