Strengthening Social Protection Responses to the Global Economic Downturn

In October 2010 the Paris-based Organization for Economic Cooperation and Development (OECD) warned of continued economic downturn, citing a compilation of data from its 33 member nations as well as indicators from several of the world’s largest developing countries, including Brazil, India and China.1 The preceding triple-F crisis (food, fuel, financial) and the persistence of the economic downturn have intensified interest in appropriate social protection responses to address current and future vulnerability. Social transfers in particular have attracted attention in a number of countries as a cost-effective alternative to generalised subsidies that are often expensive, poorly targeted and prone to creating economic distortions.

This toolkit aims to support policy decision-making that aims to strengthen appropriate social protection responses to the current economic downturn and ensure continued progress against a range of Millennium Development Goals (MDGs). It provides an analytical framework and decision-making tool based on analysis of historical lessons of international experience, and informed by current thinking in terms of the existing crisis. The toolkit links social transfer choices to wider social protection strategy, as one of potentially many responses to the global economic downturn, and within a broader context of overall social policy.

The toolkit complements existing guidance and other toolkits supported by the U.K. government’s Department for International Development (DFID) by drawing more general lessons not only for the recent economic downturn but also for other types of future crises.

This toolkit focuses in particular on options in low-income country contexts, and draws on social analysis for responding to impacts on different groups. The issues addressed in the toolkit receive more detailed treatment in the recently published second edition of the DFID-funded guide Designing and Implementing Social Transfer Programmes.

The global economic downturn is more than a perfect storm—the various components are intricately interwoven, from their origins to the appropriate responses. The current global situation reflects the impact of recent multiple basic commodity price shocks (food and fuel) with a threat to global pro-poor growth (financial crisis and global recession).

The global economic downturn has inflicted a cycle of shocks affecting poor and vulnerable people in low- and middle-income countries. Preceding shocks have contributed to surging food and fuel prices that eroded the purchasing power of the limited incomes of poor people. The economic downturn threatens slowing or negative economic growth, falling remittances, eroding public capacity and potentially falling international aid. The global economic downturn affects the fiscal space not only of affected developing countries but also industrialised countries that provide development partner support (as well as global demand driving economic growth). The downturn thus increases the demand for social protection (and a range of other responses) while simultaneously limiting fiscal capacity to respond—and triggering global economic changes that create additional negative pressures on pro-poor growth.

Estimates suggest the economic shocks may adversely affect approximately 1.4 billion people who are living in or on the verge of extreme poverty in developing countries.3 Initial estimates warned that the downturn might be expected to substantially slow global efforts to reduce poverty and achieve progress on the Millennium Development Goals, with a predicted additional 100 million more people trapped in poverty in 2009. The economic downturn falling on the heels of a global food price crisis has driven the number of the world’s hungry above a billion for the first time. The situation is increasing the number of children suffering malnutrition-related permanent cognitive and physical injury and infant mortality, particularly for girls. The downturn has most greatly affected the near-poor and the working poor—substantially increasing the group of the new poor. Multiple dimensions of crisis have adversely affected informal sector workers who depend on the downturnaffected formal sectors—with incomes falling, business costs rising and conditions worsening. At a macro level, reduced fiscal space for developing country governments hampers appropriate responses, particularly for social programmes including HIV/AIDS budgets. The cumulative pressure of global crises has exacerbated political unrest and undermined social cohesion.

Appropriate social protection and human development responses can ensure that this temporary economic shock does not create severe permanent reversals and declines in poor households’ well- being.

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