Faced with soaring debt and growing pressure to consolidate public finances, austerity is becoming the norm in many emerging and developing countries. However, contrary to popular belief, these measures do not systematically trigger waves of protest. We take a closer look at this complex reality.
Austerity: a global response to the debt crisis
Since the 2008 financial crisis, global public debt has almost doubled, reaching a record high of $102 trillion in 2024. This increase is particularly marked in developing economies, where debt has grown twice as fast as in advanced countries. The rising cost of debt points to a wave of austerity in the form of budget cuts or tax increases.
data for the graph in xls format
A contrasting reality across regions and countries
The impact of austerity on social stability varies considerably from one region to another and can sometimes be deeply destabilising. In Ecuador, for example, the removal of fuel subsidies in 2019 paralysed the country for ten days, forcing the government to back down. In Kenya, tax increases in 2024 sparked riots that led to the storming of Parliament, forcing President Ruto to withdraw the finance bill and enter into dialogue with the opposition.
However, our study reveals that austerity measures do not systematically trigger social unrest. In lower-income countries in Africa and the Middle East, the implementation of fiscal adjustment plans is often accompanied by a decline in protests.
The weight of inequality and governance
The acceptance or rejection of austerity depends heavily on the level of inequality and trust in institutions. In countries with marked social disparities and weak safety nets, tensions are more frequent, as the current situation in Kenya shows. Conversely, in contexts where governance is improving, calm can be restored: in Sri Lanka, after a major political crisis in 2022, the arrival of a new anti-corruption government in 2024 helped to reduce tensions.
Cuts or taxes : choices that matter
The nature of austerity measures also influences social reactions. In Latin America, where more than 90% of plans include tax increases, protests are often immediate. Conversely, in emerging countries in Asia and Europe, governments generally favour cuts in public spending, which tend to provoke fewer social reactions in the short term.
Where do Europe and Romania stand?
Austerity in Emerging Europe tends to rely more heavily on spending cuts. In all regions, however, fiscal consolidation typically combines both revenue increases and expenditure reductions. When it comes to social unrest, defined as the occurrence of events such as street protests, riots, major demonstrations, and other forms of domestic disorder, Emerging Europe did not record such events 2 years in a row (2023 and 2024) marking a period of calm.
As far as Romania is concerned, facing with the highest budget deficit in the EU, the country is set up to implement the second package of major fiscal measures starting mid-August.. Introduced to reduce the deficit of more than 9% of GDP, this package will put pressure on the social, economic and political landscape locally.
“Romania is set to follow a winding path in the coming years, for which fiscal consolidation is, we might say, a "North Star." This direction will require the political factor to define not only a feasible strategy, but also the ability to achieve and then defend a social contract with all the forces involved (the corporate sector, the population, trade unions). The challenge will come from the long-time frame for which this social contract must be secured, at least 4-5 years.
In the same direction, political stability is a sine qua non condition for Romania's success. In its absence, any narrative on fiscal consolidation measures, as well as any implementation of this strategy (however well-articulated "on paper") will be skating on thin ice, exposing Romania to the risk of not reaching its desired destination, with implications for its sovereign rating, financing costs, business traction, and investment appetite”, declared Bogdan Nichișoiu, Regional (Central & Eastern Europe) Enhanced Information Manager.
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