ILO Working Paper 14 October / 2020 X Financing gaps in social protection Global estimates and strategies for developing countries in light of the COVID-19 crisis and beyond Authors / Fabio Durán-Valverde, José F. Pacheco-Jiménez, Taneem Muzaffar, Hazel Elizondo-Barboza Copyright © International Labour Organization 2020 This is an open access work distributed under the Creative Commons Attribution 3.0 IGO License (http://creativecommons. org/licenses/by/3.0/igo). Users can reuse, share, adapt and build upon the original work, even for commercial pur- poses, as detailed in the License. The ILO must be clearly credited as the owner of the original work. The use of the emblem of the ILO is not permitted in connection with users’ work. Translations – In case of a translation of this work, the following disclaimer must be added along with the attribu- tion: This translation was not created by the International Labour Office (ILO) and should not be considered an official ILO translation. 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ILO Working Papers summarize the results of ILO research in progress, and seek to stimulate discussion of a range of issues related to the world of work. Comments on this ILO Working Paper are welcome and can be sent to [email protected]. Authorization for publication: Shahra Razavi, Director, Social Protection Department ILO Working Papers can be found at: www.ilo.org/global/publications/working-papers Suggested citation: Durán-Valverde, F., Pacheco-Jiménez, J., Muzaffar, T., Elizondo-Barboza, H. 2020. Financing gaps in social protec- tion: Global estimates and strategies for developing countries in light of the COVID-19 crisis and beyond, ILO Working Paper (Geneva, ILO). ILO Working Paper X Abstract This paper provides updated regional and global estimates of the costs and financing gaps for tar- gets 1.3 and 3.8 of the SDGs relating to social protection and health care in 2020 and projections of incremental financial needs for reaching universal coverage in 2030. The paper analyses options for filling these financing gaps in developing countries during the crisis and beyond using domestic and external resources, including the strengthening and expansion of contributory systems. The analysis incorporates the effects of the COVID-19 pandemic. The paper considers five policy areas of the so- cial protection floor (SPF): children; maternity; disability; old age; and health care. Findings are further grouped by geographical regions and country income groups. The paper also estimate the financing gap of contributory systems – and therefore the potential fiscal space that could be created assuming a potential increase in social security coverage or contribution rates or both. Finally, it provides a list of fiscal space options, paying particular attention to options for raising revenues from social security contributions and taxation and official development assistance (ODA). JEL Classification: I3, H6, H53, H55. Keywords: social protection, social security systems, social protection floors, child allowances, mater- nity benefits, disability benefits, social pensions, social health protection, social security contributions, public expenditure, fiscal space, domestic resource mobilization, official development assistance (ODA), developing countries, Sustainable Development Goals (SDGs). X About the authors Fabio Durán-Valverde is the Head of Public Finance, Actuarial and Statistic Unit of the Social Protection Department of the International Labour Organization. He is a Social Protection Economist with more than 30 years working in the field of social protection and an international expert with activities in more than 40 countries in Latin America and the Caribbean, Africa and Asia. Main work areas include pub- lic finance for social protection, actuarial science, statistics, social security administration, pensions, health economics, social spending, informal economy and poverty. He is the author of specialized publications on social protection, health economics, actuarial studies, pensions and social spending. Taneem Muzaffar is a Social Protection Economist currently working as a consultant for the International Labour Organization (ILO). He also worked as a public finance economist in the Social Protection Department of the ILO. He is one of the co-authors of the Fiscal Space Handbook published by the ILO and UN-Women. Prior to joining the ILO, he worked as an academic staff in several universities in Bangladesh and Australia. He received his academic training in Economics and Finance in Australia (PhD) and the United Kingdom (MSc). His research articles have been published in journals such as The World Economy, Studies in Nonlinear Dynamics and Econometrics, International Review of Financial Analysis, and Journal of Forecasting. José Francisco Pacheco-Jiménez has an MA in Development Economics from the Institute of Social Studies in The Hague (Netherlands). He was the Vice-Minister of Finance of Costa Rica (2014–2017) and is currently a member of the Board of Directors of that country’s Central Bank. For almost 20 years, he has worked as a consultant in more than 35 countries in the fields of social protection, health care, poverty, education and public management, with particular emphasis on fiscal space, costing, public financial management and related areas. Hazel Elizondo-Barboza is an economist with a master's degree in Economics of Public Policy from the Barcelona Graduate School of Economics (BGSE). She has more than 6 years of experience in areas such as fiscal policy, education, health care and social protection. She has collaborated with organiza- tions such as the Inter-American Development Bank (IDB), the ILO, UNICEF and UNDP, as well as with African and Central American governments. 01 ILO Working Paper X Table of contents Abstract 01 About the authors 01 Acronyms 04 Executive Summary 06 Key results 07 Foreword 10 X 1 Introduction 11 X 2 Objectives and methodology 14 Objectives 14 Methodology 14 Methodological considerations 15 Projections and estimations of parameters 16 Cost estimates 17 Financing gap analysis 17 Fiscal space analysis 17 The model 18 Programme/benefit-specific considerations 19 Data and sources of information 20 X 3 Main trends in social protection coverage and spending 22 Social protection coverage patterns 22 Trends in social protection expenditures 24 X 4 Cost analysis and financing gap estimates 27 Costing the package of social protection benefits, including health care, under universal coverage in 2020 27 Estimating the financing gaps for achieving universal coverage of SPFs in 2020 30 Incremental financing needs under progressive universal coverage from 2020 to 2030 31 02 ILO Working Paper X 5 Assessing financing gaps in contributory systems 34 X 6 Domestic and international financing efforts in response to COVID-19 37 X 7 Fiscal space options for closing the financing gaps 40 Fiscal space creation is feasible even in low-income countries 40 Assessing taxation and ODA for closing the financing gap 45 Taxation 45 Role of ODA 46 X 8 Main findings, conclusions and the way forward 48 Main figures and findings 48 Moving from general strategies to specific policies and actions 50 Concrete actions for discussion at the level of national governments and with social partners 50 Annex 52 References 58 International statistics and data sources 60 Acknowledgements 62 03 ILO Working Paper X Acronyms ABND assessment-based national dialogue ADB Asian Development Bank ASPIRE Atlas of Social Protection Indicators of Resilience and Equity DAC Development Assistance Committee ECLAC UN Economic Commission for Latin America and the Caribbean GDP gross domestic product GFS Government Finance Statistics GNI gross national income IFIs international financial institutions ILO International Labour Organization IMF International Monetary Fund ISSA International Social Security Association LAC Latin America and the Caribbean LICs low-income countries LMICs lower-middle-income