Introduction
Macroeconomic reforms, defined as broad policy measures that shape a nation’s overall economic trajectory, are often presented as neutral, technocratic interventions aimed at stabilizing growth, controlling inflation, managing public debt, or fostering competitiveness. But beneath the surface of fiscal targets, interest rates, currency regimes, and trade balances lies a deeply political reality: macroeconomic reforms affect different groups of people in profoundly unequal ways.
Nowhere are these impacts more visible and contentious than in their socioeconomic consequences for the poor. For low-income communities, macroeconomic decisions can determine whether essential services are accessible, whether jobs are created or lost, whether food is affordable, and whether the future holds promise or precarity.
Macroeconomic reform typically refers to adjustments in fiscal policy (government spending and taxation), monetary policy (control of money supply and interest rates), exchange rate policy, trade liberalization, financial market liberalization, and structural adjustments such as privatization and deregulation.
Proponents contend that these reforms promote efficiency, attract investment, and set the conditions for sustained growth. But the benefits are rarely distributed evenly. Decisions about budget cuts, taxation, subsidies, and public investment are fundamentally about who bears the costs and who reaps the gains.
Structural Adjustment Programmes
A clear lens for examining the politics of macroeconomic reform is the era of structural adjustment in the 1980s and 1990s. Facing debt crises, many developing countries turned to the International Monetary Fund (IMF) and World Bank for loans—conditional on implementing sweeping macroeconomic reforms, also know as structural adjustment programmes (SAPs).
SAPs prioritized fiscal discipline cutting public spending, privatizing state enterprises, removing subsidies, and liberalizing markets. While they often stabilized national accounts, they also slashed social safety nets, shrank public-sector jobs, and raised the cost of basic goods. Millions of poor households felt the brunt of these policies: schools and clinics closed, food prices rose, and economic vulnerability deepened. Structural adjustment became a symbol of the clash between macroeconomic orthodoxy, free market fundamentalism, and the realities of poverty.
A new round of SAPs—SAPs 2.0 or New Structural Adjustment Programmes (NSAPs)—are currently being implemented in several African countries, including Ethiopia. Ethiopia’s acceptance of SAPs 2.0 and its stringent conditions, under the guise of macroeconomic reform, compromise economic policy autonomy, restricts choices, and reflects the country’s desperation for critical funding.
Austerity measures remain a common feature of macroeconomic reform or structural adjustment. Whether imposed during debt crises, budget deficits, or as part of “fiscal consolidation,” austerity measures typically involve cutting government spending, including on welfare, education, and health, precisely the areas that disproportionately benefit low-income groups.
Meanwhile, tax systems often remain regressive: indirect taxes like value-added tax (VAT) tend to hit the poor hardest, while wealth and capital often remain undertaxed due to loopholes, weak enforcement, or political capture.
In practice, this means that the poor frequently absorb the immediate costs of stabilizing national accounts, while the benefits such as restored investor confidence accrue to elites and global capital markets.
The design and implementation of macroeconomic reforms are deeply shaped by political bargaining. Multilateral lenders, domestic elites, and international investors wield significant influence, often eclipsing the voices of the poor. Technocrats and policymakers may argue that reforms are “necessary” or “inevitable,” presenting them as purely rational responses to economic realities.
But whose version of reality prevails? Often, alternative strategies, progressive taxation, targeted subsidies, or investment in productive social sectors, are sidelined as “fiscally irresponsible,” despite evidence that they can support inclusive growth.
A key justification for macroeconomic reforms like liberalization or tax cuts for businesses is that growth will “trickle down” to the poor through job creation and investment. In reality, decades of evidence show that this trickle is often a trickle indeed. Without deliberate redistributive policies, macroeconomic growth can co-exist with deepening inequality. Countries may see rising GDP alongside stagnant wages, precarious informal employment, and underfunded public services conditions that perpetuate poverty even in “booming” economies.
Free Market Fundamentalism vs. Social Protection
A core tension in macroeconomic reform is the trade-off between free market fundamentalism and social protection. When fiscal rules prioritize balanced budgets and low deficits at all costs, there is less room for countercyclical spending during downturns or for investing in programs like universal healthcare, education, housing—or more broadly, the social safety net.
Yet research consistently shows that a strong social safety net not only reduces poverty and inequality, but also supports long-term economic growth and development by boosting human capital and domestic demand. The politics of macroeconomic reform often pit these social investments against dogmatic commitments to austerity.
The COVID-19 pandemic forced a dramatic, if temporary, rethinking of macroeconomic orthodoxy and free market fundementalism. Even traditionally conservative institutions acknowledged the necessity of large-scale public spending to prevent economic collapse and protect vulnerable populations.
Emergency stimulus packages, debt moratoria, and expanded welfare programs showed that states can act boldly when crisis compels them. Yet, as debt levels rise, there is a risk that old austerity narratives will resurface, demanding fiscal retrenchment that again places the heaviest burden on the least well off in society.
Pro-Poor Growth and Development Policies
There is growing recognition among economists, activists, and some policymakers that macroeconomic policy must be made explicitly pro-poor. This means:
- Progressive taxation: taxing wealth, property, and capital gains more fairly to fund essential social services.
- Targeted public spending: prioritizing health, education, affordable housing, and social protection over blanket spending cuts.
- Debt justice: advocating for debt restructuring or cancellation for countries trapped in debt burden, cycles of austerity, and underdevelopment.
- Employment-centered growth: designing macro policies that promote decent and secure work rather than relying solely on markets to create jobs.
- Democratic accountability: ensuring that the poor have a meaningful voice in economic decision-making, through unions, civil society, and participatory budgeting.
Conclusion
In conclusion, at its heart, the politics of macroeconomic reform comes down to who the economy works for. Is it a machine for generating profits for capital owners and satisfying financial markets or a system designed to meet the needs of people, including the most vulnerable? Answering this question requires challenging dominant narratives, building new coalitions, and reimagining how economies can balance growth, stability, and social justice. The struggle for macroeconomic policies that work for the poor is not a purely technical debate it is a profoundly important political fight over power, priorities, and the objectives of economics itself.
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Editors Note: A version of this article appeared in Ethiopia’s Capital Newspaper.
Ethiopian Policy Institute 