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A proposed Global Funding mechanism for Social Protection

Zina Nimeh's picture
Submitted by Zina Nimeh
on Thu, 03/03/2022 - 13:53

By Zina Nimeh, Guilio Bordon, Mitja Del Bono and Guido Heins

 

This blog refers to an upcoming study "Global Solidarity Funding for Social Protection: Two country case studies – Nepal and Uganda", in collaboration with the Friedrich-Ebert-Stiftung.

 

In February 2022, The International Labour Organization (ILO) hosted the Global Forum for a Human-centered Recovery. The forum’s main aim was to increase the level and coherence of the international response to the profound and unequal impact of the yet ongoing COVID-19 crisis on people globally. An all too familiar message resonated again, as it did in many similar high-policy gatherings before, that is there is a significant underinvestment in social protection systems, and that current levels of expenditure do not guarantee complete coverage and provide sufficient entitlements.

Despite large resource mobilisation during the COVID-19 pandemic, according to the World Social Protection Report 2020–22, the financing gap for building social protection floors has widened by approximately 30 per cent since the onset of the COVID-19 crisis (ILO 2021a).  The widening of these differences is most often occurring due to the urgency that the pandemic bears, as it has been particularly challenging for countries with already constrained fiscal capacities. Currently, 53 per cent of the global population have no income security from their national social protection system (ILO, 2021b).  To achieve a basic level of social security through a nationally defined social protection floor, middle-income countries would require 3.1 to 5.1 per cent of GDP. This percentage jumps to 15.9 per cent in low-income countries which translate to an annual investment that amounts to US$77.9 billion globally.  Other estimates (Valverde et al 2020) put the gap at 18.2 per cent of GDP, amounting to US$92.5 billion annually to fill it. Filling such gaps is one of the major challenges for human development today and is a matter of great urgency. But, moving consistently towards this objective especially in low-income countries through domestic resource mobilisation alone is not realistic.

One of the forum’s main messages was reiterating global solidarity, and that greater alignment among national policy makers, social partners and bilateral and multilateral development partners could help low- and lower-middle-income countries make stronger progress in this regard. Through an international financing mechanism, countries in need would be able to increase levels of funding devoted to social protection over time (ILO 2022). One such mechanism can be found in the concept of a solidarity-based Global Fund for Social Protection to support countries to design, implement and, in specific cases, finance national floors of social protection.

This concept of a global solidarity fund is not a new idea. In 2002 a call for “Global Social Trust” was proposed by the ILO’s Social Security Department, and in 2014 the Global Fund for Social Protection was proposed by Global Coalition for Social Protection Floors[1]. The coalition, which today is made up of more than 100 civil society and faith-based organisations and trade unions, called on governments worldwide to ensure – through national and global solidarity – that social protection floors can be made available to all people with the help of a Global Fund for Social Protection or a similar funding mechanism[2].

The coalition’s call is joined by the International Trade Union Confederation (ITUC) and the renewed support from the UN Rapporteur for Extreme Poverty and Human Rights. The fund’s concept is that there would be a financing mechanism to deliver on the human right of social protection and the international commitment to guarantee social protection floors for all (Sustainable Development Goal, SDG, 1.3).  The mandate of the fund would be:

  • support the introduction or finalisation of national social protection floors;
  • ensure that national social protection floors are sustainable and resilient in the event of shocks that affect entire communities;
  • co-finance – on a transitional basis – the costs of setting up or completing social protection floors in low-income countries (where such transfers would otherwise require an excessively high share of the country’s total tax revenue);
  • support the strengthening of domestic resource mobilisation.

 

Some guiding principles

For the fund’s impact to be effective, it must operate from its inception on the principle of national ownership.  In line with the rationality behind establishing social protection floors, choices pertaining to what programmes are to be prioritized and how would such programmes be defined and classified, are the main responsibility of national governments of the participating countries. In order to ensure a foundation for sustainability and continuity, during the fund’s trajectory from full funding to eventual diffusion into the national system, the fund must take into consideration what already exists in the country in terms of supporting structures. Working with existing structures and building on them, this global financing mechanism would back the participating countries to adopt rights-based social protection systems and build their capacities towards this aim. This can also be partially done through coordination with human development and humanitarian assistance organisations which are active in the country. Thus, promoting better multilateral cooperation.

Moreover, based on the principle of accountability (especially towards beneficiaries), a proper representation of stakeholders in the fund’s highest decision-making body is critical, as is the inclusion of civil society organisations. Additionally, the establishment of effective control and monitoring procedures is necessary. These include both internal and external audits, as well as evaluation and complaint processes (Global Coalition for Social Protection Floors, 2020; 2021).

The fiscal resilience of such proposal in the face of exogenous shocks and crisis situations is another added value. Even countries that already have functioning and satisfactorily financed systems in place could disrupt the provision of benefits due to unexpected and exogenous shocks. As we are seeing with the COVID-19 pandemic, the need to improvise and extend programmes to additional groups or adjust benefits may arise. The very same need can also be triggered by other adversities, like natural disasters, recessions or conflicts. All this can have detrimental impacts on the capability of a country’s social protection system and its capacity to cope with the additional needs. In such circumstances, this global financing mechanism would stabilise social protection programmes of participating countries and help covering the expanding demand for social protection, thus mitigating the human cost of the shock.

Additionally, the development of such a fund, can provide a faster pathway to tackle poverty, vulnerability and inequality. With the stimulus of finances available to implement the much-needed schemes and entitlements, countries would have a chance to increase their efforts in improving living standards and livelihoods, in turn making progress in terms of poverty reduction. To help grasp the scope of how deprivation can be addressed, we can begin with one of the more comprehensive pieces of evidence regarding the financial size of national social protection gaps which can be retrieved from the Social Protection Floor Index (Bierbaum et al 2017). From the Index we can already see how 133 countries could close the gap to a minimum income level of 1.9 US dollars per day (2011 PPP) by devoting less than five per cent of GDP (Cichon and Lanz 2022).

Scheduling efficiently the duration of the fund is an open question. Answering this question is very context dependent and would require an examination of each country case. But regardless of the duration, the fund begins with the end in mind, and a mark of its success is how it would allow participating countries to gradually increase their own levels of funding devoted to social protection. Rather than creating a new form of dependency, the fund would both help in identifying new sources of domestic revenue, restructuring old one, and ensuring sustainable levels of support to countries committed to these programmes, simultaneously supporting in the buildup of capacity. “In fact, the Global Fund should gradually make international support redundant, and it can be phased out once countries have enhanced their capacity to raise taxes progressively and to redistribute them equitably in the form of universal social protection” (De Shutter 2021).

 

Empirically examining potential cost, impact and resilience

To support the global debate on the Global Fund and extend its factual base, it is crucial to examine empirically potential cost, social impact and resilience impacts of such proposal in concrete country contexts. Such an investigation would further support the ongoing discussions on its development, feasibility and necessity.  While the institutional and organisational form of the fund is very important, it is also crucial to understand how funding could potentially support and accelerate the build-up of national floors of social protection. Important questions that must be answered include:

  • How much would closure of national gaps in social protection floors (including access to essential health care) take.  Is it feasible to expect the gap to close in 10 years, or would that period need to be longer before it starts to gradually phase out?
  • What would the fiscal implications for the receiving countries during the support period and beyond be?
  • How would the redistributive impact of the supported SPF benefits in terms of poverty and inequality reduction

Additional questions that must be tackled include the effects of the fund support on the achievability of the SP related global targets (such as the SDGs), as well as the effects of the fund support on the resilience of countries in the event of future crises.  

Currently a study which aims to answer these questions has been commissioned by the Friedrich-Ebert-Stiftung (FES) which will aim at demonstrating the potential cost, social impact and resilience impacts of such a Fund in two country contexts, namely Nepal and Uganda. The upcoming study will contribute in principle to the global knowledge base on the financial and administrative feasibility of a Global Fund of Social Protection and its desirability.  The study will be published in the first half of 2022.

If constructed and supported properly, the Global Social Protection fund has the potential to reduce poverty, inequality, insecurity and increase wellbeing and human development through a comprehensive system of social protection.  In his opening of the session on universal social protection during the global forum for human-centered recovery, the director general of the ILO remarked how “about US$19 Trillion have been mobilized in the global fiscal response to the COVID-19 pandemic and yet it would cost us 77. 9 billion per year to ensure social protection floors in all low-income countries… That is a considerable cost, but the cost of not doing anything is much higher… Ultimately, we believe that strength in cooperative efforts to ensure adequate investment in Social Protection is not only the rational choice, but the ethical choice that we must make.” (ILO, 2022) A global funding mechanism for social protection can be a reality, and a Global Funding mechanism for Social Protection can be the ultimate instrument to make us achieve this basic human right. It has to be recognized that even with a resolute political will, the majority of the low-income countries may face prohibitive financial requirements and constraints in short and medium terms, making it near impossible to finance their SP floors alone. What is unaffectedly needed on the global stage today is a dedicated financing provision that enables the global community of nations to systematically, reliably and sustainably support national efforts in lower income countries through stimulus financing that builds on and strengthens domestic resource mobilisation.

 

References

 

[1] To learn more access: http://www.socialprotectionfloorscoalition.org.

[2] Additional information at https://www.socialprotectionfloorscoalition.org/civil-society-call/, earlier sources from the Global Coalition and the FES.

 

This is the second post of the blog series “Global Financing Mechanisms for Social Protection”, which draws from different studies around the proposal for a Global Fund for Social Protection. The blogs look into different subjects, such as: learnings from earlier global fund initiatives, costing for country cases, micro-simulation on expected impacts, financing side proposals, institutional coordination, governance, among others. As of February 2022, the studies are currently being implemented by experts from United Nations University-MERIT, University of Bochum and other independent experts. The blog series is organized by Brot für die Welt and the socialprotection.org team.

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