Identifying the critical financing gaps that need coordinated international action is a high priority in the run up to the Third International Conference on Financing for Development (FFD) this July. One key area for debate is the situation of least developed countries (LDCs), which face complex challenges in ending poverty and achieving sustainable development, as well as continued resource constraints.
Social protection* is gaining increasing attention from policymakers, governments and finance providers. The proposed sustainable development goals recognise its potential to help “end poverty in all its forms, everywhere” (Goal 1, target 1.3) in a post-2015 world.
Getting poverty to Zero: Financing for social protection in least developed countries shows that LDCs face an 88% external finance gap if they are to achieve the scale of social protection coverage needed to end extreme poverty by 2030. This suggests that ambitious commitments towards financing social protection from both domestic governments and external finance providers will be needed this year if we are to be sure of ending extreme poverty by 2030.
- There is growing body of evidence of the impact that social protection has on reducing poverty in countries as diverse as Brazil, Ethiopia, South Africa, Malawi, Kenya, India and Rwanda.
- All countries now have at least one type of social protection programme targeted at the poorest and most vulnerable people. In LDCs, these programmes are only reaching 20% of those living in extreme poverty – below PPP $1.25 a day.
- Even where extremely poor people are reached, the level of transfer is much less than that needed to sustainably lift poor people out of extreme poverty. In sub-Saharan Africa, for example, the average value of the transfer is 10% of the estimated PPP 42 cents a day needed.
- Current domestic spending on all forms of social protection programmes is on average US$10 per person in LDCs, or just over 1% of GDP. Most LDCs are able to increase their tax revenues and the share of their budget spent on social protection. If all LDCs increased their tax to GDP ratio to 20% (from the current 17%) and allocated 10% to targeted social protection programmes, spending would rise to 2% of GDP, US$16 per person.
- The current average cost of providing the transfer needed to close the extreme poverty gap in LDCs is US$49 per person per year, around 7% of GDP. This is less than the latest estimates for achieving the sustainable development goals for education (US$60) and health (US$86). By contrast, OECD countries’ spending on social protection is significantly more than health and education combined.
- Even if LDCs increase their spending to US$16 per person, there would be a funding gap of US$33 per person. Current DAC donor funding for all forms of social protection-related programmes in LDCs averages US$4 per person per year. As a result 88% of the financing gap is currently unfunded. This compares with recent estimates of the unfunded element for education at 67% and health 50%
- The increase in ODA required to meet financing needs is equivalent to 0.1% of the Organisation for Economic Co-operation and Development (OECD)’s GNI. Given the priority attached to ending extreme poverty and the limited scope for LDCs to increase their own funding, social protection financing needs should arguably be the first call on increased ODA to ensure the goal of ending poverty is achieved by 2030.
- The data shows that ambitious commitments towards financing social protection from both domestic governments and external finance providers are essential this year if we are to be sure of achieving the goal of ending extreme poverty by 2030.