ILO Report on Financing Gaps in Social Protection

The International Labour Organization (ILO) has issued a recent Working Paper Financing Gaps in Social Protection: Global Estimates and Strategies for Developing Countries in Light of the COVID-19 Crisis and Beyond. The paper covers 134 developing countries that were included in the ILO 2020 study and provides regional and global estimates of the costs and financing gaps for the specific targets established under the United Nations Sustainable Development Goals (SDGs). The first relevant SDG target is to implement nationally appropriate social protection systems and measures for all, including floors, and by 2030 achieve substantial coverage of the poor and the vulnerable. The second relevant SDG target is to achieve universal health coverage, including financial risk protection, access to quality essential healthcare services and access to safe, effective, quality and affordable essential medicines and vaccines for all. The ILO working paper also presents projections of the incremental financial needs for reaching universal coverage in 2030. The working paper analyses options for filling these financing gaps in developing countries during the crisis and beyond using domestic and external resources, including strengthening and expansion of contributory systems. Importantly, the analysis incorporates the effects of the COVID-19 pandemic. The paper considers five policy areas of the ILO Social Protection Floor (SPF): (i) old age; (ii) disability; (iii) healthcare; (iv) children; and (v) maternity. Findings are further grouped by geographical regions and according to country income groups. The paper also estimates the financing gap of contributory systems and the potential fiscal space that could be created assuming a potential increase in social security coverage and/or contribution rates. Finally, the ILO working paper provides a list of fiscal space options, paying particular attention to options for raising revenues from social security contributions and taxation, and Official Development Assistance (ODA).

Social security is a human right according to Article 22 of the Universal Declaration of Human Rights, but it is not yet a reality for millions of people around the world. Only 45 percent of the global population is effectively covered by at least one social protection benefit, while the remaining 55 percent (about four billion persons) are unprotected. Extending social protection is a matter of urgency in order to eradicate poverty, reduce inequality, facilitate access to healthcare and education, promote gender equality and achieve decent work opportunities and conditions. The United Nations SDG targets can be achieved by the establishment of SPFs in all countries as a set of basic social security guarantees. SPFs comprise access to essential healthcare and income security across the life cycle. Income security can be achieved by providing those who have been affected by a loss of income with old-age and survivors’ pensions, sickness and disability benefits, unemployment and employment injury insurance, child and maternity benefits and family allowances. Today, countries spend on average 10.7 percent of gross domestic product (GDP) on public social protection and 7 percent of GDP on healthcare, although there are significant regional differences around these averages. Public social protection expenditure (excluding health protection) is estimated to be higher in Europe and Central Asia at 17 percent of GDP, compared to 7.3 percent in Asia and the Pacific region, and Africa at 3.4 percent. Public expenditure on healthcare is estimated at 6.3 percent in Europe and Central Asia, 3.9 percent for Asia and the Pacific region, and at 2.6 percent for Africa.

According to the ILO working paper, the estimated financing gap in 2020 to achieve universal coverage of the SPF including healthcare is US $1,192 billion, representing about 3.8 percent of GDP of the developing countries included in the study. More than 60 percent of this gap corresponds to the share of upper-middle income countries, about 30 percent to lower-middle income countries, and about 6.5 percent to low-income countries. Assuming that universal coverage of the SPF including healthcare will be achieved progressively over the period 2020-2030, the annual financing need is estimated at US $781 billion in 2021. Domestic and international financing efforts in response to the COVID-19 pandemic in 2020 that have been effectively approved and allocated to support countries in the area of social protection and healthcare are estimated at US $127 billion, in comparison to the financing gap of US $ 1,192 billion. The need for additional and more stable sources of financing for development has been reinforced by the current pandemic crisis. There is a clear need for a renewed political and financial mobilization and a stronger coordination of programs and sources of finance to invest more and better in social protection, through a global and solidarity-based response. In terms of meeting financing needs, the challenge is much greater for low-income countries, both in terms of the relative cost to them and their relative fiscal and administrative capacities. This situation must be considered as a critical factor in the formulation of a specific development assistance policy.

Ken Buffin, Editor

Source: ILO Working Paper #14—ed_protect/—soc_sec/documents/publication/wcms_758705.pdf October 2020