UN children’s fund challenges pledges by IMF and World Bank to safeguard poor people from the worst of the global downturn
Pledges by the International Monetary Fund and the World Bank to safeguard poor people from the worst of the global downturn are being challenged by the United Nations, which is warning of the “extraordinary price” being paid by children and other vulnerable groups as mass austerity programmes sweep across the developing world.
A study by the UN children’s fund, Unicef, said there would be “irreversible impacts” of wage cuts, tax increases, benefit reductions and reductions in subsidies that bore most heavily on the most vulnerable in low-income nations.
It found that between 2010 and 2012 a quarter of developing nations were engaged in what it called excessive belt-tightening, reducing spending to below the levels before the financial crisis began in 2007.
Both Christine Lagarde, the IMF managing director, and Robert Zoellick, president of the World Bank, said at the weekend that their organisations were seeking to build social safety nets to protect the weakest.
But Unicef said: “In the wake of the food, fuel and financial shocks, a fourth wave of the global economic crisis began to sweep across developing countries in 2010: fiscal austerity.”
The report (pdf) looked at IMF spending projections for 128 countries. “While most governments introduced fiscal stimuli to buffer their populations from the impacts of the crisis during 2008-09, premature expenditure contraction became widespread beginning in 2010 despite vulnerable populations’ urgent and significant need of public assistance,” it said.
The analysis showed that the scope of austerity was severe and widening quickly. Of the 128 countries, 70 reduced spending by nearly three percentage points of GDP during 2010 and 91 planned cuts in 2012.
A comparison of the 2010-12 period with the three years before the financial crisis began showed that nearly a quarter of developing countries were undergoing “excessive contraction”, defined as slashing spending to below pre-crisis levels.
The study found that governments had relied on five main ways of saving money: cutting or capping wages (56 countries); phasing out or removing subsidies, primarily fuel but also on electricity and food (56 countries); rationalising or means-testing social programmes (34 countries); reforming pensions (28 countries) and increasing consumption taxes on basic goods (53 countries).
Although the IMF has put a greater emphasis in recent years on ringfencing pro-poor spending, Unicef said there was a heightened risk of social spending falling below levels needed to protect vulnerable populations.
“Current austerity policies may have major impacts on social spending and other expenditures that foster aggregate demand, and therefore recovery. It is therefore imperative that decision-makers carefully review the distributional impacts, as well as possible alternative policy options, for economic and social recovery.”
The report noted that children and poor households were likely to be most affected by budget cuts. “The limited window of intervention for foetal development and for growth among infants and young children means that deprivation today, if not addressed properly, can have irreversible impacts on their physical and intellectual capacities, which will, in turn, lower their productivity in adulthood; this is a an extraordinary price for a country to pay.”
Unicef said providing immediate and adequate support for children and their families was an urgent imperative. “The current wave of fiscal consolidation that is taking hold of developing countries has severe consequences for vulnerable populations.”
Zoellick said the risk of a fresh downturn added urgency to the World Bank’s work on building safety nets, adding that it was already helping in 80 countries.
An IMF spokesman said: “The IMF continues to be supportive of the efforts of low-income countries to sustain growth and to continue strengthening spending on health and education. Recent Fund research shows that social spending has increased at a faster pace in countries with IMF-supported programmes compared to those without a programme, particularly in low-income countries. This is true for social spending in relation to GDP and as a share of total government spending, as well as increases in per capita social spending after adjusting for inflation.”
whets the appetite for reading the whole book – in my case it’s preaching to the converted – but hey we all like that don’t we.