Financing social protection floors: Considerations of fiscal space

The effectiveness of social protection in combating poverty and vulnerability, cushioning shocks, attenuating inequality, and supporting long-term growth is well-established, but effective social protection systems have long been seen as an unaffordable luxury in many developing and low-income countries. The social protection floor concept aims at providing a guaranteed minimum of social protection at a reasonable cost, even in resource-constrained circumstances, serving as a platform for the gradual implementation of a full social protection system. Introducing and maintaining or extending the floor requires the mobilization of fiscal space, both immediately and in the future. The article argues that efforts to generate fiscal space must carefully consider issues of predictability, as well as the impact of present funding choices on fiscal and debt sustainability, macroeconomic stability, inequality, poverty reduction and growth, and hence on future fiscal space. It examines from this perspective some of the implications of generating fiscal space through additional domestic resource mobilization, expenditure reallocation or efficiency gains, reduction of debt service, or external funding. The article also presents some evidence of a wide range of recent interventions that have been financed at reasonable cost on a sustainable basis in countries at different levels of income and development, using both own resources and external funds.