Social Protection Överview

Please do not cite or quote without written permission of the authors

UNITED NATIONS DEVELOPMENT PROGRAMME

Sequencing, Cost-Efficiency and Fiscal-Sustainability of Social
Protection—An Overview

By Yanchun Zhang, Nina Thelen and Nergis Gulasan

Preliminary Draft
25 October 2012

Bureau for Development Policy
United Nations Development Programme, New York

Note: The views expressed in this paper are those of the authors and do not necessarily reflect
those of UNDP. The authors thank Anne-Isabelle Degryse-Blateau and Selim Jahan for support
to this project. The authors are grateful for helpful comments received from Artemy Izmestiev
and Claudia Vinay. Please send comments and suggestions to the following e-mail addresses:
yanchun.zhang@undp.org, nina.thelen@undp.org and nergis.gulasan@undp.org

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1. Introduction

Social protection1 is gaining increasing support as an instrument to counter various types of risk
and vulnerability in an ever globalizing world. The global economic and financial crisis
reasserted the importance of protecting the livelihoods of all members of societies, especially the
most vulnerable, through well-designed social protection systems.2 But while social protection
has gained momentum in empowering people to weather an ever more insecure economic
environment, social protection is more than just a buffer to the risks brought about by short term
economic shocks like the recent financial crisis or fluctuations in the business cycle in general.

More long term social pressures linked to population growth, demographic change and
urbanization as well as environmental challenges through increasing droughts, storms and floods
aggravated by climate change have put government provision of social protection higher on the
national and global agendas. When well designed, social protection can contribute to economic
growth.3 Social protection can also contribute to building more equal societies and reducing the
economic costs and distorted opportunities (e.g. slower growth) brought about by large income
differences in societies. 4 Many social protection programmes in developing countries
increasingly include transformative and productive elements which empower people to improve
their lives and to graduate out of poverty. As a result social protection becomes an integrated part
of development policy.

Many questions, however, still remain to be answered on how to build a social protection system
that protects the most vulnerable, contributes to sustainable growth and development and
enhances resilience to shocks.

Our paper focuses on three aspects of the social protection debate related to sequencing, cost-
efficiency and fiscal-sustainability of building a well-functioning social protection system in
developing countries. We aim to use some country experience to shed light on how developing
countries can proactively engage in an adaptable social protection agenda sequencing from
informal to more formal social protection arrangements, continually assess the evolution of
countries‘ potential vulnerabilities and identify cost-efficient options to address these
vulnerabilities, and firmly embed fiscally sustainable social protection in national socio-
economic development planning.

The rest of the paper is structured as follows. Section 2 analyzes the sequencing of social
protection to identify the limitations of informal and semi-formal social protection and pin down
some of the triggers for a switch to more formal social protection. Section 3 reviews cost-benefit
analysis to evaluate the economic affordability and cost efficiency of specific social protection
measures. Section 4 explores fiscal sustainability issues of a social protection system and

1
The social protection term used in the proposed initiative is a broad concept which includes labour market
interventions, social insurance programs and social assistance.
2
G20 leaders and international agencies like the United Nations, the World Bank and the IMF are all supporting the
implementation of sound social protection systems and are calling on governments to step up measures to protect
their peoples in order to restore growth, progress and confidence (see G20 2011).
3
Dercon (2011); UNDP and ILO (2011).
4
See, for instance, Stiglitz (2012). Soares et al. (2007) found that about one fifth of the 4.7 percentage point decline
in the GINI coefficient during 1995-2004 could be attributed to Bolsa Famí lia.

2


developing countries‘ options to create fiscal space for social protection provision. Section 5
concludes.

2. The Sequencing of Social Protection

Over the past decade, social protection has received increasing attention in development policy
as an instrument to reduce poverty and to enhance opportunities and human capabilities. 5
Particularly since the mid-1990s, many governments of developing countries have successfully
experimented with social protection which demonstrates the potential.6 In the absence of public
social protection arrangements or inclusive and complete credit, savings and insurance markets,
many people in developing countries have historically relied much on traditional and informal
risk mitigation arrangements.

Social protection arrangements seek to reduce poverty and vulnerability and to improve human
welfare. Hence, the main motivation for the existence of social protection in societies lies in core
human values such as responsibility, reciprocity, social solidarity, civility and self-help. 7
Precisely because social protection is built on ethical values and often also rooted in traditions,
friends and family (i.e. households more broadly) serve as actors in informal social protection
arrangements. In addition, a large number of people in developing countries rely on so-called
semi-formal social protection arrangements. Examples include savings clubs, food cooperatives
and church groups. These ―mutual aid societies‖ or ―member-based organizations‖ provide social
protection where family networks have been eroded, like for instance in urban settings, or where
more formal arrangements fail to deliver.8

The types of arrangements of social protection, as well as social protection initiatives and
programmes vary strongly across developing countries (and regions). While differences between
low-income countries (LICs) and middle-income countries (MICs) exist, generally, many
developing countries are now considering revising their social protection programmes and
moving towards more integrated, inclusive, modern and established social protection systems.

One option for governments to take into consideration is the implementation of a basic set of
social protection arrangements at the national level, a so called ―Social Protection Floor‖. The
Social Protection Floor initiative is a UN system-wide effort to ensuring a basic cover of social
protection for all over the life cycle.9 The reasoning of such a floor is that all in need should have
access to essential health care and to basic income security.10

In this section, we first explain what social protection is and, for the purpose of this paper, settle
on a definition of the term. We then provide an overview and elaborate on the types of

5
Cook and Kabeer (2009).
6
7
Chen, Jhabvala and Lund (2002); UN (2000).
8
Tshoose (2010).
9
http://www.ilo.org/public/english/protection/spfag/index.htm
10
www.social-protection.org/gimi/gess/ShowTheme.do?tid=1321

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arrangements in which social protection is provided (i.e. informal, semi-formal and formal).11
Second, we discuss the limits of informal and semi-formal social protection arrangements.
Third, we discuss evidence on triggers for a switch to more formal, modern, integrated and
established social protection in different countries (world regions). The section concludes with
findings on enabling conditions that have helped developing countries to integrate social
protection into their national development strategies and recommendations that developing
countries may with to consider when embedding existing non-formal social protection
arrangements in their national development strategies.

2.1. Definition and Categorization of Social Protection

There is no unanimous definition of social protection 12 or clear categorization of social
protection measures in the literature or in policy practice.13 For the purpose of this paper, we
define social protection measures as interventions that are intended to reduce poverty and
vulnerability (including transitory poverty and vulnerability owing to economic and other
shocks) and to improve human welfare. Many social protection measures support poor and
vulnerable groups of people, which includes groups like the (non-working) young, unemployed,
elderly and special groups (children, sick, disabled and minorities) to cope with economic
hardships.14

Social protection includes social insurance, social assistance and labour market interventions.15
Contributory social insurance programmes under which people receive benefits or services based
on regular financial contributions to an insurance programme include publicly mandated
insurance against ageing, disability, sickness, death or unemployment. Most social insurance
schemes are provided by the government and closely linked to the formal labour market which
often limits their coverage to formal workers. However, we also count insurance schemes that
protect against risks to livelihoods arranged by actors other than the government in our
definition.

11
This paper is merely intended to provide an illustrative and informative overview of the topic. It is not intended to
provide a new analytical framework. For an alternative, deeper analysis of levels of social protection, formality and
actors, please see Holzmann and Jø rgensen (2001).
12
The term social protection is generally considered to encompass a broader array of arrangements and actors than
social security. For instance, the former counts protection arranged through family members or members of a local
community (ILO 2010a). However, given the fact that the terms are often used interchangeably in the literature, we
use the terms social protection and social security interchangeably, unless noted otherwise.
13
It should be noted that there is no generally recognized definition of social protection. In fact, various
international organization, scholars and even countries developed their own (Bonilla Garcí and Gruat 2003). For a
a
compilation of social protection definitions of selected international organizations, see Annex Box 1. Various
scholars have discussed social protection components and have developed typologies, see for instance Devereux and
Sabates-Wheeler (2004).
14
We are aware that our definition may not be precise and can be broadly looked at as social policy measures, but
decided to use it for the purposes of this paper.
15
Some narrower definitions of social protection used in other studies exclude interventions measures on public
health, education, housing or labour market interventions (see Annex 1, Box 1). Our definition refers to the most
common areas of social protection as defined by the Governance and Social Development Resource Center (GSDRC
2012).

4


Social assistance programmes are non-contributory transfer programmes targeted at the poor and
those vulnerable to poverty and shocks. There is no universal consensus on the types of
interventions covered by the social assistance label. Common examples include cash transfers
(conditional cash transfers (CCTs) which are transfers to poor households conditional on specific
behavior) and unconditional cash transfers (UCTs) like non-contributory pensions, etc.); in-kind
transfers (e.g. food transfers); fee waivers (health fees, school fees, scholarships); utility
subsidies (e.g. electricity, housing and water) and so on.

Labour market interventions are aimed at protecting people who are in the labour market or at
poor people who are able to work.16

For the purpose of this paper, we differentiate between three types of social protection
arrangements17: (i) informal; (ii) semi-formal; and (iii) formal (public and private) arrangements.
Informal arrangements are based on friends and family (―kinship‖).18 Semi-formal arrangements
are based on voluntary or membership associations, civil society organizations (CSOs) (e.g. non-
governmental organizations (NGOs), trade unions). Formal arrangements are based on public
actors (i.e. the central or local government) and private actors (i.e. insurance companies (and
banks)).

Social protection can be arranged informally, semi-formally or formally. Various actors are
involved in these different types of arrangements. In the absence of formal social protection
mechanisms and—oftentimes—market mechanisms (for instance for credit and insurance
products), people in many developing countries have historically reverted to friends and family
for help in the face of adverse conditions.19 This is what we define as traditional and informal
social protection arrangements. The exact mechanisms of social protection provided in this
informal way very much depend on the particular traditions of the society in question. Likewise,

16
It should be noted that our definition of labour market interventions is broader than the definition by the
Governance and Social Development Resource Center that only counts ―[l]abour market interventions [that] provide
protection for poor people who are able to work‖ (GSDRC 2012). Labour market interventions include (vocational)
training and skills development and changes to labour legislation. They also include labour market measures that
likely fall under one of the other two areas of social protection (social insurance or social assistance) but are focused
on the labour market, like unemployment insurance, and part-time unemployment benefits. Public works
programmes (the poor working for food or cash), can be considered labour market interventions, but they are also
sometimes referred to as social assistance, since they basically function like conditional transfers (i.e. cash or food is
handed out in return for work on public infrastructure projects).
17
It should be noted that this is the authors‘ own elaboration. We settled on this tentative typology to ease
understanding of the landscape of possible arrangements of social protection. There is no generally accepted
definition of ―formal‖ and ―informal‖ social protection arrangements in the literature. While Holzmann and
Jø rgensen (2001) identify three main arrangements of social protection (public, market based and informal) as do
Hoogeveen at al. (2004) (formal, market based and informal), Mohanty (2011) refers to CSOs as actors in semi-
formal arrangements of social protection. Gentilini and Omamo (2009) consider both public and private actors to be
―formal‖ actors in social protection arrangements. Our categorization includes three categories of social protection
arrangements: social protection through public and private actors (formal), social protection through community,
groups, or member-based organizations (semi-formal) and social protection through households (informal).
18
UN (2000).
19
Mendola (2010). For a literature review on how people cope in the absence of publicly provided social protection
and often not accessible credit and insurance markets in low-income settings, please refer to Mendola (2010). For an
overview of how people cope with risk in an environment of non-inclusive markets, please refer to Mendoza and
Thelen (2008).

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the nature and number of events that are covered by informal social protection also vary
depending on the cultural and country context.

Much for the same reason as informal social protection provision, semi-formal social protection
arrangements are found to have developed. Mutual aid arrangements at community level as well
as money transfer between people that belong to the same community or neighborhood or family
are examples of semi-formal social protection arrangements. Instead of merely relying on friends
and family, many people have joined forces in mutual aid schemes like burial societies or other
community-based arrangements. Supporting one another, mutual aid arrangements are organized
through groups, associations and social networks.20 Mutual aid schemes are found to partly have
developed in response to the process of industrialization and urbanization in developing
countries, supporting individuals where the original extended family system had been eroded.21
Burial societies and stokvels 22 in Africa, for example, are found to be more present in urban
areas.23 Burial societies help meet (material and non-material) obligations to organize a dignified
funeral according to traditions for a deceased family member which otherwise might stretch a
family‘s budget. Civil Society Organizations (CSOs) are found to be involved in the provision of
child protection services in the Pacific Island Countries (PICs) while church groups are found to
play an important role in caring for the aged and disabled in Africa. 24 Some of these groups
specifically target those in need. For instance, social protection arrangements in church groups in
Zimbabwe only cater to members who are unable to help themselves.25

In the category formal social protection arrangements, the public sector (local and federal
government) is an important actor. Another actor in formal, modern social protection
arrangements is the private sector. Private actors play a role in the areas of microinsurance as
well as general insurance afforded by insurance companies (and, in some cases, banks). 26
Microinsurance27 provides an affordable alternative for low-income populations who are either
excluded from insurance markets or without access to appropriate public social protection, where
it exists. It can help people with limited financial means to hedge themselves against risks such
as old age, death or illness.28 Microinsurance can usefully be attached to or linked to existing
formal social protection arrangements, so that public and private instruments together can
contribute to broadening coverage against those risks that pose the greatest challenge for the
poor. 29 Microinsurance is regarded as ―a social protection instrument that can complement
existing social protection systems in a meaningful way‖.30 Regulations for private actors as well

20
Mendola (2010).
21
Tshoose (2010).
22
Stokvels are common in Africa, are invitation only clubs and usually comprised of 12 or more members who
contribute on a regular basis, based on their income. Each month, a different member receives the money. Regular
meetings assure that members pay their contributions, a constitution regulates the functioning of the stokvel. For
more information, see http://durban.thebeehive.org/content/39/1344.
23
Tshoose (2010).
24
Dhemba, Gumbo and Nvamusara (2002); Mohanty (2011).
25
Dhemba, Gumbo and Nvamusara (2002).
26
We do acknowledge that not all microinsurance providers are formal private actors (please see note in Table 1 for
more information).
27
Per definition, microinsurance is targeted at low-income populations (Churchill 2006).
28
BMZ (2011).
29
BMZ (2011).
30
BMZ (2011, p.2).

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as close monitoring are needed to make sure that private actors can effectively complement
governments in social protection.

The private sector and the public sector can also usefully engage in partnerships in the areas of
pension. Many developing countries have started to develop ―hybrid pension systems‖, a mix of
public and private pensions. One example is Chile. Introduced in 1981, the private pension plan
helped to accumulate a large pool of capital but had the downside of only benefiting those who
paid contributions (i.e. salaried workers in the formal sector).31 In 2008, the Chilean government
expanded public pensions to groups left out by the private pension system (i.e. the poor and
informal workers).32 About two-thirds of Chilean pension income will be paid from pre-funded
retirement accounts, one-third will be paid from tax-financed public benefits.33 A recent impact
assessment of the 2008 reform‘s most important component, the new Basic Solidarity Pension
(Pension Bá sica Solidaria) aimed at poor individuals aged 65 and older finds that targeted
households (poor households with at least one person age 65 and older) received about 2.4
percent more annual household income and were able to improve their welfare. 34 The study
finds little evidence that the Basic Solidarity Pension led to a crowding-out of private transfers.35
While the 2008 reforms have brought important improvements, a large share of the informal
sector remains outside Chile‘s pension system.36

Table 1 provides an illustrative overview of social protection arrangements (i.e. informal, semi-
formal and formal), the actors involved in these arrangements, the three main areas of social
protection interventions as well as examples of initiatives that fall under these main areas in the
respective types of arrangement.37 For instance, utility subsidies are an example of a specific
social protection initiative in the area of social assistance which is usually placed in the formal
(public) arrangement category. A caveat regarding our overview that needs to be mentioned is
that borders between categories are often not clear cut. The line between informal and semi-
formal social protection, for instance, is a fine one as is the line between semi-formal and
formal.38 Thus, social protection initiatives can fall under more than one arrangement (sometimes
even with the involvement of external donors and other external actors).39

While important, informal and semi-formal social protection arrangements face a number of
limitations which we will analyze in the next section.

31
Gallardo (2008).
32
Gallardo (2008).
33
James, Cox Edwards and Iglesias (2010, p.25).
34
Behrman et al. (2011, p.2) and Shelton (2012).
35
Behrman et al. (2011).
36
Shelton (2012).
37
This compilation is merely meant to be illustrative and to provide an overview to the reader.
38
There is no clear categorization of and/or distinction between semi-formal and informal arrangements of social
protection (e.g. ADB (2010) even considers NGOs to be formal actors in social protection arrangements).
39
The government can, in some cases, collaborate with the private sector and/or civil society actors in social
protection arrangements.

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Table 1: Social Protection Arrangements, Actors and Examples of Initiatives

Type of
arrangement Actor Specific initiative under each area

Social insurance Social assistance Labour market
interventions
Formal
public sector  health insurance  cash transfers  training programmes
(government) (conditional cash
transfers (CCTs)
and unconditional
cash transfers
(UCTs))
 disability and  in-kind transfers  skills development for
invalidity workers
insurance
 life insurance  fee waivers  part-time unemployment
benefit
 public pension  utility subsidies  reintegration in the job
market
 employment counseling
 changes to labour
legislation
 public works
programmes
 employment guarantee
programmes
private sector  microinsurance*
(e.g. insurance (e.g. health, life,
companies, accident insurance
banks) targeted at low-
income
populations)
 insurance policy
or contract (e.g.
private pension,
health, life,
accident)
Semi-formal
civil society  in-kind transfers to  skill training and
organizations children education for poor, youth
(CSOs)**  social welfare and unemployed
(e.g. non- services for
governmental women, the elderly
organizations and the disabled
(NGOs)***,
church groups)

mutual aid  burial insurance
arrangements  savings and credit
often at through
community community groups
level (e.g.

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burial
societies,
Rotating
Credit and
Savings
Associations
(ROSCAs))
Informal****
family/kinship  remittances /
(blood- direct money
related), transfer
friends  gift exchange / in-
kind exchange

Sources: Own elaboration based on Dekker (2008), Dhemba, Gumbo and Nvamusara (2002), GSDRC (2012),
Holzmann and Jø rgensen (2001), Mohanty (2011).
* Churchill and Matul (2012) differentiate between formal providers of microinsurance (e.g. insurance companies),
and what we call ―semi-formal‖ providers (e.g. cooperatives, community-based organizations, mutuals, friendly
societies).
** Devereux (2010, p.13) broadly defines civil society to include ―[…] trade unions, rights-based NGOs,
representatives of special interest groups (women, children, pensioners, people with disabilities, people affected by
HIV and AIDS, homeless people, youth) community-based organisations (CBOs) and faith-based organisations
(FBOs), as well as activist academics and the independent media.‖
*** While we do recognize that NGO‘s can also be international actors (e.g. Save the Children), we mostly
considered nationally based NGOs.
**** We consider informal social protection to be solely based on individuals and households. However, we do
recognize the argument that communities are sometimes extended families.

2.2. Limitations of Informal and Semi-formal Social Protection

A major part of the world‘s population still relies on informal arrangements as the main source of
social protection. 40 Informal and semi-formal social protection, however, is present in most
developing countries: it has developed to fill gaps at the community and family/household level
that government policies have not been able (or willing) to address 41 or that markets have not
managed to (or have not been willing to) reach.42

40
Holzmann and Jø rgensen (2001); Hoogeveen et al. (2004). Comprehensive social protection systems exist in only
one-third of countries, where 28 percent of the global population lives; however, most of these systems cover only
workers in formal employment ILO (2010a, p.33). According to the ILO (2010a, p.33), only around 20 percent of
the global working-age population and their families have access to comprehensive social protection. It is roughly
estimated that somewhere between 20 percent and 60 percent of the global population has access to basic social
protection only ILO (2010a, p.33). According to the ILO, those enjoying only a basic level of income security
(guaranteeing income at the level of the poverty line) at all stages of the life cycle as well as access to essential
health services are considered to benefit from basic social protection, or i.e., the social protection floor (ILO 2010a,
p.22).
41
Dercon (2002).
42
For an analysis of how to make credit markets more inclusive for the poor, please refer to Mendoza and Thelen
(2008).

9


While being vital for a large share of the population, especially the most vulnerable, these
informal and semi-formal arrangements can have two important downsides: first, they may
provide inadequate protection since they might collapse or malfunction under certain
circumstances or since pay-outs might be too small. Factors that can contribute to the
malfunctioning of informal and semi-formal arrangements include inherent characteristics of
these types of arrangements themselves (like the mere size of the mutual assistance group/pool)
and the complex nature of the risks they are not equipped to cover (diversification of the mutual
assistance group/pool). Second, they may be exclusive of the poorest or discriminate certain
social groups.

First, in some cases, informal and semi-formal social protection arrangements provide
inadequate protection. For instance, when exposed to a risk that affects everyone in the risk pool.
Risks can affect whole communities/regions (covariate risks) or they can affect a particular
individual (idiosyncratic risks). 43 By definition, insurance does not work for covariate risks, i.e.
in order for an insurance scheme to work the risk pool needs to be sufficiently diversified so that
a particular adverse event only affects a limited number of members of the risk pool. Thus, for
example in the case of community-based insurance schemes, if an adverse event affects the
whole community this social protection set up does not work. 44 Given the size of typical
communities, there are many risks that qualify as covariate risks. They include financial crises,
other macro-economic shocks, or natural disasters. Likewise, many diseases that afflict
developing countries are also covariate risks. For instance, HIV/AIDS diminishes the earning
potential of entire communities and is found to have hindered capacity and operability of
informal social protection mechanisms in Eastern and Southern Africa.45

Naturally, the likelihood of a covariate risk increases the smaller the size of and the more
homogeneous the risk pool.46 Since some informal and semi-formal risk-coping arrangements are
small in size, chances are high that a shock may hit the whole group. 47 Also, payouts might not
be particularly high if the insured group is small.48 An informal and semi-formal arrangement is
also found to be less effective in case it is a ―horizontal‖ (between two equally poor parties)
arrangement as opposed to a ―vertical‖ (between a rich and a poor party) arrangement since the
poor parties both have less resources at their disposal.49 Hence, unless informal and semi-formal
arrangements are able to transfer part of the risk to insurance markets outside the community,
they are likely to collapse when experiencing a covariate risk. 50 Formal social protection

43
The counterpart of covariate risks are idiosyncratic risks, e.g. risks that affect a particular individual in a
community. Examples of idiosyncratic risks are illness, disability, theft, etc. Informal risk coping arrangements are
found to work better in the context of risks that only affect an individual in a community instead of affecting the
whole community (Dercon 2002).
44
Dercon (2002).
45
ILO (2001); UNICEF (2008).
46
It should be noted that small informal groups with a high level of trust have also been found to achieve risk
sharing and punishment in case of non-compliance (Mendola 2010). One should assume that the insured risk was of
idiosyncratic nature.
47
Bhattamishra and Barrett (2010).
48
49
Devereux (1999).
50
Dercon (2002) notes that communities or individuals can alternatively also revert to intertemporal transfers, like
using individual or community-level savings. However, the poorest might not possess savings.

10


arrangements can usefully complement or strengthen community-based arrangements to access
commercial reinsurance markets.51

On the other hand, some semi-formal social protection schemes have found to be overwhelmed
by their membership size. While broad coverage means that there is strong demand for the semi-
formal arrangement, it can also overburden its administrative and managerial capacity. Some
burial societies in South Africa, for instance, have grown so big that they could possibly improve
their service were they to be more regulated.52

Second, informal and/or semi-formal social protection arrangements, in some cases, can be
exclusive of the poorest or discriminative of certain social groups and minorities. For instance,
they are exclusive of the very poor53 when they require contributions in cash or in kind which the
poorest are unable to pay. The poorest households in Fiji Islands and Vanuatu, themselves often
part of a family network of equally poor people, have been found to oftentimes be unable to
revert to family support or to honor their contribution commitments to the community, church,
etc. 54 Another barrier preventing people from accessing these arrangements can be
discrimination (for instance, based on ethnic background, migrant status, religion or gender).55
More formal, more equitable social protection arrangements could help extend social protection
to the poorest and those excluded by discrimination.56

While important, informal and semi-formal arrangements have many downsides as they can
reinforce the poor‘s dependent status without making them resilient to (possible) frequent
shocks.57 For instance, in the absence of formal insurance markets and social protection, farmers
in Sub-Saharan Africa have been found to improvise measures like using mixed cropping
systems and planting multiple varieties to reduce the impact of shocks on their harvest. The price
they pay is high: more work and lower yields.58 Governments may usefully strengthen informal
arrangements in a given country context but may consider providing more formal solutions in
others.59

2.3. Potential Triggers for a Switch to More Formal Social Protection

As mentioned in the previous section, informal and semi-formal social protection arrangements
may have a number of limitations that can lead to inadequate protection or non-inclusive
provision. That may not in itself be a reason for a government to initiate a new formal social
protection scheme or to broaden coverage of an existing social protection system. Our findings
suggest that a broad number of factors may potentially trigger a developing country to initiate a
more formal social protection system by creating an enabling environment. These factors fall
51
52
Bester et al. (2004); Olivier, Kaseke and Mpedi (2008).
53
Bhattamishra and Barrett (2010); Dercon (2002).
54
ADB (2010).
55
Cook (2009).
56
57
58
UNDP (2012a).
59

11


into two broad categories: internal triggers and external triggers. Internal triggers can be related
to the limitations of existing informal and semi-formal social protection schemes and
arrangements themselves or to a change in a country‘s political and economic context which in
turn can influence the development path of a country (i.e. change in wealth level, population
related change), or boost public support and political will. External triggers include change in
the nature of shocks (i.e. from idiosyncratic to covariate), economic crises, natural disasters, etc.

Many governments have moved in the direction of scaling up existing or implementing new
formal social protection schemes when such a potential trigger is present. If not addressed in a
timely fashion and with the right responses, vulnerabilities that are exposed in economic crises
and through other triggers may threaten growth prospects, hard-earned development gains and
social stability. In this section we explore which factors appear to potentially trigger countries to
move towards a more modern, more efficient (and ultimately towards a more formalized) social
protection system.

2.3.1. Potential Internal Triggers for a Switch to More Formal Social Protection

A change of a country‘s political or economic context may provide a trigger for broadening
formal social protection coverage. For instance, many formerly planned economies started
broadening public social assistance coverage to previously excluded groups when switching to
market economy systems. 60 Apart from the regime change itself, liberalization, increased
external competition and pressure on public accounts are factors that are found to have pushed
towards an extension of social protection.61 The Republic of Korea, for instance, experienced a
period of extremely rapid growth brought about by industrialization. One of the least developed
countries in the 1960s, by 1995, the Republic of Korea was classified as an upper middle-income
country and today is classified as a high income country.62

With increasing wealth, the Republic of Korea started to gradually implement social protection
initially following the model of Western welfare states using the social insurance model covering
formal sector workers. The Republic of Korea‘s four main social insurance programmes have
been progressively built up since the mid-1960s: Industrial Accident Compensation Insurance
(1964), Medical Insurance (1977), National Pension Insurance (1988) and Employment
Insurance (1995).63 Increasingly, the Republic of Korea‘s the development path on which the
Republic of Korea embarked, started to challenge the country‘s existing social protection system.
As the Republic of Korea moved up the development ladder, it started facing different and
evolving challenges like expanding and/or aging population, fast urban migration, and increasing
demand for more equal access to quality social services. The fast aging of the Republic of
Korea‘s population poses challenges to the country‘s pension system. By 2040, fewer than two
people of working age in the Republic of Korea are expected to support every person age 65 and
older.64 One innovative approach the Republic of Korea has taken to address this problem is to

60
61
62
Jung and Shin (2002, p.270); World Bank (2012).
63
Jung and Shin (2002, p.270).
64
The Economist (2012).

12


provide subsidies for the employment of the elderly so they continue working and providing for
themselves for longer. 65 As of 2008, elderly people in the Republic of Korea also have a
universal basic pension, earned-income tax credit and an insurance scheme providing long-term
care at their disposal, amongst others.66 Similar challenges are also faced in the developing Asia
region more broadly where informal social protection mechanisms are eroding due to changes in
working habits, cultural values, family structures and urbanization.67

In Latin America, the change in the political context was marked by the democratization in the
late 1980s, early 1990s of many countries in the region. Democratization is said to have
contributed to scaling up bottom up public support for social protection in Latin America.68 A
study cites ―strong popular demand for social protection‖ 69 as an enabling environment for the
birth of a generation of ―highly innovative, domestically designed poverty and vulnerability
reduction programmes‖ 70 in Latin America (e.g. Bolsa Escola/Famí lia (Brazil),
Progresa/Oportunidades (Mexico), and Chile Solidario (Chile)). Brazil is an example of a
country where the government, in collaboration and pushed by civil society, has shown strong
support for social programmes. The end of the military dictatorship in Brazil in 1985 was
accompanied by an increasing occupation of the public arena by civil society and various grass-
roots movements which brought the concerns of the people to the country‘s agenda. These
movements played a key role in the establishment of a new Constitution. With the approval of
the Constitution in 1988 ―a new landmark point was established as a universalized social security
model came to life that was grounded in citizenship rights.‖71

While bottom up support by the citizens was a key trigger for Brazil‘s move towards more
formal social protection, political will at the federal level was the key driver to broaden
coverage, efficiency and areas of social protection interventions. The outspoken support of social
programmes by a new government put social protection high on the agenda of the federal
government in the early 2000s; the current government continued and deepened this course.
Investing heavily in social as well as economic development, Brazil‘s approach to social
protection demonstrates that the government is treating poverty as a multi-dimensional problem
that goes well beyond the lack of income.72 Since the early 2000s, the government has extended,
designed and implemented a number of integrated programmes for social protection, extension
of basic services, and food security that have helped break vicious circles of social exclusion,
lack of opportunity, low incomes, and poor health. 73

Bottom up support through civil society, citizens and even the media are also said to have served
as a driving force in some successful African country cases. 74 In South Africa, civil society,
through media campaigns, advocacy and street protests and even judicial proceedings, has

65
66
67
AusAid (2012).
68
Barrientos and Hulme (2008).
69
Barrientos and Hulme (2008, p.9).
70
Barrientos and Hulme (2008, p.9).
71
UNDP and ILO (2011, p.66).
72
UNDP (2012b).
73
UNDP (2012b).
74
Devereux (2010).

13


demanded changes towards more equal and inclusive social protection policies. 75 Part of the
success of civil society in South Africa was due to the fact that it used jurisdiction to claim the
right to social assistance (i.e. this right is written in the South African Constitution). 76While
social protection systems in LICs in Eastern and Southern Africa are still in the initial stages of
development, they are more advanced in MICs in the region.77 Successful upscaling of social
protection in African countries is found to be linked to strong political will at the federal level (as
opposed to an agenda of donors).78 South Africa is said to avail of the most comprehensive social
protection system in Sub-Saharan Africa, also to a great extent thanks to political will.79

Lastly, transition from conflict toward a more stable, accountable regime can be a potential
trigger for a government to implement or broaden social protection schemes. For instance, some
LICs, after exiting from conflict, broadened their social protection coverage. 80 In Liberia and
Sierra Leone the governments invested in labour market interventions aimed at the young. 81
Social protection in post-conflict countries helped the government to build trust though the
provision of support and opportunities to its citizens. Social protection was also a key instrument
in building a more peaceful and equal nation after the end of the Apartheid regime in South
Africa.82 The South African government broadened its formal social protection system primarily
focusing on child grants and non-contributory pensions and with the help of labour market
policies bringing more people into jobs.83

2.3.2. Potential External Triggers for a Switch to More Formal Social Protection

As discussed above, the change in the nature of shocks that households experience has an impact
on the functioning of informal social protection arrangements. For example, while households
and individuals in the South-East and East Asia region have historically experienced shocks that
are mostly of idiosyncratic nature, the increasing integration of the regional economy implies
that economic shocks increasingly affect a broader range of people, challenging informal
arrangements.84 This situation can trigger the need for more formal, more stable social protection
systems.

Economic crises have proved to be a testing moment for the adequacy of a country‘s social
protection system as they tend to expose the system‘s flaws and weaknesses. In the case of Latin
America, the economic crisis in the early 1980s is often cited as a trigger to a switch to a more
formal and systematic approach to social protection.85 Prior to the crisis, like in many developing
world regions, social protection in Latin America was mostly limited to workers in the formal

75
Devereux (2010).
76
Devereux (2010).
77
UNICEF (2008).
78
Devereux (2010).
79
Devereux (2010).
80
81
Alderman andYemtsov (2012).
82
Alderman andYemtsov (2012).
83
Du Toit and Neves (2009).
84
Cook (2009); Sumarto and Bazzi (2011).
85

14


sector.86 The crisis brought about structural adjustment and economic liberalization which in turn
were followed by a rise in poverty and inequality. Initially, no broad social protection reforms
followed (only social insurance institutions for the formally employed were reformed and
fragmented social assistance programmes and social funds were mounted). The step for more
comprehensive and permanent public responses only started in the mid 1990s.87

Another example is the Mexican economic crisis of 1994 (known as the ―Tequila Crisis‖) that
motivated a change of the social protection system in Mexico. 88 The crisis exposed the
insufficiency of the existing mechanisms to protect the poor, so the new incoming administration
embarked on a two-pronged approach between (modestly) increasing support under existing
mechanisms and slowly replacing the old system with new programmes. 89 Mexico‘s well-known
conditional cash-transfer programme Progresa-Oportunidades has its roots in the change created
by the Mexican economic crisis of 1994.90 And while the recent global economic and financial
crisis triggered the expansion of existing social protection arrangements (including of the
Oportunidades programme) it also led to the creation of a more comprehensive approach to
social protection, the Vivir Mejor (Live Better) strategy, which is essentially a Social Protection
Floor.91

The Asian crisis of 1997-1998 is another example. Despite earlier reforms, the Asian crisis hit
the Republic of Korea hard; growth plummeted, unemployment rates soared and poverty levels
increased. 92 Exposing the limitations of informal arrangements in those East Asian countries
whose systems were based on ‗Confucian familism‘ (characterized by a ‗smaller government‘
that provided less social protection for its citizens, relying on the family as a provider instead)
the Asian crisis turned out to be strong trigger for more formal social protection systems.93 Prior
to the Asian crisis, in the Republic of Korea, for instance, welfare services (e.g. health care and
pensions) were delivered by state-owned corporations rather than the government. Furthermore,
people between 18 and 65 years of age were not entitled to receive public assistance. 94 After the
Asian crisis social assistance programmes like a cash transfer programme to the poor, even if
they were able to work, were introduced.95 Initial evidence suggests that the social protection
reforms implemented after the Asian crisis have helped to shield the Korean people from the
detrimental impact of the recent global economic and financial crisis.96

The global economic and financial crisis of 2008 may also have pushed many Latin American
countries to start a second round of reforms of their pension systems. After the first round of
reforms in the 1980s, the second round of reforms is found to pay more attention to tackling

86
87
88
Levy (2006).
89
Levy (2006).
90
Levy (2006).
91
UNDP and ILO (2011).
92
World Bank (2012) and http://pressroom.ipc-undp.org/2011/ipc-ig-presentation-social-protection-experiences-
from-south-korea/.
93
Cook (2009).
94
95
96
http://pressroom.ipc-undp.org/2011/ipc-ig-presentation-social-protection-experiences-from-south-korea/

15


poverty of the elderly, to expand coverage and equity to shield people from market risks. Hence,
non-contributory schemes like social pension and more universal pensions have been placed
higher on the agenda.97

The case of Indonesia serves as a striking example of a country whose steady path to economic
growth and poverty reduction was interrupted by an external trigger, the Asian crisis of 1997-
1998 (see Box 1).

Box 1: Time to Act When a Trigger Exposes Vulnerabilities and Limitations: The Case of
Indonesia

The Asian crisis of 1997-1998 hit Indonesia at a time when it had experiences around 30 years of
strong economic growth and poverty reduction. When the crisis hit, GDP growth plummeted and
poverty rates increased, showing that the poor were hard hit by the crisis. The financial and
economic crisis soon became a political crisis, forcing the head of government at the time to step
down. By early 1998 the country was suffering from the combined effects of financial,
economic, and political crises. Exposing the insufficient protection of a large share of the
population to such a shock, Indonesia‘s government had to react swiftly, implementing social
assistance programmes to shield the most vulnerable. What started as formally provided social
assistance has developed into the beginning of a social protection floor for all which in Indonesia
includes components in the areas of health care (JAMKESMAS scheme targeted at the poor and
near-poor (76.4 million people), universal health insurance coverage is envisioned by 2014),
food security (subsidized ―rice for the poor‖ programme), access to education (scholarships for
students from poor families), UCTs, CCTs (Programme Keluarga Harapan or PKH) and a
Community Empowerment Programme (PNPM).
Sources: World Bank (2012) and www.socialsecurityextension.org/gimi/gess/ShowCountryProfile.do?cid=444

Since social protection should usefully be in place once a country is hit by a shock (ex ante),
governments have increasingly been encouraged by the international community and by example
of their peers (e.g. Brazil, South Africa are role models in social protection for many other
developing countries) to invest in social protection even in the absence of shocks and other
triggers.

2.4. Embedding Social Protection in a National Development Strategy

We previously identified limitations of non-formal social protection. Vital for a large share of the
population in developing countries and a useful source of information on the local context, these
existing arrangements might usefully be made part of a country‘s social protection strategy.98 We
also identified a number of potential triggers that may contribute to creating an enabling
environment for a country to implement a more formal system and a more broad-based coverage
of social protection. Building on this information, we will present our findings on enabling
conditions that have helped developing countries to integrate social protection into their national
development strategies and on recommendations that developing countries may with to consider

97
Calvo, Bertranou and Bertranou (2010).
98
Hoogeveen et al. (2004); Olivier, Kaseke and Mpedi (2008).

16


when embedding existing non-formal social protection arrangements into their development
strategies.

Public support has been found to be a strong driving force behind the successful social protection
country cases Brazil and South Africa.99 Both cases demonstrate that the formalization of social
protection initiatives, through writing them into law, makes it more likely that they will be taken
to scale or institutionalized.100 According to Pero and Szerman (2005):

―The New [Brazilian] Constitution was ambitious: it settled social-democrat guidelines
for social policy, stressing the universality of coverage and benefits, thus opposing the
patterns prevailing until the 1970s. […] the use of selectivity criteria to distribute benefits
to the most needy was also introduced. Furthermore, the Constitution deepened the
ongoing decentralization process, strengthening the fiscal and administrative autonomy of
sub-national governments.‖101

One of the aspects pushed by Brazil‘s new Constitution was the decentralization of spending and
better targeting of social expenditure for those who needed it most. 102 Despite high social
spending, social indicators in Brazil deteriorated further throughout the 1980s 103 and first
determined steps to breaking the inability of social spending to reduce poverty and inequality in
Brazil and towards implementing a new social development strategy were only adopted by a new
government as of 1995. 104 Improvements in social protection spending, policy design and
implementation in Brazil owe much to partnerships between the federal government, sub-
national governments, civil society and the private sector. An important building block of
Brazil‘s Bolsa Famí (the Bolsa Escola programme) was first developed and implemented at
lia
the municipal level before being scaled up to the national level.105 The partnership with civil
society has helped the Brazilian government to improve the accuracy of Bolsa Famí lia’s
106
beneficiary registry, and hence its targeting accuracy over time.

Strong political will at the federal level is also a key prerequisite for the successful expansion of
social protection. A review 107 of social protection in Southern Africa concludes that social
protection interventions have higher chances of succeeding if they are driven by political will,
i.e. if they are government-led from the beginning than if they are donor-driven. For instance,
successful social pension schemes for all older citizens were introduced in Lesotho (2004) and
Swaziland (2005).108 These schemes were designed and implemented without donor support.109
In general, in Southern Africa, government-led SP systems in South Africa, Botswana, Namibia,
99
Devereux (2011); UNDP (2012a).
100
Devereux (2010).
101
Pero and Szerman (2005, p.5).
102
Pero and Szerman (2005).
103
Brazil‘s GINI index peaked in 1989 at 63, making Brazil one of the most unequal societies in the world (World
Bank 2012).
104
World Bank (1988) as quoted in Pero and Szerman (2005). For detailed information on Brazil‘s social
development strategy under Cardoso, please refer to Faria (2002).
105
De Janvry (2005); Pero and Szerman (2005).
106
Lindert et al.(2007).
107
Devereux (2010).
108
Devereux (2010).
109
Devereux (2010).

17


and (until recently) Zimbabwe are found to be more successful than donor-led SP systems in
Lesotho, Malawi, Mozambique, Swaziland and Zambia.110

In some cases, government-donor or public-private partnerships are usefully implemented to
complement capacities. For instance, in Ethiopia and Malawi, index-based weather insurance
scheme pilots have been set up for farmers. While donors pay the insurance premiums,
transferring the cost of droughts to the international insurance markets, national governments
provide weather station infrastructure, foster an appropriate legal and regulatory environment
and educate farmers on insurance matters. 111 In Nepal, external actors like international
organizations and bilateral aid agencies are found to play a strong role in the country‘s social
protection context. Over the past 20 years, these agents are found to have contributed with
knowledge and expertise to promotion, design and implementation of social protection in Nepal
while the government has been primarily responsible for financing and administering social
protection initiatives.112

The public sector might usefully engage existing schemes when considering scaling up formal
social protection systems. This is also the approach that the Social Protection Floor promoted by
the UN-system is taking. According to UNDP and ILO (2011):

―A key strength of the social protection floor approach is that it does not start from
scratch but with a careful analysis and stocktaking of existing structures and strengths
and weaknesses of schemes and programmes in place. Building on the national social
protection system by improving coordination of different activities, exploring synergies
and increasing efficiency will free resources for extending social protection to those
currently not covered.‖113

Governments are well-advised to carefully analyze existing non-formal social protection
arrangements when considering to implement new or to scale up existing formal social
protection schemes. 114 This is due to the fact that a randomly implemented formal social
protection scheme might do more harm than good. For instance, the implementation of a formal
food for work programme may incentivize able bodied individuals to drop out of informal
insurance arrangements. This might leave the informal arrangement with a less diversified risk
pool of less able bodied individuals (i.e. the elderly).115

Integration should ultimately aim at serving the purpose of increasing the extension of coverage
and/or providing a minimum level of protection.116 Prior to setting up a new formal system or
extending an existing one, the reasons behind the existence of informal social security
arrangements as well as the nature of the relationship between current informal and formal
arrangements need to be analyzed and understood. In order to be considered worthy candidates

110
Devereux (2010).
111
UNDP (2012a).
112
Upreti et al. (2012, p.39).
113
UNDP and ILO (2011, p.15).
114
Hoogeveen et al. (2004); Olivier, Kaseke and Mpedi (2008).
115
Hoogeveen et al. (2004).
116
This paragraph is based on Olivier, Kaseke and Mpedi (2008). It should be noted that the original study talks
about ―social security‖, not social protection.

18


for integration, informal arrangement should be able to meet a number of criteria that include
prudent management, capacity financial viability and sustainability. Once an informal
arrangement is found suitable to be scaled up and/ or integrated, governments can avail of an
array of government interventions to integrate them into, or link them to formal provision. These
interventions include training, subsidies, technical assistance, etc.

For instance, an assessment in the Southern African Development Community (SADC) region117
concludes that self-organized mutual support systems (at community level) in the SADC region
lend themselves better to being incorporated into social security systems than traditional support
systems which are often rooted in African traditional values.118 Burial societies in Ethiopia and
Tanzania, may also be suitable candidates for linking them to additional types of insurance since
they are often relatively formal in nature.119 However, evidence on how, why and when informal
and semi-formal arrangements have been taken into account in the process of broadening
coverage of social protection systems is scarce. More information could contribute to more and
better informed decisions.

Finally, social protection systems should be judged and measured against its efficiency of
contributing to more equal societies, to more security for people (especially the poor and the
most vulnerable), more stable and inclusive growth. The government is the actor that has the
authority to set the legislative and regulatory framework for other social protection providers to
thrive and to assure that social protection is equitable and inclusive. Governments can and
should, usefully engage in close cooperation with actors that are well-informed about local
conditions and public needs (like NGOs) and actors that might be able to improve efficiency
(like the private sector). 120 Governments in many developing countries have partnered with
private insurance companies to extend, assure (and provide) pension.121

3. Cost Efficiency of Social Protection

The affordability of social protection schemes is a major concern for many developing countries,
in particular the LICs. For a long time, the prevailing view was that social protection was not
affordable in developing countries. It was mostly believed that social expenditures were
unproductive measures that would crowd out private investment and create large fiscal deficits
that would not be manageable.122

In this section we will explore cost-efficiency of formal social protection programmes. In this
context, it is important to highlight differences between cost-efficiency and cost-effectiveness as
these two similar concepts can often lead to confusion and mistakenly can be used

117
Current members of SADC are: Angola, Botswana, Democratic Republic of Congo (DRC), Lesotho,
Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, United Republic of
Tanzania, Zambia and Zimbabwe. For more information, see www.sadc.int/english/about-sadc/
118
Olivier, Kaseke and Mpedi (2008).
119
Dercon et al. (2004).
120
For instance, building the link between the government and the people, NGOs in the Pacific Island Countries are
found to contribute to provide advocacy services, counseling, education and training (Mohanty 2011).
121
Tapia (2008).
122
Cook and Kabeer (2010, p. 7); Ortiz and Yablonski (2011, p. 51).

19


interchangeably. Whereas the main objective for cost-effectiveness is to achieve results at a
lower cost compared with alternatives, for cost-efficiency the main objective is ―to achieve the
maximum possible outputs, outcomes, and impacts with the minimum possible inputs.‖123

Therefore, cost-efficiency of a particular social protection programme will not depend solely on
the level of financial sources allocated to it but also, and most importantly, on achieving the
desired impact (e.g. improvements in human development outcomes, mitigation of risks and
vulnerabilities) based on country-specific development priorities. The concept of cost-efficiency
places more emphasis on impacts than the concept of cost-effectiveness does and in turn takes
into account a broader set of costs and benefits.

There are various costs associated with social protection that can be broadly grouped into direct
and indirect costs. Direct costs include those associated with setting up, implementing, and
revising (as appropriate) a social protection programme. Indirect costs include both opportunity
costs of not allocating resources to other programmes and negative externalities on non-
beneficiaries and/or local economy.

Besides the costs, affordability of a social protection scheme needs to be evaluated with
consideration of both the direct and indirect benefits 124 and impacts on people and on the
sustainability of the economy as well as the contribution to building resilience to shocks of such
a scheme. Since it is not feasible to quantify all costs and benefits involved, qualitative analyses
offer an important complementary role to quantitative analyses.

A careful needs assessment would enable a country to identify the most prevailing and urgent
vulnerabilities that need to be addressed by a social protection programme.125 After determining
the priority areas for action, the main challenges lie in ensuring that social protection
programmes are well designed, help achieve desired outcomes based on country priorities, are
affordable, and do not lead to costly entitlements that a country cannot sustain over time.
Therefore, a comprehensive cost-benefit analysis for a social protection programme based on
country priorities would be the one that would explore not only current affordability but also
fiscal sustainability.

However, comprehensive cost-benefit analyses of social protection programmes are rare in
developing countries mainly because of time and capacity constraints to assess social protection
programmes. Another reason why comprehensive cost-benefit analyses are not common in
developing countries could be political if those in power aim at reaping political benefits of
social protection programmes within limited timeframes (e.g. before elections).

It should be noted that with regard to certain social protection schemes, absence of cost-benefit
analyses (both ex-ante and ex-post) are not unusual even in advanced countries. For instance, a
123
IEG (2007, p. 65). For more comprehensive definitions of and discussions on efficiency and cost-effectiveness,
see Chapter 11 of IEG (2007).
124
In this paper, the concept ―benefit‖ refers to all positive impacts of a social protection program and should not be
confused with the ―benefit amount‖ of a particular scheme.
125
In this context, the ILO‘s Rapid Assessment Protocol (RAP) provides a useful tool for developing countries to
take stock of and map existing social protection measures and identify priority areas for intervention (UNICEF and
ILO, 2011, p. 11).

20


2007 inventory of youth employment interventions in 84 countries from all regions in the world
demonstrated that among the OECD countries, only Canada, the U.K. and the U.S conducted
impact evaluations and cost-benefit analyses of such interventions.126 Outside these countries and
other than studies sponsored by international organizations, rigorous evaluations of youth
employment interventions were found to be very rare. 127 The ILO has recently adopted a
resolution to call on governments, social partners and the multilateral system to take urgent and
renewed action to address the crisis of youth employment. 128 This resolution also stressed that
the ILO‘s own activities promoting youth employment ―should be subject to rigorous monitoring
and evaluation to ensure approaches are cost-effective and provide a positive impact.‖129

One example of a developing country that has been undertaking social protection cost-benefit
analyses is Cambodia. The Government of Cambodia recently developed a social protection
strategy based on a vulnerability and gap analysis; consultations with development partners and
other stakeholders; as well as technical assistance from various International Organizations
including for costing exercises. Cambodia‘s strategy stresses that ―financing of the social
protection programme must be seen as an investment rather than as an expenditure.‖130 Box 2
summarizes how Cambodia‘s social protection strategy has been evolving in order to provide the
reader an overview of possible issues that developing countries can encounter while expanding
social protection and exploring affordability of priority programmes.

Box 2: Cambodia’s National Social Protection Strategy for the Poor and Vulnerable

In 2011, the Government of Cambodia adopted its National Social Protection Strategy for the
Poor and Vulnerable (NSPS). Before developing this Strategy, the Government first identified
gaps and constraints with regard to the effective and efficient provision of social protection such
as lack of longer-term vision for social assistance development; low local capacity; limited
coordination among social protection interventions; problems with collecting and monitoring
data and assessing existing interventions; and inadequate budget for implementation.

The Government of Cambodia stresses that ―limited fiscal space and implementation capacities
call for prioritisation of options for social protection development in the short term.‖ The NSPS
gives priority to addressing major sources of vulnerability (such as chronic and transient poverty,
hunger, shocks, and social exclusion) by taking short- and medium-term measures including cash
and in-kind transfers and fee exemptions; public works programmes; and social welfare services.
The Strategy also sets the long-term framework for sustainable and comprehensive social
protection for all in accordance with the Social Protection Floor Initiative. The aim is to
establish both contributory social security mechanisms for the formal sector and improved social
assistance for the informal sector.

While preparing the NSPS, the Government held technical consultations with development
partners and national stakeholders, such as civil society organizations. Several International

126
Betcherman, et al. (2007, p. 31).
127
Betcherman, et al. (2007, p. ii).
128
ILO (2012a).
129
ILO (2012a, p. 14).
130
UNDP and ILO (2011, p. 156).

21


Organizations including the World Food Programme (WFP) and the World Bank assisted the
Government in undertaking a scoping and mapping exercise on existing safety-net programmes.
The ILO also applied a diagnostic tool called Social Protection Expenditure and Performance
Review (SPER) in order to assess system financing, to identify coverage gaps, and to discuss
policy issues for consideration by national policy makers. The ILO estimated that the total
existing social expenditure for the year 2010, including ODA-funded programmes and subsidies
for the health sector was at about 5.5 percent of GDP. The majority of social spending was
allocated for health, corresponding to about 60 percent of total social expenditure.

As part of the technical consultations the World Bank conducted a study that estimated that a
conditional cash transfer programme for poor families with pregnant mothers or children under
five would cost 0.21 percent of GDP (excluding certain administrative costs and supply-side cost
of providing nutrition services). Moreover, the NSPS provides preliminary cost estimates for
each short-term (up to 2013) priority programmes and actions but exact resource requirements
will be determined through further analyses and assessments. The Strategy states that ―a costing
exercise for the medium- and long-term implementation of the NSPS will be developed as a
priority activity during the first year of implementation (including a detailed costing of existing
and planned interventions and a fiscal space analysis). Financing arrangements, including joint
pool arrangements for certain tasks, will be discussed with development partners to embark on a
programme-based approach for social protection in Cambodia and to align and harmonise donor
support for the NSPS.‖ It is also stressed that during this process financing of the social
protection programme must be seen as an investment rather than as an expenditure.

Sources: ILO (2012b), Kingdom of Cambodia (2010), Royal Government of Cambodia (2011), UNDP and ILO
(2011).

In the following sub-sections, we will discuss cost-efficiency of social protection by taking stock
of several costing exercises and analyzing potential short- and long-term benefits of social
protection.

3.1. Cost-Benefit Analyses

Institutions such as HelpAge, International Labour Organization (ILO), Overseas Development
Institute (ODI), UNICEF, and World Health Organization (WHO) developed social protection
costing models and/or undertook costing exercises. Some of these models have been applied by
individual countries in order to examine the feasibility of certain social protection programmes.
At the same time, a number of institutions conducted broader studies looking into various sets of
countries in order to contribute to the affordability debate.

One widely cited example is the costing studies that the ILO undertook in seven sub-Saharan
African131 and five Asian countries132 estimating the annual costs of a basic social protection

131
Burkina Faso, Cameroon, Ethiopia, Guinea, Kenya, Senegal, and the United Republic of Tanzania
132
Bangladesh, India, Nepal, Pakistan, and Viet Nam

22


package that includes universal basic old-age and disability pensions, 133 basic universal child
benefits, 134 universal access to essential health care, 135 and a 100 day employment guarantee
scheme.136 For the countries considered, the annual cost of a basic social protection package is
estimated to be in the range of 3.7 to 10.6 percent of GDP in 2010.137 The estimated annual costs
of each element are as follows:138

 Universal basic old-age and disability pensions: between 0.6 and 1.5 percent of GDP
 Basic universal child benefits: between 1.2 and 3.6 percent of GDP
 Universal access to essential health care: between 1.5 and 5.5 percent of GDP
 100 day employment guarantee scheme: between 0.3 and 0.8 percent of GDP

The cost of providing universal health care is noticeably higher than the cost of the remaining
elements of the package. The results of this ILO study have been cited in the literature139 with the
purpose of demonstrating that a basic social protection package excluding universal health care
provision would be affordable even in low-income countries (the selected group includes both
low-income and lower middle-income countries).

Nevertheless, affordability is not evident merely from these numbers. According to this ILO
study, even when governments increase the share of public spending attributed to social
protection to 20 percent of their total budget, seven out of twelve countries analyzed will still not
be able to fill the financing gap from domestic resources by 2030. 140 Moreover, these costs were
calculated before the global financial and economic crisis hit, therefore the crisis impact on fiscal
space available to developing countries was not taken into account.141

Other costing exercises have focused on specific elements of a basic social protection package
looking at different or a greater number of countries. Some of these exercises estimate only

133
―It was assumed that the simulated universal old-age and disability pension would be set at 30 percent of GDP
per capita, with a maximum of one US dollar (PPP) per day (increased in line with inflation) and would be paid to
all men and women aged 65 and older; and to persons with serious disabilities in working age (the eligibility ratio
was assumed to be 1 percent of the working-age population, which reflects a very conservative estimate of the rate
of disability).‖ ILO (2008, p. 6).
134
The level of the child benefit is assumed to be ―15 percent of GDP per capita with a maximum of half of one US
dollar (PPP) per day (increased in line with inflation) and paid for up to two children under the age of 14 per woman
who has given birth. The rationale behind this assumption is to tackle claims that universal child benefits would
provide an incentive to increase fertility.‖ ILO (2008, p. 7).
135
It was assumed that basic health care costs would be based on a ratio of 300 medical staff to 100,000 population,
with medical staff wages indexed in line with GDP per capital growth (health staff wages were assumed at a
minimum of three times GDP per capita) and overhead costs of 67 percent of staff costs. ILO (2008, p. 21).
136
The assumed beneficiary group of the employment guarantee scheme constitutes 10 percent of the working-age
population in each country. ―The benefit is only available to households not benefiting from any other form of cash
transfer. It was assumed that the simulated employment scheme would provide a benefit set at 30 percent of GDP
per capita, with a maximum of one US dollar (PPP) per day (increased in line with inflation). The benefit would be
paid for a total of 100 days in the year.‖ ILO (2008, p. 9).
137
ILO (2008, p. 10).
138
ILO (2008, pp. 6-9).
139
ILO (2011); Ortiz and Yablonski (2011).
140
ILO (2008, pp. 13-14). These seven countries are Burkina Faso, Cameroon, Ethiopia, Kenya, United Republic of
Tanzania, Bangladesh, and Nepal.
141
UN NGLS (2010, p. 18).

23


current costs, while others also provide estimates of future costs to discuss sustainability. The
following sub-sections give an overview of these studies. It is worth highlighting that the aim is
not necessarily to provide comparisons (as methodologies, assumptions, and countries analyzed
differ from one study to another) but instead to offer the reader a wide range of existing analyses.

3.1.1. Universal Old-Age Pensions

A HelpAge International study built on previous costing exercises by organizations such as the
ILO and estimated the cost of a universal old-age pension in 50 low- and middle-income
countries.142 The study argues that universal old-age pensions in the countries analyzed would be
currently affordable (in 2010). It is estimated that a universal pension for everyone over 65143
would cost less than 1.8 percent of GDP in all 50 countries (exceeding 1.5 percent of GDP only
in China, Jamaica, Sri Lanka, and Thailand).144 Such scheme would cost around 1 percent of
GDP or less in most sub-Saharan African countries.145 Moreover, these costs would not surpass 8
percent of current government expenditure in any of the 50 countries. 146 In 15 countries, these
costs correspond to around or less than 2 percent of government expenditure (e.g. Burkina Faso,
Malawi, Senegal, Mongolia, Ghana).147

Moreover, in order to assess sustainability, this study projected the future costs of a universal
old-age pension for everyone over 60 in Rwanda, Paraguay, and Thailand under different
scenarios. For example, when the pension is indexed to average income, the costs would rise
over time in all three countries as populations age. As a percent of GDP, the costs would
correspond to 1.4 in Rwanda, 3 in Paraguay, and 5.2 in Thailand by 2040.148 The reason behind
the higher cost for Thailand is that by 2040 a quarter of its population is projected to be over
60.149 The study argues that governments can contain these costs by indexing the value of the
transfers to inflation and/or by increasing eligibility age as populations age and healthy life
expectancy increases.150

3.1.2. Universal Health Care

A WHO study estimated that providing key health services in 49 low-income countries would
cost around USD 44 per capita on average in 2009, increasing to around USD 60 per capita by
2015.151 This estimate includes the cost of interventions to achieve the health-related MDGs as

142
Knox-Vydmanov (2011). HelpAge International calculations assume a transfer level of 20 percent of GDP per
capita and set administrative costs as 5 percent of the total cost of transfers. (pp. 2-3).
143
The study also provided separate cost estimates of pensions covering everyone over 60 and 70.
144
Knox-Vydmanov (2011, Figure 1, p. 3).
145
146
147
148
Knox-Vydmanov (2011, p. 7).
149
150
151
WHO (2010, p. 22).

24


well as those targeting noncommunicable diseases. 152 Cost estimates were made for each
country, and then aggregated; hence they are ―simply an (unweighted) average across the 49
countries at the two points in time.‖153 Obviously, cost estimates vary by country. For instance,
while five of the countries analyzed would need to spend more than USD 80 per capita in 2015,
six countries would need to spend less than USD 40.154

Current health spending varies substantially from one country to another. For instance, annual
health spending in the US and Norway surpasses USD 7,000 per capita and OECD members as a
group spend on average around USD 3,600 per capita. 155 On the other hand, among WHO‘s
Member States, 31 countries spend less than USD 35 per capita annually and four countries
spend less than USD 10, even when external aid is taken into account. 156 The WHO stresses that
the poorest countries would need assistance from the international community to expand access
to health services since the Organization argues that ―even with relatively high levels of domestic
growth, and national budgets that prioritize health, only eight of the 49 countries have any
chance of financing the required level of services from domestic resources in 2015.‖157

3.1.3. Child Benefits

A Save the Children UK study estimated the likely current costs of providing different types of
unconditional child benefits for a large sample that includes 57 developing countries. 158 The
average cost159 of providing universal child benefits for children under 5 is estimated to be 2.08
percent of GDP. 160 When children under 5 who are below the poverty line are targeted, the
average cost decreases to 1.28 percent of GDP.161

While the average costs look relatively modest, the results of this study exhibit significant
variations across countries and regions. On a positive note, in many poor and middle-income
countries in Asia the cost of a universal cash transfer for children under 5 would be less than 1.5
percent of GDP.162 However, one exception is Nepal, where this cost is estimated to exceed 2.5

152
More specifically, the study ―included interventions proven to reduce mortality among mothers, newborns and
children under five; childbirth care; reproductive health services; prevention and treatment of the main infectious
diseases; diagnosis, information, referral, and palliative care for any presenting conditions; and health promotion.‖
WHO (2010, p. 38).
153
WHO (2010, p. 23).
154
WHO (2010, p. 23).
155
WHO (2010, p. 21).
156
WHO (2010, p. 21).
157
WHO (2010, p. 23).
158
Yablonski and O‘Donnell note that this is a static analysis of the likely current cost of child benefits and
estimates will change over time according to the particular combination of changes in each country arising from:
population growth, changes in poverty headcount, changes in average poverty gap, economic growth, potential
changes in administrative costs over time (p. 44).
159
The average cost has been calculated for 54 countries as Burundi, Liberia, and Democratic Republic of Congo are
treated as outliers.
160
Yablonski and O‘Donnell (2009, Table 2, p. 26).
161
Yablonski and O‘Donnell (2009, Table 2, p. 26).
162
Yablonski and O‘Donnell (2009, Figure 6, p. 27). These countries include Bangladesh, China, Cambodia, India,
Indonesia, Laos, and Pakistan.

25


percent of GDP. 163 Moreover, for LICs in Africa, a universal cash transfer for children under 5
is found to be unaffordable in most cases. It is argued that some of these countries would need
considerable external assistance to fill the gap. For instance, Liberia and Tanzania would need
donor funding equal to approximately 90–95 percent and 70-85 percent of costs, respectively.164
Countries such as Sierra Leone, Niger and Mozambique currently are not able to afford even the
more narrowly targeted options at national scale out of domestic resources.165

3.1.4. Social Pensions and Child Benefits

A joint UNICEF and ODI study estimated the possible costs of social pensions and child benefits
(universal and/or selective) in five West African countries. These simulations as a percentage of
both GDP and recurrent expenditure are presented in Table 2 and vary significantly across these
five countries. For instance, while the cost of a universal child benefit and social pension
provision is estimated at 1.1 percent of GDP in Equatorial Guinea, the same provision for Ghana
is estimated to cost 11.3 percent of GDP (which is considerably higher than the upper range of
related ILO estimates) corresponding to more than 60 percent of recurrent expenditure. The
estimated costs for Equatorial Guinea are substantially lower than the ones for Ghana because
the former‘s per capita GDP is much higher due to its oil exports.166

However, the study highlights that affordability in simple aggregate terms does not necessarily
imply feasibility of a programme. For instance, whereas the oil-rich Equatorial Guinea seems to
have necessary fiscal space to finance additional social protection expenditures, it may face
political and institutional challenges. In Section 4, we will discuss in more detail a range of
challenges that countries may encounter in addition to financial constraints.

163
Yablonski and O‘Donnell (2009, Figure 6, p. 27).
164
Yablonski and O‘Donnell (2009, p. 27).
165
Yablonski and O‘Donnell (2009, pp. 26-28). In such cases, the authors recommend rolling out a universal
programme geographically in areas with the highest poverty rates and argue that ―gradual expansion by age or
geography will help to keep costs manageable, and allow time for building the systems and capacity necessary to
deliver programmes at scale.‖ (p. 28).
166
UNICEF and ODI (2009, p. 25).

26


Table 2: Annual Programme Expenditure Cost Estimates of Child Benefit and Social
Pension Options: Simulations for Congo, Mali, Senegal, Equatorial Guinea and Ghana

Congo, Equatorial
Costs Republic Mali Senegal Guinea Ghana

Pension

Pension

Pension
Social

Social

Social
UCB

UCB

UCB

UCB

UCB
SCB

SCB

SCB
% of GDP 2.0 1.2 1.0 5.9 3.2 6.4 3.7 0.9 0.2 8.7 2.6

% of 16.7 9.9 8.3 42.8 23.5 30.0 17.6 20.8 5.0 46.3 13.9
recurrent
expenditure
Note: UCB: Universal Child Benefit, SCB: Selective Child Benefit.
Source: UNICEF and ODI (2009, Table 2, p. 26).

3.1.5. The Social Protection Floor Costing Tool

In addition to undertaking costing exercises that covered a selected group of countries, some
international organizations have built costing tools that can be applied by individual countries.
For example, following the adoption of the Social Protection Floor (SPF) Initiative, UNICEF and
ILO jointly developed the SPF Costing Tool in 2010. The objective of the tool is to help support
policy decisions regarding selection, revision and investment in social protection programmes by
providing an initial basic assessment of the potential costs of both new schemes and
modifications to existing ones.167 It should be noted that the tool is only adapted to estimating the
cost and impact of cash transfers.168

Whereas the SPF Costing Tool was developed in order to support the Social Protection Floor
Initiative, the tool can be applied to other social protection contexts. The cost of a specific social
protection scheme would of course vary across countries depending on demographic, labour, and
macroeconomic conditions. While the SPF tool allows users to enter these relevant data points,
the tool has certain built-in assumptions about how these different parameters interact. Countries
can choose to conduct a simple application of the tool by using its built-in assumptions only (e.g.
Senegal), or can carry out more elaborated costing exercises by modifying these assumptions
based on their national context (e.g. Argentina and Egypt—See Box 3). 169 Some countries

167
UNICEF and ILO (2011).
168
The SPF Costing Tool can provide cost estimates for old-age pensions, child benefits, disability benefits, orphan
benefits, education stipends, birth lump-sum benefits, youth labour market programmes, and unemployment
programmes (UNICEF and ILO (2011, p. 5)). For a discussion of the SPF Costing Tool‘s limitations, see UNICEF
and ILO (2011, pp. 9-10).
169
UNICEF and ILO (2011, pp. 3-4). The countries that have conducted social protection costing exercises using the
SPF Costing Tool include Argentina, Egypt, Madagascar, Mozambique, and Senegal.

27


choose to utilize multiple tools. For instance, Senegal‘s simple application of the SPF Costing
Tool was complemented by the World Bank‘s ADePT tool for estimating poverty impacts.170

Box 3: Application of the SPF Costing Tool in Egypt

A recent study applied the SPF Costing Tool for a proposed system of child cash transfers in
Egypt, in order to estimate not only its costs but also poverty impacts. The study simulations
show that with an overall cost of 0.88 percent of GDP, the proposed scheme can lift 19.3 percent
of poor people in Egypt out of poverty according to the national poverty line. The potential
impact on children is expected to be greater with an estimated poverty reduction of 28.2 percent
among poor children up to 14 years of age.

While examining the sustainability of such a scheme, the study took population dynamics into
account. Egypt‘s demographic profile appears to be favourable because of the growing ratio of
working age population in the overall population. Hence, over the period 2012-2020 the cost of
the scheme is projected to fall as a percentage of GDP benefiting from the declining dependency
ratio—regardless of whether the scheme‘s benefit amount is held constant in real terms or as a
percentage of GDP per capita.

Source: Rabi (2012).

3.1.6. Rapid Assessment Protocol (RAP)

On the basis of the SPF Costing Tool, the ILO (in close collaboration with UNICEF) has
recently developed a new costing tool called the Rapid Assessment Protocol (RAP), which
provides a useful method for developing countries to take stock of and map existing social
protection measures and identify priority areas for intervention.171 The tool also provides ―a basis
to discuss and simulate alternative financing options and fiscal space.‖172

The first step in this exercise is to construct an SPF Rapid Assessment Matrix (see Figure 1) in
order to analyze the present and planned future social protection provisions according to the
benchmarks set by the four guarantees of the SPF and to identify gaps in policy design and
implementation.173

170
UNICEF and ILO (2011).
171
UNICEF and ILO (2011, p. 11).
172
ILO and IMF (2012, p. 3).
173
Bonnet et al. (2012, p. 7).

28


Figure 1: Structure of the Social Protection Floor Rapid Assessment Matrix

Source: Bonnet et al. (2012, p. 8).

After constructing an SPF Rapid Assessment Matrix, the RAP identifies and defines the policy
options that would complete the SPF and provides cost estimates for different measures and
relates them to projections of the government budget. 174 This tool ―builds on single age
population projections; single age estimates of labour force participation rates; a relatively crude
economic scenario as determined by assumptions of the overall GDP growth rates, productivity
rates, inflation and base real wage rates and increases over the projection period, and interest
rates, as well as initial poverty rates‖ 175 and uses these variables as drivers of expenditures and
revenues. Since the RAP conducts a more detailed analysis than the SPF Costing Tool, it offers
more robust results; however, the RAP is also more time demanding. Box 4 provides key
comparisons between the SPF Costing Tool and the RAP and Section 4 will give examples of its
application.

174
Bonnet et al. (2012, p. 17).
175
Bonnet et al. (2012, p. 17).

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