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Blogs, Macroeconomic policies

Human rights and the coming austerity shock in 2016

Next year marks the beginning of a second major period of expenditure contraction globally. Not only in Europe, but mostly in developing countries, according to IMF fiscal projections.

Details and results or our review are in a policy brief “The Forthcoming Adjustment Shock” and a full working paper “The Decade of Adjustment: A Review of Austerity Trends 2010-2020 in 187 Countries.”

The papers follow on previous research in “The Age of Austerity: A Review of Public Expenditures and Adjustment Measures in 181 Countries” published by the Initiative for Policy Dialogue at Columbia University and the South Centre. Our analysis was first developed in UNICEF in early 2010, when fiscal consolidation was just starting (“Prioritizing Expenditures for a Recovery with a Human Face: Results from a Rapid Desk Review of 86 Recent IMF Country Reports”), and has since been updated in late 2010, 2012, 2013, 2014. This is the 2015 update.

The findings are of great relevance to human rights everywhere. While the global financial crisis of 2008 may seem far behind, the world economy never quite recovered since then. Projections and statements by IMF officials at the last IMF/ World Bank Annual Meetings (held in Lima) keep downgrading growth forecasts seven years after the crisis started.

In 2012, the Committee on Economic, Social and Cultural Rights (the treaty body in charge of providing authoritative guidance on the obligations of State parties to the International Covenant on Economic, Social and Cultural Rights) issued a letter stating that some adjustments in the implementation of the rights recognized by the Covenant might be inevitable in times of crises, but that States need to justify such measures are temporary, necessary and proportionate, that they do not affect the rights of disadvantaged and marginalized individuals and identify and protect the minimum core content of the rights being affected, including social protection and labour standards. Above all, the Committee urgently calls for the identification of all possible means to avoid retrogression and to sustain progress towards the full realization of human rights.

It seems this will become quite relevant in many countries. 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.

Our desk review of recent IMF country reports indicates that governments are weighing various austerity 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).

The good news is: it does not need to be a decade of adjustment. Alternative policies that support a recovery for all exist in virtually all countries, as we have shown in previous research. In difficult times, it is imperative that countries aggressively explore all possible alternatives to promote human rights. There are several options that all governments have to expand fiscal space, even in the poorest countries. These options, supported by policy statements of the UN and international financial institutions, include: re-allocating public expenditures, increasing tax revenues, expanding social security coverage and contributory revenues, lobbying for aid and transfers, eliminating illicit financial flows, using fiscal and foreign exchange reserves, borrowing or restructuring existing debt, and adopting a more accommodative macroeconomic framework. Their full consideration by policymakers before moving to adjustment seems not only warranted as the path most conducive to socio-economic recovery and the achievement of the Sustainable Development Goals. It is the one most in line with the Committee on Economic, Social and Cultural Rights’ guidance.

Isabel Ortiz is the Director of the Social Protection Department at the International Labor Organization. This piece was written acting on her individual capacity and should not be construed in any way as necessarily representing official views of the International Labor Organization. She is (also in her individual capacity) a member of the Advisory Board of RightingFinance.

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