Developing countries must do more to protect their poor

Developing countries must do more to protect their poor

They must borrow to expand their social welfare services and ensure cash benefits for everyone during lockdowns for the coronavirus. They must also safeguard food supplies, say Rema N Hanna and Benjamin A Olken.

WHEN India’s government announced, with four hours’ notice, a nationwide, three-week lockdown to stem the spread of the coronavirus, millions of the country’s poorest citizens faced the risk of hunger and destitution.

Many migrant labourers, suddenly jobless, walked hundreds of miles from cities to their native villages. There, too, the Covid-19 lockdown may be devastating: Poor households cannot survive long — often not more than a few days — without an income.

These challenges are worldwide. But developed-country governments have borrowed to implement massive relief packages to support companies, the poor, and the working- and middle-class families at risk of poverty because of layoffs and business closures.

Developing-country governments must do the same. Expanding social protection to reach vulnerable people quickly must be a pillar of every country’s Covid-19 strategy.

To achieve this, resource-constrained governments must look to past experience and existing research to design the most effective and efficient programmes.

Developing and implementing new social-protection programmes takes time, so governments should build upon existing programmes and platforms to ensure that all people have enough to meet their basic needs.

There is no one-size-fits-all approach; each country must assess the mechanisms it already has in place, and then expand or reform them.

But there are some general guidelines. Countries with cash-transfer programmes should broaden eligibility and increase the benefit.

Given the scale of the economic shock, concerns that wealthier households might receive benefits they do not need should take a backseat to ensuring that vulnerable people — including informal workers and middle-class households, which would not typically qualify for welfare programmes — are covered.

Our research suggests that on-demand applications — which require the unemployed to complete only a few steps, online or by phone, to gain access to benefits — would help governments to reach more people in need. Additional verification could be carried out later.

Moreover, cash transfers should be targeted at the most affected areas, such as large cities, where high population density accelerates contagion and lockdowns are concentrated.

Without cash transfers to soften the blow, the urban poor will migrate, as they have in India, potentially spreading the virus to other cities and rural areas (where already-limited health-care capacity will quickly be overwhelmed).

Where possible, benefits should be distributed via digital platforms, thereby enabling people to avoid physical contact. In the absence of such platforms, governments must be creative, using whatever touch points are available.

For example, cash could be distributed through local governments or networks by using door-to-door delivery or staggered pick-up dates and times, based on national identification numbers.

In Indonesia, where we work, many informal and middle-class workers have pension accounts; transfers could be deposited into those accounts, and early withdrawal restrictions could be relaxed.

Yet cash transfers alone may be insufficient to protect the poor from destitution and hunger, if food-supply chains break down. Governments must also monitor food prices and food availability, and can manage localised shortages by expanding targeted food-distribution programmes, releasing food stocks when necessary, and co-ordinating distribution with private companies.

Furthermore, governments could increase subsidies for existing public health insurance (even if only temporarily). This would relieve households and businesses of the burden of health-care premiums and reduce the risk of overwhelming families with medical costs.

In good times, demand for health insurance in developing countries is low, with many signing up only when they are already sick.

But this is not simply a matter of short-term thinking: Cumbersome or malfunctioning enrollment systems, low-quality services, and lack of experience with insurance can discourage people from signing up.

Temporary subsidies, together with simplified enrollment procedures, can help to overcome these hurdles, leading to broader health-insurance coverage, even after the subsidies are removed.

This is what happened in Indonesia, when such a scheme was tested prior to the current crisis: Offering informal workers temporary subsidies for public health insurance increased coverage eightfold, without raising unit costs, and many retained coverage beyond the subsidy period.

An effective Covid-19 response must also include lifelines for small businesses. Formal, small- and medium-size enterprises represent an estimated 90% of businesses and 50% of employment worldwide.

But, because such businesses often lack cash reserves and face severe credit constraints, many will not survive temporary closures without support.

For formal businesses, governments should consider tax deferments and holidays for hard-hit sectors. Informal firms, which account for countless more jobs in developing countries, could work with banks and multilateral financial institutions to expand credit lines and cancel or suspend debt payments.

Some argue that welfare and subsidies discourage people from working. But our research shows that, even under ordinary circumstances, beneficiaries do not work less or invest differently.

During this extraordinary period of social distancing and lockdowns, arguing about work incentives makes even less sense.

Governments are forcing people to exit from the economy, so it is incumbent upon governments to help those people survive.

Rema N Hanna, professor of South-East Asia studies at the Harvard Kennedy School, is faculty director of Harvard’s Evidence for Policy Design, and scientific director of J-PAL South-East Asia. Benjamin A Olken, professor of economics at MIT, is director of MIT’s Abdul Latif Jameel Poverty Action Lab, and scientific director of J-PAL South-East Asia.

Copyright: Project Syndicate, 2020.

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