Panel “Financing Universal Social Protection in Developing Countries” - Statement to open session

Panel “Financing Universal Social Protection in Developing Countries”
A Session at the Civil Society Forum at the Annual Meetings of IMF and World Bank. October 11, 2017
Statement to open session
Barry Herman

Download here the pdf version. Visit here the report of the session.

STATEMENT TO OPEN SESSION

I am pleased to moderate this discussion of financing social protection floors, a topic that has gotten increased political attention over the past year or two and that will get more over the next six months as I will explain. My hope is that the attention matures to the point that some countries and institutions take additional steps to deepen national systems of social protection, increase the scope of protection, and that countries provide more peer-to-peer learning and also international support to developing countries seeking assistance in strengthening their systems. In particular, I hope that steps may be taken to assure that the financing for what the International Labor Organization has defined as national floors of social protection is fully available into the foreseeable future, year in and year out, in bad times as well as good ones.

Before starting the discussion, let me try to specify the financing challenge so we are all “on the same page”. When we talk about social protection, and especially social protection floors, we are referring to government cash transfers that may range from public support to mothers and children, support to the disabled, support to the involuntarily unemployed, support to the aged and to other people in need, as in the provision or financing of health services. Countries differ in how many types of assistance their governments offer and how much of the population in need they should reach and are able to reach. Countries also differ in whether they seek to target their assistance to specific populations, e.g., the “extreme poor”, or offer the support universally as a right. The ILO and the World Bank have jointly committed to promote “universal” social protection, which will entail significant, regular and reliable budgetary outlays. Whatever the scope and ambition of the national social protection systems, it is essential that the public resources for them be available. Protection fails to protect without adequate financial resources.

We may conceive of government budgets as having four categories of expenditure. One is wages, salaries and purchased inputs for government expenditure programs. A second is the transfer payments made to individuals, including the social protection system. A third is payment of interest and principal on the public debt, and the fourth is public investment. In most countries, the mandatory first use of public revenues is public debt servicing. The lowest priority is investment, which is typically postponed when revenues dip during economic downturns. In addition, in times of austerity, government expenditure programs may be reduced, wages may be cut and the work force may be reduced to absorb the reduction in public revenue; for example, budget constraints may translate into fewer teachers and thus more students per class. In addition, governments sometimes are forced to cut back on social transfers, which may be seen as a violation of an implicit social compact and as a challenge to trust in government. I will come back to this point in a moment.

We may similarly conceive of government budgets as having two main categories of funds. First is taxation of incomes or economic activity, but including as well royalties on mineral exports and other categories of revenue inflows that a government counts on every year. The second category is borrowing, whether from domestic sources in local currency or foreign sources in foreign currency or any combination that fits the state of development of the financial sector and of the access to foreign financial sources. Governments borrow especially to finance public infrastructure investment that will deliver services over decades but they also borrow to meet temporary shortfalls in revenues, as during economic downturns. In addition, many developing countries also receive foreign grants in aid, either targeted to specific expenditure programs or as general budget support.

What we want to focus on today is how to make sure that the transfer payments and public health system that make up a country’s social protection floor are fully funded over the medium to long run and are not jeopardized by any of the various volatilities to which we have become especially sensitive in recent years. As I said before, social protection is not protection if it does not protect, especially in times of personal or economic crises. Unfortunately, the people in many countries can tell us about instances in which social protection did not protect. How do we make sure that stops being the case? How can we protect social protection, especially at the level that ILO identifies as the “social protection floor”?

One answer that we don’t accept is we only offer tiny programs or none at all and leave many needy people in distress, hungry, weak and prematurely dead. If we believe in human rights, we believe there are legal (if rarely enforceable) obligations on governments to address the need for social protection. Even if you reject that the human rights argument applies to you or your institution, most people have a sense of justice and feel an obligation of justice or at least an obligation of charity. All the major religions embody that intuition. So, our starting point is that all our governments should have universal floors of social protection. How do we assure they are appropriately and assuredly financed? Who is the “we” in that last sentence? That is our theme for today.

Finally, let me say why the organizers of this session ask this question now. It turns out that this topic has made it to the intergovernmental agenda of the United Nations through the Financing for Development process. An intergovernmental FfD Forum was created at the international FfD conference in July 2015 in Addis Ababa, Ethiopia in order to follow up on the negotiated conclusions and recommendations reached there. The FfD Forum agreed at its May 2017 meeting that the issue we are to discuss here warrants more international attention. It thus agreed to hold some further policy discussion at its next meeting in April 2018. I think the organizers of this session hope to inspire those present today to begin to focus on what might be considered next April, what specific proposals might warrant further study as a step toward action, what modalities of international cooperation might be boosted, such as additional official development assistance to help speed along the development of well financed social protection systems, and other actions.

To that end, let us begin our discussion…

FINANCING UNIVERSAL SOCIAL PROTECTION IN DEVELOPING COUNTRIES

Notes on a session at the Civil Society Forum
IMF/World Bank Annual Meetings
Washington, D.C., October 11, 2017

The NGO Committee on Financing for Development, Social Justice in Global Development, Brot für die Welt, and the Virginia Gildersleeve International Fund jointly organized a session on financing universal social protection in developing countries at the Civil Society Forum of the 2017 Annual Meetings of the International Monetary Fund and the World Bank.

Download here the pdf version of this report.

Background

Governments at the United Nations agreed in the May 2017 Financing for Development Forum to discuss aspects of the financing of “social protection systems and measures, including floors” during the next meeting of the Financing for Development Follow-up Forum, which will take place in New York on 23-26 April 2018. This would be the first opportunity for a broad, intergovernmental discussion of policy experiences and needs regarding the financing of social protection and it seemed important to the organizers of this civil society session at the Fund/Bank Annual Meetings to alert the development community to this upcoming event. To this end, the session brought together senior representatives of the International Labor Organization, the International Monetary Fund, the United Nations and the World Bank, together with a representative of the civil society Global Coalition for Social Protection Floors.

Agenda

Welcome

Anita Thomas, Chair, NGO Committee on Financing for Development and UN representative of the Virginia Gildersleeve International Fund

Speakers

• Vinicius Carvalho Pinheiro, Special Representative of ILO to the United Nations and Director of the New York Office of ILO
• Rachel Moussié, Deputy Director, Social Protection Program, Women in Informal Employment, Globalizing and Organizing (WIEGO) and Global Coalition for Social Protection Floors (GCSPF)
• Margaret Ellen Grosh, Senior Advisor in the Social Protection and Jobs Global Practice, World Bank
• Serpil Bouza, Strategy, Policy and Review Department, International Monetary Fund
• Shari Spiegel, Chief, Policy Analysis and Development Branch, Financing for Development Office, UN Department of Economic and Social Affairs

Moderator

Barry Herman, Member of the Board, Social Justice in Global Development and Visiting Scholar, Graduate Program in International Affairs, The New School

Summary

A shared theme of the discussion was that governments should work toward universal provision of at least a basic level of nationally determined social protection of its people, which the international community has deemed the “social protection floor.” As Ms. Moussié of WIEGO observed, the concept of social protection was broader than social “safety nets”, a policy option on which the Bretton Woods institutions have focused. As the name suggests, safety nets are to catch people in the process of falling, as owing to some hazard or difficulty. That is not the only reason for social protection.

Although countries currently differ in the extent and types of social protection they provide, the moderator in his introduction said countries could move toward universal protection by expanding coverage of specific classes of beneficiaries, such as for child and maternal benefits and old age security, including also support of the disabled and the unemployed. These floors of social protection could take the form of cash transfers to beneficiaries at different stages of their life cycle, combined with universal access to essential health services. Indeed, taking the components together, a country having a universal social protection system would realize counter-cyclical economic benefits, as well as respond to the social imperatives for instituting them.

As Mr. Pinheiro of ILO reminded the audience, the international initiative to promote social protection floors began as part of a joint international response to the financial crisis of 2008. As seen almost a decade later, the provision of social protection floors is possible everywhere, even in situations of fiscal constraint. In fact, the number of countries with some social protection programs has more than doubled, from 72 countries in 2000 to 149 in 2017, according to the World Bank’s ASPIRE data base, as cited by Ms. Grosh. The challenge was thus to broaden the coverage in many of those countries, especially the low-income countries where coverage is generally low, and to introduce it in others.

At the same time, the cost of social protection floors must be covered from public revenues in a sustainable way. As Mr. Pinheiro noted, countries use different policy instruments to finance at least part of their social protection floors. Brazil used financial transaction taxes, other countries use tourist taxes, El Salvador makes an effort to limit tax evasion and redirect it to social protection floors, and so on. In fact, in many countries where social protection levels are low, there is space for expanding the coverage of social protection and increasing its level. However, one obstacle to adequate funding of social protection, as emphasized by Ms. Moussié, was tax policies that undermined the ability of States to mobilize sufficient public resources. She said that international financial institutions had promoted lowering corporate tax rates and she criticized policy decisions taken by a number of countries to grant generous corporate tax incentives that narrow the tax base. In addition, she called for further work to adopt macro-economic frameworks that enhance social and economic resilience rather than cut back on social benefits.

Ms. Spiegel of the UN recalled that the issue of financing social protection got high attention at the 2015 International Conference on Financing for Development (FfD) in Addis Ababa. The Addis Ababa Action Agenda emphasizes domestic resource mobilization, especially strengthening tax systems that can sustainably finance social protection. She noted that programs should be sustainably financed out of current revenues over the medium to long term, and it is important that governments use counter-cyclical forms of financing. As the Inter-Agency Task Force (IATF) on FfD highlights in its 2017 report, the world economy is cyclical and potentially volatile and counter-cyclical measures for social protection, like stabilization funds and state contingent debt can be useful. Quick-disbursing official international facilities may also contribute to counter crises. She noted that the IATF will have a follow-up meeting on alternative financing strategies this fall, to serve as inputs to its 2018 report.

Ms. Bouza reported that the IMF is considering how to better assist countries in strengthening their social protection systems in a fiscally sustainable way. Mobilizing domestic revenue and enhancing spending efficiency will help ensure stable financing sources for social protection. She continued, the IMF will leverage the expertise of other institutions on social protection issues and step up its collaboration in this area with country authorities and development partners. The intention is to encourage countries to build capacity for effective social protection systems in normal times so that effective systems are available during times of crisis. For this, close collaboration will be necessary both during surveillance (i.e. Article IV consultations) and during discussions of IMF-supported programs. To this end, the IMF is drafting a staff guidance note for release in 2018 to support such discussions in low income countries. At the same time, the IMF is also working on an implementation plan that will lay out concrete steps to address the recommendations made by the Independent Evaluation Office in its report, (The IMF and Social Protection). This implementation plan will be presented to the Evaluation Committee of its Executive Board in January 2018.

Ms. Bouza further said that IMF will thus develop a strategic framework setting the scope, objectives, and boundaries of the IMF’s involvement in social protection. The IMF has always supported universal access to basic services such as education and health and recognizes the important economic benefits of having a strong social protection system that increases countries’ resilience to shocks. Nevertheless, the viability of universal cash transfer systems and the appropriate path to achieving these will depend on country circumstances, including implementation and resource constraints, and social preferences.

Expertise and support for the design and implementation of social protection systems are also provided by bilateral partners, peers and multilateral institutions, such as the ILO and the World Bank. In this regard, ILO and the Bank launched the Global Partnership for Universal Social Protection in 2016 with a number of donor governments and other partners. Indeed, the World Bank has been deepening its lending to help develop social protection systems. As Ms. Grosh reported, the World Bank’s social protection loan portfolio grew from $6.7 billion in fiscal 2010 to $12.5 billion in fiscal 2017 (ending 30 June). Loans have grown especially to help develop social protection systems in low-income countries that borrow from the Bank’s highly concessional International Development Association. Nevertheless, many countries still lack capacity and resources and warrant additional international cooperation on terms provided by official development assistance. The time to build the right social protection architecture is now so as to have it in place during crises.

In sum, there is still much political as well as technical and financial work to be done. Ms. Grosh, in particular, called on civil society to help dispel myths about the poor making poor use of cash transfers, as that discourages public support for social protection. Numerous studies show that women especially use the cash transfers in a socially and economically wise way to cover the basic needs of their family members and, should it be possible, even start small businesses that may help ease a path out of extreme poverty. She also called for civil society advocacy for additional fiscal space to accommodate increased outlays for social protection.

Indeed, the forthcoming UN discussion of financing social protection next April provides an opportunity to advance such an agenda, as also for strengthening international financial support for social protection.  The moderator thus encouraged the panelists and those present at the current session to consider offering proposals that might be brought to that Financing for Development meeting. It will undertake a multi-stakeholder discussion, welcoming the participation and inputs of governments, international institutions, civil society and the private sector. He hoped that a broader and deeper discussion on these issues will help governments move toward consensus on global policy priorities and actions so as to advance toward realizing adequate, fair and effective financing of social protection for all.

A panel on “Financing Universal Social Protection in Developing Countries” was held at the Civil Society Forum at the Annual Meetings of IMF and World Bank Group on October 11, 2017. Rachel Moussié spoke on behalf of the Global Coalition for Social Protection Floors.

Download here the pdf version. Visit here the report of the session.

The Global Coalition for Social Protection Floors is a network of almost 100 NGOs and trade unions, representing millions of people around the world. The coalition engages with the ILO, the UN Social Protection Inter-Agency Cooperation Board (SPIAC-B)and other relevant organizations as well as supporting national and regional initiatives to promote SPFs.

• Universal, rights-based social protection is the most sustainable and effective approach for poverty reduction and reducing inequality.
• It covers both people who may be outside of the labour market such as children, people living with disability and the elderly, while also recognising that the working poor – including women - also need social protection through health care coverage, maternity benefits and pensions.
• It is a prerequisite for economic growth and stability, since only people who are well nourished, well-educated and healthy can be productive members of the national workforce.
• SPF can help to alleviate the responsibility for care provision that women disproportionately shoulder.
• The World Bank president stated at the Global Partnership for universal SP that “Social protection is a means to reduce poverty, achieve greater gender equity, reduce economic inequalities, and promote good jobs.”[1]
• IMF research by Berg and Ostry (2011) cites how social assistance can reduce inequalities and make countries more resilient to financial crises.[2]
• The right to SP and the concept of universal social protection has the largest international support (ILO R.202, R.204, SDGs, Addis Ababa Action Agenda, UN Initiative on USP), it is concerning that the recent IEO report suggests the IMF is not seeking to respect these agreements.
• In Mongolia, the IMF program included conditionality to shift from universal to targeted child grant. In Mauritius, the IMF continues to push the government to target the existing universal old age pension despite its popularity.
• The GCSPF does not endorse loan conditionalities, and it is telling that of the 57 arrangements approved in LICs programs between 2010-2015 only 19% contained indicative targets defined to focus primarily and specifically on social protection. The IEO report adds that, “where staff did manage to carve out fiscal space for social protection, the amounts were typically modest – well under 1 per cent of GDP, for example.”
• SPFs for all are financially and fiscally possible in most countries. The forthcoming update of the Global Social Protection Floor Index[3] (developed by members of the Global Coalition) assesses the financing gap in 129 countries.[4] The Index measures the amount of resources a country would have to allocate to social transfers and health services in order to achieve the minimum level of income security and health security that is demanded under the ILO Recommendation 202 on national social protection floors. The results show that:

For most countries a national SPF that guarantees that all residents and children can take part in society and have access to essential health care is within short-term reach:

• 32 countries would require no more than 1 percent of Gross Domestic Product (GDP) – mainly in Latin America and Eastern Europe;
• 39 countries would require between 1 and 2 percent of GDP.

In the medium term

• 45 countries with SPF gaps of between 2 and 4 percent of GDP and
• 9 further countries with gaps of between 4 and 6 percent GDP should be able to close most of their SP gaps.

In the longer term

• 12 further countries might be able to close most of their gaps between 6 and 10 percent of GDP.

For 13 countries, a SPF does not seem achievable with domestic resources alone, as more than 10 percent of GDP would be required – most of these are low income countries in sub-Saharan Africa. Here international support will play a critical role.

The Global Coalition for Social Protection Floors is:

1. Calling out the contradictions between the stated commitments made by international financial institutions towards the SDGs, and their technical advice to national governments. The policies promoted by the IMF and the World Bank are working against efforts to build universal social protection floors.a. The IMF and the World Bank officially support the SDGs, but continue to promote a social safety net approach that runs counter to SDGs targets on social protection floors.[5]
   b. On domestic revenue mobilisation, both IMF and World Bank policy advice has promoted declining corporate tax rates, and the World Bank has encouraged the use of tax incentives to attract FDI. IMF data shows a declining trend in statutory corporate tax rates in emerging and low-income countries since the mid-1990s to 2007, from about 31 percent to 26 percent.  In Africa, the Fund suggests that there has been a narrowing of the tax base – due to harmful tax exemptions – rather than broadening the tax base.[6]
   c. The ILO review of IMF country reports for the 2016-2020 period show that 68 countries in the global South will be revising and scaling down spending on safety nets and welfare benefits (Ortiz et al. 2015). Yet, raising resources through social security contributions can help to finance social protection floors and is redistributive.
2. The coalition also strongly opposes the proxy-means-tested approaches in social protection not least because rights to social protection should not be discriminatory, but because proxy-means-tested approaches are inherently unfit for purpose, however well intentioned. Cutting corners cuts out millions of those in need.[7]

The IEO report warns that the World Bank approach to social protection may be evolving due to their support to the ILO Social Protection Floors and that this may “complicate” the strong collaboration we see today between the IMF and the Bank in promoting social safety nets.  As per the recommendations in the IEO report, we encourage the IMF to rethink their approach to social protection and consult with ILO, WHO, UNICEF, UNDP and civil society when it comes to the formulation of a new Social Protection Strategy.

Collaboration with CSOs must become a more open, deliberative, and conclusive process to not only inform financing strategies at the national and international level, but also to work with CSOs to promote awareness of technical processes which affect the lives of those the IMF and World Bank are ultimately meant to help. There is a need to demonstrate how consultative processes[8] have informed financing policy to ensure that CSOs and the interests they protect are taken seriously. More concrete actions are needed to ensure that civil society is able to be effectively integrated at the level of other stakeholders.

The Global Coalition for Social Protection Floors is ready to discuss and contribute to the development of a new IMF strategy for Social Protection that will support the attainment of the Sustainable Development Goals.

Rachel Moussie (WIEGO) participated on behalf of the GCSPF in the panel “Financing Universal Social Protection in Developing Countries” A Session at the Civil Society Forum at the Annual Meetings of IMF and World Bank. The session was held on October 11, 2017.

Notes:

[1] http://www.worldbank.org/en/news/press-release/2016/09/21/world-bank-ilo-announce-new-push-for-universal-social-protection - 21 September 2016

[2] Berg, Andrew G. and Jonathan D. Ostry, 2011, “Inequality and Unsustainable Growth: Two Sides of the Same Coin?” Staff Discussion Note No. 11/08 (Washington: International MonetaryFund).

[3] The Index measures the amount of resources that a country would have to allocate to social transfers and health services in order to achieve the minimum level of income security and health security that is demanded by the Recommendation R. 202 on national social protection floors.

[4] The SPF Index can be calculated for 129 countries when $1.9 and $3.1 a day in 2011 PPP are used as minimum income criteria

[5] In target 1.3, the SDGs require to “implement nationally appropriate social protection systems and measures for all, including floors, and by 2030 achieve substantial coverage of the poor and the vulnerable.”

[6] http://www.ipsnews.net/2017/04/world-bank-must-stop-encouraging-harmful-tax-competition/

[7] Exclusion by design: An assessment of the effectiveness of the proxy means test poverty targeting mechanism / Kidd, Stephen; Gelders, Bjorn; Bailey-Athias, Diloá; International Labour Office, Social Protection Department (SOCPRO). Geneva: ILO, 2017

[8] Such as Assessment Based National Dialogue’s (ABNDs) and Development Finance Assessments (DFAs).