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Affordability

Updated by Clara van Panhuys on 10.06.2015

Ensuring a SPF for the entire world population represents a considerable challenge, but experiences from countries all over the world and calculations by various UN agencies show that a basic floor of social transfers is globally affordable at virtually any stage of economic development.

Insufficient fiscal space and increasingly ageing populations are among the main reasons why many believe that social security is not affordable or sustainable. Evidence shows, however, that a basic social protection package is affordable under the condition that it is introduced progressively.

There are many ways to attain affordable social security coverage in middle- or low-income countries. While some countries seek to extend social insurance and combine it with social assistance, others subsidize social insurance coverage for the poor to enable them to enjoy participation in the general schemes, and still others seek to establish tax-financed universal schemes or conditional social transfer schemes. Each approach has its advantages and its limitations and depends on national values, past experience and institutional frameworks.

The missing factor in many cases is sustainable funding which has to come either from a progressive increase and/or reallocation of existing public spending or increased contribution and taxes. Some countries may require a joint effort with the international donor community during a suitable transition period. However, this would necessitate careful budgetary planning for funding needed in the medium run, when domestic resources would have to substitute external grants in order for SPFs to be sustainable in the long run

The core challenge for financing the basic social security guarantees remains that of securing the necessary fiscal space. Countries at similar levels of per capita GDP differ significantly with respect to the size of their public finances and to the share of resources allocated to social security. Thus, the size of social security investements is essentially a matter of political determination and priorities.

Measures should be taken to maximize the administrative capacity to deliver benefits efficiently, and to minimize waste and misuse of resources. The key lesson learned from more than one hundred years of experience, is the importance of good governance. Processes for efficient service delivery, monitoring and evaluation and proper financial management have to be carefully designed and employees need to be trained to carry out these tasks.♦

 


Main Resources

World social security report 2010/11. Covering people in times of crisis
ILO, 2010

 

 

Social security for social justice and a fair globalization
ILO, 2011