South Centre/ILO/IPD Paper, October 2015

The Decade of Adjustment: A Review of Austerity Trends 2010-2020 in 187 Countries

By Isabel Ortiz, Matthew Cummins, Jeronim Capaldo, Kalaivani Karunanethy. Geneva: ILO, IPD Columbia University and the South Centre.

This paper: (i) examines the latest IMF government spending projections for 187 countries between 2005 and 2020; (ii) reviews 616 IMF country reports in 183 countries to identify the main adjustment measures considered by governments in both high-income and developing countries; (iii) applies the United Nations Global Policy Model to simulate the impact of expenditure consolidation on economic growth and employment; (iv) discusses how austerity threatens welfare and social progress; and (v) calls for urgent action by governments to adopt alternative and equitable policies for socio-economic recovery.

According to IMF projections, 2016 marks the beginning of a second major period of expenditure contraction globally. Overall, budget reductions are expected to impact 132 countries in terms of GDP and hover around this level until 2020. One of the key findings is that the developing world will be the most severely affected. Overall, 81 developing countries, on average, are projected to cut public spending during the forthcoming shock versus 45 high-income countries. Expenditure contraction is expected to impact more than two-thirds of all countries annually, affecting more than six billion persons or nearly 80 per cent of the global population by 2020.

In terms of austerity measures, a desk review of recent IMF country reports indicates that governments are weighing various adjustment measures. These include: (i) elimination or reduction of subsidies, including on fuel, agriculture and food products (in 132 countries); (ii) wage bill cuts/caps, including the salaries of education, health and other public sector workers (in 130 countries); (iii) rationalizing and further targeting of safety nets (in 107 countries); (iv) pension reforms (in 105 countries); (v) labour market reforms (in 89 countries); and (vi) healthcare reforms (in 56 countries). Many governments are also considering revenue-side measures that can adversely impact vulnerable populations, mainly through introducing or broadening consumption taxes, such as value added taxes (VATs) (in 138 countries), as well as privatizing state assets and services (in 55 countries).

Projections with the United Nations Global Policy Model indicate that the expected spending cuts will negatively affect GDP and employment in all regions – global GDP is expected to be 5.5 per cent lower by 2020.   This paper encourages policymakers to recognize the high human and developmental costs of poorly-designed adjustment strategies and to consider alternative policies that support a recovery for all.

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