Impact of International Financial Crisis on Child Poverty in South Africa

1. Towards understanding the impact of the international financial crisis on child poverty in South Africa: The child poverty contextRamos Mabugu*, Debra Shepherd** and Servaas van der Berg**withMargaret Chitiga°, Bernard Decaluwé°°, Hélène Maisonnave*, Véronique Robichaud°°, Judith Streak** and Dieter von Fintel** * Financial and Fiscal Commission, South Africa** University of Stellenbosch° University of Pretoria °° Laval University (Québec) and PEP network Draft paper to Unicef/ODI conference, London, November 2009

2. Introduction • Macro-micro study: • CGE model uses micro-econometrically determined elasticities • Micro-simulations use CGE outputs • Issues covered here: • Child poverty profile • Child Support Grant as major instrument to combat child poverty • CGE model and its results • Possible implications for poverty

3. Poverty profile • Stochastic poverty dominance for most dimensions • Adult equivalence scale does not much affect poverty profile • Thus use per capita income at 40th percentile as poverty line • 52.9% of population poor: 65.5% of all children (11.8 million) • Differentials larger for P1 and P2 – thus lower poverty line would increase child-adult poverty differential • Poverty largest amongst youngest, blacks, rural areas, poorer provinces • Reported hunger strongly declined – probably because of Child Support Grants (CSGs) and other grants (employment growth played only a small role)

4. Poverty profile for children and adults (poverty line at 40th percentile of household per capita income)

5. Households that reported that children went hungry in the past year

6. Child Support Grants • Introduced 1998, expanded rapidly • Growing coverage within age-eligible groups • Age-eligibility increased from 7 to 15 years • Quite good targeting – but puzzlingly large errors of exclusion • Reduced poverty in period of good growth • Hypothesis: CSF acts as a form of income diversification that mitigates impact of economic shocks on vulnerable children

7. Contribution of spending on each type of social grant to total social grant spending

8. CSG: Eligibility and coverage

9. CSG roll-out: Progression over time in CSG coverage rates in households by earnings decile of the employed

10. Economic crisis and modelling its impact • SA’s first recession in 17 years • Cumulative job losses 1 million • Two scenarios modelled in CGE model: • Moderate (growth picks up from end 2009) • Severe (protracted global slowdown)

11. IMF Growth Projections for South Africa (estimates after 2008)

12. Potential effect of CSG and job losses on FGT poverty measures (2008 = base year) (provisional results) Note: CSG has larger effect than employment In economic boom, similar results held: employment contributed little to poverty decline

13. Static effect of CSG on child poverty headcount

14. Effect of 1.2 million job loss on child poverty headcount

15. Elasticities and effect of prices • Prices derived in modelling NIDS data • Urban-rural poverty differential narrows when using these prices • Generally high price elasticities mean much substitution following price rises • However, low price elasticity for staple (maize) impacts on consumption volumes

16. Poverty adjusted for price differentials: Early estimates

17. Provisional conclusion • Economic crisis may not have completely reversed progress in child poverty that resulted from expansion of CSG in recent growth period • Yet the crisis ended the period of declining child poverty and hunger • Non-money metric impact probably more limited, due to structure of SA service provision (e.g. education free for poor, public health largely free)