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Global Crises, Social Safety Nets and the Poor

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A striking difference between the recent financial, food, fuel and economic crises of previous decades is the attention some nations -- Colombia, Georgia, Ethiopia, and Mexico among them -- have been able to give this time around to the plight of the poor from the outset. The handle these countries had on helping protect the poor and vulnerable extended from social safety nets that were already in place before the crisis struck. Development organizations, especially the World Bank, financed some of these programs. Much of the Bank's support to social safety nets over the past decade, $11.5 billion worth, came during 2009-2010.

Such efforts were nevertheless insufficient to prevent about 64 million more people from slipping into poverty by the end of 2010 on account of the financial crisis, or to withstand the additional impacts of the food or fuel price hikes. In West Africa, Pakistan, Haiti, and several other places, devastation from natural disasters severely strained vulnerable segments of the population. But the recent experience with safety nets provides precious lessons going forward.

First, it pays to build safety net systems in relatively stable times so that the worst poverty impacts from unanticipated events can be cushioned. The recurring nature of financial, food and fuel crises, as well as climate-related disasters, makes clear the need for all nations to be prepared to protect against shocks with social safety nets. Prior preparation is important because during a crisis it is hard to initiate or even scale up social programs or modify target groups to respond adequately. Organizations like the World Bank are most effective when they engage consistently during stable times to help develop social safety net programs and to build sufficient flexibility into them.

Second, the coverage of these programs needs to be expanded to more countries. Thus far, middle-income countries such as Brazil and Mexico, which had built up institutional capacity in this respect, have been in the forefront. But low-income countries too need to give priority to such efforts with more support from development agencies. Of particular importance are efforts to strengthen the capacity in low-income countries to design flexible programs that consider the local context.

Ethiopia, a low-income country, set up a large public safety net program to handle chronic and repeated poverty due to predictable shocks, such as droughts. Over time it has built-in an automatic contingency mechanism that provides support in times of food insecurity. During the disastrous 2010 floods, Pakistan, a lower-middle-income country, was able to draw on the experiences of the 2005 earthquake and the 2007 national social protection strategy to create the Citizen's Damage Compensation program using the national database to identify beneficiaries and provide cash grants through debit cards from the private banking sector.

Third, it is key for these programs to reach the right beneficiaries, without corruption or leakage. In many programs when the poverty focus is mentioned, it is often in general terms of poverty reduction rather than as part of a time-bound objective directed toward a specific subset of the population. Countries and external financiers need to develop rigorous mechanisms that effectively identify the targeted beneficiaries and build strong results frameworks that focus on supporting the poor and the vulnerable.

The cost of well-targeted programs is usually a small share of GDP, typically below one percent. Yet for their sustainability, it is vital that they focus on the right results and ensure that they indeed reach the poor and vulnerable.

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