Financing social protection 17 July 2009 Michael Samson UNICEF/ IDS Course on Social Protection

How to evaluate affordability?  Existing developing country models  Financial analysis in country social protection strategy processes (Kenya, Malawi, Ghana)  ILO projections  The issue of political will  The impact of economic growth

Affordability of Social Protection  Financing is one the major challenges  However, recent evidence shows that social assistance – social cash transfers in particular - can be provided at a relatively low cost  Social cash transfers can be affordable if they are made a priority area of national policy Estimated Cost of Social Cash Transfers in Africa Household Grant (poorest 10%) Child Benefit (children 0-14) Social Pension (age 65+) % of GDP Source: ILO (2005)

Affordability of Social Protection  The actual spending on national cash transfer programmes within regions varies across countries  The amount spent is affected by political will, resource availability and policy prioritisation of these programmes Cost of Social Pensions in African Countries BotswanaLesothoMauritiusNamibia South Africa % of GDP Source: Social Security Programmes Throughout the World (2005)

Social protection redistributes significant shares of national incomes in OECD countries Social protection expenditure as % of GDP Source: OECD, cited in Hagemejer (2007)

…and effectively prevents and reduces poverty pre-transfer poverty risk reduced by transfers Source: OECD, EUROSTAT, cited in Hagemejer (2007)

…but requiring a large portion of available public resources Social protection expenditure as % of general government expenditure Source: EUROSTAT, cited in Hagemejer (2007)

Social protection reduces poverty in rich countries SOURCE: UNDESA, OECD AND ILO

Cost of universal basic old age and disability pension (benefit = $0.50 per day) Source: ILO, cited in Hagemejer (2007)

Total cost of basic social protection package Source: ILO, cited in Hagemejer (2007)

Share of total costs covered by domestic financing (at 20% of government budget) Source: ILO, cited in Hagemejer (2007)

Effective social pensions are affordable now in many African countries Source: ILO, cited in Hagemejer (2007)

In all demographically young countries child benefits are currently more costly than benefits for older people Source: ILO, cited in Hagemejer (2007)

Costing social protection interventions  Cost = (Coverage x Benefit size) + Administration –Coverage and benefit size are policy choices –Administration depends on design & implementation Well-implemented categorical transfers (5% of budget) Badly implemented public works (60 – 95% of budget)  Cost (% of GDP) = Coverage (% of population) x Benefit size as a % of per capita income x Administrative cost factor –Example: If social protection covers 10% of the population with a benefit equal to 15% of per capita income and 7% administrative costs, it costs 1.6% of national income

Are social transfers affordable?  Costing analysis suggests yes  They are scale-able  Growth effects are important

Impact of social cash transfers Empowerment Upliftment Health, education Access to markets (nutrition)

Human capital development promotes pro-poor growth Social protection Human capital Labour productivity Pro-poor growth

Human capital development promotes pro-poor growth Social protection Human capital Labour productivity Pro-poor growth South Africa Increase wages % more than the cost of transfers

Social protection promotes better risk management and encourages investment Higher investment and growth Risk Manage- ment Social protection

 n=3462 n=1795 Social protection improves labour market participation and employment

Social protection supports local economies  A transformed pension system since democracy in 1990  Near-universal take-up (85%)  Costs 0.7% of GDP  Supports labour market participation, particularly for women Namibia

Propensity score matching techniques provide ex post evidence on agricultural resilience Propensity score 13% agricultural attrition 8% agricultural attrition

Mauritius Social protection reinforces social cohesion, facilitating economic reforms that promote pro-poor growth EXAMPLES  Mauritius  Botswana  Nepal  Papua New Guinea

Conclusions  Social protection is affordable –For many countries in practice –Theoretically based on micro-simulation evidence  The growth and development effects have an important impact on affordability and sustainability  Political will is an essential element of affordability