Michael Cichon Social Security Department International Labour Office

1. A new deal for people in a global crisis - Social security for all:Making the economic, financial and fiscal case Michael Cichon Social Security Department International Labour Office New York, February 2009

2. Structure of the presentation • One:Social security is an economic necessity • Two: Social security is fiscally affordable • Three: Expected and observed social impact • Four: Financing strategies

3. One: …in addition to a social necessity social security is an economic necessity… • Economies cannot develop and grow without a productive workforce. In order to unlock a country’s full growth potential one has to fight social exclusion, ignorance, unemployability…through social transfers • Access to social health protection and education improves productivity levels (we have ample research evidence…) • The famous trade-off between growth and equity is a myth… • Investments on social security and economic development coincided in OECD countries • Cash transfers in developing countries have multiplier effects on local markets (stimulate local production inter alia of food) and • Social transfers stabilise domestic demand in times of crises

4. Two: Basic social security/essential cash transfers are affordable:A simulation exercise – Assumptions • Basic old age and invalidity pensions: • 30% of per capita GDP capped at US$ 1 PPP per day • Child benefits: • 15% of per capita GDP capped at US$ 0.50 PPP, for a max. of two children in age bracket 0-14 • Essential health care: • based on an health system staffing ratio of 300 medical professionals per 100,000 population, overhead 67% of staff cost … • Basic social assistance for the unemployed: • 100 day guaranteed employment paid by 30% of per capita daily GDP to 10% of the population • Administration cost: 15% of cash benefit expenditure

5. Two Four:… cost of universal pensions

6. Two:… a basic social protection package is affordable: Total cost of all basic benefit package components

7. Point Two:… a basic social protection package is affordable: share of total cost that can be covered by domestic resources

8. A closer look at Tanzania…

9. Point two: Other studies and experience • In Latin America the cost of a modest package of conditional child cash transfers, universal pensions and basic health care can be kept under 5% of GDP; the poverty headcount effects can reach a reduction of more than 50% • Universal pension schemes in Botswana, Brazil, Lesotho, Mauritius, Namibia, Nepal, and South Africa, cost between 0.2 and 2% of GDP. • Global view: Less than 2% of Global GDP are needed to provide all the world's poor with a basic benefit package

10. Point Three: Estimated social impact of cash transfers: reduction of poverty (headcount)

11. Point three: Estimated effect of a basic benefit package on poverty headcount: Tanzania

12. Point three:Social impact – lessons learned in developing countries • Coverage: Basic social transfers presently already cover 150-200 million people in about 25 to 30 countries • Poverty impact: the old age grant in South Africa decreased destitution gap by 45 %, oportunidades in Mexico reduced poverty rate of beneficiary households by about 12-points, similar order of magnitude in Brazil • Education: positive enrolment effects and school attendance duration in Mexico, Brazil, Colombia, Bangladesh, Nicaragua and Zambia • Health: positive effects on height, weight of children and nutritional status in Colombia, Mexico, Chile, Malawi, South Africa

13. Point three:Social impact – Preliminary Results of an ILO Meta study “Compendium of Cash transfer programs in Developing Countries” • Number of countries in study: 28 - 8 in Africa, 9 in Asia, 11 in Latin America • Number of studies: 80 studies during 1999 and 2008 • Number of programmes: 63 • Estimated number of total beneficiaries (primary and secondary , at the end of 2008): • Programmes for the active population: 43 Million • Programmes for the elderly and disabled: 30 Million • Programmes for children:146 Million

14. Point three:Social impact – Preliminary Results of an ILO Meta study

15. Point Four: Financing strategies: Lack of fiscal space? The good news – part I

16. Point four: Good news part II: Growing fiscal space • Sub-Saharan African countries increased on average domestic revenue from 15% to 19% of GDP between 1997 and 2006 • …and after Monterrey domestic resources increased (source OECD and ECA)…

17. Four: Financing strategies- revisited • Domestic resource mobilisation • Increase the efficiency of tax collection • Reduce waste • Broaden tax base • Reduce tax evasion and avoidance • Introduce self financing insurance systems (largely health care) • Increase overall tax rates • International resources (transitional financing) • Modified social security targeted budget support ? • Project financing to build national delivery capacity • International financing of health care goods and services • People-to-People Partnerships: Global Social Trust • A new Fund finance the start-up of basic social security schemes ? …or can we use the World Solidarity Fund that is already existing but empty…l

18. Four: What can be done now…? • National social security development plans cum social budgets required, that • Determine social security gaps, priority needs and fiscal requirements for the crisis and the next 10 years • Develop national fiscal space \through tax reform • Specify transitional external funding for basic benefits • Determine the capacity requirements