The COVID-19 crisis is forcing governments and organisations to assess their fiscal strategies in response to the severe economic downturn triggered by the pandemic. The International Monetary Fund (IMF) has released the first part of a Special Series on Fiscal Policies to Respond to COVID-19 titled “Managing Fiscal Risks under Fiscal stress” that looks at “the Impact on Households: Assessing Universal Transfers (UT)”.
This first note discusses the role that universal transfers could play in supporting households and notes that some “advanced economies” have either implemented – or are considering implementing – a universal transfer as a supplement to their existing social benefit systems. Examples include Hong Kong, Serbia, Singapore, and the United States.
The IMF observes that there have been calls for universal—or near universal—transfers as a direct and speedy approach to providing support to the many households affected by the virus or suffering economic hardship. The aim of such transfers would be to provide households facing negative income shocks with temporary support to partly cover essential expenditures such as food, utility bills, mortgages, rents, medical bills, and transportation costs. The IMF emphasises that these universal transfers are “one-off or possibly repeated a few times over the short run” and a “bridging tool to provide an income ‘lifeline’ before existing benefits kick in or employment recovers.”
The IMF has previously been criticised for pushing for poverty-targeted social protection programmes and criticising and threatening inclusive schemes that governments have established with their own funds. Poverty-targeted programmes are often low cost, with limited coverage, and the design of these programmes are often based around arguments of fiscal savings and greater cost-efficiency. Indeed, in its latest note promoting universal transfers, the IMF notes that such transfers would require “resources to finance a relatively expensive programme” and that “effectively transitioning from a crisis UT [universal transfer] will require significant investment in most emerging and developing countries.” The IMF further observes that compared to targeted transfers, a universal transfer would redistribute uniformly across the population, thus potentially improving coverage of households that are missed by targeted programs, but at the expense of the generosity of benefits for those lower-income households.
In contrast, a sustainable universal approach to social protection delivers high-cost schemes across the lifecycle. Evidence shows that these schemes are significantly more effective than poverty–targeted systems in reaching those living in poverty while having much greater impacts. Furthermore, universal schemes enjoy greater public support as they benefit more than a small minority, and so are more sustainable politically – especially among the middle-class who pay significant taxes – which therefore generates higher investment.
Stephen Kidd, a Senior Social Policy Specialist at Development Pathways has argued that if more universal schemes had been put in place before COVID-19, countries would have been better insulated to cope with the crisis. He explains that “COVID-19 has shown us that we are all vulnerable. Even if the majority of us do not experience the most severe COVID-19 symptoms, we are nonetheless affected economically, with many – perhaps the majority – experiencing significant falls in their standards of living. In a context where we are all vulnerable, a universal crisis like COVID-19 requires a universal response.”
As the IMF plays an influential role in shaping social policy, could this ideological shift from them be the beginning of a changing political tide from targeted programmes to building much more effective universal and inclusive social security systems?
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Pathways’ Perspectives: What has the Covid-19 crisis taught us about social protection?
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