This new wave of austerity will commence next year and will affect 130 countries, most of which are in the developing world. As many as 69 countries will undergo “excessive contraction”, cutting expenditure below levels achieved prior to the global financial crisis of 2007. The list includes countries with dire development and human needs, such as Burundi, Djibouti, Eritrea, Iraq, the Republic of Congo, and Yemen.
In the developing world, the International Monetary Fund (IMF) advises governments to undertake austerity reforms either as part of its regular surveillance missions, or when countries have to sign up to its structural adjustment programmes to borrow money. While the IMF claims to protect social spending in these programmes, independent research proves otherwise. IMF-mandated policy reforms led to cuts in government education and health (pdf) spending, increased income inequality (pdf), reductions in labour rights (pdf), declining access to healthcare, and a rise in neonatal mortality in developing countries. There is another less-recognized problem. By shedding qualified civil servants, IMF austerity prescriptions have undermined the administrative ability of governments (pdf) to deliver effective public services in the future. Recent evidence also shows IMF-imposed tax reforms do not result in greater government revenues (pdf). It simply reshuffles where revenues come from: more from regressive goods and services taxes, and less from other sources. This represents a passing of the buck onto the poorest members of society.
Rather than investing in a robust recovery to bring prosperity to citizens, governments are cutting pensions, public sector wages (including those of teachers and health workers), social assistance, and labour protections. Yet, the social consequences of austerity policies are already painfully clear. Millions of people will be pushed into poverty as a result, many of them women, children, and persons with disabilities. One of the most disturbing conclusions after the past decade of austerity is that these budget cuts were never actually necessary. Governments could—and should—have pursued alternative policy options. These would have brought prosperity to citizens and avoided the current wave of social discontent.
Even in the poorest countries public services and investment can be funded through progressive taxation, a crackdown on illicit financial flows, improved debt management, more accommodative macroeconomic frameworks, and—in the case of the poorest countries—lobbying for more aid.
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