Social protection financing in the wake of COVID-19 and beyond
Many countries are currently extending and introducing interventions to tackle the socioeconomic consequences of the COVID-19 pandemic. Besides economic policies, social protection programmes such as cash transfers are a major part of the response. This means that social protection expenditures are on the rise and additional financing is urgently needed to create and sustain fiscal space. At the same time, the actions taken to avoid COVID-19 spreading will lead to decreased government revenues, such as tax revenues and social security contributions. Therefore, the COVID-19 crisis puts an additional pressure on social protection financing in the longer term and calls for national as well as global solutions to ensure the sustainability of SP programmes and systems.
This blog post summarises the webinar ‘Social protection financing in the wake of COVID-19 and beyond’, the 9th event of the Social protection responses to COVID-19 webinar series, which took place on 5 May 2020. The webinar was moderated by Martina Bergthaller (Social Policy Specialist) and counted with the expertise of Delphine Juliette Prady (Economist at the Fiscal Affairs Department, IMF), Mark Blecher (National Treasury of South Africa) and Lindi Mzankomo (National Treasury of South Africa). During the webinar, the speakers discussed the following questions:
- Do we have the right instruments to address international financing needs? How can the international community mobilize funding, in particular grants?
- What are the lessons learnt for future crises to ensure that financing is available for a rapid extension of social protection schemes and systems?
- How can social protection financing be sustained beyond COVID-19 in low- and middle-income countries?
You can watch the webinar recording here and access the webinar presentation here.
Martina Bergthaller set the scene for the webinar, by highlighting two key features of shock-responsive social protection that are relevant for social protection financing, namely ‘system/programme resilience’ and ‘system/programme adaptation’.
Resilience means that existing systems/programmes do not collapse but withstand routine delivery during and after a shock hits, which requires countries to make changes to routine design and implementation. In terms of financing, the feature relates to the medium- and long-term question of how to ensure sufficient financing for social protection programmes, also considering the decreased state budget and the additional burden of the long-term effects of the crisis on people’s livelihoods.
In turn, adaptation means that countries have to adapt their systems/programmes to cover changed contexts and needs. This can be done via existing programmes or via new programmes that build on existing systems. In terms of financing, the feature relates to questions of how to extend the financing modalities in place and how to find the fiscal space needed to cover the existing caseloads and the increased services provided to the needed population groups during the crisis.
Coverage gaps in social protection systems, particularly in low-income countries
In continuation, Delphine Juliette Prady presented issues related to coverage gaps in social protection outlays, as well as some emerging trends in response to the COVID-19 crisis.
Low social protection coverage is mostly predominant among low- and middle-income groups in regard to social insurance schemes, and particularly problematic for low-income groups in terms of social assistance/social safety nets.
This is largely due to large gaps across countries in terms of social protection expenditure, with low-income countries spending on average 1.6 % of GDP and advanced economies spending 13% of GDP on social protection. This spending gap is also true in other key sectors that are crucial for development and that are complementary to social protection, such as education, health, and transport. In reality, low-income countries should be spending at least 16 percent points more of GDP, if they are to achieve high outcomes in key SDG sectors by 2030 (health, infrastructure and education).
Low income countries and emerging markets are lagging behind by an average of 16-17 % of GDP in terms of Tax-to-GDP ratio. It is estimated that only 5% of additional GDP can be raised over the medium-term. This means that raising additional resources through taxes is a long-term process, and that covering the gaps existing in social protection and other key development sectors will take time. Thus, a gradual process of achieving universal coverage is the ultimate goal.
Emerging patches in the COVID-19 crisis
Given the large gaps in social protection and the large immediate needs in coverage in all countries during the crisis, governments are looking to extend social protection. Currently, 151 countries have introduced and/or adapted measures to provide income support to those who have lost their jobs and their main source of income. Social assistance types of measures are dominating the responses over social insurance and labour market programmes, with cash transfers accounting for 54% of the social assistance measures. Many responses are introducing higher benefits and extending the duration that people can receive them.
However, many governments do not have the knowledge of who would need coverage in the case of a shock – either because they have not bothered to gather information or have not had the capacity and fiscal space to do so. Therefore, many governments are now acting in creative ways, blurring the boundaries between social insurance and social assistance. For instance, social assistance is being provided to informal workers, who, by definition are not covered by social insurance. The same is happening in the case of public and private relations with governments relying on, for instance, grassroots organisations to target people in need in a timely manner.
Financing options of additional social protection expenditures
During the crisis, the priority number one, which has been talked about by many organisations and the G20, is to accommodate additional health spending (testing and treatment) to fight the disease. Countries with limited health capacity should rely on global coordination to support them with grants and concessional financing.
Given that many people have not previously been covered by existing programmes, coverage of vulnerable households is the priority number two, even at the risk of increased leakages, which can be fixed down the road.
Finally, not all additional fiscal outlays are equal, because all countries have different starting points. Many developing countries face multiple shocks at the same time; the pandemic, worsening financing conditions, low commodity prices, weakened demand, etc. Thus, specific country context should be considered. Therefore, the priority should be to reprioritize expenditure, safeguarding key public services and social protection.
From patches to sustainable fixes
COVID-19 has pressured governments to achieve progressive universalism in a short-term journey, because they need to cover the gaps. In the aftermath of the crisis, these ‘patches’ need to become more sustainable, and there is an opportunity in terms of these additional services to becoming the foundation of a more sustainable and adequate social protection system. Some governments, which have been able to reach people rapidly and adequately, have relied on a basic ‘trinity’ infrastructure, namely reliable and universal ID system; financial inclusion; and integrated socioeconomic data.
Thus, governments are putting in place quick fixes to deliver income support through social protection, prioritising the ‘good enough’ that can be achieved right now rather than looking for perfect fixes. Once the crisis is over, governments must build and improve upon these new capacities to safely and transparently reach people; support delivery systems to better target people at risk down the road; and use progressive claw-back strategies to address fiscal constraints.
Social protection responses to COVID-19 in South Africa
Lindi Mzankomo and Mark Blecher continued the discussion by presenting some social protection measures that were put in place by the South African government after the introduction of a nationwide lockdown on 27 March. South Africa entered the pandemic in a weak fiscal position, with a deficit of 6.8 % of GDP and a decade of low growth following the global recession, and while the social assistance system is very comprehensive in South Africa, the social security system is limited.
To replace income loss, especially for informal workers, two social assistance measures were put in place, building on existing programmes and infrastructure.
The first measure consists of providing a top-up amount to beneficiaries receiving the Child Grant Support Programme, which is the largest programme in South Africa in terms of coverage (8 million beneficiaries). This measure builds on already existing beneficiary details, but due to large coverage, the top-up amount could only be given to the children (ZAR 300) in the first month and to the caregivers in the subsequent 5 months (ZAR 500). This measure has resulted in an increase of 26% of the social grants budget in 2020, which means that the government has to find ZAR 50 billion (USD 3 billion) in addition to the budget of ZAR 187 billion that had been allocated for the financial year. The additional financing requirement accounts for almost 1% of South Africa’s GDP.
The second measure consists of an adaptation of the Social Relief Distress Programme, which is a 3-month food parcel for households in distress. Application for the programmes was usually done personally at the social security agency, but due to the need for social distancing, the government has shifted to online and mobile applications as well as to cash instead of food parcels. The grant is being paid through e-Wallet to individuals, who has lost their income, are not already receiving any other social grant or social insurance benefit, and has a household income of less than the minimum wage. These qualifying criteria are meant to restrict the volume of applications, since the government does not have a database over the targeted individuals and no verifications mechanism. Usually, the programme has a budget of around ZAR 500 million per year, covering around 500,000 applications. During the crisis, the programme's budget is expected to increase to ZAR 4-13 billion, depending on the amount of applications, which is expected to range from 3-8 million applications.
In addition, a range of other responses have been put in place to address the consequences of the crisis in other sectors. For instance, to address the consequences of the crisis on the employed, the government has introduced an employment-tax incentive for low-income employees of up to ZAR 500 a month for four months, which will cost ZAR 15 billion and help four million workers. Many other provisions target businesses with the aim to delay tax payments during the crisis, and to provide them with credit guarantee schemes via banks and to protect firms from going under, thus worsening unemployment.
South Africa is seeing a substantial widening of fiscal deficit and reduced revenue collections. Therefore, to finance the abovementioned responses as well as a range of health responses, the Minister of Finance has announced a ZAR 500 billion response strategy, accounting around 10% of GDP. The government has used multiple financing instruments, including ZAR 130 billion in reprioritization between government departments, ZAR 95 billion borrowed from multilateral financial institutions, ZAR 60 billion of surfaces from the Social Security funds, among other sources.
The webinar concluded with a discussing among panellists and an interactive Q&A session, accessible here. You can also join the Q&A discussion here.
References:
Gentilini, Ugo; Almenfi, Mohammed; Dale, Pamela; Demarco, Gustavo; Santos, Indhira (2020). Social Protection and Jobs Responses to COVID-19: A Real-Time Review of Country Measures. Version 9. Access here.
ILO (2019): Fiscal Space for Social Protection: A Handbook for Assessing Financing Options. Access here.
IMF (2020): Fiscal Monitor – April 2020. Chapter 1: Policies to Support People During the COVID-19 Pandemic. Access here.
IMF (2020): Expenditure Policies in Support of Firms and Households. Special Series on Fiscal Policies to Respond to COVID-19. Access here.
IMF (2020): Managing the Impact on Households: Assessing Universal Transfers. Special Series on Fiscal Policies to Respond to COVID-19. Access here.
IMF (2020): Reaching Households in Emerging and Developing Economies: Citizen ID, Socioeconomic Data, and Digital Delivery. Special Series on Fiscal Policies to Respond to COVID-19. Access here.
IMF (2020): Digital Solutions for Direct Cash Transfers in Emergencies. Special Series on Fiscal Policies to Respond to COVID-19. Access here.
Seekings, Jeremy; Gronbach, Lena (2020): COVID-19 grant. We can learn from Namibia. Access here.
South African Government (2020): Social grants - Coronavirus COVID-19. Access here.
This blog post is part of the Social protection responses to COVID-19 webinar series. The series is a joint effort initiated by the IPC-IG, GIZ on behalf of the German Federal Ministry of Economic Development and Cooperation (BMZ), and the Australia Government's Department of Foreign Affairs and Trade (DFAT) collaboration with the socialprotection.org platform, and in cooperation with partners from different organisations.
Join our online community ''Social protection responses to COVID-10 [Task force]" to learn more about the initiative and future webinars.
