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Economic recovery begins with children (and older people, and people with disabilities): The urge for universal lifecycle cash transfers as a response to COVID-19

15/05/2020

This blog was originally written for socialprotection.org and can be found hereOur guest blogger, Louise Moreira Daniels, is Chief of Social Policy at UNICEF Sri Lanka.

The COVID-19 pandemic has created a perfect storm of crises in countries around the world: exports have fallen dramatically; some specific sectors, like the tourism industry, have collapsed; businesses are finding it more difficult to operate due to physical distancing measures; remittances are falling; and, the list of anxiety-provoking effects goes on. Countries are scrambling to respond. How to stop or slow down contagion? When to “reopen” the economy? How to support jobs and workers? How to save lives and livelihoods?

The answers are not easy, nor the same everywhere. Yet, an approach that is increasingly being discussed and promoted by many is universal cash transfers as a response to COVID-19. The IMF has proposed the use of universal transfers, such as lifecycle social protection schemes, in South Asia;[1] the Global Director of Social Protection at the World Bank argues that countries need to consider universal social security entitlements that reach those on middle incomes;[2] and, the United Nations has called[3] for universal social protection—which is not only a right expressly recognised in many human rights instruments, but an integral part of the SDG Agenda—as a response.

In Sri Lanka, UNICEF has been working with the Government over the past couple of years to strengthen the social protection system, which, while long-established, is quite fragmented and based on outdated “poor relief” models. Efforts to support a reform of the system include partnerships with the International Policy Center for Inclusive Growth (IPC-IG), the International Training Center of the ILO (ITC-ILO), and Development Pathways. With the latter, UNICEF recently— still in the B.C. (Before COVID) era—published an investment case for a Universal Child Benefit for Sri Lanka, which has become even more relevant now.

As in many other countries, COVID-19 exposes the weaknesses in the national social protection system–which, even before the crisis, had high exclusion errors (Figure 1). Despite a very low official poverty rate (4.1%), prior to the crisis most Sri Lankan families were already living on low and insecure incomes: for instance, 74% survived on less than LKR 613 (USD 3.40) per day (Figure 2), which means that the vast majority of families were highly vulnerable to a large-scale economic shock on the scale of COVID-19.

The Government of Sri Lanka recognised the threat of the crisis and, to soften its impact, quickly responded with cash transfers to households, utilizing its existing social protection system as well as new schemes for self-employed workers. Even in the absence of a strong management information system (MIS) or payment systems, The Government decided it needed to support households and it deployed officials to compile lists of beneficiaries and, in person, visit people’s households to provides 5.7 million monthly transfers of LKR 5,000. That is an excellent first step, particularly compared to the difficulties in getting cash to people in countries with much more advanced systems! Yet, the response still leaves many, including some of the most vulnerable population, out. UNICEF’s analysis[4] suggests that 34% of households may be excluded from the cash assistance while 38% of households may receive more than one package of support. Nearly a third of children and over-70s, and around half of all single parents/caregivers, are likely to miss out. In addition, the flat payment of LKR5,000 per household means that the effective value of the transfer per person varies across different sizes of household. The fact that many households affected by the crisis will miss out on support without understanding the reason, alongside the low level of per capita payments, may lead to confusion with the potential to erode social cohesion. Moreover, at a cost of only 0.16% of GDP per month, the current fiscal response is insufficient to adequately protect the economy.

The World Bank predicts that Sri Lanka is heading for a major recession, with the economy contracting by up to 3% in 2020. The human cost will be significant. UNICEF’s analysis indicates that average household incomes could fall by between 12% and 27% over a period of 6 months, depending on the severity and length of the crisis (Figure 3). While the crisis is universal, affecting people across the welfare distribution, the hardest hit in terms of income loss will be those on middle incomes, who tend to be out of social protection programs. Impacts will also be higher across towns and cities, with an average fall in incomes of up to 30% compared to 25% in rural areas.

Reduced incomes will lead families to adopt a range of negative coping mechanisms that may impact on wellbeing. Expenditures decrease, leading to reductions in the frequency and nutritional quality of meals, which increases food insecurity and reduces nutritional outcomes, leading to poor health and human capital outcomes in the long run. For example, iron deficiency may hinder children’s cognitive development yet, even prior to the crisis, on any given day 39% of young children across Sri Lanka were unable to consume iron-rich foods[5]; the number may, by now, have increased dramatically. Among older people and people with underlying health conditions, poor nutrition can enhance the risk of developing comorbidities that reduce their resistance to the COVID-19 virus. Further, as families come under greater financial stress, the level of violence against women and children is on the increase. Even child labour, which has almost been eliminated in Sri Lanka, may become a threat.

The global United Nations advice to countries is: “This unprecedented crisis requires unprecedented measures – a massive counter-cyclical fiscal and financial effort is urgently needed everywhere.” This is in line with recent calls by the IMF and World Bank to expand social protection as part of a fiscal stimulus package.[6] Absent such a response, Sri Lanka, like many other nations, faces the prospect of a much deeper economic recession, alongside a dramatic increase in poverty and the potential for erosion of social cohesion.

Given the pre-existing high economic vulnerability and a social protection system that is not yet at a stage where it can provide an adequate safety net in response to a crisis which threatens the lives and livelihoods of people across the welfare distribution, UNICEF Sri Lanka is advocating for the establishment of emergency universal child, disability and old-age benefits. This would be as an administratively simple and effective means of providing support to the vast majority of households across Sri Lanka for a period of 6 months, particularly compared to the response that has already been put in place. Families would receive LKR3,000 per child per month while older people and people with disabilities would receive LKR7,000 per month. The cost would be 0.25% of annual GDP per month, or around LKR 233 billion (US$1.25 billion) over 6 months.

In terms of coverage, the proposed schemes would reach 86% of the population, either directly or indirectly as members of recipient households. Coverage would be relatively even across occupations in both the formal and informal economies, with around 80% coverage among those most affected by the crisis—managers and those working in sales, services and factories (which are particularly important in Sri Lanka). In terms of impact, the lifecycle schemes would be strongly pro-poor. UNICEF estimated the effectiveness of these schemes in mitigating the loss of incomes resulting from the crisis from a number of perspectives, under different scenarios. Under a pessimistic scenario in terms of the effect of the crisis on households, the schemes would put those in the bottom three deciles, on average, in a better position than before the crisis. Importantly, there would be a significant reduction in income losses across those on middle incomes while, households comprising single parents/caregivers, older people caring for children and older people living alone will receive a significant level of support. Among those most affected, the lifecycle schemes would restore, on average, between 31-38% of their lost income. In urban areas, the lifecycle schemes would replace an average of 42% of the income loss and 65% in rural areas.

This crisis teaches us that we are all vulnerable and highlights the importance of ensuring adequate social protection coverage for all, which can be accessed whenever people are vulnerable such as during childhood, old age, sickness, disability or employment (through adequate labour standards). There is a real danger that COVID-19 will devastate economies around the world and cause widespread poverty and deprivation, with households including children, older people and persons with disabilities particularly vulnerable.

A package of universal benefits to children, older people and people with disabilities as part of a large-scale rescue package would bring significant benefits as it would: i) provide a major stimulus to the economy, reducing the severity of the forthcoming recession while many businesses and producers would continue to find markets for their goods; ii) protect human and child rights and development; iii) reduce the risk of domestic violence by decreasing stress levels; iv) help keep individuals food-secure and well-nourished; v) increase the likelihood of erosion of social cohesion, and political instability, while strengthening social trust and cohesion since citizens will be able to clearly see that the government is caring for them in an inclusive, easily understood, non-controversial, popular and transparent manner; and, vi) help build for posterity a system that is more capable to help avoid, mitigate, withstand and recover from crises in the future.

COVID-19 poses a real threat to families, but a solution is possible. Bold, ambitious and creative thinking by governments and development partners is required. While it is challenging to find the funds for an effective fiscal stimulus, the cost of not doing so in terms of the damage to the economy and families will be much higher. An ambitious fiscal stimulus based on universal transfers must absolutely be considered. Leadership and decisiveness to do whatever it takes to defeat the COVID-19 crisis, and to build back better, is called for, around the world.

 

[1] IMF (2020b). Managing the Impact on Households: Assessing Universal Transfers (UT). Special Series on Fiscal Policies to Respond to COVID-19. Washington, D.C., International Monetary Fund.

[2] https://blogs.worldbank.org/jobs/covid-19-reinforces-case-fundamental-reform-our-social-protection-systems

[3] United Nations (2020). A UN framework for the immediate socio-economic response to COVID-19.

[4] UNICEF Sri Lanka has done extensive analysis of the GoSL cash transfer response, looking at who benefits and who does not and at the adequacy of the transfer value; it has compared the estimated impacts of the current cash transfer response and a universal lifecycle approach

[5] Demographic Health Survey (2016), Department of Census and Statistics, Sri Lanka

[6] IMF (2020a). Fiscal monitor: Policies to support people during the COVID-19 crisis. Washington D.C., International Monetary Fund; World Bank. (2020). South Asia Economic Focus, Spring 2020: The Cursed Blessing of Public Banks. Washington, DC., World Bank

 

Read more like this:

Pathways’ Perspective: What has the Covid-19 crisis taught us about social protection?

Blog:  COVID-19’s total burden of disease extends beyond those who get sick, and this has potentially deadly consequences for women and girls.

News: The IMF show support for Universal Transfers as a temporary tool during COVID-19 crisis 

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