Stress tests of social protection systems


Chantal is a beneficiary of the IDA-funded social safety net program in Madagascar. The money helps her buy food and invest in crops and small animals for extra income. Photo: Sarah Farhat / World Bank

Economic shocks are a major threat to poverty reduction and shared prosperity. The Poverty and Shared Prosperity Report 2020 highlighted the negative impact of climate change, fragility and conflict on global efforts to reduce poverty and increase prosperity, noting that up to 132 million people could fall into poverty by 2030 due to the impacts of climate change. on their lives and livelihoods. The poor are most vulnerable to the negative impacts of shocks because of where they live and work and their inability to self-insure. Those affected often suffer losses that affect not only their current income, but also their productive capacity in the future.

That is why we must tackle vulnerability to poverty if we are to make sustained progress in raising the standard of living of the less fortunate. We must do this by creating mechanisms that enable the poor and vulnerable to build their resilience and by strengthening safety nets.

Tools to improve crisis response in the future

Technology can help make many shocks and crises, such as the COVID-19 pandemic, and their impacts more predictable. For example, new data and technologies are increasingly able to model extreme weather events and track their impacts on households when they occur. Likewise, in recent years, methods of risk assessment and measurement of household vulnerability and poverty have improved considerably. Vulnerability analysis tools, combined with satellite data, can be used to identify how many people will need them during a crisis and where they are. Based on this information, local authorities will be able to assess whether households and vulnerable individuals have access to existing safety nets. So we can actually start to assess the readiness of the social protection systems available before the crisis hits.

Following the 2007-08 financial crisis, it became common practice to subject commercial banks to “stress tests” to assess their ability to withstand systemic financial shocks. Using this approach, the World Bank assembled a multidisciplinary team that launched a tool to ‘test the resilience’ of social protection systems, comparing the extent and timing of needs following shocks, with scalability. and the adaptability of existing systems. Version 1 of the tool is available here, with future updates released based on lessons learned from country applications.

This rapid assessment tool offers a number of ways to simulate the magnitude of the potential impact on household well-being (and subsequent needs) of different shocks of varying intensity using surveys. household and historical data on shocks. It identifies those who have become poor or vulnerable to poverty following a shock, as shown in Figure 1.

Figure 1: Identification of those who fall into poverty or become impoverished as a result of a specific event

The tool is also designed to help policymakers and practitioners assess to what extent government cash transfers need to be scaled up against current capacities, and how to make them more flexible and adaptive in the future. It is structured around the following basic elements of adaptive social protection: financing; programs and delivery systems; data and information; and institutions and partnerships. An example of application of the tool is shown in figure 2.

Figure 2: Example application of Part 2 of the stress test tool for an illustrative country.

Financial readiness goes hand in hand with operational readiness

From a financial perspective, the goal of this effort is to identify existing measures already in place that can be used to provide immediate and timely liquidity. Financial preparedness makes the difference – for example, having a pre-established funding source as a disaster draw option has helped provide rapid support to many countries after the initial shock of the COVID pandemic – 19. Without pre-arranged funding, it takes time to identify funding sources, often budget reallocation is required, and this comes with a high opportunity cost as less money is available for key development projects.

Beyond finance

Financial readiness goes hand in hand with operational readiness. Having funding but no social register with clearly identified and targeted beneficiaries will not go very far. Identifying who, when and how households should receive financial support is an essential part of building adaptive social protection.

In crisis scenarios, many people who are not part of social protection programs should be covered It is therefore important that the pre-established options through the registered service providers and associated processes are available to those who do not have an account. This way, not only recipients with existing accounts can receive funds quickly.

The social protection systems stress test tool shows how robust analyzes can provide important information for building the resilience of poor and vulnerable households. By investing in their ability to prepare for, cope with and adapt to shocks, we can help them avoid falling into poverty – or falling deeper into poverty. We plan to update and improve the tool over time based on feedback as it rolls out to priority countries. This work can help inform a green, resilient and inclusive development approach for those who need it most.

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