The following post is a part of a series that discusses 'managing risk for development,' the theme of the World Bank’s upcoming World Development Report 2014.
Income support is an essential part of crisis and disaster response. Time after time, governments, donors, and humanitarian agencies step in with support to people affected disasters and economic crisis. They often do this on an ad hoc basis, improvising how and what support to provide. Why not build systems that could respond quickly wherever and whenever crisis or disaster strikes?
Disasters wipe out homes and livelihoods in an instant. Millions of workers lose their jobs in economic crises. Food price spikes put basic staple foods out of the reach of the poor. Governments often feel compelled to act in such situations. To be effective, support to crisis and disaster-affected people needs to be provided rapidly.
Yet delivering early support to those suddenly in need requires systems that elude most developing countries. In principle, unemployment insurance to protect workers against job loss, disaster insurance for homeowners, and crop and livestock insurance for farmers are good solutions because they can be automatic, self-financing, and disburse rapidly. Yet because of informality and missing markets, most workers, homeowners, and farmers lack insurance. Unemployment insurance is common in Europe and Central Asia. Nevertheless, less than one-third of unemployed workers during the financial crisis were covered. Their benefit periods were short; workers who kept their jobs but had earnings reduced were not protected. Instead, social safety nets had to fill the void.
How can governments improve income support to people facing major income shocks? The most important is to ensure that programs to provide income support are in place before shocks hit and that income support and other social services remain accessible during shocks and crises. This can be done by enhancing existing programs so they better capture the newly vulnerable and by adding new social protection programs geared for shocks and crises. This has fiscal implications: spending on social services should be counter-cyclical and strive to protect access to health, education, and social protection during crises.
Keeping health, education, and vocational training free (or at least affordable) during crisis helps maintain enrollment, use of health services, and human capital. In part because schooling is free in most countries did the food, fuel, and financial crises that started in 2008 not precipitate declines in school enrollment–withdrawing children from school doesn’t add to the family budget; school lunches provide an added incentive to attend school in many countries. Health use, in contrast, declined markedly in some countries during the most recent crisis. Surveys in Armenia, Bulgaria, and Montenegro found that crisis-affected people reduced medical care and prescription drug use significantly.
Some countries have built social protection systems in ways that facilitate provision of regular and reliable transfers to people faced with a shock. India’s Mahatma Gandhi National Rural Employment Guarantee Act provides livelihood security by offering up to 100 days of casual day labor to rural households; uptake is voluntary and based on need. Ethiopia‘s Productive Safety Net Project is organized to deliver timely and predictable income transfers to households, in particular during drought: the program has financing, delivery, and early warning mechanisms in place to quickly scale up the number of beneficiaries in drought-stricken parts of the country. (Part II of this blog will examine Ethiopia‘s Productive Safety Net Project in greater detail.)
The ability to scale back transfers once crisis recedes should be preserved. Romania increased pension benefits in the most recent crisis to reach half the population. This reduced poverty, but resulted in large fiscal pressure as pension spending escalated to 8% of GDP.
Summing up, countries should prepare for shocks by strengthening their ability to protect people’s basic consumption and access to health and education during bad times. Programs for income support should be put in place during good times, along with fiscal frameworks to permit transfers and social services to continue uninterrupted during bad times. Income support programs need to be scalable and flexible to increase coverage in response to shocks and scale back once crises abate. Their targeting systems need to emphasize the shock-affected, not just the chronic poor.
Next week we will examine Ethiopia’s Productive Safety Net Program.
Independent Evaluation Group. "The World Bank Group's Response to the Global Economic Crisis - Phase II." Washington, DC: Independent Evaluation Group, The World Bank Group, 2012.
The World Bank. "The Jobs Crisis: Household and Government Responses to the Great Recession in Eastern Europe and Central Asia." In Directions in Development. Washington, DC: The World Bank Group, 2011.
The World Bank. "Managing Risk, Promoting Growth: Development Systems for Social Protection in Africa." In The World Bank's Africa Social Protection Strategy 2012-2022. Washington, DC: The World Bank Group, 2012.
- WDR 2014