Budgeting for children in an uncertain world: Reckoning with economic and financial crises

1. Budgeting for children in an uncertain world: Reckoning with economic and financial crises Paola Pereznieto ODI Research Associate

2. Structure of the presentation • Impacts of economic crises on children: evidence of past and current crises • Social sector and poverty reduction budgets in the context of the crisis • Post crisis budgeting • Policy responses and fiscal implications • Recommendations • Useful resources

3. Impacts of economic crises on children: evidence of past and current crises • Economic crisis estimated to have trapped 46 million more people than expected on less than US$1.25 a day; 53 million pushed into $2-a-day poverty. • This is in addition to the 130-155 million people pushed into poverty in 2008 because of soaring food and fuel prices (World Bank, 2009) • Downturn has impacted developed and developing countries

4. Financial Crisis - General General regional and international macro-economic health General regional and international macro-economic health Dimensions of the macro-economic environment Remittances Financial flows Trade and prices (commodities and services) Aid Exchange Rates Fiscal space Declining investment in public services (education, health, nutrition, water and sanitation, housing, protection, care) Rising unemployment, under-employment, declining working conditions Meso-level effects of the financial crisis Reduced access to credit Declining social capital; rising social violence Civil society policy advocacy + service provision • Policy responses • (Fiscal stimulus, trade policy, monetary policy, aid policy • pre-existing and crisis-response investment in basic services, • pre-existing social protection infrastructure and crisis-specific measures, • labour policy) Political economy dynamics Policy responses Household consumption (food and services, both quantity and quality) Protection (physical and emotional) & promotion of well-being Household management of assets and investments Household labour allocation Reproduction, nurture, and care Contribution to community life Functions of the household Intra-household dynamics & household composition Child-specific vulnerabilities Deprivations of rights to survival, development, protection, participation

5. Impacts of economic crises on children: evidence of past and current crises ODI - Harper, Jones, McKay and Espey (2009): • Analysis of past crises (East Asia, Eastern Europe, Latin America and East Africa) shows impact on children: • increases in child mortality and morbidity, • child labor, child exploitation, violence against children and women and other forms of abuse • decline in school attendance and the quality of education • reduced nurture, care and emotional wellbeing. • increase in parental mental ill health, impacting on children

6. Impacts of economic crises on children: evidence of past and current crises UNDP Latin America: Fernandez and Lopez Calva, 2009 • Economic downturns have significant impacts in long-term households’ well-being. • In all countries studied there was evidence of a negative impact on child mortality or child health; • the impact on education is more ambiguous • There is also strong evidence that recessions are associated with increases in child and overall poverty.

7. Impacts of economic crises on children: evidence of past and current crises IDS: Hossain et al., (2009) Study in Bangladesh, Indonesia, Kenya, Yemen and Zambia: • Food absorbing higher proportion of income; • Less diverse food consumption/lower nutritional value, women eating least/last; • Range of health impacts reported; • School absenteeism and dropout, child labor; • Intra-household tensions, abandonment of children and elderly and signs of rising social tension; • Criminalization of youth and rising crime.

8. Impacts of economic crises on children: evidence of past and current crises UNICEF: Mendoza, et al 2010 Since late 2008 and into 2009, more severe coping strategies are being observed: • Families eating less (and less nutritious) meals • Children dropping out of school and turning to begging and illicit activities • Evidence of starvation and death in some parts of the developing world. • High vulnerability to exploitation and abuse of women and children

9. Impacts of economic crises on children: evidence of past and current crises • As a result of the crisis, there is evidence from past crises and this crisis of reduction in fiscal resources available to governments affecting service delivery, not just in education, health, sanitation and water, but also in areas such as child protection, childcare and social protection (which are usually sidelined) • This takes place at a time of higher demand for such services: some people with lower incomes might shift from private to public providers • This is compounded by an expected reduction in aid receipts, often a critical source for social policy expenditures.

10. Social sector and poverty reduction budgets in the context of the crisis • Recent UNICEF analysis (Ortiz, et al 2010) highlights positive expenditure trends for the majority of countries in all regions: • Globally, 70 percent of developing countries increased public expenditures by an average of 4.1 percent of GDP (median value of 2.7 percent). • About two-thirds of countries in Sub-Saharan Africa and East Asia and the Pacific increased total government spending by an average of 4.3 and 7.9 percent of GDP, respectively, when comparing 2008-09 average spending levels to those in 2007.

11. Changes in Total Government Spending by Region, 2008-09 average versus 2007 (in percent of GDP) Source: Ortiz, et al, 2010 calculations based on IMF REO publications (April-May 2010) and IMF country reports (July 2009-July 2010).

12. Social sector and poverty reduction budgets in the context of the crisis • Economic stabilization efforts and built-up buffers have enabled many developing countries to soften the impact of the crisis on their economies and populations by expanding public spending during 2008-09 (IMF 2010). • International agencies such as IMF and WB have been encouraging lower income countries (with relatively stable macroeconomic basis) to preserve or increase social spending to protect the poor. Eg: Exogenous Shocks Facility (ESF) • Some countries have actively promoted ring-fencing social sector budgets, for example, Thailand passed legislation to protect health sector budget to avoid problems in health service delivery • The need for preserving social spending appears generally better recognized in this crisis.

13. Social sector and poverty reduction budgets in the context of the crisis • Emerging evidence suggests that a considerable number of developing countries protected or increased social spending and other priority spending during 2008-09, despite falling revenues. • For example, on average about 24 percent of the total announced fiscal stimulus amounts by developing countries was directed at pro-poor and social protection programs (Ortiz, et al 2010)

14. Social sector and poverty reduction budgets in the context of the crisis • Yang et al (2010) show that 16 of 19 low income country programs initiated in 2008-09 supported by IMF lending facilities had budgeted higher social spending in 2009. • In Sub-Saharan African countries with IMF-supported programs, recently available spending outturn data show that the median value of social spending increased by 0.5 percent of GDP from 2008-09, and real spending growth accelerated from 4.8 to 6.8 percent (IMF, 2010).

15. Social sector and poverty reduction budgets in the context of the crisis • HOWEVER, not all of this higher spending has been channelled to sectors and programmes reaching children; social spending has not been prioritised in all countries: • For example, in India (HAQ Centre, 2009) “Despite a huge stimulus budget in 2009-10, children—44 per cent of the population--got only 4.21 per cent, the least in four years” • As a result of limits to fiscal position, some countries experiencingeconomic crises have less ability to provide social services to the poor, justas the needs of the poor increase. This is particularly true in case of the growing needs and demands of children

16. Post crisis budgeting • Compared to 2008-09, analysis (Ortiz, et al 2010) indicates that more countries are expected to reduce total government expenditure in terms of GDP in 2010-11: • as many as 56 / 126 developing countries (or 44 percent) are forecasted to contract total government expenditure by an average of 2.7 percent of GDP • On average budget deficits are expected to halve in 2010, with the fastest cuts occurring in those low income countries that are most in need of protecting vulnerable populations

17. Post crisis budgeting • Kyrili and Martin (2010) examine national budget documents for 56 low income countries and find thatwhile two-thirds of countries in the sample increased their budget deficits to counter the effects of the global crisis in 2009, only one-quarter have continued related recovery programs in 2010.

18. Post crisis budgeting • In Sub-Saharan Africa, about half of developing countries are expected to contract total expenditure as a percentage of GDP under current policy directions. • This is driven by a substantial decline in expected revenue in 2010-11 compared to 2008-09, as well as the apparent inability to secure new financing to offset revenue shortfalls, reflecting the region’s relatively high initial debt burden and limited access to capital markets (Ortiz, et al 2010)

19. Post crisis budgeting • BUT THERE ARE IMPORTANT RISKS TO CUTTING PUBLIC SPENDING - PARTICULARLY SOCIAL SPENDING - TOO EARLY • A contracting expenditure environment is historically associated with greater risks of social spending being adversely impacted. • Past evidence of crises suggests that when governments resorted to aggregate fiscal cuts, social spending was typically unprotected.

20. Post crisis budgeting • Social spending and investments should be ring fenced, if not increased, in order to preserve countries’ pre-crisis investments in the social sectors. • This is critical in preventing the crisis from causing permanent harm to children (by harming their future capabilities) and families

21. Post crisis budgeting • Thus, on balance, despite the greater policy emphasis on preserving “priority” expenditures, social spending cuts remain a major concern for many developing countries in a climate of fiscal contraction. • Need to improve the efficiency of spending by strengthening governance and the quality of fiscal institutions, which could help increase the level of social services without additional spending in the medium term (Gupta, et al., 2008).

22. Policy responses and fiscal implications • According to ODI analysis (Harper, et al 2009), based on evidence of the impact of crises on children’s wellbeing, in addition to investment in education, health, nutrition, water and sanitation, increased spending must also include child protection • Spending on child protection should go well beyond orphans and vulnerable children to include all children living in impoverished and vulnerable households

23. Social sector and poverty reduction budgets: ring-fencing resources for children • Evidence of impact of crisis on rising levels of abuse and exploitation of children mean that resources to child protection services should be prioritized: • for example more resources should go to hotlines providing support, counseling, shelters, re-integration programs • More and better spending on social protection measures including Cash transfers, food/cash for work programmes, social insurance is vital to address vulnerability and inequality.

24. Policy responses and fiscal implications • Need for analysis of cost effectiveness of interventions aimed at reducing poverty, particularly those for children: • For example, there is ample evidence of regressive nature of food and energy subsidies to which significant social spending was allocated. • Currently greater endorsement of increasing budget allocations to targeted social protection programs, found to be more cost effective for poverty reduction • Challenge: choice of program design features and institutional arrangements should be consistent with the administrative context and capacity in the country. • Complementary measures to guarantee basic services for the poor and the near-poor to reduce changes of falling into poverty.

25. Policy responses and fiscal implications According to UNICEF, ‘Recovery with a Human Face’ Five Actions should be taken at the country level: • Analyzing budgets for social and economic recovery • Scaling up social protection • Maintaining (if not increasing) core social expenditures • Identifying sources of fiscal space • Providing options to assist the government in a country dialogue on crisis responses

26. Policy responses and fiscal implications Child sensitive and gender budgeting: • There is ample evidence of the impacts of the crisis having a differential impact on women and children. • For example, in the crisis, women were frequently the first exposed to retrenchments and reduced pay in export industries (Bauer and Thant, 2010) • Increased vulnerability for women / mothers can also have an impact on children’s wellbeing. • Gender sensitive budgeting during recovery is thus critical to support improvement of the situation of children and women. Eg: financing employment promotion schemes for women, counselling services to women victims of abuse, etc.

27. Resources ODI and UNICEF The Global Economic Crisis – Including Children in the Policy Response November 9-10, 2009 http://www.unicef.org/socialpolicy/index_50299.html UNICEF and Fordham University Joint Forum “Child Friendly Budgets for 2010 and Beyond: Toward Global Economic Recovery with a Human Face” New York, February 18th, 2010 http://www.unicef.org/socialpolicy/index_52658.html