Global Austerity Alert: Looming Budget Cuts in 2021-25 and Alternative Pathways

Abstract

This paper warns of an emerging post-pandemic fiscal austerity shock—one that is far more premature and severe than the one that followed the global financial crisis—and presents alternative options to ensure that populations do not yet again have to suffer from austerity cuts. It does so by: (i) examining IMF government expenditure projections until 2025; (ii) summarizing the most common austerity measures to be avoided given their negative social impacts; (iii) presenting financing alternatives and (iv) calling on governments to urgently create fiscal space to finance an equitable socio-economic recovery and progress toward human rights and the Sustainable Development Goals (SDGs).

Keywords: public expenditures, fiscal stimulus, fiscal consolidation, austerity, adjustment, recovery, pandemic, macroeconomic policy, financing development, wage bill, subsidies, pension reform, social security reform, labor reform, social protection

JEL Classification: H5, H12, O23, H5, I3, J3