Can low-income countries afford social protection? Designing and - - PowerPoint PPT Presentation

International Labour Office

Can low-income countries afford social protection?

Krzysztof Hagemejer Social Security Department, International Labour Office, Geneva

Designing and Implementing Social Transfer Programmes 22 July - 4 August 2007 Cape Town, South Africa

International Labour Office

• Topics:

– Overview of the costs of existing social protection transfers

in different countries and their role in the development

– Presentation of the methodology and results of the ILO

studies on the costs of a hypothetical basic social protection package in selected Asian and African countries

– Discussing concept of affordability in the context of current

and potential fiscal space, political will and international solidarity

– Discussing the need to harmonize financial sustainability

with adequacy of benefits provided in order to make any social programme viable.

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• Key points:

– Main reasons for differences in expenditure on social

protection transfers in different countries at different stages

• f development

– Affordability of social protection in developing countries – Links between

affordability in terms of costs adequacy in terms of impact and viability of any social protection programme

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How much social protection is affordable?

OECD countries spend between 10 and 30%

• f GDP on social protection

Usually these countries spend between one

third and half of total public expenditure on social protection

In countries younger demographically and

less developed it is basic education and health which dominates public social expenditure

In ageing OECD countries pension

expenditure dominates and health follows

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How much social protection is affordable? (2)

Countries at the same level of economic

development differ significantly in how much they spend on social protection

There is no apparent link between economic

performance and the size of the national social protection system

Size of social protection systems is shaped

mainly by prevailing political attitudes towards redistribution

Affordability is a function of the societal

willingness to finance social transfers through taxes and contributions

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5 10 15 20 25 30 35 40 1 9 8 1 9 8 2 1 9 8 4 1 9 8 6 1 9 8 8 1 9 9 1 9 9 2 1 9 9 4 1 9 9 6 1 9 9 8 Sweden Denmark France Germany Belgium Switzerland Finland Italy Greece Netherlands Luxembourg United Kingdom Spain Portugal New Zealand Australia Canada Japan United States Ireland Turkey

Social protection redistributes significant share of national incomes…

(Social protection expenditure as percentage of GDP; Source: OECD)

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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

S SI NL DK ACC FIN F BG EE LT IRL MT EL TR

Pensions Other

…effectively preventing and alleviating poverty… ( pre-transfer poverty risk reduced by social protection transfers; Source: OECD, EUROSTAT)

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20 40 60 80 100

Austria Sweden Belgium Ireland Luxembourg Netherlands Germany Denmark Finland United Kingdom France Spain Norway

…but requiring large portion of available public resources

(Social protection expenditure as percentage of general government expenditure; Source: EUROSTAT)

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10 20 30 40 50 60 70 80

10 15 20 25 30 35 40 45 50 55 60

government size (% of GDP) social expenditure (% of gov.exp.)

Fiscal versus policy space: governments of the same size spend different portions of available public resources on social transfers

(Source: IMF Government Finance Statistics Database)

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No trade-off between productivity and growth:

Correlations between per hour productivity and social expenditure per capita in OECD countries in 2001

y = 0.0043x + 8.7845 R2 = 0.7812

10 20 30 40 50 60 2000 4000 6000 8000 10000 12000 Total public social expenditure per capita in PPP Productivity (per hour worked)

Source: OE CD

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Ageing and other risks manageable:

(old-age demographic dependency and projections of social protection expenditure in proportion to GDP; EU25, 2005=100, Source: European Commission 2006)

100 120 140 160 180 200 220 2005 2025 2050 Old-age dependency Pension expenditure Total expenditure

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Social security is not a social cost but an affordable investment in:

prevention/reduction of poverty and

vulnerability

quality of work and life social cohesion and peace nation building global security

It is an investment in people and states

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Can low income countries afford to have social security?

ILO costing studies on basic social

protection package in low-income countries

– Seven countries in Africa (Pal et al. 2005) – Five countries in Asia (Mizunoya et al. 2006)

Different scenarios based on alternative

assumptions

Projections over next 30 years

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Footnote: benefit assumptions for calculations

• Basic old age and invalidity pensions:

–

Senegal/Tanzania: Benefit of 70% of food poverty line

–

African and Asian countries: Benefit of $0.5 PPP per day

• Child benefits:

–

Senegal/Tanzania: Benefit of 35% of food poverty line (half a pension), paid to all children in school age (7-14) and orphans also below 7

–

Benefit of $0.25 PPP per day (half of pension), paid to all children up to the age of 14

• Administration cost: 15% of benefit expenditure for

universal cash benefits

• Essential health care: Annual per capita costs based on

the Commission on Macroeconomics and Health estimates of US$ 34 by 2007 and US$ 38 by 2015

• Basic education: Based on UNESCO country average unit

costs; reaching universal access by 2015

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Cost of universal basic old age and disability pension (benefit = $0.5 per day)

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" #$ % &' ()"*

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Cost of universal basic old age and disability pension (benefit = 30% of GDP per capita)

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Cost of universal child benefit for all children aged 0-14 (benefit = $0.25 per day )

• +
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" #$ % &' ()"*

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Cost of universal benefit for orphans aged 0-14 only (benefit = 0.15 % of GDP)

• !

" #$ % &' ()"*

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Cost of essential health care based

• n CMH unit cost estimates
• +

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" #$ % &' ()"*

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Total cost

• f basic social protection package
• +

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" #$ % &' ()"*

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Share of total costs possible to be covered by domestic financing (share of budgets allocated to social protection kept constant at current level)

• +
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" #$ % &' ()(

• +

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• +
• .
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Share of total costs possible to be covered by domestic financing (share of budgets allocated to basic social protection increases to 20%)

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Can low income countries afford not to have social security?

There is ample evidence that the investment in

health care, education and properly designed cash transfers have positive economic and social effects in countries at any stage of development

There is also already plenty of evidence what social

groups are vulnerable and what are their needs and priorities

The choice of policy instruments to meet these

needs and priorities is also well known (various cash transfers as well as mechanism assuring affordable access to health care and education)

Various simulations show impact these instruments

would have on reducing poverty and vulnerability

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Assessing potential impact and costs of universal social pensions in Senegal and Tanzania: Poverty rates before and after pensions (food poverty line)

Senegal 5 10 15 20 25 30

E l d e r l y m e n E l d e r l y w

• m

e n L i v i n g w i t h e l d e r l y T

• t

a l p

• p

u l a t i

• n

Tanzania 5 10 15 20 25 30

E l d e r l y m e n E l d e r l y w

• m

e n L i v i n g w i t h e l d e r l y T

• t

a l p

• p

u l a t i

• n

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Assessing potential impact and costs

• f universal social pensions in Senegal and Tanzania:

Poverty gap before and after pensions (food poverty line)

Senegal 1 2 3 4 5 6

E l d e r l y m e n E l d e r l y w

• m

e n L i v i n g w i t h e l d e r l y T

• t

a l p

• p

u l a t i

• n

Tanzania 1 2 3 4 5 6

E l d e r l y m e n E l d e r l y w

• m

e n L i v i n g w i t h e l d e r l y T

• t

a l p

• p

u l a t i

• n

International Labour Office

African countries: Effective social pensions - in principle- affordable now

estimated 2005 benefit expenditure on old-age/disability pension (% of GDP)

0.00% 0.25% 0.50% 0.75% 1.00%

Burkina Faso Cameroon Ethiopia Guinea Kenya Senegal Tanzania

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…and in the future

projected benefit expenditure on old-age/disability pension as % of GDP

0.2% 0.3% 0.4% 0.5% 0.6% 0.7% 0.8% 0.9% 1.0%

2005 2010 2020 2030 2035

BF Ca Eth Gui Ken Sen Tan

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Assessing potential impact and costs of cash transfers in Senegal and Tanzania: Poverty rates before and after cash transfers

Senegal 5 10 15 20 25 Tot Boys Girls Old M Old F

child benefit pension

Tanzania 5 10 15 20 25 Tot Boys Girls Old M Old F

child benefit pension

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Assessing potential impact and costs of cash transfers in Senegal and Tanzania: Poverty gap before and after cash transfers

1 2 3 4 5 6 Senegal Tanzania

child benefit pension

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Assessing potential impact and costs of cash transfers in Senegal and Tanzania: Cost of benefit package as percentage of GDP

0% 1% 2% 3% 4% 5% Senegal Tanzania

child benefit pension

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Affordability study (base scenario): estimated 2005 benefit expenditure on old-age/disability pension and child benefit (% of GDP) In all demographically young countries child benefits are currently more costly than benefits for elderly

0% 1% 2% 3% 4% 5% 6% 7% 8%

B u r k i n a F a s

• C

a m e r

• n

E t h i

• p

i a G u i n e a K e n y a S e n e g a l T a n z a n i a

pension child benefit

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Affordability study (base scenario: 2005 -2035 projected benefit expenditure on old-age /disability pension and child benefit (% of GDP) But, in principle, both would be fiscally affordable now and in the future

0% 1% 2% 3% 4% 5% 6% 7% 8%

2005 2010 2020 2030 2035

BF Ca Eth Gui Ken Sen Tan

International Labour Office

Affordability study (base scenario): 2005 -2035 projected benefit expenditure on old-age /disability pension and child benefit (% of total government revenue) However, in some countries there would be a need for temporary additional external financing to close the gap

0% 10% 20% 30% 40% 50% 60%

2005 2010 2020 2030 2035

BF Ca Eth Gui Ken Sen Tan

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Conclusions

Social security not only desirable, effective tool of

poverty reduction but also the affordable one

Eventually however, affordability depends on

presence of the political will to reallocate available domestic and donor resources

Coordinated forward looking national social

protection policy strategies should sequence implementation of various social programmes and policy instruments

Capacity should be build in coordinating government

agencies, line ministries and then at the local level in the areas like:

–

Social protection development, analysis and design

–

Administration of social protection programmes