Why are austerity measures so crucial?

Austerity is a term that usually refers to a set of economic policies which can be implemented by a government in order to control the public sector debt. This step is usually taken by the governments when their public sector debt is way too high and there is more risk of a default or inability to pay off the debt and satisfy its obligations. Given this possibility of default, governments everywhere in the world put austerity measures in place. In simple terms, austerity is used as a tool to bring back financial health to the government and to maintain the stable economy of a nation. Primarily, there are three main types of austerity measures, which include revenue generation or higher taxes to fund spending, raising taxes while cutting non-essential government functions, and lower taxes and lower government spending. As discussed above, the aim of the government in doing so is to maintain the financial stability of the nation and to continue with a vibrant economy while also restoring favourable position in the balance of payment. 

Due to the Ukraine-Russia war, stagnation has started in Europe and Asia and now austerity has become an important measure in European countries. The economic stagnation in Europe led to an increase in their default risk, as a result of which many European countries were forced by the creditors to check on their spending. The Indian government has taken some austerity plans in public and private sectors taking the Russia-Ukraine war and the global fuel crisis into consideration.  

The petrol prices in Pakistan also increased. Pakistanis are already grappling with higher costs of living after recent fuel and food price hikes. They slashed the petrol quota of government officials and cabinet members by as much as 40 per cent. To conserve energy and save fuel, their government has decided to restore the work from home policy for one day of the week to reduce the demand for fuel and energy. 

They have also planned to switch off street lights on alternate nights to save electricity. The fiscal policy of the United Kingdom after Covid 19 is shaped to reduce government debt. 

Drastic reductions were made in public spending and taxes were increased to reduce the budget deficit. The Greek government has also implemented austerity policies within the domestic economy and all non-essential government-funded projects were suspended. Spain also introduced austerity measures that included increases in tax rates of high-level consumption and a reduction in government spending. Bangladesh government has also introduced an energy austerity plan recently. 

The primary goal of adopting austerity measures into a country’s fiscal policy is to decrease government debt and ensure a sound position in the balance of payment. However, they all view austerity measures as unavoidable.

World Bank valued the austerity policy in fuel consumption of Bangladesh; the Washington-based lender showed interest in supporting us in our energy saving plans, and on last 30 June 2022 signed a $515 million financing agreement to help 9 million people get access to reliable power supply while transitioning to clean energy. The agreement includes a $15 million grant from the Clean Technology Fund to support Battery Energy Storage Systems (BESS). The credit is from the World Bank’s International Development Association (IDA), and has a 35-year term, including a five-year grace period.

The Ukraine-Russia war caused supply chain disruption of fuel and a high price of fuel, which hurt the economy of Bangladesh like all other countries. This unwilling disruption has caused shortages in industrial production in many East European countries as well. The remedial measure relies on the resilience and tolerance of the citizens.  

We believe that the people should support the ongoing austerity drive as it has not happened in a single country and it has not happened due to any fault of the government. If the citizens support these measures at their own level in lowering their level of usual consumption and checking misuse of electricity and fuel, things will recover soon. There is nothing to be worried about. 

Rather from this saving culture and austerity, we may be habituated to lowering personal electricity and fuel consumption, which may help us in maintaining a clean environment in near future. 

We know that Stephen Hawking had warned that the ‘human race will perish on Earth as growing population and massive power consumption would turn the planet into a sizzling fireball in less than 600 years’. Consuming less energy at the individual level has become the top agenda as a prime issue in different countries. Some countries, including, Australia and New Zealand included lessons in their curriculum for students to impart knowledge on how they can use energy more responsibly in their adult life. This year's heat wave in Europe, which caused the melting of roads and birds and animal to die, destroying agricultural crops in the field and deaths of human lives have given a new lesson to the world population to use energy more sensibly.  

We know that if we stop burning fossil fuels, it will reduce carbon emissions. However, are there other benefits as well? According to an IPCC (Intergovernmental Panel on Climate Change)  report, reducing fossil fuel use is not just a long-term investment to slow climate change; it also protects human health and environmental ecosystems, saving lives almost immediately. This means that it helps to prevent climate change and can also clean air and prevent health problems. 

Studies show that moving away from burning fossil fuels can almost immediately begin to save lives and boost the economy in a new form and reducing fossil fuel usage protects us from the worst effects of future climate change.

By conserving fuel, people can protect the health of fellow humans as well. Pollution causes or exacerbates a wide range of serious medical problems, such as lung cancer and asthma. This results in unnecessary suffering and health care expenses. Less consumption benefits the environment and protects wildlife. It decreases directly air pollution from vehicles. Conservation also reduces the number of harmful diseases. However, for industry and commercial use, things may go with a little sacrifice to production processes and the measure is temporary.  

It may seem that personal efforts toward less use have little impact, but they can accomplish more by setting a good example. People are more likely to take steps to save fuel and electricity when they see their friends, neighbours or parents do so.

The writer is a former Senior Secretary and currently teaching as an Adjunct Faculty at the Bangladesh Institute of Governance and Management (BIGM). He can be contacted at s22arefin@gmail.com