Developing countries opting for social protection over fiscal consolidation – UN report

While the majority of countries around the world are expected to cut public expenditures in 2015 and beyond, others will be moving in the opposite direction to expand social protection measures, says a new policy paper released by the International Labour Organization (ILO) today.

According to the ILO’s Social protection global policy trends 2010-2015, 120 countries will be slashing public expenditure in 2015. Of these, 86 are developing countries and the overall number is expected to rise to 131 countries in 2016.

But while many countries are making cuts to public expenditure, most middle-income countries are boldly expanding their social protection systems, with immediate impacts on reducing poverty and inequalities, thereby contributing to their domestic demand-led growth strategies.

“This presents a powerful development lesson,” Isabel Ortiz, Director of the ILO Social Protection Departmentsaidtoday. “As this study shows, even in the poorest countries there are options available to expand fiscal space for social protection.”

Indeed, countries like Argentina and South Africa have introduced universal child benefits in recent years. Bolivia, Botswana, Brazil, China, Maldives, Namibia, Panama, South Africa, Swaziland and Timor-Leste have achieved universal or nearly universal coverage of pensions.

Many others have introduced social transfers for the unemployed, mothers, children and older persons. Some lower-income countries have also extended social protection mainly through narrowly targeted temporary safety nets with very low benefit levels.

The worldwide trends towards fiscal consolidation can be expected to aggravate the employment crisis and inequality trends, the report says.

“In many countries, policy responses to the global crisis have been taken behind closed doors, as technocratic solutions with limited or no consultation. This has often resulted in a lack of public ownership, civil unrest and adverse socio-economic impacts,” Ms. Ortiz said.

In Europe, these measures have contributed to increases in poverty or social exclusion, now affecting 123 million or 24 per cent of the population of the European Union.

And in developing countries that are not investing in social protection, adjustment measures are expected to negatively affect millions of households that have been coping with fewer and lower-paying job opportunities, higher food and fuel costs, and reduced access to public services.

The ILO paper – launched ahead of the meeting of Economic and Social Councils in Seoul, South Korea – shows that in the first phase of the crisis (2008–09), fiscal stimulus plans were launched in about 50 countries and social protection played a strong role in the response.

However, in the second phase of the crisis (2010 onwards), many governments in Europe and elsewhere embarked on fiscal consolidation and premature contraction of expenditures.

A fifth of countries are undergoing what is known as excessive fiscal contraction, meaning they are cutting public expenditures below pre-crisis levels. These include countries with major development challenges such as Eritrea, Sudan, Yemen, Sri Lanka, Ethiopia, Nigeria, Guinea-Bissau and Guatemala.

These measures include the elimination or reduction of food and fuel subsidies; cuts or caps on the wage bill, including for health and social care workers; narrower targeting of social protection benefits; and reforms of pension and health care systems.