A wake-up call for universal social protection
The coronavirus pandemic has bluntly exposed how a large number of people across the world are susceptible to health and economic shocks. It is also clear how vulnerable groups in many countries still remain precariously unprotected without any form of social protection. The International Labour Organization's (ILO) Social Protection Floors Recommendation, 2012 (No. 202) asserts that social protection is a human right. It mentions that social protection is a necessity for development, a tool for reducing social exclusion, an investment in workers' empowerment and a mechanism that is conducive towards gradual formalisation of employment. The recommendation calls upon countries to establish and maintain social protection floors, and progressively make the transition to higher levels of social security.
Despite ILO's recommendation, 55 percent of the global population, or around four billion people worldwide, did not have access to any form of social protection in 2017. To make things worse, social protection coverage is lower in less developed regions of the world. As many as 61 percent people in the Asia and Pacific region and 82 percent people in Africa did not have access to any social protection in 2017. Nonetheless, it appears that we are at the right juncture in history to expand the global reach of universal social protection, since many developing countries are as rich today as some developed countries were when they first introduced their social protection systems.
It is commonly thought that providing non-contributory universal social protection floors in developing countries with large numbers of vulnerable people is very expensive. However, it has been shown that for a sample of 101 developing countries, the average cost of providing universal social protection floor is only 1.6 percent of Gross Domestic Product (GDP). Cost estimates for a smaller sample of 34 lower middle-income countries and 23 low-income countries show that universal social protection floors would cost only 2.1 percent of the combined GDP of those 57 countries, or only 0.23 percent of world GDP. This is a rather meagre cost, compared to the benefits of universal social protection floors. This amount would directly help 9.5 percent of the world's population, including 103 million severely disabled people, 153 million elderly and 364 million children.
Using ILO's Social Protection Floors Cost Calculator, we estimate that the cost of providing cash benefits equal to 25 percent of the national poverty line to all children less than five-years-old would be only 1.04 percent of GDP. On the other hand, providing USD 1 per day at purchasing power parity (PPP) to all children less than five-years-old in Bangladesh would cost 1.24 percent of GDP. Ironically, only 35 percent of children worldwide, 28 percent of children in Asia, and 29.4 percent of children in Bangladesh were covered by social protection benefits in 2017.
In case of people with disabilities, only 27.8 percent worldwide and 18.5 percent in Bangladesh, were protected with benefits in 2017. Our estimates show that the cost of providing cash benefits equal to 100 percent of the national poverty line to all persons with severe disabilities would be only 0.93 percent of GDP in Bangladesh. Alternatively, the cost of providing USD 2 at PPP per day to all persons with severe disabilities in Bangladesh would be equivalent to 0.55 percent of GDP.
Worldwide 41 percent of women with newborns received maternity benefits in 2017, while in Bangladesh the share of women with newborns receiving maternity benefits was only 20.9 percent in 2017. The cost of providing universal maternity benefits equivalent to 100 percent of the national poverty line to all mothers during four months around childbirth, in Bangladesh, would be only 0.30 percent of GDP. We also find that providing maternity cash benefits equal to USD 1 per day at PPP to all mothers in Bangladesh during four months around childbirth would cost only 0.09 percent of GDP.
Although pensions for the elderly are the most commonly provided form of social protection in the world, 32 percent of the elderly population worldwide, and 66 percent of the elderly population in Bangladesh, are still not covered with any social protection benefits. In the case of Bangladesh, the cost of providing cash benefits equal to 100 percent of the national poverty line to all persons aged 65 years and above would be 2.18 percent of GDP. On the other hand, providing USD 2 per day at PPP to all persons aged 65 years and above in Bangladesh would cost 1.30 percent of GDP.
Using the same method, we also find that the cost of providing unemployment support in Bangladesh, such as the 100-day Employment Generation Programme, equal to 100 percent of the national poverty line for 100 days per year for one person at working age per vulnerable household would be 2.14 percent of GDP. And, providing USD 2 per day at PPP for 100 days per year for one person at working age per vulnerable household would cost 1.27 percent of GDP.
The fiscal challenge in Bangladesh vis-à-vis social security financing is enormous. The vision of reaching universal targets, would depend crucially on how the many elements of social safety net programmes are financed and implemented. Although the design of the National Social Security Strategy of Bangladesh is to gradually encourage growth of social insurance and contributory financing, the latter would need a prolonged period of many measures before one can start envisaging a reduction in transfers and social safety net programme interventions.
Nevertheless, the budgetary burden to finance the social safety net programmes will continue to be large, given the current levels of extreme poverty and vulnerability in the economy, especially of underprivileged groups and regions. Fiscal space will also need to expand to build the capacity and institutions needed towards implementation of the National Social Security Strategy. Equally, statutory provisions that are likely to come with National Social Security Strategy and the building of social floor, will require financial provisions. For instance, attempts should be made to widen social insurance coverage in the informal sector, and informal enterprises.
Fiscal space in Bangladesh is currently restricted by the very low revenue-GDP ratio, which is low not only compared to many of the Asian countries, but also compared to many sub-Saharan countries. Apart from additional tax and non-tax revenues, expansion of fiscal space is also dependent on reprioritisation and better rationalisation of public expenditures. More significantly, pressure on social safety net expenditures will diminish only when there is a steady job growth in the economy, especially in the private sector.
Building a social protection floor will critically depend on how a rising employer-employee contribution will supplement social assistance transfers, and eventually reinforce and institutionalise a public social insurance system. This would be central to the realisation of target 1.3 of Sustainable Development Goals and of the National Social Security Strategy by 2030.
Beneficiary targeting, that is, bringing in the right group of people, has been a major weakness of social safety net programmes in Bangladesh. Universal social protection resolves the problem of beneficiary targeting by simply including all relevant individuals under the aegis of social protection.
The corona pandemic clearly suggests that it is time for Bangladesh to make the transition away from random discretionary safety net programmes and towards universal social protection floors.
Dr Fahmida Khatun is the Executive Director and Syed Yusuf Saadat is a Senior Research Associate at the Centre for Policy Dialogue.