Social Protection in Low-Income Nations

The International Labour Organization (ILO) has identified a significant financial challenge for low- and middle-income countries to achieve universal social protection. According to a working paper by the ILO, an additional $1.4 trillion per year is needed globally to provide universal access to essential social protection guarantees, including support for children, persons with severe disabilities, mothers of newborns, older persons, unemployed, and essential health care.

Key-highlights of ILO’s Working Paper

• Among all regions, Africa faces the most substantial challenge in reaching universal social protection coverage. The financing gap for low-income countries is particularly stark, amounting to more than half (52.3%) of their annual gross domestic product (GDP), underscoring the immense financial burden these countries face.
• The ILO document presents detailed estimates of the funding required at global, regional, and national levels. It emphasizes the critical need for international solidarity to bridge these financing gaps, highlighting that many low-income countries cannot achieve these goals without significant external support.
• The ILO paper underscores a formidable financial challenge in achieving universal social protection, especially for low-income countries.
• Astonishingly, these nations face a funding gap that exceeds half of their annual GDP—52.3%. This stark reality highlights an urgent need: only through international solidarity and cooperation can this immense gap be bridged, ensuring that essential social protections become a global reality.

Here is a table summarizing the distribution of funds needed for universal social protection and the basis for calculating the financing gaps for child benefits and old-age pensions:

Global and Regional Financing Gaps

• Overall Gap: The overall financing gap for universal social protection in low- and middle-income countries is 3.3% of GDP per year. This gap comprises 2% of GDP for essential health care and 1.3% for key social protection cash benefits (covering children, persons with severe disabilities, mothers of newborns, older persons, and the unemployed).
• Regional Disparities:
  • Africa: Faces the most significant challenge with a financing gap of 17.6% of the region’s annual GDP. This high percentage reflects severe financial constraints and substantial needs in the continent.
  • Arab States: The financing gap stands at 11.4% of GDP, indicating significant financial hurdles in achieving universal coverage.
  • Latin America and the Caribbean: The gap is relatively lower at 2.7% of GDP, suggesting more manageable, yet still significant, financial challenges.
  • Asia and the Pacific: With a gap of 2% of GDP, this region faces moderate financial needs for universal social protection.
  • Europe and Central Asia: The lowest among the regions, the financing gap here is 1.9% of GDP, indicating relatively better financial capacity to address social protection needs.

Measures required to address the financing gap

Achieving universal social protection in low- and middle-income countries necessitates a significant increase in government spending, estimated at 10.6% of total annual spending. This ambitious goal requires a multifaceted approach involving domestic resource mobilization, better debt management, and international support.

• Increased Government Spending: To bridge the financing gap, low- and middle-income countries must increase government spending by 10.6% of their total annual expenditure. This increase can be sourced from domestic resources, such as improved taxation systems and social security contributions, alongside better sovereign debt management practices.
• Domestic Resource Mobilization:
  • Taxation: Implementing more effective and progressive taxation policies is crucial. This includes higher taxes on higher income groups and corporations, particularly those that contribute most to carbon emissions.
  • Social Security Contributions: Expanding the base for social security contributions can provide a steady source of funding for social protection schemes.
• Sovereign Debt Management: Effective debt management strategies can free up resources for social protection. This includes renegotiating debt terms and improving fiscal policies to reduce debt burdens.
• Climate Crisis Mitigation: The working paper highlights the role of universal social protection in mitigating the impacts of the climate crisis by reducing vulnerabilities and providing a safety net against climate shocks. Social protection systems can help communities adapt to climate change, safeguarding livelihoods and enhancing resilience against environmental stresses.
• Progressive Taxation and Carbon Pricing: To address climate change and its unequal impacts, progressive taxation is essential. This includes taxes on high carbon dioxide producers and consumers.
• International Climate Financing: International climate financing can play a pivotal role in strengthening and adapting social protection systems in low- and middle-income countries.

Conclusion

To achieve universal social protection, low- and middle-income countries must undertake significant fiscal reforms, including increasing government spending and enhancing domestic resource mobilization through progressive taxation and better debt management. Additionally, addressing the climate crisis through targeted policies like carbon taxes and eliminating fossil fuel subsidies is crucial. International climate financing can bolster these efforts, ensuring that social protection systems are resilient and capable of mitigating the adverse effects of climate change. This comprehensive approach not only supports social equity but also promotes sustainable economic growth and environmental stewardship.