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Overview of social assistance

David E. Bloom
Ajay Mahal
Larry Rosenberg
Jaypee Sevilla

Harvard School of Public Health


April 22, 2010

ADB Regional Conference


“Enhancing Social Protection
Strategy in Asia and the Pacific”

Disclaimer: The views expressed in this paper/presentation are the views of the author and do not necessarily
reflect the views or policies of the Asian Development Bank (ADB), or its Board of Governors, or the
governments they represent. ADB does not guarantee the accuracy of the data included in this paper and
accepts no responsibility for any consequence of their use. Terminology used may not necessarily be
consistent with ADB official terms.

Overview of social assistance


Examples of
social assistance programs
• Financially inclusive accounts in Bolsa Familia
• Replacing fuel subsidies with cash transfers in
Chile, China, and Indonesia
• Wheat rations and microcredit to promote
socially optimal risk taking in Bangladesh
• Personal capitalization accounts in Peru
• Post-tsunami transfers for asset restoration and
housing reconstruction in Sri Lanka
• Kenyan Seed Voucher and Fair Program
• Ethiopian Productive Safety Net Program

Overview of social assistance


Basics of social assistance
• Social assistance consists of non-contributory
transfers to the poor and vulnerable
• Categories:
– Public works
– Cash or near-cash transfers (UCTs, CCTs, food
vouchers, seed vouchers)
– In-kind transfers (food rations, school feeding
programs, seeds and agricultural inputs)
– Price subsidies (e.g., on rice and fuel)
– Fee waivers (health care, schooling, utilities,
transport, etc.)
– Welfare or social services

Overview of social assistance


The many varieties of
social assistance programs
• Cash vs. non-cash
• Unconditional vs. conditional
• Work, human capital, savings
• Children vs. working age adults vs. elderly
• Chronic vs. shock-related
• Idiosyncratic versus covariant risks
• Bundled with non-social-assistance
components vs. unbundled

Overview of social assistance


Population “demand” for social
assistance (1)
• Income poverty MDGs:
– Below $1.25 poverty line: poor
– Below $2 poverty line: vulnerable (not poor, but at
risk of shocks that could make them poor)

• Some countries with $1.25 poverty rate


above 20% and $2 poverty rate above 45%:
Bangladesh, Cambodia, India, Krygyz Rep., Lao
PDR, Mongolia, Pakistan, Philippines, Tajikistan,
Turkmenistan, Uzbekistan, Vietnam

Overview of social assistance


Population “demand” for social
assistance (2)
Negative shocks:
• Financial and economic crises
• Price shocks: food and fuel
• Natural disasters, weather variability, and climate
change
• Policy changes (e.g., elimination of subsidies)
Other shocks:
• Regional integration
• Change of technology

Overview of social assistance


Government “demand” for social
assistance
Countries with National Development Strategies or Poverty
Reduction Strategies involving social protection as a core
element: Bangladesh, Cambodia, India, Lao PDR, Mongolia, Pakistan,
the Philippines
Countries with National Development Strategies and Poverty
Reduction Strategies or other Development Strategy
documents that explicitly contain commitments to significantly
raising levels of expenditure on social assistance: Bangladesh,
India, Nepal, Pakistan, the Philippines
Countries that have or are developing National Social Protection
Strategies or their equivalents: Cambodia, Pakistan, the Philippines
Countries with non-contributory social pensions: China,
Bangladesh, India, Malaysia, Nepal, Sri Lanka, Thailand, Vietnam
Countries using CCTs: Bangladesh, Cambodia, India, Indonesia,
Mongolia, Pakistan, the Philippines,

Overview of social assistance


Which programs in which DMCs?
Public works: everyone has them

Education-related transfers (SFP/scholarships/CCTs):


everyone has them except Afghanistan, Lao PDR, Malaysia,
Thailand, and Pacific Islands

Poverty-related transfers: everyone has them except


Azerbaijan, Georgia, Indonesia, Lao PDR, Mongolia,
Philippines, Vietnam, and Pacific Islands

Emergency transfers: Afghanistan, Bangladesh, Cambodia,


China, Fiji, India, Indonesia, Kyrgyz Rep., Lao PDR, Malaysia,
Pakistan, Papua New Guinea, Samoa, Sri Lanka, Timor-
Leste, Vietnam

CCTs: Bangladesh, Cambodia, India, Indonesia, Mongolia,


Pakistan, and the Philippines
Overview of social assistance
Expenditure levels, as share of GDP
Asia Pacific Mean and median among
developing/transition economies
China 0.4 are 1.9 and 1.4 respectively
Indonesia 1.3
Mongolia 1.4 About half of countries spend
between 1 to 2%
Philippines .22
Vietnam 1.1 Sub-Saharan Africa: 3.5
Bangladesh 0.7 Latin America: 1.5
India 2.2 Middle East/N. Africa: 2.0
Pakistan 0.4 OECD: 2.5
Sri Lanka 2.0

Average: 1.1

Overview of social assistance


New thinking: productivist
social assistance
• CCTs
• Duality: protection and promotion
– Duality 1: Income and substitution effects
– Duality 2: Present and future benefits

Overview of social assistance


Protection
• Protection: provision of support for those
with deficits in consumption, income, or
wealth
• Deficits can be:
– Chronic
– The results of shocks
• Idiosyncratic (unemployment, illness)
• Covariant (natural disasters, price shocks,
economic crises)

Overview of social assistance


Some hypotheses about protection
1. There is no robust evidence that the trickle down hypothesis is
true. Economic growth, though absolutely vital, is neither necessary nor
sufficient to alleviate chronic poverty. There is robust evidence that SA can
alleviate chronic poverty. Some examples: Pakistan compares poorly with
respect to HDI relative to other countries with similar per capita incomes, Sri
Lanka compares relatively well. The Philippines has higher absolute poverty
and per capita incomes than Indonesia and Vietnam. CCTs in Brazil and
Mexico have raised large numbers of chronic poor out of poverty.

2. Replace "chronic poverty" in Hypothesis 1 with "MDG deficits". MDG


attainment strategies should explicitly incorporate social assistance.

3. The heightened prominence of covariant risks implies heightened relevance


of social assistance. Social assistance must be seen as integral to an
effective social or regional response to financial crises, price shocks, and
natural disasters and climate change. Given that social assistance is likely to
remain part of the ex post response to covariant shocks, there is value to ex
ante planning that integrates social assistance design issues into response
strategies. For the ADB specifically, there may be value to explicitly consider
design of social assistance components in CSFs and CCA/DRM.

Overview of social assistance


Promotion
• Human capital (substitution effect of CCTs)
• Physical and financial capital (housing
reconstruction, savings, asset and livelihood
restoration, preventing distress asset sales)
Optimal risk taking (BRAC, Ethiopian PSNP)
• Financial inclusion (Peru PCA, Bolsa Familia)
• Environmentally sustainable livelihoods (Kenya)
• Policy reform (Chile, China, Indonesia)

Overview of social assistance


New conception of social assistance
intersects with all ADB Core
Operational Areas
• Infrastructure: Public Works
• Finance: Financial inclusion, bundling of social
assistance with microfinance
• Education: CCTs
• Regional Cooperation and Integration:
countries learn from others’ experiences
• Environmentally Sustainable Growth: Ex-ante
cash transfers for livelihood adaptation, and ex-
post cash transfers for housing reconstruction,
asset replacement, and preventing negative
coping mechanisms
Overview of social assistance
How can social assistance be
financed?
• The following DMCs have fiscal space (pre-
crisis deficit under 3% of GDP and tax burden
below 20%): Armenia, Azerbaijan, Brunei
Darussalam, Cambodia, China, Indonesia,
Kazakhstan, Kyrgyz Republic, Lao PDR,
Marshall Islands, Nepal, Philippines, Thailand

• Asia Pacific spends less relative to other


regions, implying a realistic budget envelope
of an extra 0.5 to 1% of GDP, or a 50-100%
spending increase
Overview of social assistance
Financing (cont’d)
• Given levels of expenditure can be used
more efficiently and equitably
• Some social assistance can be cost-
saving, as when they replace costlier price
subsidies
• Financing burden depends on efficiency
properties of taxation
• Theoretically, the optimal scale of
expenditures equalizes marginal benefits
and marginal costs. But since
Overview of social assistance
Financing (cont’d)
• Theoretically, the optimal scale of
expenditures equalizes marginal benefits and
marginal costs.
• But since productivist social assistance
produces multiple benefits, the social
assistance budget should not consist only of
the “Redistributive budget” but also include
components of the “DRM and Climate
Change budget”, “Financial Inclusion budget”,
“Health and Education budget”, “Stimulus
budget”, “Infrastructure budget”, etc.
Overview of social assistance
Financing (cont’d)
• Financing is complex, and rules of thumb
are insufficient. A full-scale Social
Budgeting exercise is needed.

• Some countries need grants and loans


– Development partners
– Global funds for social protection floors
– Global philanthropy, corporate social
responsibility

Overview of social assistance


Agenda for the future
• Absolute poverty remains a challenge, especially among
traditionally excluded groups
• Develop social assistance response to multifarious shocks.
Programs need to be in place prior to shocks.
• Raise expenditures, and improve efficiency and equity of
existing expenditures
• Expansion of coverage, adequacy of benefits
• Focus on governance and core capacities
• National ownership: social assistance must rise to NDSs,
PRSPs, NSPSs
• Regional approach
• Tie social assistance to related agendas: GFS, CCA/DRM,
financial inclusiveness, MDGs, post-conflict recovery,
(rebalancing growth?)
• Education and outreach to all major stakeholders
• Learn, learn, learn

Overview of social assistance