The Global Fund for Social Protection: an idea whose time has come

The pandemic has highlighted the fragility of social protection, especially in the developing world. A new global fund is needed—and it’s affordable.

The Covid-19 pandemic and the workplace closures adopted by governments to limit the spread of the virus have imposed an unprecedented ‘stress test’ on social-protection systems across the world. Hours worked worldwide decreased by 10.7 per cent worldwide in the second quarter, potentially translating into the loss of 305 million jobs. 

The most severely affected have been workers in the informal sector and in precarious, ‘non-standard’ forms of employment: respectively 1.6 billion and 0.4 billion workers globally and together three out of five. Because women are over-represented in the most affected categories—and because they shoulder most of the burden when families have to make up for the inability of public services, including healthcare, to support those in need—the crisis also represents a massive setback in progress towards gender equality.

Major limitations

Responding to this unprecedented economic and social crisis, governments have set up new cash-transfer schemes or extended existing ones—for instance, to cover informal workers or to loosen the conditionalities attached. They have increased support for workers who have lost their jobs or families facing destitution. And they have expanded cash-for-work programmes. By September, some 1,407 measures had been adopted by some 208 countries and territories, providing critical relief to individuals and families in need. While hugely important, these measures suffer, however, from two major limitations.

First, many of the responses are short-term—temporary fixes, put in place for the lockdowns or, at best, until the economy starts recovering. Yet, when the member states of the International Labour Organization, together with the representatives of workers and employers, unanimously adopted Recommendation 202 on Social Protection Floors in June 2012, they pledged to ‘establish and maintain … social protection floors as a fundamental element of their national social security systems’. In line with the International Covenant on Economic, Social and Cultural Rights as well as with other ILO instruments, this entailed a commitment to put in place standing, rights-based, social protection floors, defining beneficiaries as rights-holders with entitlements they may claim. 

Short-term, charity-based measures, including cash transfers, can be vital in times of crisis. But they are not a substitute for permanent social protection floors. These ensure access to healthcare, guarantee basic income security for children, protect people from the risks of unemployment, sickness, maternity or disability and ensure older persons receive a pension guaranteeing an adequate standard of living.

Secondly, while governments worldwide have dedicated at least $12 trillion to speeding up the global recovery—including by investing in social protection—by far the most important contributions, in absolute terms or as a proportion of their gross domestic product, have come from rich countries. While the European Union has adopted a €750 billion recovery plan (equivalent to 6 per cent of its GDP) and Japan’s amounts to $1.1 trillion (22 per cent of GDP), the fiscal response of low-income, developing countries has been limited to 1.2 per cent of GDP on average.

Significant cut

Developing countries, and particularly low-income countries, face high external debts, aggravated today by capital flight depreciating their currencies. Many also face a significant cut in remittances, expected to be 20 per cent lower in 2020. Comprising in total $350 billion in 2018, such transfers are the most important source of income from abroad for these countries—greater than foreign direct investment, portfolio investment or official development assistance.   

Developing countries also have a limited capacity to mobilise domestic resources and are currently affected by the low prices of commodities on which their export revenues often depend. Hence they lack the fiscal room for manoeuvre to put in place social protection floors, effectively preventing their populations from falling into poverty.

Moreover, the 47 poorest and most vulnerable countries, most of which are in Africa, face an additional constraint: they are small and have poorly diversified economies. This exposes them to high risk from ‘covariate exogenous shocks’—whether economic, climatic or health-related, such shocks affect a large number of households or even entire communities and regions at once, resulting in massive additional burdens on whatever social protection systems exist.

Greater resilience

We need to support these countries’ efforts to put in place robust social protection floors, to ensure greater resilience in anticipation of future shocks. It is high time that we moved beyond emergency cash transfers when a crisis unfolds—which is like starting to recruit firefighters when a fire breaks out. Instead, we need to make standing, rights-based, social protection floors universal—like well-trained and well-equipped fire brigades, ready to intervene at all times.

International solidarity is essential. Already in 2011, the Report of the Social Protection Floor Advisory Group recommended that ‘donors provide predictable multi-year financial support for the strengthening of nationally defined and determined social protection floors in low-income countries within their own budgetary frameworks and respecting their ownership’. The 2012 Social Protection Floors Recommendation itself refers to international co-operation to complement efforts at domestic level. International human rights law also recognises a special responsibility for states in providing for international assistance and co-operation in the fulfillment of social rights in other states with limited resources. In 2012, in this spirit and building on these pledges, two independent United Nations human rights experts proposed a Global Fund for Social Protection, to support efforts of low-income countries seeking to guarantee social protection floors to their populations.

Social protection floors are affordable. ILO experts describe their cost as ‘negligible’ when set against the total incomes of donor countries. According to the most recent estimates, taking into account the pandemic, developing countries would need to invest an additional $1.2 trillion—equivalent to 3.8 per cent of their GDP—to provide the full range of entitlements associated with social protection floors. The financing gap for low-income countries is $78 billion or 15.9 per cent of their GDP. By way of comparison, in 2019, total official development assistance from members of the Organisation for Economic Co-operation and Development amounted to $152 billion, and $78 billion represents about 0.15 per cent of the wealth created in rich countries in 2019.

Financial incentive

This new international financing facility would not be a tool to ensure rich countries pay for social protection in poor countries. Donors would contribute matching funds, providing a financial incentive for poor countries to invest more in social protection—ensuring that domestic resource mobilisation gradually expands so that, in time, international support becomes unnecessary. Moreover, the new mechanism could provide an essential risk-insurance mechanism for low-income countries with poorly diversified economies—countries fearing liquidity problems in times of crisis would be strongly incentivised to invest in standing social protection schemes, to protect their populations over the life cycle.

The pandemic has led to numerous calls to ‘build back better’. Now comes the reality test. Strengthening the resilience of social protection systems across the world should become a political priority and international solidarity should be put at the service of this objective. The crisis is unprecedented and its human impacts huge—if we can at least learn its lessons, it shall not be entirely wasted.

See our series on the Coronavirus and the Welfare State