Austerity policies also hitting developing countries

While global attention on the crisis focuses on Europe, the downturn continues to inflict devastating social consequences worldwide, especially to developing countries. The latest international data available, highlighted by the UNICEF’s Policy Division, warns about the alarming dangers posed by unaffordable food, pervasive unemployment and dwindling social support.

In terms of access to food, after two major international price spikes in 2007-08 and 2010-11, populations in nearly 60 developing countries are paying 80 percent more, on average, for local foodstuffs in 2012 compared to pre-crisis price levels, warns “A Recovery for All: Rethinking Socioeconomic Policies for Children and Poor Households,” edited by Isabel Ortiz and Matthew Cummins.

Regarding labor markets across the globe, they are characterized by fewer, lower-paying jobs and proliferating the incidence of working poverty that had already trapped nearly one billion workers and their families, with two out of every five workers in the world currently unable to find a job.

Further, rampant youth unemployment coupled with a quickly expanding supply of young laborers —more than one billion are expected to enter the world’s labor market between 2012 and 2020— are only adding to ongoing labour market woes.

Access to public goods and services is also increasingly being challenged in the worldwide drive toward austerity. In 2012, 133 countries are forecasted to reduce annual spending by 1.6% of GDP, on average, with 30% of governments characterized as undergoing excessive contraction, defined as cutting expenditures below pre-crisis levels.

Despite the world’s fixation on austerity in high-income economies, the untold story is the scope and depth of austerity that is taking place among developing countries, which are contracting at nearly double the rate as their developed counterparts (-1.8% versus -1.0% of GDP in 2012, respectively).

A review of 158 of the latest IMF country reports reveals that governments are considering four main reforms:

■ Cutting or capping wage bills, which can impact the salaries of public sector workers that provide essential services to the population (under consideration in 73 countries)

■ Reducing or removing subsidies, including on food and fuel products at a time when food prices are at unprecedented highs in many places (in 73 countries)

■ Targeting and rationalizing social protection programs, this is, reducing social protection coverage at a time when governments should be considering scaling up a social protection floor for all persons rather than scaling down benefits (in 55 countries).
■ Governments are also pursuing other budget slashing strategies that could lead to heightened vulnerabilities and cause further contraction of economic activities, such as tax increases on basic goods and services that are principally consumed by the poor (in 71 countries).

When combined, the cumulative and simultaneous effects of the price, income and service delivery shocks have potentially severe and irreversible consequences, especially for children.

Among these include increased hunger and malnutrition, worsening health outcomes, lower school attendance, higher rates of child labor and domestic violence, rising vulnerability to future shocks and widespread social unrest.

However, the current crisis also presents an opportunity to rethink socio-economic policies for all persons. This requires shedding the myopic scope of macroeconomic and fiscal policy decisions of the past and, instead, basing them on their potential to achieve food security, full employment, human development, and inclusive and sustainable growth.

There are alternatives, even in the poorest countries. It is often argued that social and economic investments that benefit children and poor households are not affordable or that government expenditure cuts are inevitable during this adjustment period.

However, there are six broad areas that governments can explore to expand fiscal space today, which are supported by policy statements of the United Nations.

These include: re-allocating public expenditures; increasing tax revenues; lobbying for increased aid and transfers; tapping into fiscal and foreign exchange reserves; borrowing and restructuring existing debt; and/or adopting a more accommodative macroeconomic framework.

To do so, social and economic investments must be prioritized within a flexible, longer-term framework, recognizing that there are a variety of financing options available to bolster these much needed investments today, even in the poorest countries.

Hunger, disease, death, protests, loss of faith in governments and public institutions, are all avoidable. There are alternatives that should be pursued for an inclusive recovery, or, as the title of the publication by the UNICEF’s Division Policy says, a “Recovery for All”.

More information
“A Recovery for All: Rethinking Socioeconomic Policies for Children and Poor Households”:

South Bulletin: