Universal child benefits: The curious case of Mongolia

Up to now, Mongolia has been famous for Genghis Khan, nomadic herders and grand wrestling competitions in the capital city of Ulaanbaatar. But, it can now add to its list of fame the developing world’s only universal child grant!

Worldwide, close to one in seven countries provide non-contributory child benefits on a universal basis, primarily being European and a few other OECD countries (see map below). This means that they give social security payments (or tax rebates) to all parents or guardians, regardless of income or employment status, to help cover the costs of raising children.

In the developing world, though, coverage of such benefits is much more restricted, usually to children with parents working in the formal sector or to those living in poor households. While a growing number of developing countries have introduced universal pensions for older people – with significant positive effects on poverty rates and welfare – the principle of universality is not yet widely embraced when it comes to child-focused schemes.

Mongolia is a rare exception. After a rocky start, its Child Money Programme (CMP) now offers unconditional cash transfers to all children under 18 years.

Global distribution of child benefit programmes by type

Map Child Benefits
Source: ILO, 2015

A turbulent history

Mongolia’s CMP has had a turbulent history (see Fritz [2014] and IDS [2011]). Universal child benefits first emerged as a hot political issue in the run-up to the 2004 elections, as the incumbent and the main opposition party made rival promises to attract votes.

In 2005, the CMP was introduced as a conditional cash transfer programme targeted at poor households, who were identified through a proxy means test. Its value was set at Tog 3,000 per month (equivalent to around US$ 2.70 at the time) and it reached some 350,000 children.

But, after continuing pressure to make good on election promises, the CMP was reformed into a quasi-universal programme with weaker conditionalities in 2006. And, less than a year later, the government nearly tripled the total annual benefit per child, by introducing an additional quarterly payment of Tog 25,000 (US$ 21). This was possible because of the fiscal space created by a new windfall tax on mining profits.

In the run-up to the hotly contested 2008 elections, political parties made fresh promises of additional cash transfers to all citizens to further reduce poverty and redistribute the country’s newfound mineral wealth. But then, in late 2008 and 2009, the global economy ground to a halt and commodity prices plummeted. Mongolia’s public revenues dropped sharply and the country had to take out an emergency loan from the IMF, which included an agreement to revoke universal transfers and reintroduce poverty targeting. As a result, Parliament abolished the CMP as it prepared for the 2010 budget.

The country was quickly back on its feet though, and managed to strike a deal with the mining industry to pre-pay future royalties into a new Human Development Fund (HDF). And – despite the agreement with the IMF – government then used the HDF to offer untargeted cash transfers to all citizens, in line with the 2008 election promises.

Finally, after the 2012 elections, the new government changed course and stopped HDF payments. Instead, it reinstated the popular Child Money Programme as a universal and unconditional benefit for all children under 18 years, offering monthly transfers of Tog 20,000 (≈ US$ 10.50). The CMP now reaches around 994,000 children (i.e. its coverage rate is over 99 per cent) at a total cost of 1.5 per cent of GDP in 2014 (own calculations based on data from the national statistics database).

 

To target or not to target?

It is interesting to note that the reforms of the CMP led to considerable debates between the government of Mongolia and its development partners, particularly on the issue of targeting. From these debates, two opposing perspectives have clearly emerged:

1. The international financial institutions consistently stress the need to narrowly target the poor, as a way of rationalising expenditures and ensuring fiscal sustainability because Mongolia’s public revenues are highly vulnerable to fluctuating commodity prices (see, for example, World Bank [2005], ADB [2010], Fritz [2014] and IMF [2015]).

2. In contrast, United Nations organisations such as UNICEF have argued strongly in favour of the universal child benefit, pointing out that universality effectively resolves most of the large exclusion errors inherent to the proxy means test, and strongly reduces child poverty. Their analysis recognises that cost is an important consideration but, rather than restricting coverage, it recommends that the value of the cash transfer should be kept at an affordable level.

The truth is that income targeting is deeply unpopular in Mongolia. It is widely seen as being unfair, on the grounds that it discriminates by excluding some children. Political parties introduced the universal child grant as a way of gaining popular support, sharing wealth from the natural resource boom, and strengthening the social contract between the State and its citizens. It is also much easier to implement and more effective at reducing poverty. As a result, recent proposals to introduce means testing of social transfers in the first supplementary budget for 2015 were rejected (once again) by Parliament.

 

Conclusion

While an increasing number of developing countries have introduced universal social pensions that realise the right to basic income security for older persons, Mongolia appears to be the only non-OECD country to provide universal, unconditional benefits to all of its children under 18 years. Child-focussed benefits are a key component of an inclusive life cycle approach to social protection. So, will more countries follow Mongolia’s example?

The ILO, in a new publication, calculated that a universal child benefit would cost, as a weighted average, 0.9 per cent of the aggregated gross domestic product (GDP) of 57 low income and lower middle-income countries. To put that in perspective, the total estimated cost for all those 57 countries combined is equal to merely 0.5 per cent of what G20 countries used to bail out the financial sector in 2009. So, it’s really a question of political rather than technical choices.

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