Sovereign Debt

Today the world faces a severe austerity pandemic: the high levels of expenditures needed to cope with COVID-19, the resulting socioeconomic crisis and other shocks due to structural imbalances combined with reduced tax rates have left governments with growing fiscal deficits and indebtedness. Starting in 2021, this initiated a global drive toward fiscal consolidation whereby governments began adopting austerity approaches exactly when the needs of their people and economies are greatest.

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A long list of austerity measures is being considered or already implemented by governments worldwide. This includes eleven types of austerity policies that have negative social impacts on their populations, especially harming women: (1) targeting and rationalizing social protection (in 120 countries); (2) cutting or capping the public sector wage bill (in 91 countries); (3) eliminating subsidies (in 80 countries); (4) privatizing public services/reform of State-Owned Enterprises (SOEs) (in 79 countries); (5) pension reforms (in 74 countries); (6) labor flexibilization reforms (in 60 countries); (7) reducing social security contributions (or “tax wedge,” in 47 countries); and (8) cutting health expenditures (in 16 countries). In parallel, three prevalent measures to raise revenues in the short-term that also have detrimental social impacts include: (9) increasing consumption taxes, such as sales and value-added taxes (VAT) (in 86 countries); (10) strengthening public-private partnerships (PPPs) (in 55 countries); and (11) increasing fees/tariffs for public services (in 28 countries).

Rather than investing in a robust post-pandemic recovery to bring prosperity to all citizens, governments are considering austerity measures that will harm populations. These adjustment measures are not new: the same policies have been advised over the years by the international financial institutions (IFIs). Austerity is an outdated policy that has become the “new normal,” an IFI strategy to minimize the public sector and the welfare state –to support the private sector. Countries constrained by debt and deficits are told to adopt fiscal consolidation or austerity measures rather than identifying new sources of fiscal space. Once budgets are contracting, governments must look at policies that minimize the public sector and expand PPPs and the private delivery of services, often promoted and/or assisted by multilateral development banks. These policies principally benefit corporations and the wealthy –they are “pro-rich policies” that exacerbate inequalities. To compensate for the negative social impacts, particularly on women, the IFIs often advise a small safety net targeted to only the poorest populations, which excludes the vast majority of people, punishing the low and middle classes. Pro-corporate policies accompanied by a small safety net targeted to the poorest do not serve the mainstream population; they are detrimental to the majority of citizens, especially women. The worldwide propensity toward fiscal consolidation is expected to aggravate social hardship at a time of high development needs, soaring inequalities and social discontent.

There’s no question that we are at the start of a debt crisis that’s certain to worsen dramatically in the coming years. Debt service obligations to multilateral, bilateral and private creditors directly reduce available funding for already under-resourced shock absorbers, social protections (including those that support women’s workforce participation and caring labor), public investment and investments in physical and social infrastructures that support growth and gender equality. Moreover, as in previous financial and debt crises, support from the Bretton Woods institutions (BWIs) is conditioned on austerity programs that entail, among other things, fiscal consolidation, public expenditure reductions, increased consumption and value-added taxes, user fees (that can restrict educational access for girls), and measures that contract public sector employment.

Constraints on fiscal space are already being felt anew across the Global South. Deeper constraints surely lie ahead. Indeed, there’s ample evidence that the austerity agenda has arrived, and it appears likely to be more severe than that associated with the crisis of the 1980s. Constraints on fiscal space and economic crises are always borne disproportionately by women, as per decades of research by feminist economists.

A debt crisis of epic proportions in the Global South is unfolding. The debt crisis—on top of the continued economic and social fallout of the Covid-19 crisis, the climate crisis, democratic deficits in several national contexts, and the breakdown of cooperation and traditional alliances in the global community—dim the prospects of mobilizing vast quantities of the medium- and long-term financial resources necessary to reverse backsliding and make progress on the full range of the UN SDGs by the looming 2030 target. SDG 5 provides the impetus for this paper.

As with previous debt crises and the pandemic, the burdens of today’s debt crises are borne disproportionately by women and other vulnerable groups and nations. It’s therefore crucial that we explore opportunities for expanding and creating the fiscal space that national policymakers can use to support SDG 5.  I consider strategies that focus on a subset of external financial flows (namely, external debt, concessional finance, and special drawing rights). Some of the strategies I discuss are “gender-indifferent,” meaning that they are neither informed by concerns about gender nor do they directly target gendered inequalities. That said, gender-indifferent external finance strategies directly increase fiscal space and can indirectly support gender equality, if national policymakers have the political commitment and tools to use the space created toward this end. I also discuss gender-informed external finance strategies that can, to various degrees, directly support gender equality. And because austerity policies disproportionately affect women and girls, any strategies that ease external financing burdens and constraints necessarily support gender equality. It’s my intention that those advocating for women the world over will find a set of attractive and viable strategies for creating, expanding, and engendering fiscal space through strategies aimed at external finance at a time of overlapping crises. It’s my hope that this paper will be of use to those advocating for green transitions and for a just, inclusive global economy.