WUNRN
Taylor & Francis Online -
FEMINIST ECONOMICS - Volume 19, Issue 3 - 2013
Special Issue: Critical &
Feminist Perspectives on Financial & Economic Crises
AUSTERITY
MEASURES IN DEVELOPING COUNTRIES: PUBLIC EXPENDITURE TRENDS & RISKS TO
CHILDREN & WOMEN
Direct Links to Full 2013 Published
Text:
ABSTRACT
This
study examines how austerity measures may have adversely affected children and
women in a sample of 128 developing countries in 2012. It relies on
International Monetary Fund (IMF) fiscal projections and IMF country reports to
gauge how social assistance and other public spending decisions have evolved
since the start of the global economic crisis. The study finds that most
developing countries boosted total expenditures during the first phase of the
crisis (2008–09); but beginning in 2010, budget contraction became widespread,
with ninety-one governments cutting overall spending in 2012. Moreover, the
data suggest that nearly one-quarter of developing countries underwent
excessive fiscal contraction, defined as cutting expenditures below pre-crisis
levels. Governments considered four main options to achieve fiscal
consolidation – wage bill cuts/caps, phasing out subsidies, further targeting social
safety nets, and reforming old-age pensions – each of which would be likely to
have a disproportionately negative impact on children and women.
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CONCLUSIONS
Most developing countries moved swiftly to counter the
effects of the global economic crisis by introducing fiscal stimulus packages
during 2008–09, which protected or increased assistance to social sectors. In a
second phase of the crisis (2010 onward), however, many governments began to
cut deficits and reduce overall expenditures. At the time of writing, our
analysis confirms that the scope of austerity had widened quickly, with seventy
developing countries reducing total expenditures by nearly three percent of
GDP, on average, in 2010, and ninety-one developing countries expected to
reduce annual expenditures in 2012. Moreover, comparing the 2010–12 and 2005–07
periods suggests that nearly one-quarter of developing countries were undergoing
excessive contraction. Even more worrisome, the scope of expenditure
consolidation widened considerably among developing countries since a previous
analysis was carried out in October 2010 (Ortiz et al. 201029. Ortiz, Isabel, Chai, Jingqing, Cummins, Matthew and Vergara,
Gabriel. 2010. “Prioritizing Expenditures for a Recovery for All: A Rapid
Review of Public Expenditures in 126 Developing Countries”. UNICEF. Social and
Economic Policy Working Paper
Budget
cuts pose clear risks to children and women in terms of their impact on the
level and quality of essential public assistance. Despite data gaps, aggregate
fiscal contraction during 2010–12 likely affected social sector spending
allocations and jeopardized the ability of social protection systems to provide
adequate support to vulnerable children and women, even in countries with a
policy intention of safeguarding so-called priority spending. The adverse effects
of the main austerity measures being adopted were also likely to be
disproportionately felt by children and women: wage bill reductions can hamper
the delivery and quality of essential health, nutrition, and education goods
and services, especially in rural areas; subsidy reversals can make food,
transport, and other basic goods unaffordable; and rationalizing social
protection schemes, including pension benefits, runs a high risk of exclusion
at a time when children and women are most in need.
And
there are other risks in the current policy environment. While this article has
exclusively focused on expenditure-side measures, many governments were also
altering consumption taxes on basic goods, such as food items and fuel and
energy products, by increasing or expanding value-added tax (VAT) rates or
sales taxes. In the absence of exemptions, such revenue-side policies can
further erode the already limited incomes of vulnerable households and stifle
general economic activity; they can also be regressive, placing a
disproportionate burden on poorer households (Ortiz, Chai, and Cummins 2011a26. Ortiz, Isabel, Chai, Jingqing and Cummins, Matthew. 2011a.
“Austerity Measures Threaten Children and Poor Households: Recent Evidence in
Public Expenditures from 128 Developing Countries”. UNICEF. Social and Economic
Policy Working Paper
As a result, tax reforms pose further dangers to children and women.
Protecting
vulnerable populations is critical to equitably sharing the adjustment costs
and avoiding detrimental or even irreversible effects on children and women.
However, macroeconomic and fiscal decisions are often taken without
comprehensive assessment of their potential impact on employment, human
development, and inclusive and sustainable growth. It is therefore imperative
that decision makers carefully review the distributional impact, as well as
possible alternative policy options, for economic and social recovery.
To
mitigate the risk of social spending being adversely impacted during
expenditure contraction in the short term, it is important to focus policies on
preserving and expanding pro-poor expenditures within a framework of
medium-term fiscal sustainability. It is also imperative that policymakers
recognize that spending cuts are not inevitable. In fact, there are a number of
alternative options to boost social investments, even in the poorest countries,
which include reallocating current expenditures, increasing tax revenue,
lobbying for increased aid and transfers, tapping into fiscal savings and
foreign exchange reserves, borrowing or restructuring existing debt, and
adopting a more accommodating macroeconomic framework (Isabel Ortiz, Jingqing
Chai, and Matthew Cummins 2011c28. Ortiz, Isabel, Chai, Jingqing and Cummins, Matthew. 2011c.
“Identifying Fiscal Space: Options for Social and Economic Development for
Children and Poor Households in 184 Countries”. UNICEF. Social and Economic
Policy Working Paper
Not only can these viable options counter the intensifying drive toward
austerity, but they can also provide essential support to vulnerable households
when they are most in need and ensure that economic recovery is inclusive of
all persons, including children and women.