Social Protection Överview

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UNITED NATIONS DEVELOPMENT PROGRAMME

Sequencing, Cost-Efficiency and Fiscal-Sustainability of Social

Protection—An Overview

By Yanchun Zhang, Nina Thelen and Nergis Gulasan

Preliminary Draft 25 October 2012

Bureau for Development Policy

United Nations Development Programme, New York

Note: The views expressed in this paper are those of the authors and do not necessarily reflect

those of UNDP. The authors thank Anne-Isabelle Degryse-Blateau and Selim Jahan for support

to this project. The authors are grateful for helpful comments received from Artemy Izmestiev

and Claudia Vinay. Please send comments and suggestions to the following e-mail addresses:

[email protected], [email protected] and [email protected]

mailto:[email protected]




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1. Introduction

Social protection1 is gaining increasing support as an instrument to counter various types of risk

and vulnerability in an ever globalizing world. The global economic and financial crisis

reasserted the importance of protecting the livelihoods of all members of societies, especially the

most vulnerable, through well-designed social protection systems.2 But while social protection

has gained momentum in empowering people to weather an ever more insecure economic

environment, social protection is more than just a buffer to the risks brought about by short term

economic shocks like the recent financial crisis or fluctuations in the business cycle in general.

More long term social pressures linked to population growth, demographic change and

urbanization as well as environmental challenges through increasing droughts, storms and floods

aggravated by climate change have put government provision of social protection higher on the

national and global agendas. When well designed, social protection can contribute to economic

growth.3 Social protection can also contribute to building more equal societies and reducing the

economic costs and distorted opportunities (e.g. slower growth) brought about by large income

differences in societies.4

Many social protection programmes in developing countries

increasingly include transformative and productive elements which empower people to improve

their lives and to graduate out of poverty. As a result social protection becomes an integrated part

of development policy.

Many questions, however, still remain to be answered on how to build a social protection system

that protects the most vulnerable, contributes to sustainable growth and development and

enhances resilience to shocks.

Our paper focuses on three aspects of the social protection debate related to sequencing, cost-

efficiency and fiscal-sustainability of building a well-functioning social protection system in

developing countries. We aim to use some country experience to shed light on how developing

countries can proactively engage in an adaptable social protection agenda sequencing from

informal to more formal social protection arrangements, continually assess the evolution of

countries‘ potential vulnerabilities and identify cost-efficient options to address these

vulnerabilities, and firmly embed fiscally sustainable social protection in national socio-

economic development planning.

The rest of the paper is structured as follows. Section 2 analyzes the sequencing of social

protection to identify the limitations of informal and semi-formal social protection and pin down

some of the triggers for a switch to more formal social protection. Section 3 reviews cost-benefit

analysis to evaluate the economic affordability and cost efficiency of specific social protection

measures. Section 4 explores fiscal sustainability issues of a social protection system and

1 The social protection term used in the proposed initiative is a broad concept which includes labour market

interventions, social insurance programs and social assistance. 2 G20 leaders and international agencies like the United Nations, the World Bank and the IMF are all supporting the

implementation of sound social protection systems and are calling on governments to step up measures to protect

their peoples in order to restore growth, progress and confidence (see G20 2011). 3 Dercon (2011); UNDP and ILO (2011).

4 See, for instance, Stiglitz (2012). Soares et al. (2007) found that about one fifth of the 4.7 percentage point decline

in the GINI coefficient during 1995-2004 could be attributed to Bolsa Família.


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developing countries‘ options to create fiscal space for social protection provision. Section 5

concludes.

2. The Sequencing of Social Protection

Over the past decade, social protection has received increasing attention in development policy

as an instrument to reduce poverty and to enhance opportunities and human capabilities.5

Particularly since the mid-1990s, many governments of developing countries have successfully

experimented with social protection which demonstrates the potential.6 In the absence of public

social protection arrangements or inclusive and complete credit, savings and insurance markets,

many people in developing countries have historically relied much on traditional and informal

risk mitigation arrangements.

Social protection arrangements seek to reduce poverty and vulnerability and to improve human

welfare. Hence, the main motivation for the existence of social protection in societies lies in core

human values such as responsibility, reciprocity, social solidarity, civility and self-help.7

Precisely because social protection is built on ethical values and often also rooted in traditions,

friends and family (i.e. households more broadly) serve as actors in informal social protection

arrangements. In addition, a large number of people in developing countries rely on so-called

semi-formal social protection arrangements. Examples include savings clubs, food cooperatives

and church groups. These ―mutual aid societies‖ or ―member-based organizations‖ provide social

protection where family networks have been eroded, like for instance in urban settings, or where

more formal arrangements fail to deliver.8

The types of arrangements of social protection, as well as social protection initiatives and

programmes vary strongly across developing countries (and regions). While differences between

low-income countries (LICs) and middle-income countries (MICs) exist, generally, many

developing countries are now considering revising their social protection programmes and

moving towards more integrated, inclusive, modern and established social protection systems.

One option for governments to take into consideration is the implementation of a basic set of

social protection arrangements at the national level, a so called ―Social Protection Floor‖. The

Social Protection Floor initiative is a UN system-wide effort to ensuring a basic cover of social

protection for all over the life cycle.9 The reasoning of such a floor is that all in need should have

access to essential health care and to basic income security.10

In this section, we first explain what social protection is and, for the purpose of this paper, settle

on a definition of the term. We then provide an overview and elaborate on the types of

5 Cook and Kabeer (2009).

6 Cook and Kabeer (2009).

7 Chen, Jhabvala and Lund (2002); UN (2000).

8 Tshoose (2010).

9 http://www.ilo.org/public/english/protection/spfag/index.htm

10 www.social-protection.org/gimi/gess/ShowTheme.do?tid=1321


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arrangements in which social protection is provided (i.e. informal, semi-formal and formal).11

Second, we discuss the limits of informal and semi-formal social protection arrangements.

Third, we discuss evidence on triggers for a switch to more formal, modern, integrated and

established social protection in different countries (world regions). The section concludes with

findings on enabling conditions that have helped developing countries to integrate social

protection into their national development strategies and recommendations that developing

countries may with to consider when embedding existing non-formal social protection

arrangements in their national development strategies.

2.1. Definition and Categorization of Social Protection

There is no unanimous definition of social protection12

or clear categorization of social

protection measures in the literature or in policy practice.13

For the purpose of this paper, we

define social protection measures as interventions that are intended to reduce poverty and

vulnerability (including transitory poverty and vulnerability owing to economic and other

shocks) and to improve human welfare. Many social protection measures support poor and

vulnerable groups of people, which includes groups like the (non-working) young, unemployed,

elderly and special groups (children, sick, disabled and minorities) to cope with economic

hardships.14

Social protection includes social insurance, social assistance and labour market interventions.15

Contributory social insurance programmes under which people receive benefits or services based

on regular financial contributions to an insurance programme include publicly mandated

insurance against ageing, disability, sickness, death or unemployment. Most social insurance

schemes are provided by the government and closely linked to the formal labour market which

often limits their coverage to formal workers. However, we also count insurance schemes that

protect against risks to livelihoods arranged by actors other than the government in our

definition.

11

This paper is merely intended to provide an illustrative and informative overview of the topic. It is not intended to

provide a new analytical framework. For an alternative, deeper analysis of levels of social protection, formality and

actors, please see Holzmann and Jørgensen (2001). 12

The term social protection is generally considered to encompass a broader array of arrangements and actors than

social security. For instance, the former counts protection arranged through family members or members of a local

community (ILO 2010a). However, given the fact that the terms are often used interchangeably in the literature, we

use the terms social protection and social security interchangeably, unless noted otherwise. 13

It should be noted that there is no generally recognized definition of social protection. In fact, various

international organization, scholars and even countries developed their own (Bonilla García and Gruat 2003). For a

compilation of social protection definitions of selected international organizations, see Annex Box 1. Various

scholars have discussed social protection components and have developed typologies, see for instance Devereux and

Sabates-Wheeler (2004). 14

We are aware that our definition may not be precise and can be broadly looked at as social policy measures, but

decided to use it for the purposes of this paper. 15

Some narrower definitions of social protection used in other studies exclude interventions measures on public

health, education, housing or labour market interventions (see Annex 1, Box 1). Our definition refers to the most

common areas of social protection as defined by the Governance and Social Development Resource Center (GSDRC

2012).


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Social assistance programmes are non-contributory transfer programmes targeted at the poor and

those vulnerable to poverty and shocks. There is no universal consensus on the types of

interventions covered by the social assistance label. Common examples include cash transfers

(conditional cash transfers (CCTs) which are transfers to poor households conditional on specific

behavior) and unconditional cash transfers (UCTs) like non-contributory pensions, etc.); in-kind

transfers (e.g. food transfers); fee waivers (health fees, school fees, scholarships); utility

subsidies (e.g. electricity, housing and water) and so on.

Labour market interventions are aimed at protecting people who are in the labour market or at

poor people who are able to work.16

For the purpose of this paper, we differentiate between three types of social protection

arrangements17

: (i) informal; (ii) semi-formal; and (iii) formal (public and private) arrangements.

Informal arrangements are based on friends and family (―kinship‖).18

Semi-formal arrangements

are based on voluntary or membership associations, civil society organizations (CSOs) (e.g. non-

governmental organizations (NGOs), trade unions). Formal arrangements are based on public

actors (i.e. the central or local government) and private actors (i.e. insurance companies (and

banks)).

Social protection can be arranged informally, semi-formally or formally. Various actors are

involved in these different types of arrangements. In the absence of formal social protection

mechanisms and—oftentimes—market mechanisms (for instance for credit and insurance

products), people in many developing countries have historically reverted to friends and family

for help in the face of adverse conditions.19

This is what we define as traditional and informal

social protection arrangements. The exact mechanisms of social protection provided in this

informal way very much depend on the particular traditions of the society in question. Likewise,

16

It should be noted that our definition of labour market interventions is broader than the definition by the

Governance and Social Development Resource Center that only counts ―[l]abour market interventions [that] provide

protection for poor people who are able to work‖ (GSDRC 2012). Labour market interventions include (vocational)

training and skills development and changes to labour legislation. They also include labour market measures that

likely fall under one of the other two areas of social protection (social insurance or social assistance) but are focused

on the labour market, like unemployment insurance, and part-time unemployment benefits. Public works

programmes (the poor working for food or cash), can be considered labour market interventions, but they are also

sometimes referred to as social assistance, since they basically function like conditional transfers (i.e. cash or food is

handed out in return for work on public infrastructure projects). 17

It should be noted that this is the authors‘ own elaboration. We settled on this tentative typology to ease

understanding of the landscape of possible arrangements of social protection. There is no generally accepted

definition of ―formal‖ and ―informal‖ social protection arrangements in the literature. While Holzmann and

Jørgensen (2001) identify three main arrangements of social protection (public, market based and informal) as do

Hoogeveen at al. (2004) (formal, market based and informal), Mohanty (2011) refers to CSOs as actors in semi-

formal arrangements of social protection. Gentilini and Omamo (2009) consider both public and private actors to be

―formal‖ actors in social protection arrangements. Our categorization includes three categories of social protection

arrangements: social protection through public and private actors (formal), social protection through community,

groups, or member-based organizations (semi-formal) and social protection through households (informal). 18

UN (2000). 19

Mendola (2010). For a literature review on how people cope in the absence of publicly provided social protection

and often not accessible credit and insurance markets in low-income settings, please refer to Mendola (2010). For an

overview of how people cope with risk in an environment of non-inclusive markets, please refer to Mendoza and

Thelen (2008).


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the nature and number of events that are covered by informal social protection also vary

depending on the cultural and country context.

Much for the same reason as informal social protection provision, semi-formal social protection

arrangements are found to have developed. Mutual aid arrangements at community level as well

as money transfer between people that belong to the same community or neighborhood or family

are examples of semi-formal social protection arrangements. Instead of merely relying on friends

and family, many people have joined forces in mutual aid schemes like burial societies or other

community-based arrangements. Supporting one another, mutual aid arrangements are organized

through groups, associations and social networks.20

Mutual aid schemes are found to partly have

developed in response to the process of industrialization and urbanization in developing

countries, supporting individuals where the original extended family system had been eroded.21

Burial societies and stokvels22

in Africa, for example, are found to be more present in urban

areas.23

Burial societies help meet (material and non-material) obligations to organize a dignified

funeral according to traditions for a deceased family member which otherwise might stretch a

family‘s budget. Civil Society Organizations (CSOs) are found to be involved in the provision of

child protection services in the Pacific Island Countries (PICs) while church groups are found to

play an important role in caring for the aged and disabled in Africa.24

Some of these groups

specifically target those in need. For instance, social protection arrangements in church groups in

Zimbabwe only cater to members who are unable to help themselves.25

In the category formal social protection arrangements, the public sector (local and federal

government) is an important actor. Another actor in formal, modern social protection

arrangements is the private sector. Private actors play a role in the areas of microinsurance as

well as general insurance afforded by insurance companies (and, in some cases, banks).26

Microinsurance27

provides an affordable alternative for low-income populations who are either

excluded from insurance markets or without access to appropriate public social protection, where

it exists. It can help people with limited financial means to hedge themselves against risks such

as old age, death or illness.28

Microinsurance can usefully be attached to or linked to existing

formal social protection arrangements, so that public and private instruments together can

contribute to broadening coverage against those risks that pose the greatest challenge for the

poor.29

Microinsurance is regarded as ―a social protection instrument that can complement

existing social protection systems in a meaningful way‖.30

Regulations for private actors as well

20

Mendola (2010). 21

Tshoose (2010). 22

Stokvels are common in Africa, are invitation only clubs and usually comprised of 12 or more members who

contribute on a regular basis, based on their income. Each month, a different member receives the money. Regular

meetings assure that members pay their contributions, a constitution regulates the functioning of the stokvel. For

more information, see http://durban.thebeehive.org/content/39/1344. 23

Tshoose (2010). 24

Dhemba, Gumbo and Nvamusara (2002); Mohanty (2011). 25

Dhemba, Gumbo and Nvamusara (2002). 26

We do acknowledge that not all microinsurance providers are formal private actors (please see note in Table 1 for

more information). 27

Per definition, microinsurance is targeted at low-income populations (Churchill 2006). 28

BMZ (2011). 29

BMZ (2011). 30

BMZ (2011, p.2).


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as close monitoring are needed to make sure that private actors can effectively complement

governments in social protection.

The private sector and the public sector can also usefully engage in partnerships in the areas of

pension. Many developing countries have started to develop ―hybrid pension systems‖, a mix of

public and private pensions. One example is Chile. Introduced in 1981, the private pension plan

helped to accumulate a large pool of capital but had the downside of only benefiting those who

paid contributions (i.e. salaried workers in the formal sector).31

In 2008, the Chilean government

expanded public pensions to groups left out by the private pension system (i.e. the poor and

informal workers).32

About two-thirds of Chilean pension income will be paid from pre-funded

retirement accounts, one-third will be paid from tax-financed public benefits.33

A recent impact

assessment of the 2008 reform‘s most important component, the new Basic Solidarity Pension

(Pension Básica Solidaria) aimed at poor individuals aged 65 and older finds that targeted

households (poor households with at least one person age 65 and older) received about 2.4

percent more annual household income and were able to improve their welfare.34

The study

finds little evidence that the Basic Solidarity Pension led to a crowding-out of private transfers.35

While the 2008 reforms have brought important improvements, a large share of the informal

sector remains outside Chile‘s pension system.36

Table 1 provides an illustrative overview of social protection arrangements (i.e. informal, semi-

formal and formal), the actors involved in these arrangements, the three main areas of social

protection interventions as well as examples of initiatives that fall under these main areas in the

respective types of arrangement.37

For instance, utility subsidies are an example of a specific

social protection initiative in the area of social assistance which is usually placed in the formal

(public) arrangement category. A caveat regarding our overview that needs to be mentioned is

that borders between categories are often not clear cut. The line between informal and semi-

formal social protection, for instance, is a fine one as is the line between semi-formal and

formal.38

Thus, social protection initiatives can fall under more than one arrangement (sometimes

even with the involvement of external donors and other external actors).39

While important, informal and semi-formal social protection arrangements face a number of

limitations which we will analyze in the next section.

31

Gallardo (2008). 32

Gallardo (2008). 33

James, Cox Edwards and Iglesias (2010, p.25). 34

Behrman et al. (2011, p.2) and Shelton (2012). 35

Behrman et al. (2011). 36

Shelton (2012). 37

This compilation is merely meant to be illustrative and to provide an overview to the reader. 38

There is no clear categorization of and/or distinction between semi-formal and informal arrangements of social

protection (e.g. ADB (2010) even considers NGOs to be formal actors in social protection arrangements). 39

The government can, in some cases, collaborate with the private sector and/or civil society actors in social

protection arrangements.


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Table 1: Social Protection Arrangements, Actors and Examples of Initiatives

Type of

arrangement Actor Specific initiative under each area

Social insurance

Social assistance

Labour market

interventions

Formal

public sector

(government) health insurance cash transfers

(conditional cash

transfers (CCTs)

and unconditional

cash transfers

(UCTs))

training programmes

disability and

invalidity

insurance

in-kind transfers skills development for

workers

life insurance fee waivers part-time unemployment

benefit

public pension utility subsidies reintegration in the job

market

employment counseling

changes to labour

legislation

public works

programmes

employment guarantee

programmes

private sector

(e.g. insurance

companies,

banks)

microinsurance*

(e.g. health, life,

accident insurance

targeted at low-

income

populations)

insurance policy

or contract (e.g.

private pension,

health, life,

accident)

Semi-formal

civil society

organizations

(CSOs)**

(e.g. non-

governmental

organizations

(NGOs)***,

church groups)

in-kind transfers to

children

social welfare

services for

women, the elderly

and the disabled

skill training and

education for poor, youth

and unemployed

mutual aid

arrangements

often at

community

level (e.g.

burial insurance

savings and credit

through

community groups


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burial

societies,

Rotating

Credit and

Savings

Associations

(ROSCAs))

Informal****

family/kinship

(blood-

related),

friends

remittances /

direct money

transfer

gift exchange / in-

kind exchange

Sources: Own elaboration based on Dekker (2008), Dhemba, Gumbo and Nvamusara (2002), GSDRC (2012),

Holzmann and Jørgensen (2001), Mohanty (2011).

* Churchill and Matul (2012) differentiate between formal providers of microinsurance (e.g. insurance companies),

and what we call ―semi-formal‖ providers (e.g. cooperatives, community-based organizations, mutuals, friendly

societies).

** Devereux (2010, p.13) broadly defines civil society to include ―[…] trade unions, rights-based NGOs,

representatives of special interest groups (women, children, pensioners, people with disabilities, people affected by

HIV and AIDS, homeless people, youth) community-based organisations (CBOs) and faith-based organisations

(FBOs), as well as activist academics and the independent media.‖

*** While we do recognize that NGO‘s can also be international actors (e.g. Save the Children), we mostly

considered nationally based NGOs.

**** We consider informal social protection to be solely based on individuals and households. However, we do

recognize the argument that communities are sometimes extended families.

2.2. Limitations of Informal and Semi-formal Social Protection

A major part of the world‘s population still relies on informal arrangements as the main source of

social protection.40

Informal and semi-formal social protection, however, is present in most

developing countries: it has developed to fill gaps at the community and family/household level

that government policies have not been able (or willing) to address41

or that markets have not

managed to (or have not been willing to) reach.42

40

Holzmann and Jørgensen (2001); Hoogeveen et al. (2004). Comprehensive social protection systems exist in only

one-third of countries, where 28 percent of the global population lives; however, most of these systems cover only

workers in formal employment ILO (2010a, p.33). According to the ILO (2010a, p.33), only around 20 percent of

the global working-age population and their families have access to comprehensive social protection. It is roughly

estimated that somewhere between 20 percent and 60 percent of the global population has access to basic social

protection only ILO (2010a, p.33). According to the ILO, those enjoying only a basic level of income security

(guaranteeing income at the level of the poverty line) at all stages of the life cycle as well as access to essential

health services are considered to benefit from basic social protection, or i.e., the social protection floor (ILO 2010a,

p.22). 41

Dercon (2002). 42

For an analysis of how to make credit markets more inclusive for the poor, please refer to Mendoza and Thelen

(2008).


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While being vital for a large share of the population, especially the most vulnerable, these

informal and semi-formal arrangements can have two important downsides: first, they may

provide inadequate protection since they might collapse or malfunction under certain

circumstances or since pay-outs might be too small. Factors that can contribute to the

malfunctioning of informal and semi-formal arrangements include inherent characteristics of

these types of arrangements themselves (like the mere size of the mutual assistance group/pool)

and the complex nature of the risks they are not equipped to cover (diversification of the mutual

assistance group/pool). Second, they may be exclusive of the poorest or discriminate certain

social groups.

First, in some cases, informal and semi-formal social protection arrangements provide

inadequate protection. For instance, when exposed to a risk that affects everyone in the risk pool.

Risks can affect whole communities/regions (covariate risks) or they can affect a particular

individual (idiosyncratic risks). 43

By definition, insurance does not work for covariate risks, i.e.

in order for an insurance scheme to work the risk pool needs to be sufficiently diversified so that

a particular adverse event only affects a limited number of members of the risk pool. Thus, for

example in the case of community-based insurance schemes, if an adverse event affects the

whole community this social protection set up does not work.44

Given the size of typical

communities, there are many risks that qualify as covariate risks. They include financial crises,

other macro-economic shocks, or natural disasters. Likewise, many diseases that afflict

developing countries are also covariate risks. For instance, HIV/AIDS diminishes the earning

potential of entire communities and is found to have hindered capacity and operability of

informal social protection mechanisms in Eastern and Southern Africa.45

Naturally, the likelihood of a covariate risk increases the smaller the size of and the more

homogeneous the risk pool.46

Since some informal and semi-formal risk-coping arrangements are

small in size, chances are high that a shock may hit the whole group.47

Also, payouts might not

be particularly high if the insured group is small.48

An informal and semi-formal arrangement is

also found to be less effective in case it is a ―horizontal‖ (between two equally poor parties)

arrangement as opposed to a ―vertical‖ (between a rich and a poor party) arrangement since the

poor parties both have less resources at their disposal.49

Hence, unless informal and semi-formal

arrangements are able to transfer part of the risk to insurance markets outside the community,

they are likely to collapse when experiencing a covariate risk.50

Formal social protection

43

The counterpart of covariate risks are idiosyncratic risks, e.g. risks that affect a particular individual in a

community. Examples of idiosyncratic risks are illness, disability, theft, etc. Informal risk coping arrangements are

found to work better in the context of risks that only affect an individual in a community instead of affecting the

whole community (Dercon 2002). 44

Dercon (2002). 45

ILO (2001); UNICEF (2008). 46

It should be noted that small informal groups with a high level of trust have also been found to achieve risk

sharing and punishment in case of non-compliance (Mendola 2010). One should assume that the insured risk was of

idiosyncratic nature. 47

Bhattamishra and Barrett (2010). 48


Devereux (1999). 50

Dercon (2002) notes that communities or individuals can alternatively also revert to intertemporal transfers, like

using individual or community-level savings. However, the poorest might not possess savings.


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arrangements can usefully complement or strengthen community-based arrangements to access

commercial reinsurance markets.51

On the other hand, some semi-formal social protection schemes have found to be overwhelmed

by their membership size. While broad coverage means that there is strong demand for the semi-

formal arrangement, it can also overburden its administrative and managerial capacity. Some

burial societies in South Africa, for instance, have grown so big that they could possibly improve

their service were they to be more regulated.52

Second, informal and/or semi-formal social protection arrangements, in some cases, can be

exclusive of the poorest or discriminative of certain social groups and minorities. For instance,

they are exclusive of the very poor53

when they require contributions in cash or in kind which the

poorest are unable to pay. The poorest households in Fiji Islands and Vanuatu, themselves often

part of a family network of equally poor people, have been found to oftentimes be unable to

revert to family support or to honor their contribution commitments to the community, church,

etc.54

Another barrier preventing people from accessing these arrangements can be

discrimination (for instance, based on ethnic background, migrant status, religion or gender).55

More formal, more equitable social protection arrangements could help extend social protection

to the poorest and those excluded by discrimination.56

While important, informal and semi-formal arrangements have many downsides as they can

reinforce the poor‘s dependent status without making them resilient to (possible) frequent

shocks.57

For instance, in the absence of formal insurance markets and social protection, farmers

in Sub-Saharan Africa have been found to improvise measures like using mixed cropping

systems and planting multiple varieties to reduce the impact of shocks on their harvest. The price

they pay is high: more work and lower yields.58

Governments may usefully strengthen informal

arrangements in a given country context but may consider providing more formal solutions in

others.59

2.3. Potential Triggers for a Switch to More Formal Social Protection

As mentioned in the previous section, informal and semi-formal social protection arrangements

may have a number of limitations that can lead to inadequate protection or non-inclusive

provision. That may not in itself be a reason for a government to initiate a new formal social

protection scheme or to broaden coverage of an existing social protection system. Our findings

suggest that a broad number of factors may potentially trigger a developing country to initiate a

more formal social protection system by creating an enabling environment. These factors fall

51


Bester et al. (2004); Olivier, Kaseke and Mpedi (2008). 53

Bhattamishra and Barrett (2010); Dercon (2002). 54

ADB (2010). 55

Cook (2009). 56


Cook and Kabeer (2009). 58

UNDP (2012a). 59

Cook and Kabeer (2009).


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into two broad categories: internal triggers and external triggers. Internal triggers can be related

to the limitations of existing informal and semi-formal social protection schemes and

arrangements themselves or to a change in a country‘s political and economic context which in

turn can influence the development path of a country (i.e. change in wealth level, population

related change), or boost public support and political will. External triggers include change in

the nature of shocks (i.e. from idiosyncratic to covariate), economic crises, natural disasters, etc.

Many governments have moved in the direction of scaling up existing or implementing new

formal social protection schemes when such a potential trigger is present. If not addressed in a

timely fashion and with the right responses, vulnerabilities that are exposed in economic crises

and through other triggers may threaten growth prospects, hard-earned development gains and

social stability. In this section we explore which factors appear to potentially trigger countries to

move towards a more modern, more efficient (and ultimately towards a more formalized) social

protection system.

2.3.1. Potential Internal Triggers for a Switch to More Formal Social Protection

A change of a country‘s political or economic context may provide a trigger for broadening

formal social protection coverage. For instance, many formerly planned economies started

broadening public social assistance coverage to previously excluded groups when switching to

market economy systems.60

Apart from the regime change itself, liberalization, increased

external competition and pressure on public accounts are factors that are found to have pushed

towards an extension of social protection.61

The Republic of Korea, for instance, experienced a

period of extremely rapid growth brought about by industrialization. One of the least developed

countries in the 1960s, by 1995, the Republic of Korea was classified as an upper middle-income

country and today is classified as a high income country.62

With increasing wealth, the Republic of Korea started to gradually implement social protection

initially following the model of Western welfare states using the social insurance model covering

formal sector workers. The Republic of Korea‘s four main social insurance programmes have

been progressively built up since the mid-1960s: Industrial Accident Compensation Insurance

(1964), Medical Insurance (1977), National Pension Insurance (1988) and Employment

Insurance (1995).63

Increasingly, the Republic of Korea‘s the development path on which the

Republic of Korea embarked, started to challenge the country‘s existing social protection system.

As the Republic of Korea moved up the development ladder, it started facing different and

evolving challenges like expanding and/or aging population, fast urban migration, and increasing

demand for more equal access to quality social services. The fast aging of the Republic of

Korea‘s population poses challenges to the country‘s pension system. By 2040, fewer than two

people of working age in the Republic of Korea are expected to support every person age 65 and

older.64

One innovative approach the Republic of Korea has taken to address this problem is to

60



Jung and Shin (2002, p.270); World Bank (2012). 63

Jung and Shin (2002, p.270). 64

The Economist (2012).


13

provide subsidies for the employment of the elderly so they continue working and providing for

themselves for longer.65

As of 2008, elderly people in the Republic of Korea also have a

universal basic pension, earned-income tax credit and an insurance scheme providing long-term

care at their disposal, amongst others.66

Similar challenges are also faced in the developing Asia

region more broadly where informal social protection mechanisms are eroding due to changes in

working habits, cultural values, family structures and urbanization.67

In Latin America, the change in the political context was marked by the democratization in the

late 1980s, early 1990s of many countries in the region. Democratization is said to have

contributed to scaling up bottom up public support for social protection in Latin America.68

A

study cites ―strong popular demand for social protection‖ 69

as an enabling environment for the

birth of a generation of ―highly innovative, domestically designed poverty and vulnerability

reduction programmes‖70

in Latin America (e.g. Bolsa Escola/Família (Brazil),

Progresa/Oportunidades (Mexico), and Chile Solidario (Chile)). Brazil is an example of a

country where the government, in collaboration and pushed by civil society, has shown strong

support for social programmes. The end of the military dictatorship in Brazil in 1985 was

accompanied by an increasing occupation of the public arena by civil society and various grass-

roots movements which brought the concerns of the people to the country‘s agenda. These

movements played a key role in the establishment of a new Constitution. With the approval of

the Constitution in 1988 ―a new landmark point was established as a universalized social security

model came to life that was grounded in citizenship rights.‖71

While bottom up support by the citizens was a key trigger for Brazil‘s move towards more

formal social protection, political will at the federal level was the key driver to broaden

coverage, efficiency and areas of social protection interventions. The outspoken support of social

programmes by a new government put social protection high on the agenda of the federal

government in the early 2000s; the current government continued and deepened this course.

Investing heavily in social as well as economic development, Brazil‘s approach to social

protection demonstrates that the government is treating poverty as a multi-dimensional problem

that goes well beyond the lack of income.72

Since the early 2000s, the government has extended,

designed and implemented a number of integrated programmes for social protection, extension

of basic services, and food security that have helped break vicious circles of social exclusion,

lack of opportunity, low incomes, and poor health. 73

Bottom up support through civil society, citizens and even the media are also said to have served

as a driving force in some successful African country cases.74

In South Africa, civil society,

through media campaigns, advocacy and street protests and even judicial proceedings, has

65

The Economist (2012). 66


AusAid (2012). 68

Barrientos and Hulme (2008). 69

Barrientos and Hulme (2008, p.9). 70

Barrientos and Hulme (2008, p.9). 71

UNDP and ILO (2011, p.66). 72

UNDP (2012b). 73

UNDP (2012b). 74

Devereux (2010).


14

demanded changes towards more equal and inclusive social protection policies.75

Part of the

success of civil society in South Africa was due to the fact that it used jurisdiction to claim the

right to social assistance (i.e. this right is written in the South African Constitution). 76

While

social protection systems in LICs in Eastern and Southern Africa are still in the initial stages of

development, they are more advanced in MICs in the region.77

Successful upscaling of social

protection in African countries is found to be linked to strong political will at the federal level (as

opposed to an agenda of donors).78

South Africa is said to avail of the most comprehensive social

protection system in Sub-Saharan Africa, also to a great extent thanks to political will.79

Lastly, transition from conflict toward a more stable, accountable regime can be a potential

trigger for a government to implement or broaden social protection schemes. For instance, some

LICs, after exiting from conflict, broadened their social protection coverage.80

In Liberia and

Sierra Leone the governments invested in labour market interventions aimed at the young.81

Social protection in post-conflict countries helped the government to build trust though the

provision of support and opportunities to its citizens. Social protection was also a key instrument

in building a more peaceful and equal nation after the end of the Apartheid regime in South

Africa.82

The South African government broadened its formal social protection system primarily

focusing on child grants and non-contributory pensions and with the help of labour market

policies bringing more people into jobs.83

2.3.2. Potential External Triggers for a Switch to More Formal Social Protection

As discussed above, the change in the nature of shocks that households experience has an impact

on the functioning of informal social protection arrangements. For example, while households

and individuals in the South-East and East Asia region have historically experienced shocks that

are mostly of idiosyncratic nature, the increasing integration of the regional economy implies

that economic shocks increasingly affect a broader range of people, challenging informal

arrangements.84

This situation can trigger the need for more formal, more stable social protection

systems.

Economic crises have proved to be a testing moment for the adequacy of a country‘s social

protection system as they tend to expose the system‘s flaws and weaknesses. In the case of Latin

America, the economic crisis in the early 1980s is often cited as a trigger to a switch to a more

formal and systematic approach to social protection.85

Prior to the crisis, like in many developing

world regions, social protection in Latin America was mostly limited to workers in the formal

75

Devereux (2010). 76

Devereux (2010). 77

UNICEF (2008). 78

Devereux (2010). 79

Devereux (2010). 80


Alderman andYemtsov (2012). 82

Alderman andYemtsov (2012). 83

Du Toit and Neves (2009). 84

Cook (2009); Sumarto and Bazzi (2011). 85

Barrientos and Hulme (2008).


15

sector.86

The crisis brought about structural adjustment and economic liberalization which in turn

were followed by a rise in poverty and inequality. Initially, no broad social protection reforms

followed (only social insurance institutions for the formally employed were reformed and

fragmented social assistance programmes and social funds were mounted). The step for more

comprehensive and permanent public responses only started in the mid 1990s.87

Another example is the Mexican economic crisis of 1994 (known as the ―Tequila Crisis‖) that

motivated a change of the social protection system in Mexico.88

The crisis exposed the

insufficiency of the existing mechanisms to protect the poor, so the new incoming administration

embarked on a two-pronged approach between (modestly) increasing support under existing

mechanisms and slowly replacing the old system with new programmes.89

Mexico‘s well-known

conditional cash-transfer programme Progresa-Oportunidades has its roots in the change created

by the Mexican economic crisis of 1994.90

And while the recent global economic and financial

crisis triggered the expansion of existing social protection arrangements (including of the

Oportunidades programme) it also led to the creation of a more comprehensive approach to

social protection, the Vivir Mejor (Live Better) strategy, which is essentially a Social Protection

Floor.91

The Asian crisis of 1997-1998 is another example. Despite earlier reforms, the Asian crisis hit

the Republic of Korea hard; growth plummeted, unemployment rates soared and poverty levels

increased.92

Exposing the limitations of informal arrangements in those East Asian countries

whose systems were based on ‗Confucian familism‘ (characterized by a ‗smaller government‘

that provided less social protection for its citizens, relying on the family as a provider instead)

the Asian crisis turned out to be strong trigger for more formal social protection systems.93

Prior

to the Asian crisis, in the Republic of Korea, for instance, welfare services (e.g. health care and

pensions) were delivered by state-owned corporations rather than the government. Furthermore,

people between 18 and 65 years of age were not entitled to receive public assistance.94

After the

Asian crisis social assistance programmes like a cash transfer programme to the poor, even if

they were able to work, were introduced.95

Initial evidence suggests that the social protection

reforms implemented after the Asian crisis have helped to shield the Korean people from the

detrimental impact of the recent global economic and financial crisis.96

The global economic and financial crisis of 2008 may also have pushed many Latin American

countries to start a second round of reforms of their pension systems. After the first round of

reforms in the 1980s, the second round of reforms is found to pay more attention to tackling

86



Levy (2006). 89

Levy (2006). 90

Levy (2006). 91

UNDP and ILO (2011). 92

World Bank (2012) and http://pressroom.ipc-undp.org/2011/ipc-ig-presentation-social-protection-experiences-

from-south-korea/. 93

Cook (2009). 94



http://pressroom.ipc-undp.org/2011/ipc-ig-presentation-social-protection-experiences-from-south-korea/


16

poverty of the elderly, to expand coverage and equity to shield people from market risks. Hence,

non-contributory schemes like social pension and more universal pensions have been placed

higher on the agenda.97

The case of Indonesia serves as a striking example of a country whose steady path to economic

growth and poverty reduction was interrupted by an external trigger, the Asian crisis of 1997-

1998 (see Box 1).

Box 1: Time to Act When a Trigger Exposes Vulnerabilities and Limitations: The Case of

Indonesia

The Asian crisis of 1997-1998 hit Indonesia at a time when it had experiences around 30 years of

strong economic growth and poverty reduction. When the crisis hit, GDP growth plummeted and

poverty rates increased, showing that the poor were hard hit by the crisis. The financial and

economic crisis soon became a political crisis, forcing the head of government at the time to step

down. By early 1998 the country was suffering from the combined effects of financial,

economic, and political crises. Exposing the insufficient protection of a large share of the

population to such a shock, Indonesia‘s government had to react swiftly, implementing social

assistance programmes to shield the most vulnerable. What started as formally provided social

assistance has developed into the beginning of a social protection floor for all which in Indonesia

includes components in the areas of health care (JAMKESMAS scheme targeted at the poor and

near-poor (76.4 million people), universal health insurance coverage is envisioned by 2014),

food security (subsidized ―rice for the poor‖ programme), access to education (scholarships for

students from poor families), UCTs, CCTs (Programme Keluarga Harapan or PKH) and a

Community Empowerment Programme (PNPM). Sources: World Bank (2012) and www.socialsecurityextension.org/gimi/gess/ShowCountryProfile.do?cid=444

Since social protection should usefully be in place once a country is hit by a shock (ex ante),

governments have increasingly been encouraged by the international community and by example

of their peers (e.g. Brazil, South Africa are role models in social protection for many other

developing countries) to invest in social protection even in the absence of shocks and other

triggers.

2.4. Embedding Social Protection in a National Development Strategy

We previously identified limitations of non-formal social protection. Vital for a large share of the

population in developing countries and a useful source of information on the local context, these

existing arrangements might usefully be made part of a country‘s social protection strategy.98

We

also identified a number of potential triggers that may contribute to creating an enabling

environment for a country to implement a more formal system and a more broad-based coverage

of social protection. Building on this information, we will present our findings on enabling

conditions that have helped developing countries to integrate social protection into their national

development strategies and on recommendations that developing countries may with to consider

97

Calvo, Bertranou and Bertranou (2010). 98

Hoogeveen et al. (2004); Olivier, Kaseke and Mpedi (2008).


17

when embedding existing non-formal social protection arrangements into their development

strategies.

Public support has been found to be a strong driving force behind the successful social protection

country cases Brazil and South Africa.99

Both cases demonstrate that the formalization of social

protection initiatives, through writing them into law, makes it more likely that they will be taken

to scale or institutionalized.100

According to Pero and Szerman (2005):

―The New [Brazilian] Constitution was ambitious: it settled social-democrat guidelines

for social policy, stressing the universality of coverage and benefits, thus opposing the

patterns prevailing until the 1970s. […] the use of selectivity criteria to distribute benefits

to the most needy was also introduced. Furthermore, the Constitution deepened the

ongoing decentralization process, strengthening the fiscal and administrative autonomy of

sub-national governments.‖101

One of the aspects pushed by Brazil‘s new Constitution was the decentralization of spending and

better targeting of social expenditure for those who needed it most.102

Despite high social

spending, social indicators in Brazil deteriorated further throughout the 1980s103

and first

determined steps to breaking the inability of social spending to reduce poverty and inequality in

Brazil and towards implementing a new social development strategy were only adopted by a new

government as of 1995.104

Improvements in social protection spending, policy design and

implementation in Brazil owe much to partnerships between the federal government, sub-

national governments, civil society and the private sector. An important building block of

Brazil‘s Bolsa Família (the Bolsa Escola programme) was first developed and implemented at

the municipal level before being scaled up to the national level.105

The partnership with civil

society has helped the Brazilian government to improve the accuracy of Bolsa Família’s

beneficiary registry, and hence its targeting accuracy over time.106

Strong political will at the federal level is also a key prerequisite for the successful expansion of

social protection. A review107

of social protection in Southern Africa concludes that social

protection interventions have higher chances of succeeding if they are driven by political will,

i.e. if they are government-led from the beginning than if they are donor-driven. For instance,

successful social pension schemes for all older citizens were introduced in Lesotho (2004) and

Swaziland (2005).108

These schemes were designed and implemented without donor support.109

In general, in Southern Africa, government-led SP systems in South Africa, Botswana, Namibia,

99

Devereux (2011); UNDP (2012a). 100

Devereux (2010). 101

Pero and Szerman (2005, p.5). 102

Pero and Szerman (2005). 103

Brazil‘s GINI index peaked in 1989 at 63, making Brazil one of the most unequal societies in the world (World

Bank 2012). 104

World Bank (1988) as quoted in Pero and Szerman (2005). For detailed information on Brazil‘s social

development strategy under Cardoso, please refer to Faria (2002). 105

De Janvry (2005); Pero and Szerman (2005). 106

Lindert et al.(2007). 107



Devereux (2010).


18

and (until recently) Zimbabwe are found to be more successful than donor-led SP systems in

Lesotho, Malawi, Mozambique, Swaziland and Zambia.110

In some cases, government-donor or public-private partnerships are usefully implemented to

complement capacities. For instance, in Ethiopia and Malawi, index-based weather insurance

scheme pilots have been set up for farmers. While donors pay the insurance premiums,

transferring the cost of droughts to the international insurance markets, national governments

provide weather station infrastructure, foster an appropriate legal and regulatory environment

and educate farmers on insurance matters.111

In Nepal, external actors like international

organizations and bilateral aid agencies are found to play a strong role in the country‘s social

protection context. Over the past 20 years, these agents are found to have contributed with

knowledge and expertise to promotion, design and implementation of social protection in Nepal

while the government has been primarily responsible for financing and administering social

protection initiatives.112

The public sector might usefully engage existing schemes when considering scaling up formal

social protection systems. This is also the approach that the Social Protection Floor promoted by

the UN-system is taking. According to UNDP and ILO (2011):

―A key strength of the social protection floor approach is that it does not start from

scratch but with a careful analysis and stocktaking of existing structures and strengths

and weaknesses of schemes and programmes in place. Building on the national social

protection system by improving coordination of different activities, exploring synergies

and increasing efficiency will free resources for extending social protection to those

currently not covered.‖113

Governments are well-advised to carefully analyze existing non-formal social protection

arrangements when considering to implement new or to scale up existing formal social

protection schemes.114

This is due to the fact that a randomly implemented formal social

protection scheme might do more harm than good. For instance, the implementation of a formal

food for work programme may incentivize able bodied individuals to drop out of informal

insurance arrangements. This might leave the informal arrangement with a less diversified risk

pool of less able bodied individuals (i.e. the elderly).115

Integration should ultimately aim at serving the purpose of increasing the extension of coverage

and/or providing a minimum level of protection.116

Prior to setting up a new formal system or

extending an existing one, the reasons behind the existence of informal social security

arrangements as well as the nature of the relationship between current informal and formal

arrangements need to be analyzed and understood. In order to be considered worthy candidates

110


UNDP (2012a). 112

Upreti et al. (2012, p.39). 113

UNDP and ILO (2011, p.15). 114

Hoogeveen et al. (2004); Olivier, Kaseke and Mpedi (2008). 115

Hoogeveen et al. (2004). 116

This paragraph is based on Olivier, Kaseke and Mpedi (2008). It should be noted that the original study talks

about ―social security‖, not social protection.


19

for integration, informal arrangement should be able to meet a number of criteria that include

prudent management, capacity financial viability and sustainability. Once an informal

arrangement is found suitable to be scaled up and/ or integrated, governments can avail of an

array of government interventions to integrate them into, or link them to formal provision. These

interventions include training, subsidies, technical assistance, etc.

For instance, an assessment in the Southern African Development Community (SADC) region117

concludes that self-organized mutual support systems (at community level) in the SADC region

lend themselves better to being incorporated into social security systems than traditional support

systems which are often rooted in African traditional values.118

Burial societies in Ethiopia and

Tanzania, may also be suitable candidates for linking them to additional types of insurance since

they are often relatively formal in nature.119

However, evidence on how, why and when informal

and semi-formal arrangements have been taken into account in the process of broadening

coverage of social protection systems is scarce. More information could contribute to more and

better informed decisions.

Finally, social protection systems should be judged and measured against its efficiency of

contributing to more equal societies, to more security for people (especially the poor and the

most vulnerable), more stable and inclusive growth. The government is the actor that has the

authority to set the legislative and regulatory framework for other social protection providers to

thrive and to assure that social protection is equitable and inclusive. Governments can and

should, usefully engage in close cooperation with actors that are well-informed about local

conditions and public needs (like NGOs) and actors that might be able to improve efficiency

(like the private sector).120

Governments in many developing countries have partnered with

private insurance companies to extend, assure (and provide) pension.121

3. Cost Efficiency of Social Protection

The affordability of social protection schemes is a major concern for many developing countries,

in particular the LICs. For a long time, the prevailing view was that social protection was not

affordable in developing countries. It was mostly believed that social expenditures were

unproductive measures that would crowd out private investment and create large fiscal deficits

that would not be manageable.122

In this section we will explore cost-efficiency of formal social protection programmes. In this

context, it is important to highlight differences between cost-efficiency and cost-effectiveness as

these two similar concepts can often lead to confusion and mistakenly can be used

117

Current members of SADC are: Angola, Botswana, Democratic Republic of Congo (DRC), Lesotho,

Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, United Republic of

Tanzania, Zambia and Zimbabwe. For more information, see www.sadc.int/english/about-sadc/ 118

Olivier, Kaseke and Mpedi (2008). 119

Dercon et al. (2004). 120

For instance, building the link between the government and the people, NGOs in the Pacific Island Countries are

found to contribute to provide advocacy services, counseling, education and training (Mohanty 2011). 121

Tapia (2008). 122

Cook and Kabeer (2010, p. 7); Ortiz and Yablonski (2011, p. 51).


20

interchangeably. Whereas the main objective for cost-effectiveness is to achieve results at a

lower cost compared with alternatives, for cost-efficiency the main objective is ―to achieve the

maximum possible outputs, outcomes, and impacts with the minimum possible inputs.‖123

Therefore, cost-efficiency of a particular social protection programme will not depend solely on

the level of financial sources allocated to it but also, and most importantly, on achieving the

desired impact (e.g. improvements in human development outcomes, mitigation of risks and

vulnerabilities) based on country-specific development priorities. The concept of cost-efficiency

places more emphasis on impacts than the concept of cost-effectiveness does and in turn takes

into account a broader set of costs and benefits.

There are various costs associated with social protection that can be broadly grouped into direct

and indirect costs. Direct costs include those associated with setting up, implementing, and

revising (as appropriate) a social protection programme. Indirect costs include both opportunity

costs of not allocating resources to other programmes and negative externalities on non-

beneficiaries and/or local economy.

Besides the costs, affordability of a social protection scheme needs to be evaluated with

consideration of both the direct and indirect benefits124

and impacts on people and on the

sustainability of the economy as well as the contribution to building resilience to shocks of such

a scheme. Since it is not feasible to quantify all costs and benefits involved, qualitative analyses

offer an important complementary role to quantitative analyses.

A careful needs assessment would enable a country to identify the most prevailing and urgent

vulnerabilities that need to be addressed by a social protection programme.125

After determining

the priority areas for action, the main challenges lie in ensuring that social protection

programmes are well designed, help achieve desired outcomes based on country priorities, are

affordable, and do not lead to costly entitlements that a country cannot sustain over time.

Therefore, a comprehensive cost-benefit analysis for a social protection programme based on

country priorities would be the one that would explore not only current affordability but also

fiscal sustainability.

However, comprehensive cost-benefit analyses of social protection programmes are rare in

developing countries mainly because of time and capacity constraints to assess social protection

programmes. Another reason why comprehensive cost-benefit analyses are not common in

developing countries could be political if those in power aim at reaping political benefits of

social protection programmes within limited timeframes (e.g. before elections).

It should be noted that with regard to certain social protection schemes, absence of cost-benefit

analyses (both ex-ante and ex-post) are not unusual even in advanced countries. For instance, a

123

IEG (2007, p. 65). For more comprehensive definitions of and discussions on efficiency and cost-effectiveness,

see Chapter 11 of IEG (2007). 124

In this paper, the concept ―benefit‖ refers to all positive impacts of a social protection program and should not be

confused with the ―benefit amount‖ of a particular scheme. 125

In this context, the ILO‘s Rapid Assessment Protocol (RAP) provides a useful tool for developing countries to

take stock of and map existing social protection measures and identify priority areas for intervention (UNICEF and

ILO, 2011, p. 11).


21

2007 inventory of youth employment interventions in 84 countries from all regions in the world

demonstrated that among the OECD countries, only Canada, the U.K. and the U.S conducted

impact evaluations and cost-benefit analyses of such interventions.126

Outside these countries and

other than studies sponsored by international organizations, rigorous evaluations of youth

employment interventions were found to be very rare.127

The ILO has recently adopted a

resolution to call on governments, social partners and the multilateral system to take urgent and

renewed action to address the crisis of youth employment.128

This resolution also stressed that

the ILO‘s own activities promoting youth employment ―should be subject to rigorous monitoring

and evaluation to ensure approaches are cost-effective and provide a positive impact.‖129

One example of a developing country that has been undertaking social protection cost-benefit

analyses is Cambodia. The Government of Cambodia recently developed a social protection

strategy based on a vulnerability and gap analysis; consultations with development partners and

other stakeholders; as well as technical assistance from various International Organizations

including for costing exercises. Cambodia‘s strategy stresses that ―financing of the social

protection programme must be seen as an investment rather than as an expenditure.‖130

Box 2

summarizes how Cambodia‘s social protection strategy has been evolving in order to provide the

reader an overview of possible issues that developing countries can encounter while expanding

social protection and exploring affordability of priority programmes.

Box 2: Cambodia’s National Social Protection Strategy for the Poor and Vulnerable

In 2011, the Government of Cambodia adopted its National Social Protection Strategy for the

Poor and Vulnerable (NSPS). Before developing this Strategy, the Government first identified

gaps and constraints with regard to the effective and efficient provision of social protection such

as lack of longer-term vision for social assistance development; low local capacity; limited

coordination among social protection interventions; problems with collecting and monitoring

data and assessing existing interventions; and inadequate budget for implementation.

The Government of Cambodia stresses that ―limited fiscal space and implementation capacities

call for prioritisation of options for social protection development in the short term.‖ The NSPS

gives priority to addressing major sources of vulnerability (such as chronic and transient poverty,

hunger, shocks, and social exclusion) by taking short- and medium-term measures including cash

and in-kind transfers and fee exemptions; public works programmes; and social welfare services.

The Strategy also sets the long-term framework for sustainable and comprehensive social

protection for all in accordance with the Social Protection Floor Initiative. The aim is to

establish both contributory social security mechanisms for the formal sector and improved social

assistance for the informal sector.

While preparing the NSPS, the Government held technical consultations with development

partners and national stakeholders, such as civil society organizations. Several International

126

Betcherman, et al. (2007, p. 31). 127

Betcherman, et al. (2007, p. ii). 128

ILO (2012a). 129

ILO (2012a, p. 14). 130

UNDP and ILO (2011, p. 156).


22

Organizations including the World Food Programme (WFP) and the World Bank assisted the

Government in undertaking a scoping and mapping exercise on existing safety-net programmes.

The ILO also applied a diagnostic tool called Social Protection Expenditure and Performance

Review (SPER) in order to assess system financing, to identify coverage gaps, and to discuss

policy issues for consideration by national policy makers. The ILO estimated that the total

existing social expenditure for the year 2010, including ODA-funded programmes and subsidies

for the health sector was at about 5.5 percent of GDP. The majority of social spending was

allocated for health, corresponding to about 60 percent of total social expenditure.

As part of the technical consultations the World Bank conducted a study that estimated that a

conditional cash transfer programme for poor families with pregnant mothers or children under

five would cost 0.21 percent of GDP (excluding certain administrative costs and supply-side cost

of providing nutrition services). Moreover, the NSPS provides preliminary cost estimates for

each short-term (up to 2013) priority programmes and actions but exact resource requirements

will be determined through further analyses and assessments. The Strategy states that ―a costing

exercise for the medium- and long-term implementation of the NSPS will be developed as a

priority activity during the first year of implementation (including a detailed costing of existing

and planned interventions and a fiscal space analysis). Financing arrangements, including joint

pool arrangements for certain tasks, will be discussed with development partners to embark on a

programme-based approach for social protection in Cambodia and to align and harmonise donor

support for the NSPS.‖ It is also stressed that during this process financing of the social

protection programme must be seen as an investment rather than as an expenditure.

Sources: ILO (2012b), Kingdom of Cambodia (2010), Royal Government of Cambodia (2011), UNDP and ILO

(2011).

In the following sub-sections, we will discuss cost-efficiency of social protection by taking stock

of several costing exercises and analyzing potential short- and long-term benefits of social

protection.

3.1. Cost-Benefit Analyses

Institutions such as HelpAge, International Labour Organization (ILO), Overseas Development

Institute (ODI), UNICEF, and World Health Organization (WHO) developed social protection

costing models and/or undertook costing exercises. Some of these models have been applied by

individual countries in order to examine the feasibility of certain social protection programmes.

At the same time, a number of institutions conducted broader studies looking into various sets of

countries in order to contribute to the affordability debate.

One widely cited example is the costing studies that the ILO undertook in seven sub-Saharan

African131

and five Asian countries132

estimating the annual costs of a basic social protection

131

Burkina Faso, Cameroon, Ethiopia, Guinea, Kenya, Senegal, and the United Republic of Tanzania 132

Bangladesh, India, Nepal, Pakistan, and Viet Nam


23

package that includes universal basic old-age and disability pensions,133

basic universal child

benefits,134

universal access to essential health care,135

and a 100 day employment guarantee

scheme.136

For the countries considered, the annual cost of a basic social protection package is

estimated to be in the range of 3.7 to 10.6 percent of GDP in 2010.137

The estimated annual costs

of each element are as follows:138

Universal basic old-age and disability pensions: between 0.6 and 1.5 percent of GDP

Basic universal child benefits: between 1.2 and 3.6 percent of GDP

Universal access to essential health care: between 1.5 and 5.5 percent of GDP

100 day employment guarantee scheme: between 0.3 and 0.8 percent of GDP

The cost of providing universal health care is noticeably higher than the cost of the remaining

elements of the package. The results of this ILO study have been cited in the literature139

with the

purpose of demonstrating that a basic social protection package excluding universal health care

provision would be affordable even in low-income countries (the selected group includes both

low-income and lower middle-income countries).

Nevertheless, affordability is not evident merely from these numbers. According to this ILO

study, even when governments increase the share of public spending attributed to social

protection to 20 percent of their total budget, seven out of twelve countries analyzed will still not

be able to fill the financing gap from domestic resources by 2030.140

Moreover, these costs were

calculated before the global financial and economic crisis hit, therefore the crisis impact on fiscal

space available to developing countries was not taken into account.141

Other costing exercises have focused on specific elements of a basic social protection package

looking at different or a greater number of countries. Some of these exercises estimate only

133

―It was assumed that the simulated universal old-age and disability pension would be set at 30 percent of GDP

per capita, with a maximum of one US dollar (PPP) per day (increased in line with inflation) and would be paid to

all men and women aged 65 and older; and to persons with serious disabilities in working age (the eligibility ratio

was assumed to be 1 percent of the working-age population, which reflects a very conservative estimate of the rate

of disability).‖ ILO (2008, p. 6). 134

The level of the child benefit is assumed to be ―15 percent of GDP per capita with a maximum of half of one US

dollar (PPP) per day (increased in line with inflation) and paid for up to two children under the age of 14 per woman

who has given birth. The rationale behind this assumption is to tackle claims that universal child benefits would

provide an incentive to increase fertility.‖ ILO (2008, p. 7). 135

It was assumed that basic health care costs would be based on a ratio of 300 medical staff to 100,000 population,

with medical staff wages indexed in line with GDP per capital growth (health staff wages were assumed at a

minimum of three times GDP per capita) and overhead costs of 67 percent of staff costs. ILO (2008, p. 21). 136

The assumed beneficiary group of the employment guarantee scheme constitutes 10 percent of the working-age

population in each country. ―The benefit is only available to households not benefiting from any other form of cash

transfer. It was assumed that the simulated employment scheme would provide a benefit set at 30 percent of GDP

per capita, with a maximum of one US dollar (PPP) per day (increased in line with inflation). The benefit would be

paid for a total of 100 days in the year.‖ ILO (2008, p. 9). 137

ILO (2008, p. 10). 138

ILO (2008, pp. 6-9). 139

ILO (2011); Ortiz and Yablonski (2011). 140

ILO (2008, pp. 13-14). These seven countries are Burkina Faso, Cameroon, Ethiopia, Kenya, United Republic of

Tanzania, Bangladesh, and Nepal. 141

UN NGLS (2010, p. 18).


24

current costs, while others also provide estimates of future costs to discuss sustainability. The

following sub-sections give an overview of these studies. It is worth highlighting that the aim is

not necessarily to provide comparisons (as methodologies, assumptions, and countries analyzed

differ from one study to another) but instead to offer the reader a wide range of existing analyses.

3.1.1. Universal Old-Age Pensions

A HelpAge International study built on previous costing exercises by organizations such as the

ILO and estimated the cost of a universal old-age pension in 50 low- and middle-income

countries.142

The study argues that universal old-age pensions in the countries analyzed would be

currently affordable (in 2010). It is estimated that a universal pension for everyone over 65143

would cost less than 1.8 percent of GDP in all 50 countries (exceeding 1.5 percent of GDP only

in China, Jamaica, Sri Lanka, and Thailand).144

Such scheme would cost around 1 percent of

GDP or less in most sub-Saharan African countries.145

Moreover, these costs would not surpass 8

percent of current government expenditure in any of the 50 countries.146

In 15 countries, these

costs correspond to around or less than 2 percent of government expenditure (e.g. Burkina Faso,

Malawi, Senegal, Mongolia, Ghana).147

Moreover, in order to assess sustainability, this study projected the future costs of a universal

old-age pension for everyone over 60 in Rwanda, Paraguay, and Thailand under different

scenarios. For example, when the pension is indexed to average income, the costs would rise

over time in all three countries as populations age. As a percent of GDP, the costs would

correspond to 1.4 in Rwanda, 3 in Paraguay, and 5.2 in Thailand by 2040.148

The reason behind

the higher cost for Thailand is that by 2040 a quarter of its population is projected to be over

60.149

The study argues that governments can contain these costs by indexing the value of the

transfers to inflation and/or by increasing eligibility age as populations age and healthy life

expectancy increases.150

3.1.2. Universal Health Care

A WHO study estimated that providing key health services in 49 low-income countries would

cost around USD 44 per capita on average in 2009, increasing to around USD 60 per capita by

2015.151

This estimate includes the cost of interventions to achieve the health-related MDGs as

142

Knox-Vydmanov (2011). HelpAge International calculations assume a transfer level of 20 percent of GDP per

capita and set administrative costs as 5 percent of the total cost of transfers. (pp. 2-3). 143

The study also provided separate cost estimates of pensions covering everyone over 60 and 70. 144

Knox-Vydmanov (2011, Figure 1, p. 3). 145




Knox-Vydmanov (2011, p. 7). 149



WHO (2010, p. 22).


25

well as those targeting noncommunicable diseases.152

Cost estimates were made for each

country, and then aggregated; hence they are ―simply an (unweighted) average across the 49

countries at the two points in time.‖153

Obviously, cost estimates vary by country. For instance,

while five of the countries analyzed would need to spend more than USD 80 per capita in 2015,

six countries would need to spend less than USD 40.154

Current health spending varies substantially from one country to another. For instance, annual

health spending in the US and Norway surpasses USD 7,000 per capita and OECD members as a

group spend on average around USD 3,600 per capita.155

On the other hand, among WHO‘s

Member States, 31 countries spend less than USD 35 per capita annually and four countries

spend less than USD 10, even when external aid is taken into account. 156

The WHO stresses that

the poorest countries would need assistance from the international community to expand access

to health services since the Organization argues that ―even with relatively high levels of domestic

growth, and national budgets that prioritize health, only eight of the 49 countries have any

chance of financing the required level of services from domestic resources in 2015.‖157

3.1.3. Child Benefits

A Save the Children UK study estimated the likely current costs of providing different types of

unconditional child benefits for a large sample that includes 57 developing countries.158

The

average cost159

of providing universal child benefits for children under 5 is estimated to be 2.08

percent of GDP.160

When children under 5 who are below the poverty line are targeted, the

average cost decreases to 1.28 percent of GDP.161

While the average costs look relatively modest, the results of this study exhibit significant

variations across countries and regions. On a positive note, in many poor and middle-income

countries in Asia the cost of a universal cash transfer for children under 5 would be less than 1.5

percent of GDP.162

However, one exception is Nepal, where this cost is estimated to exceed 2.5

152

More specifically, the study ―included interventions proven to reduce mortality among mothers, newborns and

children under five; childbirth care; reproductive health services; prevention and treatment of the main infectious

diseases; diagnosis, information, referral, and palliative care for any presenting conditions; and health promotion.‖

WHO (2010, p. 38). 153

WHO (2010, p. 23). 154

WHO (2010, p. 23). 155

WHO (2010, p. 21). 156

WHO (2010, p. 21). 157

WHO (2010, p. 23). 158

Yablonski and O‘Donnell note that this is a static analysis of the likely current cost of child benefits and

estimates will change over time according to the particular combination of changes in each country arising from:

population growth, changes in poverty headcount, changes in average poverty gap, economic growth, potential

changes in administrative costs over time (p. 44). 159

The average cost has been calculated for 54 countries as Burundi, Liberia, and Democratic Republic of Congo are

treated as outliers. 160

Yablonski and O‘Donnell (2009, Table 2, p. 26). 161

Yablonski and O‘Donnell (2009, Table 2, p. 26). 162

Yablonski and O‘Donnell (2009, Figure 6, p. 27). These countries include Bangladesh, China, Cambodia, India,

Indonesia, Laos, and Pakistan.


26

percent of GDP. 163

Moreover, for LICs in Africa, a universal cash transfer for children under 5

is found to be unaffordable in most cases. It is argued that some of these countries would need

considerable external assistance to fill the gap. For instance, Liberia and Tanzania would need

donor funding equal to approximately 90–95 percent and 70-85 percent of costs, respectively.164

Countries such as Sierra Leone, Niger and Mozambique currently are not able to afford even the

more narrowly targeted options at national scale out of domestic resources.165

3.1.4. Social Pensions and Child Benefits

A joint UNICEF and ODI study estimated the possible costs of social pensions and child benefits

(universal and/or selective) in five West African countries. These simulations as a percentage of

both GDP and recurrent expenditure are presented in Table 2 and vary significantly across these

five countries. For instance, while the cost of a universal child benefit and social pension

provision is estimated at 1.1 percent of GDP in Equatorial Guinea, the same provision for Ghana

is estimated to cost 11.3 percent of GDP (which is considerably higher than the upper range of

related ILO estimates) corresponding to more than 60 percent of recurrent expenditure. The

estimated costs for Equatorial Guinea are substantially lower than the ones for Ghana because

the former‘s per capita GDP is much higher due to its oil exports.166

However, the study highlights that affordability in simple aggregate terms does not necessarily

imply feasibility of a programme. For instance, whereas the oil-rich Equatorial Guinea seems to

have necessary fiscal space to finance additional social protection expenditures, it may face

political and institutional challenges. In Section 4, we will discuss in more detail a range of

challenges that countries may encounter in addition to financial constraints.

163

Yablonski and O‘Donnell (2009, Figure 6, p. 27). 164

Yablonski and O‘Donnell (2009, p. 27). 165

Yablonski and O‘Donnell (2009, pp. 26-28). In such cases, the authors recommend rolling out a universal

programme geographically in areas with the highest poverty rates and argue that ―gradual expansion by age or

geography will help to keep costs manageable, and allow time for building the systems and capacity necessary to

deliver programmes at scale.‖ (p. 28). 166

UNICEF and ODI (2009, p. 25).


27

Table 2: Annual Programme Expenditure Cost Estimates of Child Benefit and Social

Pension Options: Simulations for Congo, Mali, Senegal, Equatorial Guinea and Ghana

Costs

Congo,

Republic

Mali

Senegal

Equatorial

Guinea

Ghana

U

CB

SC

B

Soci

al

Pen

sion

UC

B

SC

B

UC

B

SC

B

UC

B

Soci

al

Pen

sion

UC

B

Soci

al

Pen

sion

% of GDP

2.0

1.2

1.0

5.9

3.2

6.4

3.7

0.9

0.2

8.7

2.6

% of

recurrent

expenditure

16.7

9.9

8.3

42.8

23.5

30.0

17.6

20.8

5.0

46.3

13.9

Note: UCB: Universal Child Benefit, SCB: Selective Child Benefit.

Source: UNICEF and ODI (2009, Table 2, p. 26).

3.1.5. The Social Protection Floor Costing Tool

In addition to undertaking costing exercises that covered a selected group of countries, some

international organizations have built costing tools that can be applied by individual countries.

For example, following the adoption of the Social Protection Floor (SPF) Initiative, UNICEF and

ILO jointly developed the SPF Costing Tool in 2010. The objective of the tool is to help support

policy decisions regarding selection, revision and investment in social protection programmes by

providing an initial basic assessment of the potential costs of both new schemes and

modifications to existing ones.167

It should be noted that the tool is only adapted to estimating the

cost and impact of cash transfers.168

Whereas the SPF Costing Tool was developed in order to support the Social Protection Floor

Initiative, the tool can be applied to other social protection contexts. The cost of a specific social

protection scheme would of course vary across countries depending on demographic, labour, and

macroeconomic conditions. While the SPF tool allows users to enter these relevant data points,

the tool has certain built-in assumptions about how these different parameters interact. Countries

can choose to conduct a simple application of the tool by using its built-in assumptions only (e.g.

Senegal), or can carry out more elaborated costing exercises by modifying these assumptions

based on their national context (e.g. Argentina and Egypt—See Box 3).169

Some countries

167

UNICEF and ILO (2011). 168

The SPF Costing Tool can provide cost estimates for old-age pensions, child benefits, disability benefits, orphan

benefits, education stipends, birth lump-sum benefits, youth labour market programmes, and unemployment

programmes (UNICEF and ILO (2011, p. 5)). For a discussion of the SPF Costing Tool‘s limitations, see UNICEF

and ILO (2011, pp. 9-10). 169

UNICEF and ILO (2011, pp. 3-4). The countries that have conducted social protection costing exercises using the

SPF Costing Tool include Argentina, Egypt, Madagascar, Mozambique, and Senegal.


28

choose to utilize multiple tools. For instance, Senegal‘s simple application of the SPF Costing

Tool was complemented by the World Bank‘s ADePT tool for estimating poverty impacts.170

Box 3: Application of the SPF Costing Tool in Egypt

A recent study applied the SPF Costing Tool for a proposed system of child cash transfers in

Egypt, in order to estimate not only its costs but also poverty impacts. The study simulations

show that with an overall cost of 0.88 percent of GDP, the proposed scheme can lift 19.3 percent

of poor people in Egypt out of poverty according to the national poverty line. The potential

impact on children is expected to be greater with an estimated poverty reduction of 28.2 percent

among poor children up to 14 years of age.

While examining the sustainability of such a scheme, the study took population dynamics into

account. Egypt‘s demographic profile appears to be favourable because of the growing ratio of

working age population in the overall population. Hence, over the period 2012-2020 the cost of

the scheme is projected to fall as a percentage of GDP benefiting from the declining dependency

ratio—regardless of whether the scheme‘s benefit amount is held constant in real terms or as a

percentage of GDP per capita.

Source: Rabi (2012).

3.1.6. Rapid Assessment Protocol (RAP)

On the basis of the SPF Costing Tool, the ILO (in close collaboration with UNICEF) has

recently developed a new costing tool called the Rapid Assessment Protocol (RAP), which

provides a useful method for developing countries to take stock of and map existing social

protection measures and identify priority areas for intervention.171

The tool also provides ―a basis

to discuss and simulate alternative financing options and fiscal space.‖172

The first step in this exercise is to construct an SPF Rapid Assessment Matrix (see Figure 1) in

order to analyze the present and planned future social protection provisions according to the

benchmarks set by the four guarantees of the SPF and to identify gaps in policy design and

implementation.173

170

UNICEF and ILO (2011). 171

UNICEF and ILO (2011, p. 11). 172

ILO and IMF (2012, p. 3). 173

Bonnet et al. (2012, p. 7).


29

Figure 1: Structure of the Social Protection Floor Rapid Assessment Matrix

Source: Bonnet et al. (2012, p. 8).

After constructing an SPF Rapid Assessment Matrix, the RAP identifies and defines the policy

options that would complete the SPF and provides cost estimates for different measures and

relates them to projections of the government budget.174

This tool ―builds on single age

population projections; single age estimates of labour force participation rates; a relatively crude

economic scenario as determined by assumptions of the overall GDP growth rates, productivity

rates, inflation and base real wage rates and increases over the projection period, and interest

rates, as well as initial poverty rates‖ 175

and uses these variables as drivers of expenditures and

revenues. Since the RAP conducts a more detailed analysis than the SPF Costing Tool, it offers

more robust results; however, the RAP is also more time demanding. Box 4 provides key

comparisons between the SPF Costing Tool and the RAP and Section 4 will give examples of its

application.

174

Bonnet et al. (2012, p. 17). 175

Bonnet et al. (2012, p. 17).


30

Box 4: Key Comparisons between the SPF Costing Tool and the Rapid Assessment

Protocol

COSTING TOOL RAPID ASSESSMENT PROTOCOL

1. Fixed and pre-defined format

2. Not time demanding

3. Features: pre-defined scenarios,

types of benefits; pre-defined

poverty impact module

4. No previous knowledge on Excel

modelling, demographics,

macroeconomics, government

finances, benefit design or poverty

impact is necessary.

1. Flexible format

2. Time demanding

3. The construction of the model goes

hand in hand with a dialogue process

involving national authorities and

other actors dealing with social

protection

4. Previous knowledge on Excel

modelling, demographics,

macroeconomics, government

finances, benefit design or poverty

impact is required.

Source: Behrendt (2011, slides 4 and 5).

3.1.7. Importance of Prioritization

Another study took a different approach for exploring affordability of social protection and

compared five African countries‘176

actual expenditure levels in social protection and other

development sectors to the spending targets they committed to in international agreements.177

176

Ethiopia, Kenya, Malawi, Mozambique, and Uganda. 177

Hagen-Zanker and McCord (2011) identified six key development sectors as social protection, health, education,

water and sanitation, agriculture, and infrastructure. In order to calculate ―actual‖ expenditure levels, they used the

most recent data available, which was for 2006-2007.


31

The results show that most targets are not met (see Table 3) and even though individual sectoral

targets may be affordable, the targets are not jointly affordable, pointing to the need for sectoral

trade-offs.

Table 3: Sector Expenditure as a Share of Total Government Expenditure/GDP in Selected

African Countries in 2006-07

Note: Shading indicates that target has been met.

Source: Hagen-Zanker and McCord (2011, p. 13).

Therefore, assessing whether a social protection measure is affordable requires much more than

undertaking a costing exercise and exploring availability of fiscal space. While setting budget

priorities, there will naturally be competing policy options for allocation of public resources. For

this reason, it is critical to analyze not only the associated costs, but also potential and relative

benefits of a social protection scheme.

3.2. Benefits

Social protection can promote economic growth and sustainable development by augmenting

labour productivity, enhancing human development outcomes, reducing poverty and inequality,

and facilitating social cohesion (e.g. through improving food security, empowering women).

Also as demonstrated by various impact analyses, some social protection schemes have positive

externalities on local economy and/or non-beneficiaries. For instance, old age pensions can have

positive impact on children living in households that receive the pension.178

Social protection measures can help countries build resilience against economic crises and

external shocks by acting as automatic stabilizers.179

Social protection is increasingly seen as ―a

‗win-win‘ investment that pays off both in the short term, given its effects as macroeconomic

stabilizer, and in the long term, due to the impact on human development and productivity.‖180

178

ILO and UNDP (2011, p. 24). 179

ILO (2011, p. 2 and p. 52). 180

ILO (2011, p. xxii).


32

Some argue that the fiscal costs of investing in social protection ―are normally offset by positive

economic returns and the enhanced productivity of a well-educated, healthy, and well-nourished

workforce.‖181

Effective social protection measures contributing to economic growth can also support their own

sustainability and future financing by extending the resource base.182

An analysis of cash

transfers stresses that ―the greater the growth impact, the more affordable and politically

desirable is the social cash transfer programme—and this has a positive effect on

sustainability.‖183

Moreover, for countries that already have well-functioning social protection programmes in

place, it is relatively easier to take discretionary measures to protect the vulnerable populations

during times of crisis by extending or revising existing schemes. For instance, during the latest

global economic and financial crisis, government responses to increasing unemployment levels

have varied among different country groups. A survey of policy responses to the crisis in 77

countries shows that high-income countries mostly modified existing unemployment benefit

systems, while middle-income countries extended cash transfer or public work schemes.184

For

example, the United States provided federal funding for social assistance payments to the

unemployed who had exhausted their unemployment benefits.185

The Republic of Korea

introduced early reemployment allowances, vocational skills development allowances as well as

jobseeking and moving allowances.186

Among the MICs group, Colombia‘s conditional cash

transfer programme Familias en Accion was expanded to an additional 1.5 million families.187

On the other hand, low-income countries, most of which were already facing underemployment

before the crisis, had limited options available, such as food subsidies and public works.188

A range of successful national programmes have demonstrated the role of social protection in

reducing poverty and inequality. For instance, Brazil‘s conditional cash transfer programme

Bolsa Família is estimated to be responsible for one sixth of the reduction in poverty and

inequality (as measured by changes in the Gini co-efficient) during 2003-2009.189

Bolsa Família

is the largest conditional cash transfer programme in the world, reaching to a quarter of Brazil‘s

population.190

It is also notable for its relatively low overall cost (0.4 percent of the GDP in

2010) as well as low operational costs that correspond to 5 percent of the programme budget.191

Furthermore, it is estimated that the combined effect of grants in South Africa (including the old-

age pension, disability grant and child support grant) may decrease the number of people in

181

Ortiz and Yablonski (2011, p. 51). 182

Samson (2009, p. 47). 183

Samson (2009, p. 48). 184

ILO and World Bank (2012, p. 27). 185


ILO (2011, pp. 51-52). 187


ILO and World Bank (2012, p. 27, p.29). 189

UNDP (2012b). 190

ILO (2010a, p. 76). 191

UNDP and ILO (2011, p. 72).


33

poverty by 16 percentage points and reduce the Gini coefficient by 3 percent.192

South Africa‘s

Child Support Grant covers approximately 90 percent of eligible poor families with children (7.5

million children) and costs about 1 percent of GDP. 193

The Old Persons Grant covers almost 2.6

million people and costs about 1.4 percent of GDP.194

There are also various studies showing positive impacts of India‘s Mahatma Gandhi National

Rural Employment Guarantee Act (MGNREGA) including rise in agricultural productivity,

women‘s empowerment through an emphasis on equal wages, as well as positive impact on the

geographical-ecological environment by creating productive green jobs.195

The scheme provides

―at least one hundred days of guaranteed wage employment in a financial year to every

household whose adult members volunteer to do unskilled manual work.‖196

It reaches around

52.5 million households197

and it is one of the largest rights-based social protection initiatives in

the world.198

The MGNREGA contributed to increasing income levels and employment in the

rural areas199

; and thus, it is regarded as an important factor behind the recent boost in rural

consumption which grew faster than consumption in cities during the last two years (March

2010-March 2012).200

Through creating economic opportunities in rural areas, the programme

also decreased out-migration from villages.201

It is also considered as the largest financial

inclusion scheme of the rural poor as ninety million accounts were opened in banks and post

offices for wage disbursement. 202

The cost of the MGNREGA was around 0.5 percent of GDP

in 2010-2011.203

Despite the modest cost, there is some criticism and debate over the specifics

and future costs of the scheme especially in the context of India‘s rising fiscal deficit.

On the other hand, not every affordable social protection scheme can lead to significant

reductions in poverty and inequality levels in the short-run. For example, after conducting cost-

benefit analyses for various design options, a recent study proposed a cash transfer programme

targeting all households that have a child under five in the 15 poorest districts in Senegal, which

would cost 0.55 percent of GDP corresponding to 2.17 percent of government expenditure.204

The cost is modest compared to the UNICEF/ODI estimates presented above; however, the

estimated poverty and inequality impacts are not large. The simulations suggest that the

reduction in poverty among children under five would be 2.32 percent and the Gini coefficient

would decrease by 1.2 percent.205

This result was attributed to the big size of targeted households

and their distance from the poverty line. Accordingly, the study recommends implementing small

scale pilot programmes first in order to test their effectiveness at reaching the poor and achieving

192

ILO (2011, p. 39). 193

ILO (2011, p. 14). 194

ILO (2011, p. 14). 195

Government of India (2012a). ILO (2011, p. 60), UNDP and ILO (2011, p.16). 196

Government of India (2012b, p. 312). 197

ILO (2011, p. 15). 198

ILO (2010a, p. 77). 199

CRISIL (2012). 200

http://blogs.ft.com/beyond-brics/2012/08/30/rural-india-keeping-up-the-spending/#axzz254Nvc3bI 201

UNDP and ILO (2011, p. 16). 202

UNDP and ILO (2011, p. 279). 203

http://indiabudget.nic.in/vol2.asp?pageid=7 204

Schnitzer (2011, p. 54). 205

Schnitzer (2011, p. 52).


34

desired impacts.206

In general, many international organizations also recommend piloting and

gradual expansion of new social protection programmes.

3.2.1. Costs of Inaction

A report by the United Nations Secretary-General (UN 2000) stressed that:

―Any trade-off between public spending items and between various economic needs and

the need for social protection must incorporate recognition of the long–term negative

impact of social pathologies. Finance ministries need to be as rigorous in estimating the

economic and social benefits of social programmes as they are about calculating their

costs.‖ 207

Some authors argue that policy makers need to take proper account of the costs associated with

not providing effective social protection. The absence of effective social protection can lead to

an increase in poverty and vulnerability, increasing inequality, social disintegration, malnutrition,

stunting, low educational achievement, and loss of assets.208

For example, in the event of an

economic crisis or natural shock, ―the coping strategies the poor utilize, such as selling

productive assets or sending children to work, have high opportunity costs.‖209

The losses in

human capital and productive capacities can become a constraint on growth and development.210

Because of these significant costs associated with the absence of effective social protection, not

providing social protection in developing countries is not regarded as a viable option. Some

experts also argue that for developing countries ―affordability is less of an issue when the costs

of not having social protection are factored in‖ and the major concern is about long-term

sustainability rather than affordability.211

However, as demonstrated by various costing exercises

earlier, affordability remains a serious concern in many developing countries.

Evaluating affordability of a certain social protection programme also requires taking proper

account of existing and potential financing options. We will discuss fiscal sustainability aspects

and financing options and strategies in the next section.

4. Fiscal Sustainability of Social Protection

As discussed in previous sections, when a country decides to build or extend a formal social

protection system as part of its national development strategy, the country needs to decide

specifics on what to build and where to start. Even though nearly all countries in the world avail

of some form of social protection provision, these interventions are often not comprehensive or

206

Schnitzer (2011, p. 57). 207

UN (2000, p. 7). 208

ILO (2011); Ortiz and Yablonski (2011); Barrientos (2010); Barrientos and Hulme (2008). 209

ILO (2010b, p. 6). 210

Barrientos and Hulme (2008, p.16). Also see Ortiz and Yablonski (2011, pp. 46-47) for an overview of ―long-

term human costs of malnutrition and losses in education and health‖. 211

Barrientos (2010, p. 16).


35

universal, covering only a few contingencies and accessible for only parts of the vulnerable

population. There is a strong argument for extending and strengthening social protection

programmes in developing countries, and a high demand to generate concrete processes to bring

good theories to practice.

It is argued that some basic country-specific social protection programmes, when designed well

and implemented gradually, are not only affordable but can even pay for themselves in the long

run by enhancing labour productivity, the resilience and the stability of society.212

On the other

hand, an overly ambitious or generous social protection system could trigger fiscal difficulties or

even a sovereign debt crisis down the road.

In this section, we focus on reviewing fiscal sustainability issues of a social protection system

and different options for creating fiscal space to finance social protection programmes. Taking a

dynamic and comprehensive approach, we argue that a prudent medium- and long-term (even

intergenerational) fiscal framework is needed to help policymakers evaluate the long-lived

implications and crowding-out effects of actions taken today on governments‘ current and future

fiscal positions, underlying growth trends and welfare of future generations.

In theory, it is well recognized that a social protection programme has to be evaluated based on

both the direct and indirect costs and benefits of such a programme on people and on the

economy, not only now but also over time. In practice the costs, benefits and medium- and long-

term fiscal sustainability have largely been examined in a simplified fashion and deserve much

more attention from researchers and policymakers. In this section, we will review some latest

studies that start to examine these issues in a dynamic and comprehensive framework.

4.1. Fiscal Space and Fiscal Sustainability

4.1.1. Definitions

We define a fiscally sustainable social protection system as one that does not undermine a

government‘s overall fiscal position and underlying trends in the medium- and long-term.213

Fiscal space is broadly defined as the available budgetary room that a government can use to

spend on a desired purpose.214

Fiscal space and fiscal sustainability are two related concepts.

When fiscal space is exhausted, a government‘s fiscal position may be threatened and become

unsustainable.

212

ILO (2011). 213

Our definition is similar to the one used in Roy, Heuty and Letouzé (2009). Often used indicators of fiscal

sustainability include a targeted debt level, overall deficit, or primary deficit (i.e. the fiscal deficit excluding interest

payments) as a share of Gross Domestic Product. Factors determining fiscal sustainability include the projected

economic growth rate, fiscal revenue growth, expenditure growth, and the interest rate at which the Government can

borrow to finance its fiscal deficit. 214

This broad definition is taken from Heller (2005, p. 3) which defines fiscal space as ―the availability of budgetary

room that allows a government to provide resources for a desired purpose without any prejudice to the sustainability

of a government‘s financial position‖. There are other definitions of fiscal space. For example, Development

Committee (2006) defines fiscal space as the gap between the current level of expenditure and the maximum level of

expenditures that a government can undertake without impairing its solvency.


36

In principle, there are a variety of ways to create fiscal space and improve fiscal sustainability.

Additional fiscal space can be created by raising government revenues, cutting lower priority

government spending, or both. Additional revenues can be generated internally or externally.

Ceteris paribus, faster economic growth will contribute to higher tax revenues, so will raising

taxes and improving tax collection; and more grants from external sources will also help create

fiscal space. 215

A tax-based financing has the advantage of linking budgetary processes to social

protection policy and therefore ensuring the sustainability and legitimacy of social protection

funding. On the spending side, less desirable expenditures can be cut or postponed to make room

for higher priority expenditures such as social protection. In addition, fiscal space can also be

created through borrowing, either from domestic or external sources.

4.1. 2. Fiscal Space and Fiscal Sustainability: a Dynamic and Comprehensive Approach

Fiscal space and fiscal sustainability need to be assessed within the context of a dynamic

(forward-looking and intergenerational) and comprehensive (cross-sector) fiscal and budgetary

framework.

A dynamic approach is needed because many types of social protection expenditures— building

social housing, supporting pensions and health insurance, providing unemployment benefits,

offering vocational training — will require not only some budgetary room today but also the

availability of future budgetary resources as these social protection programmes have clear

implications for subsequent spending on operations and maintenance.216

Therefore exploitation of fiscal space for social protection requires a careful assessment whether

social protection expenditures incurred today and over time can be sufficiently financed from

current and future revenues. Some additional fiscal space or leeway is probably also needed to

ensure that a government can meet unanticipated fiscal challenges in the future.217

For LICs

receiving significant flows of external resources dedicated to social protection purposes,

domestic financing will be essential in the medium and longer run.

A comprehensive approach is needed because fiscal space created for social protection may

immediately or ultimately crowd out spending on other programmes. A government facing

budget constraints has to weigh the relative merits of spending across different sectors and set its

expenditure priorities. It also should be noted that even if fiscal space exists today for additional

social protection programmes without any cut on other expenditures, if such a fiscal space may

not be available in the future the fiscal sustainability concern will emerge and may force a

government to cut spending on other expenditure areas in the future.

A dynamic and comprehensive approach to fiscal space and fiscal sustainability of social

protection implies that a government‘s revenue and expenditure policies must be assessed in the

context of the government's broad strategic priorities and stated fiscal objectives over the short

215

Another way of creating fiscal space is through seigniorage. 216

Heller (2005). 217

Heller (2005).


37

and longer term. A dynamic and comprehensive approach also implies that we need a better

understanding of the long-term effects of social protection spending on economic growth and

human development.218

If social protection programmes are debt financed, then the impacts of

debt on the underlying economic growth rate, inflation and welfare are also need to be assessed.

4.2. Practice of Social Protection Fiscal Sustainability Analysis

In our view, analyzing fiscal sustainability of social protection programmes in developing

countries is about connecting the dots between costs, fiscal space and the potential benefits that

such social protection programmes are associated with.

With countries increasingly recognizing the importance of social protection, efforts have been

made to yield better understanding of fiscal sustainability of specific social protection measures

or full-fledged social protection systems. The recent collaborative work among various

international organizations (ILO, IMF, UNDP, UNICEF, World Bank, and others) in assessing

the fiscal cost and fiscal space available for the implementation of social protection floor policies

over the medium term has helped ―provide the factual bases for national dialogues on alternative

policy options, implementation priorities and the phasing-in of SPF policies‖.219

Despite being a

quite simplified model, the RAP has emerged as a useful analytical tool to tackle the technical

questions associated with social protection that developing countries face in their policy making

process.

In the following sub-section, we will review several country studies (Viet Nam, El Salvador,

Mozambique, and Thailand) applying the RAP to assess fiscal space, budget allocations and

fiscal sustainability of social protection programmes over the short and medium term. These

RAP studies are supported by a national consultation process through which the range, level and

priorities of social protection measures, financing options and fiscal space have been

discussed.220

A dynamic approach to fiscal sustainability of social protection requires a costing exercise that

not only estimates the start-up costs of social protection measures but also projects the

maintaining and operating costs over the medium and long term. The data constraints limit the

218

Roy, Heuty and Letouzé (2009). Besides long-term fiduciary sustainability, Roy, Heuty and Letouzé (2009) point

out that for developing countries which fiscal space relying on volatile and exogenous sources of external finance

such as bilateral aid, concessional and non-concessional foreign borrowing, long-term fiscal sustainability also

requires minimizing the reliance on external finance over longer term. 219

ILO and IMF (2012, p. 7). ―In what appears to be emerging as a standard procedure, the UN is leading the

costing exercise and developed the various benefit scenarios according to the national priorities and the recently

approved NBSS strategy, helped by macroeconomic and general government operations data provided by the IMF

for the model. The IMF led the analysis on the creation of fiscal space for government priorities in a medium-term

fiscal framework […]‖. 220

ILO and IMF (2012); IMF (2012a).


38

evaluation of long term costs (10 years or longer),221

and most studies on developing countries

focus on estimating the costs over the medium-term (5 - 10 years)222

.

The cases of Viet Nam (Box 5), Mozambique, El Salvador and Thailand all show that the

identified programmes to close the social protection coverage gaps in each of these countries are

affordable both for now and consistent with a sustainable medium-term fiscal framework and

macroeconomic stability.223

After a costing exercise is carried out over the medium term, fiscal space has to be identified to

finance the proposed social protection measures that help close the SPF gap. Examining the

current revenue and expenditure and the underlying trend is a necessary step to identify the

current and future fiscal space. The RAP estimates that Viet Nam (Box 5) will need an extra

fiscal space (net of additional interest payments) of about 2.2 percent of GDP by 2015 and a

maximum of 2.3 percent in 2016 to 2020. 224

As discussed earlier, fiscal space can be created by an increases of government revenues, a cut in

other government spending, or both. In practice, it is not easy to cut government spending

anywhere and it is in particular difficult in developing countries as first the room for cut is rather

small because of limited fiscal space, and second many spending items are regarded crucial for

supporting and accelerating economic growth. Therefore the focus of creating fiscal space for

proposed social protection measures has been on increasing government revenues.

In Viet Nam‘s case, the RAP proposes that a combination of an increase in personal income tax,

which is currently very low, by 1.3 percent of GDP (which will move the income tax revenue in

Viet Nam towards the average level of income tax revenues in upper-middle income countries),

and a 1 percent increase of the value-added tax rate could already generate the 2.3 percent of

GDP that close the SPF financing gap while keeping the overall government deficit at a

projected level of 3 percent of GDP.225

Alternatively, and administratively easier, that additional

financing requirement could be generated by raising the general VAT rate by about 2.5

percentage points, or 25 percent in relative terms. 226

221

An exception is the HelpAge International study to estimate the cost of a universal old-age pension in 50 low-

and middle-income countries. The study find that the costs of old-age pension would rise over time and reach 1.4

percent of GDP in Rwanda, 3 percent of GDP in Paraguay, and 5.2 percent of GDP in Thailand by 2040. 222

The Egypt study on child cash transfers discussed in the last section finds the proposed cash transfer program has

a modest overall cost of 0.88 percent of GDP but a big poverty reduction impact of lifting 19.3 percent of poor

people in Egypt out of poverty. While examining the sustainability of such a programme, the study took Egypt‘s

favourable population dynamics into account and projected the cost of the programme will fall as a percentage of

GDP over the period 2012-2020. 223

Successful capacity building and improvement in revenue collection will be required as well. 224

ILO and IMF (2012, p. 32). 225

ILO and IMF (2012, p. 33). However, further investments in tax collection would probably be needed. 226

ILO and IMF (2012, p. 33).


39

Box 5: Application of RAP in Viet Nam over 2010-2020

A joint study on Viet Nam conducted by the ILO and the IMF applies the RAP to estimate the

costs of closing the SPF gaps in the country. Social protection measures focusing on increasing

pension for the elderly, a package of benefits including both cash and educational services for the

young, and employment guarantees for the working age are proposed, and the associated costs

have been evaluated based on a set of assumptions (for example, assumption on population

growth are taken from the UN population projections, and assumption on labour force growth are

taken from the ILO generic labour force participation projections).

For the elderly, an enhanced social pension was suggested, by increasing the benefit level and

lowering the age threshold. Gradual implementation and two different scenarios were assumed:

the first scenario providing the social pension to people not covered by the formal pension, with

a maximum cost of 0.6 percent of GDP; and the second providing 50 percent of the benefit to

those receiving the formal pension as a step to building a universal non-contributory programme;

the latter would cost up to 0.8 percent of GDP.

For child benefit, a package for children under 16 years old, composed of an allowance,

additional education services and one meal per day, was suggested for gradual implementation

over five years. The ILO designed two scenarios for poor children: one benefit capped to two

children per household, which would cost 0.47 percent of GDP; and another without any ceiling,

with a maximum cost close to 0.87 percent of GDP by 2016.

For the working-age population, the ILO proposed the gradual implementation over four years of

an employment guarantee of 100 days, similar to the Mahatma Gandhi National Rural

Employment Guarantee Act of India, combined with social assistance for the disabled and

training services to facilitate return to employment and the creation of micro-enterprises. This

benefit is estimated to have a maximum cost of 1.14 percent of GDP.

Different combinations of elderly pension, child benefit and labour market support measures are

examined and the associated costs are calculated. The RAP finds that with gradual

implementation, the cost of a moderate combination of proposed social protection measures

would peak around 2016, once fully implemented for the working-age benefit and child benefit

and with the retirement age reduced for the uncovered to 72 years old. The total cost of the entire

package declines from a peak of around 2.33 in 2016 to 2.3 percent of GDP in 2020 (Box 5

Figure 1).

The RAP projects overall public revenue and expenditure in Viet Nam from 2010 to 2020 based

on a number of economic assumptions and the public revenue and expenditure projections from

the IMF. General government revenue starts out at a level of 28.2 percent of GDP in 2010 and is

assumed to be about 27.9 percent of GDP in 2020. During the same period general government

expenditure is projected to decrease from 34.6 to 30.8 percent of GDP. The projected income and

expenditure developments result in a crisis-triggered high deficit equal to 6.4 percent of GDP in

2010 which slowly decreases to 3.0 percent of GDP in 2020 (Box 5 Figure 2).


40

Box 5 Figure 1. Total Additional Costs of Combined SP Components

Box 5 Figure 2. Projected Fiscal Space Needed for Combined SP Components

The estimated costs for the proposed additional social protection measures are then added to the

status quo budget projection, and different combinations of financing options could be designed

to close the budget gap. In a modest variant of measures to close the SPF gap (benefits for all

poor children, pensions for all pensioners not covered elsewhere and limited social assistance for

unemployed in active age), the country would face additional benefit expenditure (net of

additional interest payments) of about 2.2 percent of GDP by 2015 and a maximum of 2.3

percent in 2016 to 2020.

Source: ILO and IMF (2012).


41

In another study on Mozambique, several international organizations collaborated and helped to

identify the priorities and available fiscal space of a set of revised social protection programmes

in the country over the medium term. A revamped and streamlined social protection system

rolled out by the Mozambican government in the fall of 2011 comprises cash transfers, the

provision of social services, and new programmes for labour-intensive public works, and the

government pledged to allocate adequate budget resources for social protection and embed it in

the national economic programme.

The Mozambique study suggests that the government‘s current target of reaching 815,000 poor

households would require an annual resource allocation of 0.4 to 0.8 percent of GDP over the

next 10 years (Figure 2), which is affordable and consistent with a sustainable medium-term

fiscal framework and macroeconomic stability.227

The study also finds that gains from fiscal

reforms, in particular from phasing out the fuel subsidy would more than offset the trend decline

in foreign aid and would create additional fiscal space of 2.5 percent of GDP cumulatively

during 2012-22 (medium-term). 228

Such a projected fiscal space could be even larger if more

fiscal revenues become available from the country‘s to-be-developed natural resource sector and

further donor support. Therefore the government could consider using the identified fiscal space

for social protection and other government priorities, such as infrastructure investment.229

Figure 2. Identifying Fiscal Space for Social Protection in Mozambique

Source: IMF (2012a, Box 2, p. 20).

The RAP is also applied to El Salvador to evaluate the fiscal feasibility and sustainability of

expanding basic cash transfers to children, women, and the unemployed, a social pension to the

elderly and the disabled, and basic health care protection programmes in the country. The study

compares the possible costs of three RAP-Scenarios,230

which are designed based on the gaps

227

IMF (2012a, p. 20). 228

IMF (2012a, p. 20). 229

The possibility of obtaining further donor resources for extending social protection programs, possibly through

the creation of a common fund, is currently being discussed (IMF 2012a). 230 The three RAP-Scenarios studied are Extreme Poverty Focus scenario, Poverty Focus scenario, and Universalism

scenario. The three RAP scenarios are composed of same benefits and only differ in terms of target population. The


42

indentified in the current social protection system in El Salvador, and of the current government

social protection strategy Plan Quinquenal, which is based on a 5-year Development Plan (2009-

2014) established by the current government foreseeing the implementation of a universal social

protection system.

The costs of several scenarios were estimated and two scenarios, the Plan Quinquenal and the

Extreme Poverty scenario targeting the poorest population came out as the most financially

viable scenarios (Figure 3). The identified funding options include collecting general taxes more

efficiently, reducing subsidies, raising income and value-added taxes, exercising new taxes and

lowering minimum pension costs.231

Figure 3. Cost estimates (Percent of GDP) and projected revenues (millions of USD) in El

Salvador, 2011-2020.

first scenario targets the extremely poor population, the second the poor population and the third scenario would

ensure universal coverage of unemployment benefits, pensions and health care by covering those not covered by

social insurance (ILO and IMF 2012, p. 13). 231

ILO and IMF (2012). The study also finds out that the high costs of the minimum pension guarantees in El

Salvador is mainly due to the high transition cost triggered by pension privatization and therefore recommends,

amongst others, the re-introduction of a public pillar that is actuarially balanced and well managed, which could

reduce the transition cost.


43

Source: ILO and IMF (2012, Figure 5 and Figure 7, pp. 14-15).

In an ongoing study on Thailand, the RAP is applied to estimate the cost of the proposed social

protection programmes over the 2012-2020 period.232

Two scenarios combing different benefits

for children, working age populations and the elderly are examined. The RAP estimated that the

two scenarios will cost up to 0.9 percent of GDP for the low-level benefit combination and 1.6

percent of GDP for the high-level benefit combination (Figure 4).

Figure 4. Projection of Costs for Low and High Benefit Combinations in Thailand

(percentage of GDP)

Source: ILO (2012c, p.14).

To connect the dots between costs, fiscal space and the potential benefits that social protection

programmes are associated with, an assessment of benefits is needed and will provide some

technical facts for the government to set priorities when planning its social protection strategy.

232

ILO (2012c).


44

A well designed social protection system can yield many benefits. One of the most important

goals that a government aims to achieve through social protection programmes is poverty

reduction. The poverty impact of social protection is often examined based on a simple static

micro-simulation exercise of the (direct) impact of social protection measures on

individual/household expenditure and poverty status.233

Despite its limitations, this simple

assessment provides some technical facts for the government to set priorities when planning its

social protection strategy within the context of sustaining and promoting economic growth and

human development.

For example, in the Viet Nam study,234

a micro-simulation based on data from the latest

available Viet Nam Household Living Standards Survey 2008 is conducted. The poverty impact

is shown by comparing the poverty rates before and after the implementation of the proposed

social protection programmes.235

The study finds that for the three social protection programmes studied in the RAP, the elderly

pension would reduce poverty among the elderly population from its current level of 14.5 to 12.2

percent in 2020. 236

The less expensive child benefit package capping the benefits to maximum of

two children per household would reduce child poverty from 20.8 to 12.2 percent, while the

more expensive package without any ceiling would cut child poverty drastically to 2.2 percent.237

Guarantee work and other working-age benefit would reduce the working-age population

poverty rate from 12.1 to 5.3 percent and the disabled poverty rate from 25.8 to 9.4 percent. 238

The simulation results therefore imply that the child benefit targeting all poor children would

yield the highest impact on poverty reduction, followed by the working-age benefit.

4.3. Financing Social Protection

It could be challenging for low income countries (LICs) to create fiscal space for social

protection expansion. In those countries where less than 20 percent of GDP is mobilized for

public spending (Annex Table 1), even if social expenditures are kept below 5 percent of GDP,

they still constitute a big portion of government budget and a big burden on the national

economy.

There are studies that demonstrate potential (not necessarily existing) affordability of certain

social protection schemes conditional upon effective domestic resource mobilization. For

example, the cost of introducing a social protection package

239 in Zambia was estimated between

233

A full dynamic assessment of the impact is very difficult as such an assessment will need to take behavioural

changes into account. 234

ILO and IMF (2012). 235

Three major assumptions are made to conduct a poverty impact analysis: the individuals/households consume the

benefit in full; an equal sharing of individual benefits among all household members; a perfect targeting of benefits.

These assumptions may overestimate (or underestimate) the impact for this type of benefit. 236

ILO and IMF (2012, p. 10). 237

ILO and IMF (2012, p. 10). 238

ILO and IMF (2012, p. 10). 239

The proposed package includes a universal old-age pension, a cash transfer targeting the most vulnerable

households, and a child benefit.


45

2.8 and 3.7 percent of GDP during the first year, which is projected to decrease to 1–1.5 percent

of GDP by 2025.240

The introduction of such a package is regarded as potentially affordable for

Zambia provided that the government commits itself to a clear resource mobilization strategy.241

So, how can countries mobilize additional financial resources for social protection? It is argued

that finding or creating fiscal space is feasible even in the poorest countries depending on policy

actions and reforms that governments would pursue for resource mobilization.242

Over the last

decade, domestic revenue to GDP ratios have increased in all country groupings but the progress

was more notable in resource-rich countries and middle-income countries. The percentage of

sub-Saharan African countries that raised less than 15 percent of GDP as public revenue

decreased from 30 percent in 2002 to 17 percent (corresponding to eight countries) in 2011.243

Despite this improvement, it is estimated that half of sub-Saharan African countries can further

increase the equivalent of 2 percent to 4 percent of GDP in domestic revenue.244

Fiscal space can be created through many different sources; however not all of them would be

applicable in all settings. Options to create fiscal space should be carefully assessed taking into

account political and socio-economic contexts and future growth perspectives.245

There may be

trade-offs and potential risks (e.g. volatility) associated with various financing options depending

on the country context.246

Whereas the simplest way of creating fiscal space is through economic growth, in the absence of

high growth, fiscal space can be created by ―improving revenue collection, reallocating

expenditure and increasing spending efficiency‖ provided there is political will.247

There are also

a range of innovative financing mechanisms that countries can use to raise additional funds for

social spending. Other options include lobbying for increased aid and transfers and borrowing

and restructuring existing debt248

; however these are only viewed as short-term solutions. Next

subsections discuss these financing options in more detail.

4.3.1. Increasing Tax Revenues

Tax-based financing is regarded as the most effective way in ensuring the sustainability and

legitimacy of social protection schemes as it links budgetary processes to societal policy

priorities.249

Expanding coverage over time and scaling up programmes gradually based on

revenue growth is also recommended.250

240

Aguzzoni (2011, p. 1). 241

Aguzzoni (2011, p. xiv). 242

Ortiz, Chai, and Cummins (2011, p. 1). 243

OECD (2012, p. 24). In comparison, the average (unweighted) tax revenue in OECD countries was 33.8 percent

of GDP in 2009 (OECD (2011, Table A)). 244

OECD (2012, p. 24). 245

Aguzzoni (2011, p. 8). 246

Ortiz, Chai, and Cummins (2011, p. vi). 247

ILO (2011, p. 67). 248

Ortiz, Chai, and Cummins (2011). 249

ILO (2011, p. 68). 250

Ortiz and Yablonski (2011, pp. 51-52).


46

General and broad-based taxation is advocated for financing social protection in order to ensure

its sustainability.251

Some middle-income countries such as Brazil, China, India and South Africa

have extended social assistance programmes mainly through general taxation.252

Domestic

revenue generation was facilitated by rapid economic growth particularly in China and India.253

South Africa and Brazil have recently managed to increase their tax revenues as percent of GDP.

In addition, Lesotho and Swaziland are examples for countries that finance their universal social

pension schemes through general tax revenues.254

It is also important to finance social protection through progressive taxes, which would ―ensure

that the poor do not pay disproportionably more tax as a proportion of their income than the

rich.‖255

There are studies that show that greater progressivity in taxation and higher social

spending reduce inequality.256

A rough measure for the progressivity of taxation is the ratio of direct to indirect taxes. A higher

ratio indicates a potentially more progressive tax system.257

As Figure 5 shows, the progressivity

of tax systems has been declining in LICs despite the increase in social benefits and subsidies (as

percent of potential GDP) since the 1990s.

Figure 5: Ratio of Direct to Indirect Taxes and Social Benefits and Subsidies in Different

Income Groups, 1980-2009

Source: IMF (2012b, p. 52).

251

Newson and Walker Bourne (2011, p. 5). 252

ILO (2011, p. 68). 253

ILO (2011, p. 68). 254



IMF (2012b, p. 54) 257

IMF (2012b, p. 54).


47

For the LICs, the IMF advises that ―efforts are needed to increase fiscal revenues over the

medium term, for example, by establishing effective customs and tax administrations,

eliminating exemptions, implementing a broad-based VAT with a fairly high threshold, and

establishing a broad-based corporate income tax at internationally competitive rates.‖258

Developed countries mostly finance their social protection programmes with payroll taxes;

however, this option is not available to many MICs let alone to LICs because of the high degree

of informality in employment. 259

One major challenge for developing countries is finding the

way to broaden the tax base by also including the people in the informal sector.260

While raising tax revenue is especially challenging in countries with large informal sectors,

Indonesia is seen as a notable example where there have been improvements in tax collection

despite the large informal sector.261

Indonesia achieved this through simplifying its tax system

and making its administration more transparent; encouraging voluntary compliance; and

adopting a policy of zero-tolerance towards corruption.262

Accordingly, non-oil tax collection

increased from 9.9 percent to 11 percent of GDP within first four years of implementation and

most of the additional resources were allocated to health spending.263

Indonesia showcases the importance of strengthening tax administrations and mitigating tax

evasion and fraud, which in turn can create additional revenue for social spending. Tax evasion

is a major concern for developing countries as it has been estimated to result in total revenue

losses of USD 285 billion annually.264

While undertaking tax reforms, developing countries can

also benefit from best practices in other countries as well as technical assistance from

development partners.265

In some countries, it may be easier to receive political support for higher taxes on the condition

that the revenue would be spent on social sectors. One such example is Ghana, which increased

consumption taxes by 2.5 percent and earmarked the tax revenue for health spending in 2003.

Currently the revenue for this earmarked tax provides 61 percent of its National Health Insurance

Scheme‘s budget.266

Moreover, there is evidence that Ghana‘s consumption tax is progressive

despite earlier concerns.267

In certain contexts, modest tax increases may create sufficient resources for a given social

protection scheme. For example, it is estimated that a 0.5 percentage point increase in value

added tax in Sri Lanka would raise adequate resources to pay for a universal pension that would

258

IMF (2012b, p. 23). 259

Barrientos (2007, p. 5); Newson and Walker Bourne (2011, p. 7). 260

OECD (2012, p. 26) notes that ―this may require reviewing the taxation of land and buildings; exploring new

ways to tax households; re-examining the tax treatment of small and medium-sized enterprises; working to minimise

the wasteful impact of tax incentives for investment; or introducing simple environmental taxes. It may also require

moving towards a heavier reliance on fees and charges.‖ 261

WHO (2010, p. 26). 262

WHO (2010, p. 26). 263

WHO (2010, p. 26). 264

Ortiz, Cummins, and Chai (2011, p. 8). 265


Lagomarsino et al. (2012, p. 936). 267

Lagomarsino et al. (2012, p. 936).


48

cover everyone over 70 and over. 268

On the other hand, it is recommended to have tax revenues

as diverse as possible, which would decrease ―the over-reliance on any one tax source.‖269

For

example, in 2000 Costa Rica financed its pension through a combination of sales tax (48.3

percent), payroll taxes (46.2 percent), alcohol and cigarette taxes (5.4 percent) and accrued

interest on judicial deposits and bank accounts (1.7 percent). 270

4.3.2. Reprioritization and Increasing Efficiency of Public Expenditures

Some countries also might have the option of shifting budgetary allocations by reducing

expenditure in low-priority areas, despite possible political obstacles. One potential and perhaps

politically less challenging option is shifting resources from military budget. For instance, Costa

Rica and Thailand decreased or eliminated, respectively, military expenditure and shifted

resources to social protection.271

South Africa also decreased defense spending by almost half in

order to finance social protection programmes fully from domestic revenue. 272

Various countries have raised additional resources for social protection by eliminating inefficient

and regressive subsidies. For instance, El Salvador removed untargeted energy subsidies and

used the resulting savings to increase social spending to safeguard the poor against the impact of

higher fuel and food prices.273

In Indonesia savings from a reduction in petroleum subsidies

contributed to financing a cash transfer programme in 2005.274

Currently, India is recommended

to reform its subsidy system to make it more sustainable especially in the context of high fiscal

deficit (projected to be nearly 9 percent of GDP in 2012), underperforming tax revenues, and

increased demands for social spending due to the weakest monsoon since 2009.275

Furthermore, eliminating inefficiencies in public expenditure and fighting with corruption would

also be critical. In addition to assessing the overall cost-effectiveness of a specific programme,

there is need to strengthen supervision and inspection and reduce corruption.276

For example, in

Zambia and the United Republic of Tanzania there have been leakages of about 60 percent of the

budget allocated to education spending.277

It is estimated that total losses due to corruption in

sub-Saharan Africa were USD 148 billion in 2002, corresponding to nearly half of total tax

revenues.278

Similarly, it would be vital to fight against illicit financial flows in developing

countries.

4.3.3. International Assistance

268




ILO (2011, p. 70). 272

ILO (2011, p. 69). 273

ILO (2011, p. 46). 274

ILO and UNDP (2011b, p. 27). 275

IMF (2012b, p. 5). 276

Ortiz, Cummins, and Chai (2011, pp. 6-7). 277

Aguzzoni (2011, p. 16). 278

ILO (2011, p. 70).


49

Official Development Assistance (ODA) and technical support from donors would be important

in particular at the initial phases of designing and piloting a social protection intervention and

financing one-off expenses. Earlier in the paper, we have presented examples of countries, which

are not in a position to feasibly finance certain social protection programmes out of domestic

resources in the short run; and hence need complementary international aid.

On the other hand, since sustainable and predictable funding is important for social protection,

domestic financing is critical especially in the medium and long term. For instance, with regard

to building social protection floors, the ILO stresses that ―international solidarity in the form of

aid can help to kick-start and consolidate the process in low-income countries, but over the long

run implementation has to be financially sustainable at the national level.‖279

Moreover, building

sufficient government capacity and ownership is also important for the sustainability of social

protection programmes. 280

At the same time, it is recognized that some successful programmes such as Progresa (Mexico)

and Bolsa Família (Brazil) CCTs were designed domestically. After these programmes rendered

positive results, donors showed interest in promoting CCTs as ‗best practices‘ and provided

funding to other developing countries to implement similar programmes.281

In this context, it is

noteworthy to emphasize the complementary role of emerging donors in knowledge sharing and

capacity building. In addition to highlighting the need for predictable multi-year aid to LICs, the

Social Protection Floor Advisory Group (ILO 2011) made the following recommendation:

―We suggest that traditional donors, such as the OECD member countries, and emerging

donors, such as the BRICs (Brazil, Russian Federation, India and China), agree on

triangular cooperation mechanisms to enable the building of social protection systems in

partner low-income countries. These mechanisms could create a division of labour in

which traditional donors could provide predictable multi-year funding through direct

budgetary support to expand affordability of social programmes, while emerging donors

could continue focusing on knowledge sharing and capacity building based on their own

development experiences. International forums on development cooperation, such as the

high-level forums on aid effectiveness could serve as a platform for the agreement of such

mechanisms.‖282

It would be important for traditional donors to honor their ODA commitments despite recent

budgetary constraints that led to a decrease in ODA levels by around 3 percent in 2011 (in

constant prices and exchange rates).283

Many countries have also benefited from debt relief through the Heavily Indebted Poor

Countries (HIPC) Initiative and have directed resources to social protection. For instance,

279

ILO (2011, p. 67). 280


Britto (2006, p. 17). 282

ILO (2011, p. 97). 283

UN (2012, p. 8).


50

Nigeria uses ―general revenues freed through debt relief to fund pilot coverage programmes for

pregnant women and children.‖ 284

4.3.4. Innovative Sources of Financing

Innovative financing mechanisms for creating additional funds for social protection could

include a financial transaction tax, currency transaction tax, carbon taxes, debt swap

mechanisms, solidarity levies on airline tickets, and measures to facilitate remittances, among

others.285

Some of these options are currently being explored such as global currency transaction

tax (see Box 6).

It is stressed that not all innovative financing options will be applicable in all country settings

and potential revenues that can be raised will also differ among countries. For instance, the

currency transactions tax may not apply to most LICs and MICs as 10 high-income countries

account for 85 percent of the traditional foreign exchange trade.286

On the other hand, India is a

notable exception with a significant foreign exchange market. It is estimated that India can raise

about USD 370 million annually if it implements a currency transaction levy of 0.005 percent on

its foreign exchange trade.287

In addition, increasing excise taxes is regarded as an innovative way to raise domestic resources.

Excise taxes are collected through goods that create negative externalities such as beer, cigarettes

and petroleum.288

Increases in these taxes may be politically more acceptable if the revenue is

earmarked for social spending.289

Some excise taxes have the potential to raise significant

amount of resources. For example, it is estimated that a 50 percent increase290

in taxes on

tobacco in 22 of the 49 LICs (where data is available) would generate USD 1.42 billion

additional revenues.291

Since 2009, 10 out of 15 emerging market economies studied by the IMF, have increased excise

taxes and seven of these countries have also improved tax compliance,292

which ―typically

improves the degree of progressivity in taxation‖.293

Moreover, Costa Rica‘s social pension

scheme received 5.4 percent of revenue from taxes on tobacco and alcohol in 2000. 294

Another

example is the Thai Health Promotion Fund, which was established in 2001 and financed with a

2 percent additional surcharge on tobacco and alcohol.295

284

Lagomarsino et al. (2012, p. 936). 285

ILO (2011, p. xxxii). 286

WHO (2010, p, 28). 287

WHO (2010, p, 28). 288



Currently excise taxes in these countries range from 11 percent to 52 percent of the retail price of the most

popular brand of cigarettes. (WHO 2010, p. 30). 291

WHO (2010, p. 30). 292

IMF (2012b, Table 4, p. 18). 293

IMF (2012b, p. 21). 294


WHO (2010, p. 30).


51

Resource-rich countries can also raise revenue by introducing taxes from (non-renewable)

natural resources.296

For example, Peru has expanded taxes levied on the mining sector in order

to further invest in health and education programmes.297

Due to commodity price volatility,

many countries, including Chile, Iran, Papua New Guinea, and Russia, created stabilization

funds and some of these countries accessed these funds to increase social protection during the

latest global economic crisis.298

Another innovative financing method has been used in Gabon, which has introduced a levy on

mobile phone use to raise resources for health spending.299

Similarly, in Nigeria an earmarked

national tax on mobile phone bills has been proposed to raise funds for the National Health

Insurance Scheme. 300

Box 6: Innovative Sources of Financing Applied to Social Protection

Financial transaction tax: Many countries – including Brazil, the Republic of Korea, India and

the United Kingdom – have implemented some sort of financial transaction tax, most commonly

an ad valorem tax on share trades of 10–50 basis points. On average, these taxes raise less than

0.5 percent of GDP. In Brazil, the provisional contribution on financial transactions helped to

consolidate the universalization of the health system. The Bill Gates report to the G20 Cannes

Summit estimates that a small tax of 10 basis points on equities and 2 basis points on bonds

would yield about USD 48 billion a year in the G20. If introduced, part of these resources could

be allocated towards the development of social protection in low-income countries.

Global currency transaction tax: The Leading Group on Innovative Financing for

Development estimated that a tax of 0.005 percent on foreign exchange transactions in all major

currency markets at the point of settlement would raise about USD 25 billion to USD 36 billion

for the four major currencies (dollar, euro, yen and sterling). The group suggests the resources be

used to set up a Global Solidarity Fund, which could be dedicated to international development

cooperation, including the implementation of social floors.

Solidarity levy on airline tickets: In 2006, Brazil, Chile, France, Norway and the United

Kingdom, in collaboration with the UN, agreed to tax airline tickets and invest the funds raised

in basic health protection, in particular by facilitating the purchase of drugs and medicines to

fight AIDS, tuberculosis and malaria in low-income countries. Benin, Burkina Faso, Cameroon,

Republic of the Congo, Côte d‘Ivoire, Guinea, Republic of Korea, Madagascar, Mali, Mauritius

and Niger later joined the scheme. The cost to passengers ranges from USD 1 (economy class

tickets) to USD 40 (business class). Since its creation, the airline levy has helped UNITAID to

collect about USD 2 billion to fund programmes benefiting people in 94 countries.

Remittances: Decisive action to reduce transaction costs, which are estimated to average 9

percent, can increase the net income transferred. A recent study in rural areas of Mozambique

296



Ortiz, Cummins, and Chai (2011, pp. 14-15). 299

WHO (2010, p. xi). 300

Lagomarsino et al. (2012, p. 936).


52

shows that migration associated with remittances is positively related to stimulating solidarity in

communities. Risk pooling and financial inclusion mechanisms among remittance recipients

could also be stimulated to enhance the impact of remittance flows on community well-being and

convert informal arrangements into formal social floor schemes.

Debt-base instruments: Since 2007, under the Debt2health swap scheme, Australia and

Germany have converted about USD 160 million in bilateral debt owed by Côte d‘Ivoire, Egypt,

Ethiopia, Indonesia and Pakistan into investments in basic health in these countries. Under this

scheme, the creditor cancels bilateral debt and the debtor commits to invest in basic health. Debt

swap and debt cancelation facilities could be enhanced to increase investment in social

protection.

Source: Excerpted from ILO (2011, p. 74) and partly shortened.

4.3.5. Bottlenecks

In certain cases a specific social protection measure may seem affordable on financial grounds

but there may be other bottlenecks or limitations in a given country. These may include delivery

capacity limitations as well as lack of political will, good governance and accountability

mechanisms.301

Evidence shows that social spending levels differ considerably even among countries with the

same size government budgets.302

Therefore resources allocated to social protection cannot be

explained solely on financial grounds. Besides fiscal space, new social protection programmes

require ―political space‖ as well.303

Delivery capacity limitations pose a significant challenge in many developing countries,

particularly in LICs. These limitations can be observed with regard to ―the capacity to study,

measure, and analyze poverty and vulnerability, the capacity to design and implement

appropriate policies, and the capacity to deliver and evaluate social protection programmes.‖ 304

In order to address capacity issues, developing countries can seek technical assistance from

donors and international organizations in designing pilot programmes and later scaling up

successful ones. The role of North-South, South-South, and triangular knowledge sharing is also

critical in building these capacities.

For instance, Timor-Leste has a Sovereign Wealth Fund which provides a viable option to

finance social protection; however for a long time it could not channel these resources to

effective poverty reduction and social protection programmes due to delivery capacity

limitations.305

In 2007, Timor-Leste designed a conditional cash transfer programme, Bolsa da

Mae, with the aim of improving health and education outcomes.306

Due to several challenges

301

Cook and Kabeer (2010, p. 24). 302

Ortiz and Yablonski (2011, pp. 51-52). 303

UNICEF and ODI (2009, p. 9). 304

Barrientos and Hulme (2008, p. 17). 305

Ortiz, Chai and Cummins (2011, p. 27). 306

ILO and UNDP (2011a, p. 35).


53

related to capacity and design issues, the programme has been modified benefiting from the

lessons learned from the South, in particular from Brazil.307

UNDP is also currently providing

technical assistance to the government on monitoring and evaluation, identification of

beneficiaries, and the development of e-tools.308

The Bolsa da Mae programme is seen as an

example of how technical assistance and South-South knowledge transfers can improve cost-

efficiency of social protection programmes by reducing costly trial and error processes while

building national capacity.309

Developing countries can also receive support from international NGOs or consultancy

companies in order to tackle capacity limitations particularly in service delivery; however, this

can only constitute a short-term solution.310

In order to achieve desired impacts of social protection programmes, there may be need to

complement these programmes with other government policies and actions. For instance, CCTs

cannot generate desired impacts if relevant services are difficult to reach by the targeted

population, or have poor quality, or simply do not exist. Hence, complementary government

actions are critical in order to ensure availability and quality of essential services.311

Moreover,

effectiveness of social protection programmes particularly in reducing poverty and inequality

also depends on synergies with economic policies, such as employment and entrepreneurship

support policies.

5. Conclusion

The cases of developing countries reviewed in this paper provide evidence that well-designed,

prudent social protection systems can help strengthen countries‘ resilience to shocks; safeguard

economic, political and social stability; achieve sustainable growth and human development; and

facilitate countries‘ transition from one economic development stage to another. The recent

global economic and financial crisis confirmed the importance of social protection in cushioning

economies against shocks and in achieving more sustainable, balanced and inclusive growth.

Many questions remain to be answered on how to build a social protection system that protects

the most vulnerable, contributes to sustainable growth and development and enhances resilience

to shocks. In this overview paper, we have focused on sequencing, cost efficiency and fiscal

sustainability of social protection.

The types of social protection arrangements evolve over time and differ across countries and

regions. Informal and semi-formal social protection is present and even dominant in some

developing countries. In the paper, we scan literature and case studies for evidence on how

countries switch to more formal social protection systems. We find that while informal and semi-

formal arrangements are vital for a large share of the population, especially the most vulnerable,

307

ILO and UNDP (2011a, p. 35). 308

UNDP (2012c, p. 62). 309

ILO and UNDP (2011a, pp. 34-35); UNDP (2012c). 310

Barrientos and Hulme (2008, p. 17). 311

ILO and UNDP (2011a, p. 18).


54

they can be limited in providing adequate protection for all. Changes in their political and

economic contexts have been pushing many developing countries towards more integrated,

inclusive, modern and established social protection systems.

The affordability of social protection schemes is a major concern for many developing countries,

in particular the LICs. Contrary to the previous view that social protection was not affordable in

developing countries, social protection has been increasingly recognized as an investment that

boosts economic growth by augmenting human capital and labor productivity. It also has a

critical developmental role as it contributes to reduction of poverty, inequality, and future social

costs and counters various types of risk and vulnerability.

In the paper we have explored cost-efficiency of formal social protection programmes by

considering various direct and indirect costs associated with social protection and both the direct

and indirect benefits and impacts on people and on the economy. In practice, a vulnerability

assessment is often conducted as a first step to determine the priority areas for action.

Subsequently a quantitative cost-benefit analysis for a social protection programme,

complemented by qualitative evaluations, would be conducted to examine not only short-term

affordability but also medium- and long-term fiscal sustainability.

The cases of Viet Nam, Mozambique, El Salvador and Thailand reviewed in this paper show that

the identified social protection programmes to close the social protection coverage gaps are

affordable. These country cases also demonstrate that well-designed and gradually-implemented

programmes would be consistent with a sustainable medium-term fiscal framework and

macroeconomic stability.

Creating fiscal space for social protection is feasible in developing countries as domestic

revenues have recently increased, in particular for resource-rich countries and middle-income

countries. Domestic resource mobilization is crucial for creating fiscal space for a sustainable

social protection system. Tax-based financing is probably the most effective way in ensuring the

sustainability and legitimacy of social protection schemes as it links budgetary processes to

societal policy priorities. Fiscal space can be also created by reducing expenditure in low-priority

areas. International aid can play an important role especially in the LICs during the initial stages

of introducing and scaling up social protection programmes. On the other hand, aid flows are

often volatile and currently face increasing uncertainty because of downward pressure on donor

country aid budgets after the latest global economic crisis; hence, they should be considered only

as a short-term financing option. Looking forward, innovative financing mechanisms deserve

more attention.


55

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Annex

Annex Box 1: Definitions of Social Protection

ADB (ADB 2009): ‗[…] policies and programs designed to reduce poverty and vulnerability by

promoting efficient labor markets, diminishing people‘s exposure to risks, enhancing their

capacity to protect themselves against hazards and interruption/loss of income.‘ ADB names five

main areas in social protection: labour markets, social insurance, social assistance, micro- and

area-based schemes and child protection.

DFID (DFID 2005): ‗[…] a sub-set of public actions—carried out by the state or privately—that

address risk, vulnerability and chronic poverty.‘ For operational reasons, DFID (2005) sub-

divides social protection into three key components: social insurance, social assistance and

setting and enforcing minimum standards.

ILO (García and Gruat 2003): ‗[…] the set of public measures that a society provides for its

members to protect them against economic and social distress that would be caused by the

absence or a substantial reduction of income from work as a result of various contingencies

(sickness, maternity, employment injury, unemployment, invalidity, old age, and death of the

breadwinner); the provision of health care; and, the provision of benefits for families with

children. This concept of social protection is also reflected in the various ILO standards.‘

IMF (IMF 2001): ‗[…] government outlays on social protection include expenditures on services

and transfers provided to individual person and households and expenditures on services

provided on a collective basis. […] Collective social protection services are concerned with

matters such as formulation and administration of government policy; formulation and

enforcement of legislation and standards for providing social protection; and applied research

and experimental development into social protection affairs and services.‘ Health care is not

included in the IMF definition of social protection expenses as it is classified as a separate

expense.

OECD (OECD 2009): ‗[…] social protection and empowerment provide security and unlock

human potential and thereby encourage poor people to take advantage of opportunities, which in

turn promotes more sustainable pro-poor growth strategies. Social protection cuts across all

sectors, and is considered important for breaking the intergenerational cycle of poverty, and for

achieving a social contract on nation-building and accelerating progress towards the MDGs.‘

OECD also states that social protection measures are ‗[…] investments in people of all ages

[that] […] have a clear gender dimension.‘

UN (2000): ‗[…] a set of public and private policies and programmes undertaken by societies in

response to various contingencies to offset the absence or substantial reduction of income from

work; to provide assistance for families with children as well as provide people with health care

and housing. This definition is not exhaustive; it basically serves as a starting point of the

analysis […] as well as a means to facilitate this analysis.‘ Source: Zhang, Thelen and Rao (2012, p.).


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Annex Table 1:

Total Public and State Social Expenditure in an International Context, 2009 (with updated

GDP data for 2011)

Country GDP per

capita, PPP

current

international

UDS, 2011

GDP per

capita,

current

US$, 2011

General

government

expenditure,

percent of

GDP (latest

available

year)

Total

public

social

security

expenditure

including

health,

percent of

government

expenditure

Social

expenditure

excluding

health care,

percent of

GDP

Public

social

security

benefit

expenditure

excluding

health care,

percent of

total

government

expenditure

Zimbabwe n.a. 776 49.64 7.9 0.3 0.6

Liberia 577 281 21.82 65.2 9.9 45.2

Burundi 608 271 32.09 5.7 1.1 2.8

Niger 732 374 19.89 12.2 0.5 1.5

Sierra Leone 877 374 21.99 12.3 1.0 4.5

Madagascar 972 467 21.84 10.4 0.3 7.1

Mozambique 982 535 38.00 10.4 0.7 n.a.

Togo 1042 584 22.16 10.6 1.3 5.9

Ethiopia 1116 374 27.92 34.3 6.5 4.8

Guinea 1128 502 14.92 5.1 0.1 1.3

Rwanda 1251 583 24.27 20.2 0.8 2.1

Nepal 1256 619 18.90 15.5 1.3 4.2

Burkina Faso 1310 600 23.05 21.3 1.6 6.9

Uganda 1354 487 19.37 12.1 0.4 2.1

Tanzania 1521 529 24.48 18.2 1.2 4.9

Zambia 1623 1425 22.53 17.9 1.6 7.1

Benin 1628 802 21.56 18.6 1.0 2.3

Bangladesh 1788 735 15.42 13.0 1.1 2.9

Côte d‘Ivoire 1803 1195 21.32 8.3 0.9 4.2

Ghana 1884 1570 33.28 12.7 1.9 5.7

Senegal 1981 1119 25.39 14.2 1.9 7.5

Gambia 2135 625 28.81 14.4 1.2 4.2

Yemen 2349 1361 38.11 17.4 4.7 12.3

Cameroon 2383 1271 16.99 11.5 0.5 2.9

Kyrgyzstan 2424 1075 31.85 26.6 6.1 19.2

Mauritania 2571 1151 28.48 8.2 0.8 1.8

Papua New

Guinea 2695 1845 36.25 10.5 0.2 0.6

Pakistan 2763 1194 25.23 7.6 1.5 5.5


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Laos PDR 2809 1320 18.26 7.3 0.6 3.3

Solomon Islands 2943 1517 34.69 13.4 0.7 2.0

Uzbekistan 3310 1546 29.49 36.2 8.3 28.1

Moldova, Rep. of 3392 1967 37.28 46.9 12.6 31.2

Viet Nam 3435 1411 34.60 10.2 2.2 8.5

India 3652 1489 28.25 14.3 3.1 13.8

Philippines 4140 2370 20.42 15.7 1.9 9.3

Congo 4429 3563 21.42 8.4 0.9 2.8

Indonesia 4668 3495 20.92 11.1 1.4 5.3

Fiji 4787 4391 31.16 16.7 2.3 9.3

Bolivia 5130 2421 35.73 21.3 4.4 13.9

Georgia 5503 3203 32.25 19.8 4.9 16.8

Sri Lanka 5620 2835 24.90 24.5 4.2 16.9

Bhutan 5810 2288 18.00 16.9 0.2 n.a.

Armenia 5829 3305 19.96 29.6 4.2 12.5

Jordan 6007 4666 43.77 28.7 8.4 19.0

Belize 6722 4133 28.93 13.0 1.0 3.8

El Salvador 6877 3702 26.34 24.9 3.9 8.8

Ukraine 7251 3615 43.75 51.9 18.8 37.9

China 8466 5445 19.09 31.3 4.1 22.3

Thailand 8703 4972 19.95 23.8 2.6 8.1

Saint Lucia 9385 7001 32.62 15.9 1.9 5.8

Tunisia 9415 4297 35.63 27.6 7.5 20.9

Azerbaijan 10136 6916 29.18 29.0 7.6 26.0

St Vincent &

Grenadines 10812 6291 40.52 16.8 3.4 8.4

South Africa 11035 8070 36.40 33.9 8.4 13.6

Brazil 11719 12594 49.90 25.4 9.6 19.2

Costa Rica 12236 8676 24.78 38.4 4.2 16.9

Dominica 12678 7126 47.12 18.2 4.1 6.5

Venezuela 12836 10810 27.15 14.7 2.1 7.6

Kazakhstan 13189 11245 22.98 27.2 3.9 19.8

Mauritius 14523 8797 23.56 33.9 5.9 22.6

Bulgaria 14603 7158 34.67 48.6 12.0 32.0

Belarus 15040 5820 47.00 38.4 13.5 29.2

St Kitts & Nevis 15154 13364 37.55 16.2 2.6 6.9

Romania 15163 8405 32.64 45.5 11.0 27.3

Mexico 15270 10064 24.41 30.3 4.5 16.8

Malaysia 15589 9656 27.77 23.2 4.2 15.1

Panama 15695 8590 43.67 23.6 5.1 11.7

Chile 17311 14394 19.81 42.2 5.4 30.9

Turkey 17499 10498 24.27 56.4 8.3 34.2


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Argentina 17674 10941 32.36 39.7 8.5 26.2

Latvia 17692 12726 37.18 33.3 8.6 24.2

Croatia 20031 14488 43.22 50.3 15.7 37.8

Lithuania 20374 13339 32.63 50.9 11.1 28.2

Russian

Federation 21248 13089 31.01 39.6 8.3 28.2

Poland 21310 13463 43.78 48.0 16.7 40.7

Hungary 21610 14044 51.74 43.5 16.5 31.1

Estonia 21942 16556 32.83 37.2 9.0 27.4

Slovakia 24022 17646 37.49 44.3 11.3 29.1

Portugal 25385 22330 46.32 49.9 15.9 37.3

Trinidad &

Tobago 25951 16699 32.93 16.2 3.1 11.4

Czech Republic 26046 20407 43.95 44.4 13.2 29.4

Seychelles 26420 11711 57.34 29.1 12.6 14.2

Greece 26948 26427 36.59 56.0 14.9 47.6

Slovenia 27412 24142 45.42 50.1 16.6 35.4

Korea, Rep 30254 22424 30.10 22.9 3.7 12.3

Spain 32424 32244 38.38 55.2 15.4 39.3

Italy 32928 36116 48.87 51.2 18.2 39.5

Japan 34294 45903 36.69 50.7 12.3 33.5

France 34993 42377 52.97 55.1 21.4 40.0

United Kingdom 35494 38818 44.49 47.9 14.3 40.9

Iceland 36085 44072 42.70 39.6 10.6 35.4

Finland 38083 49391 49.31 52.9 19.9 40.4

Belgium 38605 46469 48.59 54.3 19.1 44.0

Germany 39211 43689 45.26 59.0 19.0 46.0

Canada 40440 50345 39.33 42.0 9.7 30.8

Denmark 40983 59684 51.15 53.0 21.2 45.4

Sweden 41300 56927 53.93 54.5 22.6 44.3

Ireland 41543 48423 33.95 49.2 10.2 31.5

Austria 42225 49707 49.18 55.3 20.4 43.7

Netherlands 42834 50087 46.39 45.1 14.9 44.2

United States 48442 48442 36.69 43.3 8.9 24.3

Switzerland 49151 80391 34.76 58.4 14.2 58.4

Singapore 61103 46241 21.16 7.3 0.6 2.6

Norway 61882 98102 40.63 53.2 15.8 42.3

Luxembourg 89992 115038 38.83 59.7 16.2 40.4

Source: Bonnet et al. (2012, Annex 3, pp.50-51), World Bank (2012).

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