Question

You are an IMF official going to a country whose export earnings are not able to pay for imports. The government has requested a loan from the IMF. Which areas would you recommend the government to cut: (1) education, (2) salaries for officials, (3) food subsidies, and/or (4) tax rebates for exporters?

Answer 1

Answer:

(2) salaries for officials

Explanation:

Salaries for officials would be the most appropriate area to cut, because the other three items are either more important, or would cause unintented effects if cut.

Some government agencies could even be closed, or its personnel reduced, in case the economic crisis is serious.

As for the other three items, cutting education would not make sense because the IMF itself recommends large spending in education since an educated populace is highly correlated with economic development.

Cutting food subsidies would be problematic in a country that is going through an economic crisis, and could result in hunger among the poor.

Finally, cutting tax rebates for exporters would probably cause export earnings to dwindle even more because exporters would have less incentive to engage in that activity, and many of them would likely change their occupation.