A worrisome second adjustment shock and ensuing austerity measures are expected to start in 2016 and hit 132 countries, mostly in the developing world, the yearly update on austerity of the International Labour Organisation shows.
According to a new International Labour Organisation (ILO) report that looks at financial trends of 187 countries from 2010 to 2020, austerity is going to once again rear its ugly head in 2016. International Monetary Fund (IMF) projections show that a second major period of expenditure contraction globally is set to begin next year. Overall, budget reductions are expected to impact 132 countries in terms of gross domestic product (GDP).
One of the key findings is that the developing world is going to 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 people or nearly 80 percent 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, such as wage bill cuts and/or caps, including the salaries of education, health and other public sector workers (in 130 countries); pension reforms (in 105 countries); or 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 (in 138 countries), as well as privatising 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. Compared to a baseline scenario without spending contraction, global GDP is set to be 5.5 percent lower by 2020 further resulting in a net loss of 12 million jobs. East Asia and Sub-Saharan Africa are going to be the most affected regions.
It does not need to be a decade of adjustment, the ILO Director Social Protection Isabel Ortiz highlights in the paper. The document further questions if the projected fiscal contraction trajectory—in terms of timing, scope and magnitude—as well as the specific austerity measures being considered are conducive to socio-economic recovery and the achievement of the Sustainable Development Goals (SDGs) to which most countries recently agreed upon. It also encourages policymakers to recognise the high human and developmental costs of poorly-designed adjustment strategies and to consider alternative policies that support a recovery for all.
Read the policy brief “The Forthcoming Adjustment Shock” here, and the full working paper “The Decade of Adjustment: A Review of Austerity Trends 2010-2020 in 187 Countries” here.