CCT financial sustainability

Marco Stampini,
IDB-ADB South-South learning event on Conditional Cash Transfers Manila, 16-19 April 2013

Framework
Needs: Poverty Gaps in human capital development (education, health, etc.) Means: GDP per-capita Tax revenue Existing size of social assistance

Parameters that the country must choose: Size of beneficiary population (how many households) Size of the transfer (how much money per household) Duration of treatment (open-ended Vs temporary)

Country needs
Poverty Poverty gap Average Mortality headcount at $2.5 a years of rate, underratio at $2.5 day (PPP) schooling, 5 (per 1,000 a day (PPP) 20-24 years live births) (%) (% of old pop., population) 2000 n/a n/a n/a 2010 5.5 Year

OECD East Asia & Pacific (dev.) South Asia LAC Brazil Colombia Honduras Jamaica Mexico Peru

2010

n/a

n/a
n/a n/a 13.1 20.1 24.9 3.5 9.9 (1998) 10.5

n/a
n/a n/a 8.8 (2000) 8.4 (2000) 7.7 (2000) 10.9 (2000) 8.8 (1995) 9.9

22.0
64.2 22.3 33.6 24.3 38.5 24.3 32.7 27.5
Source: WDI

n/a 2010 n/a 2010 2001 27.4 2001 40.0 1998 48.0 2002 14.8 1997 27.2 (1998) 2005 28.9

Child mortality still a priority in South Asia

Country means
Year

GDP per capita, PPP constant 2005 intl $ (1)

33,448 6,006 2,271 10,180 7,902 6,620 2,903 7,083 (2005) 10,687 6,387

Revenue, excluding grants (% of GDP) (2)

22.9 13.4 (2009)

Central government debt, total (% of GDP) (3)

58.6 n/a

Revenue per capita (4) = (1)*(2) /100

7,660 805 273 n/a 1,638 1,006 579

OECD East Asia & Pacific (dev.) South Asia LAC Brazil Colombia Honduras

2010 2010 2010 2010 2001 2001 1998

12.0 56.5 (2007) n/a n/a 20.7 55.8 (2006) 15.2 54.9 (2003) 20.0 (2003) n/a

Jamaica
Mexico Peru

2002
1997 2005

31.8 (2003) 127.4 (2003)

14.7 17.6 25.7 31.2 (2006)

2,253
1,572 1,126
Source: WDI

Very low revenue per capita in South Asia

Size of CCT budgets

Stylized fact: mature programs in LAC have budgets in the range of 0.3-0.4% of GDP, irrespective of countries poverty levels and financial means

CCT budgets tend to grow over time

CCT budget in selected LAC countries, % of GDP 2004
Brazil Colombia Honduras Jamaica Mexico Peru 0.27 0.07 0.38 n/a 0.3

2005
0.31 0.06 0.30 n/a 0.32 0.05

2006
0.33 n/a 0.29 0.14 0.32 0.06

2007
0.34 0.17 0.27 0.17 0.32 0.15

2008
0.37 0.25 0.28 n/a 0.35 0.14

2009
0.38 0.28 0.24 0.28 0.39 0.15

2010
0.37 0.35 0.37 0.31 0.22 0.14

2011
0.36 0.23 n/a 0.32 0.43 0.13

Oportunidades budget (Mexico) doubled over 2001-11 Familias en Accin (Colombia) more than tripled over 2003-10 Honduras is the only exception, temporary drop over 2006-09

Budget grows because of increased coverage

CCT coverage in selected LAC countries, % of total population 2003
Brazil Colombia Honduras Jamaica Mexico Peru 20.8 3.8 6.5 15.8 20.8

2004
23.0 3.5 6.1 15.7 23.8

2005
24.8 5.4 11.0 15.6 23.0 0.7

2006
25.8 7.2 9.4 19.0 23.2 3.2

2007
24.5 16.3 10.9 21.5 22.9 6.9

2008
22.6 17.6 14.7 24.0 22.8 8.1

2009
26.2 25.3 10.5 26.5 23.3 7.8

2010
26.9 25.3 14.1 30.6 24.0 8.9

In Brazil and Mexico, the countries running the largest CCT programs, the share of the population living in beneficiary households grew from 12% to 27% and from 15% to 24% respectively over the period 2001-10

Budget grows because of increased transfers

CCT transfer per beneficiary household in selected LAC countries, PPP constant 2005 international $
2004 Brazil Colombia Honduras Jamaica Mexico Peru 34.3 49.9 13.5 34.5 58.2 2005 33.8 49.1 12.8 30.9 61.1 60.5 2006 33.9 48.6 n/a 51.9 63.3 61.2 2007 36.1 50.8 13.0 53.5 70.5 61.9 2008 38.6 49.3 12.7 45.5 88.4 60.7 2009 40.5 47.1 12.5 44.3 85.4 58.8 2010 39.3 46.8 62.9 53.5 97.7 58.8 2011 49.2 46.7 60.8 51.3 98.8 58.7

The value of the transfer grew in four out of six countries The largest changes are observed in Honduras and Mexico, where the transfer tripled and doubled respectively Only in Colombia and Peru the transfers decreased slightly

Budget sources
1. Reallocation within social assistance

Brazils Bolsa Familia merged the former Bolsa Escola (a conditional cash transfer with education co-responsibilities), Bolsa Alimentao and Carto Alimentao (part of the Fome Zero anti-hunger program) and Auxlio Gas (an energy subsidy) (Lindert et al. 2007)
Jamaicas Programme of Advancement through Health and Education (PATH) replaced the pre-existing food stamps, outdoor poor relief and limited public assistance

Budget sources
2. Tax reforms / New taxes? Not frequent

The experience of LAC also teaches that governments do not typically introduce or reform taxes in order to fund growing CCT programs. The political cost is too high
(Rare examples of elimination of generalized price subsidies: in the Domenican Republic, the rationalization of generalized gas subsidies in 2008/09 redirected only to CCT beneficiariesproduced savings amounting to USD 136 million)

Budget sources
3. Loans Countries in LAC have received support from multilateral development banks. This support included the transfer of knowledge from other countries in which the banks had already supported CCT programs, and technical assistance

IDB approvals related to CCT programs in selected LAC countries, USD million
Country
Brazil Colombia Honduras Jamaica Mexico Peru

1998 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
500 270 45 60 1000 1200 20 1005 200 28 306 300 20 15 800 50 220 55 50 800 106 75 30 30

Total
1505 1296 243 205 3800 186

50

Budget sources
3. Loans Yet, in most cases loans are a short term option The relative importance of IDB loans has been decreasing during the period of implementation of the CCT program in Brazil, Colombia and Jamaica; it has remained constant in Mexico; it has increased substantially only in Honduras and Peru
Share of CCT budget funded by IDB loans (%) 120 104

100
80 60 40 20 15 2 Brazil Colombia

Early period 75

Late period

53 41

20

15 Honduras Jamaica

10 10 Mexico

16 0 Peru

0
Source: Stampini, Tejerina, Maekawa and Huang 2013

Budget sources
3. Loans The case of Colombia: recent law establishes CCT must be financed only with internal revenue
Share of CCT budget funded by IDB loans in Colombia (%)
Colombia
150 0 50 100

2002

2004

2006 Year

2008

2010

2012

Complementary budget (educ. and health)

The quantity and quality of health and education services must be increased, in order to avoid producing programs that are ineffective from the point of view of developing beneficiaries human capital, which is the ultimate long term objective
Public spending on education, total (% of GDP) year CCT 2010 started 5.7 (2009) 3.8 (2008) 3.3 4.4 (2008) 3.9 5.6 (2009) 3.7 4.8 3.6 (1995) 5.4 6.1 4.2 (1998) 5.3 (2009) 2.7 2.7 Health expenditure, public (% of GDP) year CCT 2010 started 8.4 2.5 1.2 3.8 3.1 4.2 5.4 5.5 2.9 4.4 2.8 2.6 2.1 3.1 2.7 2.7

Year OECD East Asia & Pacific (d.) South Asia LAC Brazil Colombia Honduras Jamaica Mexico Peru

The lessons
Asian countries considering the introduction of a CCT program should: Make a long term commitment, acknowledging the reality that CCT programs are long term interventions Start small, foreseeing that CCT programs tend to grow over time, and taking the possibility to adapt the design to the lessons learned during the early phases of implementation Be ready to make sufficient fiscal space, with program budgets amounting after few years of implementation to about 0.3-0.4% of GDP Consider a parallel expansion of the budget for health and education, in order to respond to the increased demand imposed by program co-responsibilities

Thank you

Questions and comments:

mstampini@iadb.org R.Paes@ids.ac.uk ferdinandor@iadb.org