Consequences of IMF policy
There are 72 million children out of school around the world and hundreds of millions of children who go to schools where they learn very little, in large classes with few textbooks and under-trained teachers. It is estimated that 18 million teachers need to be trained and recruited by 2015 if all children are to be taught in class sizes that do not exceed 40 children per teacher. Significant progress has been made in recent years, with about 50 million more children in school today than there were in 2000. However, much more is needed in the coming years if the Education For All and Millennium Development Goals are to be achieved by 2015. Over 30 multilateral and bilateral agencies are working together in the Fast Track Initiative to deliver on the pledge made in Dakar in 2000 that no government with a viable plan to achieve progress on these education goals will be allowed to fail for lack of resources. However, a major obstacle towards progress is now becoming evident. Ministries of Education, who should be the driving force in determining what investment is needed to improve education systems, have remarkably little control over their budgets. Most importantly they cannot hire enough teachers to guarantee quality education.
National education budgets in most countries are determined by the Ministry of Finance based on the proposed budget presented by the Ministry of Education. It is common practice that the Ministry of Finance cuts the education budget based on the spending limits it has set for itself. However these cuts rarely make reference to the needs of expanding education systems or the achievement of agreed education goals. Even where millions more children are enrolling in school and there is a clear need for more teachers to be employed, the voice of the Ministry of Education is rarely heard at all in decision-making over education budgets. Rather, the key parameters of the education budget are determined behind closed doors in discussions between the Ministry of Finance and the International Monetary Fund (IMF).
The IMF gives loans to most poor countries and in exchange for these loans they impose certain conditions, particularly relating to “macro-economics”. Even in countries where they have no loan agreement, the IMF’s views on macro-economics drive thinking in Ministries of Finance, who have to keep the IMF happy if they are to get a good “rating” from the IMF. This rating is important because it can have a profound effect on both foreign investment and aid flows.
In its discussions with Ministries of Finance the IMF shows little or no interest in national development goals or poverty reduction. Their central concern is macro-economic stability and to achieve this they focus most of all on setting low inflation targets and low deficit targets. Typically they will encourage governments to keep inflation under 5% and to work towards having little or no deficit. This means that countries have to hold down public spending. As education is one of the largest items on which governments spend money, any limits put on public spending are felt very directly by the Ministry of Education. This recipe is a standardised one and is rarely adapted to the national context, even for countries in exceptional circumstances such as a post-conflict country like Sierra Leone.
Often the IMF intervenes further by setting a direct limit or “ceiling” on the public sector wage bill. This is the item in the national budget that pays for all government employees. The impression is sometimes given that this is a way of cutting back bloated government bureaucracies. But in practice, the largest group of people paid by the public sector wage bill are teachers. The second largest group are health workers. An ActionAid study in 2006 showed that out of a small sample of 41 countries with an IMF loan agreement, 18 had a ceiling on the wage bill.
To keep spending on wages in line with the ceiling, the easiest thing for a government to do is to hold down teachers’ wages and stop recruitment of any new teachers. The IMF sometimes deny that this is their fault and claim that they “protect” education spending. But when the IMF say “protect” it is best to hear “freeze”. This is a problem for countries with growing populations or those that have recently removed user fees, making primary education free: millions more children are enrolling in school but they cannot employ new teachers.
Following successful campaigning against the IMF’s use of wage bill ceilings (by ActionAid and others), in 2007 the IMF shifted its policy and said it would no longer use them as a routine condition. However, many Ministries of Finance are forced to impose strictcaps themselves - as a result of other IMF conditions that remain unchanged. The IMF continues to impose very low inflation targets and deficit targets, which mean governments cannot increase their spending on education. The result is the same: urgently needed new teachers cannot be recruited.
This is clear, for example in Mozambique. Under pressure from the government and donors, the IMF removed the wage bill ceiling in Mozambique in 2006. But at the same time the IMF set even lower inflation and deficit targets. As a result, although some new teachers were recruited in the short term, Mozambique now finds itself unable to recruit the number of teachers it desperately needs – and class sizes on average are still over 70 children per teacher.
An additional complication that countries face is that, in order to meet the IMF’s low inflation and deficit targets, governments are under pressure to turn down donor aid for education. The IMF believes that increasing spending on teacher salaries even when new aid is made available will cause inflation to rise. As such Ministries are encouraged to ask donors for other items – such as infrastructure, school equipment or textbooks – even where what they need more urgently is more trained teachers.
The IMF is also notoriously pessimistic about donor aid for development. They rarely accept the pledges made by donors and encourage governments to expect much less than the donors promise. This means that even if a donor promises large sums of money in education aid, governments are not allowed to factor this fully into their budgets. One effect of this is that if the aid money does come, it displaces the governments own spending rather than representing new money. This defeats the purpose of those giving the aid.
A root cause of all these problems is that, in its dealings with governments, the IMF focuses on achieving stability over a medium term timeframe of 3 to 5 years. They then hold governments to the targets that are set in these medium term plans through making six monthly missions to review progress. This timeframe has a particularly negative effect for investment in education which requires long term planning. Tthe real benefits of investing in education come after ten years (when educated children enter the workforce) and over this time frame education is one of the most productive economic investments a country can make. But over a 3 to 5 year period, spending on education seems to be pure consumption – like pouring money down a drain. The IMF’s short term timeframes are short-sighted and undermine the case for spending on education.
In Kenya, after the abolition of user fees in 2003, over a million children enrolled in school for the first time. But the government had an agreement with the IMF dating back to 1997 which said they would not employ more than 235,000 teachers. Despite the dramatically changed circumstances this limit was not removed and the result was thus inevitable. Class sizes, especially in rural schools and poor areas, rose rapidly. Often there were more than 100 children in a classroom – creating a situation in which no teacher can teach and no child can learn. The Ministry of Education protested but was not allowed to employ a single additional teacher. .
Many countries that have been faced with constraints on teacher salaries have been driven to find solutions that can cause even more harm. For example, teachers are given ten month contracts – so that savings can be made in the summer holidays. Alternatively there is the solution promoted by the World Bank in many countries: don’t bother training teachers, employ para-teachers or non-professionals instead - who you can recruit for a third of a teacher’s salary, so you can get three for the price of one. This way you can also save on the costs of having to train them. This is happening today in Africa and South Asia on a massive scale, undermining the teaching profession and leading to children being faced with teachers who are sometimes barely literate themselves. No wonder the learning outcomes from primary school are so poor!
In this context of constrained education budgets it can be of little surprise that governments struggle to cover the basics of maintaining a formal education system. One effect of course has been an almost complete end to investment in adult literacy and a failure to invest in early childhood education – even though it is clear that there is an inter-dependency in the Education For All goals.
Given the devastating effects that the IMF’s macro-economic policies are having on education and other development goals, one would assume that they have sound reasons behind pursuing their policies of low inflation and low deficits. Surprisingly this is not the case. In the international economics literature, particularly peer-reviewed journals, there is no defence to be found for the IMF’s position. Although the IMF present their recipes as if they are absolute truths, the reality is that they are an ideological prescription with little or no foundation. Countries that have achieved rapid economic growth and development have often done so whilst inflation runs at over 10% - and they have often achieved this progress by making large and sustained investment in education, even if this means going into deficit.
There are alternative policies that governments can follow. Perhaps the heart of the alternative is to reverse the logic of present macro-economic thinking. Rather than setting macro-economic policy and then seeing what money is left over to invest in development, countries can put the attainment of national education and development goals at the heart of their planning – and then frame macro-economic policies to facilitate and reinforce these goals. The key is to look strategically and at the long term rather than being caught in a never-ending short-term cycle of low spending and low growth. The economic returns to investment in education are dramatic – and they are reflected in clear growth in GDP. Countries need to invest in their human capital, especially in a globalising economy, and spending on basic education is the bedrock for this.
Civil society organisations can play a key role in this by holding their Ministry of Finance to account, especially when IMF missions come to town. Ministers should not be allowed to make back door deals without parliamentary oversight and public discussion about the alternatives. They should be forced to confront the fact that by agreeing to IMF conditions they are accepting an imposed ideological agenda – one which represents a fundamentalist and extremist view of the world. Indeed, accepting IMF conditions on such key areas of the economy undermines democracy and is a serious threat to national sovereignty
To challenge the IMF’s dogma, we need to build our own understanding – our own economic literacy. We also need to build strong national education coalitions – that link NGOs and teacher unions and human rights activists. These education coalitions need to reach out to others working on health and HIV and women’s rights because the same macro-economic policies affect these other groups equally. Only by working together can we avoid being played off against one another.
For education activists it is useful for us to think of the 4 “S”s. We need to:
- Increase the size of the national budget overall (by challenging the austerity policies and ideology of the IMF)
- Increase the share of the education budget in respect of other budgets (like defence). At least 20% should be spent on education.
- Increase the scrutiny of the budget – so we know where the money is going and where it ends up in practice, through budget tracking / monitoring
- Increase the sensitivity of the budget – so national budgets are gender-sensitive, reflect the national context and are sensitive to national priorities.
- Read also our section working at national level
For further details see www.actionaid.org