Just like mandatory social insurance, promotion of microinsurance and universal systems, cash transfers is an instrument that can be used to extend social security. Like any of the other instruments, it cannot constitute the sole mechanism upon which a country's national strategy for the extension of social security relies, but needs to be part of an integrative approach. Many countries, while recognizing social security as an essential policy instrument for reducing poverty and inequality and supporting critical economic objectives, face difficulties when it comes to extending it. These problems need to be considered case by case in order for them to be solved. Indeed, there is no one-fit-all solution. It is not possible to say in advance if social cash transfers will be part of the solution and constitute an appropriate tool for the extension of social security in a given country. This depends on the country's political priorities and poverty profile, as well as on institutional factors and the design of the cash transfer programme. Nevertheless, it is possible to identify preconditions (which are not clear standards) that a country needs to be able to design and implement a feasible and affordable programme. These include: political will and commitment, fiscal space and implementation capacity. It is also important to note that cash transfers require less government bureaucracy and administrative resources than other mechanisms for delivering social security. Moreover, a small amount of benefit can have a notable positive impact on people's livelihoods.

2009-02-20

It is often assumed that low-income countries cannot afford social transfer programmes, but a growing body of evidence challenges this assumption. Indeed, several studies, including ILO studies on the cost of social protection in low-income countries in Africa (Pal et al., 2005) and Asia (Mizunoya et al., 2006), show that social transfers can be a cost-effective way of having a direct impact on hunger and poverty, and that they have positive externalities on human capital development and growth. The ILO studies showed that it is possible to design and implement a programme that costs less than 1% of the national GDP.

Cash transfers are often seen as one of, if not the most expensive social protection instruments, because they have administrative costs as well as benefit costs. However, evidence such as the pilot programme in Zambia (Kalomo project) tends to show that a low amount of benefit can have a significant impact on hunger and poverty. Indeed, the benefit is important not only due to its amount but also to the fact that social transfers are regular and predictable. This feature makes poor households less risk averse. By protecting and building their productive assets, the transfers make them more willing to take risks in businesses, which benefits economic growth. Contrary to transfers in kind, part of the cash transfers is used for other items than food (school supplie,s etc.). Evidence from Latin America, South Asia and Southern Africa has shown that cash transfers can also improve health and education by helping with the cost or having conditionalities (World Bank, 2004)

Social transfers should not be put aside for affordability reasons. Before drawing conclusions, it is important to balance the costs of designing and implementing such a programme in a low-income country with the benefits that it can spawn. It is also vital not to forget that affordability is a function of society's willingness to finance social transfers through taxes and contributions. Therefore, no analysis can be separated from the adequacy (in terms of impacts) and the viability of the programme. A social transfer programme which "performs in a way approved by the majority of the general public is usually also affordable — whatever its size" (ILO, Krzysztof Hagemejer, 2007). Affordability is about fiscal space and international aid, but also about political choices.

Finally, although it is important to consider the affordability of cash transfer programmes, and social protection more broadly, it is as important to ask whether low-income countries can afford NOT to have such programmes. Poverty has been persisting and even rising in Sub-Saharan Africa in recent years, and it is doubtful that these countries can decline instruments that have been shown to be an investment with positive impacts on vulnerable groups and the economy more broadly.

2009-02-20