Many of the world’s poorest countries have cut health spending during the last two years, sometimes to make debt repayments to rich creditors, according to a report by Oxfam that shows inequality between rich and poor nations worsening during the coronavirus pandemic.
Analysis of national budgets across 161 nations found that despite the biggest global health emergency in a century, half of low- and lower-middle-income countries cut health spending, while almost half cut their welfare budgets and almost three-quarters cut education spending.
Oxfam said the 2022 Commitment to Reducing Inequality Index found that rich countries, including the UK, “exacerbated an explosion of economic inequality” by overseeing demands by lenders for huge debt repayments while the pandemic ravaged annual spending plans.
As finance ministers gather in Washington this week for the International Monetary Fund (IMF) and World Bank annual meetings, Oxfam said developing nations were facing “a global economy that is making it ever more difficult to meet the needs of their population”.
The charity accused the IMF of exacerbating economic inequality and poverty in poor countries by insisting on new austerity measures to reduce debts and budget deficits.
Oxfam and Development Finance International said analysis of data from the IMF showed that three-quarters of all countries were planning further cuts to public spending over the next five years, totalling $7.8tn (£7tn).
In the fourth edition of the index, Oxfam ranked governments on their commitment to reducing inequality. Areas covered include public services and welfare protection, taxation and workers’ rights. Policy commitments are also held up to scrutiny to test their implementation and their impact on inequality.
Liz Truss’s administration was also embarking on spending that would increase inequality in the UK with tax cuts that benefited better-off households, according to Oxfam.
Katy Chakrabortty, Oxfam’s head of policy, said: “The index exposes how governments around the world are not only failing to reduce rising inequality – many are also deliberately choosing policies that will profoundly disadvantage the poorest for years to come.
“Here in the UK, if the proposed real-terms cuts to health, education and social safety nets are implemented, we will fall even further behind other rich countries in the fight against inequality. The impact on families already struggling to make ends meet will be horrifying.”
The report said that in 2021, lower-income countries spent 27.5% of their budgets on repaying their debts – “twice the amount that they have spent on their education, four times that of health and nearly 12 times that of social protection”.
China and other lenders outside the Paris Club of institutions that have historically dominated lending to developing countries play an increasingly important role in financing loans.
However, banks based in the US, UK, France, Germany and Switzerland are also the beneficiaries of debt repayments that have crippled the finances of developing world countries.
The UK ranked 14th in the 2022 index, up eight places up from the previous analysis in 2020.
Oxfam said the rise could be attributed to compliance with new Organisation for Economic Co-operation and Development (OECD) rules on corporate tax avoidance.
“Despite the improved position, the UK dropped down the rankings for public services, labour rights and progressive tax,” the report said.
“UK spending on both social protection and education is now below the OECD average and the corporate tax rate is the third lowest of OECD countries, with tax collection also below the OECD average,” it added.
Countries that underperformed this year included France, which fell 10 places in the index after cutting corporate tax rates and abolishing its wealth tax.
Other countries that slipped down the index include Jordan, which dropped its budget share for health spending by a fifth. Nigeria froze its minimum wage, and the US failed to improve a federal minimum wage dating back to 2009, the report said.
Nepal was among a handful of the poorest countries to increase health spending as a share of its budget, in its case by 50%. Costa Rica put up its top income tax by 10%, and New Zealand by 6%. The Occupied Palestinian Territory increased its social spending from 37% to 47% of its budget.
Barbados introduced a comprehensive set of laws to improve women’s labour rights, and the Maldives introduced its first national minimum wage, the report said.
Matthew Martin, director of DFI, said: “The debate has catastrophically shifted from how we deal with the economic fallout of Covid-19 to how we reduce debt through brutal public spending cuts and pay freezes. With the help of the IMF, the world is sleepwalking into measures that will increase inequality further.
“For every dollar spent on health, developing countries are paying four dollars in debt repayments to rich creditors. Comprehensive debt relief and higher taxes on the rich are essential to allow them to reduce inequality dramatically.”
