Following the imposition of lockdowns in March 2020, the U.S. federal government implemented a one-time $1,200 payment to qualifying adults. The government's ability to provide direct economic assistance during a crisis relied on existing platforms and employment paper trails to target and deliver the funds. Lists of recipients could be generated from existing IRS databases, eligibility could be targeted to levels of income and numbers of dependents, and most recipients received their payment directly through their bank accounts. Absent this infrastructure, how could other countries deploy rapid economic support for those in need?
Addressing the economic impacts of COVID-19 through cash transfers
In developing countries, where the economic impacts of COVID-19 are expected to be even more severe, the deployment of cash transfers is subject to additional challenges. These countries have fewer resources and lower fiscal capacity than advanced economies, and a much higher share of self-employed or informal workers (see Figure 1). Informal sector workers are more vulnerable to the COVID-19 crisis since they are rarely enrolled in social security coverage or health insurance and depend on their daily incomes for subsistence. They are also more difficult to reach through traditional social security programs, since their work is often not visible to the government.
Figure 1. Total Informal Employment by Region. Source: ILO, 2018
Policymakers have adopted several strategies to address the crisis, including cash transfers, social insurance programs, low-cost credit, job retention schemes, and utility and financial waivers. As long as people have access to markets, cash transfers may be disbursed faster than food vouchers or other in-kind schemes and allow people to prioritize their needs while stimulating their local economies. Importantly, cash transfers can measurably improve conditions.[4,5] In rural Kenya, for example, cash benefits have been shown to have positive impacts on food security and physical and mental health. Extensive research is underway to examine further the impacts of COVID-19 emergency cash initiatives in Pakistan, Jordan, South Africa, Brazil, Colombia, Peru, Mexico, and Ecuador.
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Via a research partnership with a Mexican state agency, we are analyzing the impacts of an emergency cash transfer program (a one-time $235 payment) specifically designed to target informal workers who lost their primary income sources during the COVID-19 pandemic. The sampled population shows marked signs of distress: 72 percent reported food insecurity, and 56 percent had signs of depression. Figure 2 reports the use of these transfers among surveyed individuals. The majority reported using them to cover basic needs, including food.
Figure 2. Cash Transfer Use for Sampled Population
Despite the positive role that transfers can play, there are many questions on how exactly to implement them. The priority should be to ensure that the most vulnerable get the income support they need as quickly as possible. But how should governments identify and target the most vulnerable? How should they be reached? Difficult decisions must be made, given the uncertainty of the pandemic, fiscal and political constraints, and the flexibility or inflexibility of existing systems. While research is still ongoing, the emerging evidence highlights some important considerations for policymakers.
Adapting Cash Transfers to the COVID-19 Era
Identifying and targeting beneficiaries through existing systems speeds up the response. A big challenge for policymakers is to quickly and accurately identify vulnerable people. Countries with existing social registries in place can more rapidly respond to emergencies. For example, the Dominican Republic used its extensive social registry to expand emergency support to 70,000 informal workers. Likewise, Brazil's Cadastro Unico, a nation-wide database of vulnerable populations, enabled a quick expansion of cash support to at least 11 million people. In other countries like South Africa and Pakistan, eligibility was simplified because applicants could be matched across existing government databases via unique ID numbers. Other countries, such as El Salvador, have used non-traditional data sources to target beneficiaries, such as households with low electricity consumption (250kw/month).
Informal sector workers are more vulnerable to the COVID-19 crisis since they are rarely enrolled in social security coverage or health insurance and depend on their daily incomes for subsistence.
Self-targeting is an attractive option during an emergency, but better systems should be built for the future. Unfortunately, social registries and other administrative databases that could identify potential recipients do not exist in many developing countries. This makes identifying potential beneficiaries much more difficult. During non-emergency situations, countries can rely on a series of approaches like proxy-means testing (which relies on observing a households' assets), or community-based targeting, which relies on community knowledge to allocate support. But in the context of the current crisis, these approaches may be inappropriate as they require significant amounts of time and resources. Geographic targeting is an inexpensive and quick method but risks leaving out people in need who live in richer regions. This might be a particular concern during COVID, where lockdowns are more stringent in urban areas.
Given these limitations, self-targeting can be an attractive option. The main concern with this approach is inclusion errors, meaning the possibility that there will be some unintended beneficiaries. To reduce this risk, many programs implement some sort of take-up cost that could deter those who don't need the program from applying. For instance, in the Mexican emergency cash transfer program, applicants had to complete an online form, attend an interview, sign an affidavit declaring need, and commit to volunteer in the future if asked to do so. However, during an emergency, errors of inclusion are less important than errors of exclusion. A complicated application form or too much bureaucracy might deter those who are less literate or empowered to apply.
Digital approaches are promising, but many areas and individuals still lack adequate coverage. The rapid expansion of mobile phones in developing countries has opened new opportunities to reach people at scale and in a timely manner. The value of digital approaches has been increasingly clear during the pandemic, in which potential recipients of aid are able to be targeted, screened, and enrolled remotely. Mobile banking payments are attractive at a time when both speed and social distancing are key priorities. Additionally, digital approaches are preferred by beneficiaries who have mobility restrictions or are concerned with safety issues around receiving cash.[12,13] However, digitalization is far from universal, and these approaches need to be complemented in ways that reduce the potential exclusion of vulnerable populations. Many countries lack mobile banking services, and even simple mobile phones are uncommon in some regions. Moreover, women might be particularly prone to exclusion, since they are less likely to own mobile phones in many countries.
COVID-19 has shown us the need to create more dynamic and responsive safety nets to prepare for future crises.
Building Resilient Systems: Beyond COVID-19
COVID-19 has shown us the need to create more dynamic and responsive safety nets to prepare for future crises. Governments can respond more quickly and effectively during emergencies if they prioritize building flexible administration and data-management systems to scale programs up and down as needed. Some of the current challenges do not come as a surprise: even before the pandemic, many called for the adoption of social protection systems that are less dependent on formal employment.
There are several steps that countries can take to prepare for the future. First, expanding social registries beyond the poorest would allow them to understand who might be vulnerable to income shocks in a crisis and react accordingly. Second, improved data management and analysis, and advances in machine learning have opened new opportunities to use a wide range of databases to target vulnerable populations and create early warning systems. Developing ongoing ties with researchers, think tanks, and other experts could allow governments to utilize these tools and knowledge. Third, a government's ability to react to these situations is clearly dependent on its flexibility to rapidly scale services up and down as needed. Flexible systems enable governments to coordinate and transfer resources and human capital from different units, and promote enhanced cooperation across bureaucracies. Finally, this pandemic has underlined the positive role that the internet, information and communication technologies, and complementary services, like digital banking, can play. Policymakers need to act to ensure even broader access. With more research, more lessons will emerge about how best to improve our responses. Understanding what worked and what didn't during the COVID-19 crisis will help create more resilient social protection systems in the future.
Ana Canedo is a Ph.D. Candidate in Public Policy, Dr. Raissa Fabregas is an Assistant Professor, and Megan Morris is a Masters of Global Policy Studies student at the Lyndon B. Johnson School of Public Affairs at The University of Texas at Austin.
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