UNICEF-ILO Social Protection Floor Costing Tool Explanatory Note
1 UNICEF-ILO Social Protection Floor (SPF) Costing Tool Explanatory Note The SPF Costing Tool Explanatory Note clarifies the purpose of the Costing Tool, specifies the assumptions behind its calculations, and outlines the Tool s strengths and limitations. It is a crucial document for any policy maker or practitioner striving to use the Costing Tool effectively and appropriately. Table of Contents Section 1. What is the UNICEF-ILO SPF Costing Tool?... 2 The SPF Costing Tool... 2 The Social Protection Floor Initiative... 2 Considering Costing vs. Affordability... 3 Applying the SPF Costing Tool... 3 Section 2. What Does the SPF Costing Tool Do?... 5 New and Existing Programmes... 5 Social Protection Programmes Covered... 5 Outputs... 5 Projections for Different Scenarios... 6 Section 3. How to Use the SPF Costing Tool: Inputs and Data Sources... 7 Population Data... 7 Labour Market Data... 7 Economic Data... 7 Benefit Parameters... 8 Section 4. Limitations: What Can the SPF Costing Tool Not Do?... 9 Non-Cash Programmes... 9 Externally Funded Programmes... 9 Supply-side Interactions... 9 Interactions between Social Protection Programmes... 10 Broader Impacts of Social Protection... 10 Micro-simulations... 10 Section 5. Other Tool Options... 11 Other Tools... 11 Reviews of Existing Tools... 12
2 Section 1. What is the UNICEF-ILO SPF Costing Tool? The SPF Costing Tool The purpose of the SPF Costing Tool is to help support policy decisions regarding selection, modification and investment in social protection programmes by providing reasonable estimates of programme costs. Using an interactive Excel spreadsheet, the Costing Tool allows policy makers to estimate the costs of implementing different social protection options given certain preferences, and budgetary and financing constraints. The set of interventions the Tool can provide cost estimates for are: old-age pensions, child benefits, disability benefits, orphan benefits, education stipends, birth lump-sum benefits, youth labour market programmes, and unemployment programmes. While more context-specific cost estimating models can and should be considered in combination with the SPF Costing Tool, the added-value of this Tool is that it provides decision-makers with a user-friendly way to estimate the cost of developing a set of social protection programmes. The flexibility and accessibility of the SPF Costing Tool mean that it can be used to compare the different possible routes countries can take towards implementing social protection systems. Policy options can be compared according to their cost and, to a lesser extent, to their impact on income poverty. While developed to support governments working in the framework of the Social Protection Floor Initiative, the tool can be easily used in other social protection contexts. The Social Protection Floor Initiative This Costing Tool was developed to support governments as they consider different possibilities for implementing a Social Protection Floor. Recognizing the importance of ensuring social protection for all, the United Nations System Chief Executives Board for Coordination (UNCEB) adopted the Social Protection Floor Initiative in April 2009. 1 The Social Protection Floor (SPF) is a global social policy approach promoting integrated strategies for ensuring access to essential social services and income security for all. A SPF is the first level of a comprehensive national social protection system, guaranteeing: Universal access to essential services (such as health, education, housing, water and sanitation, and other services, as nationally defined); Social transfers in cash or in kind, to guarantee income security, food security, and adequate nutrition. Countries that adopt the SPF will develop nationally defined strategies for the progressive realization and sustainability of a first level of benefits as well as higher levels of social protection. Building on existing social protection mechanisms, these strategies may include a mix of instruments: contributory and non-contributory, targeted and universal, and public and 1 This initiative is co-led by the International Labour Office and the World Health Organization and involves a group of 17 collaborating agencies, including United Nations agencies, NGOs, and international financial institutions.
3 private depending on the country s social, economic and political context. The SPF Costing Tool can be useful in calculating the cost of implementing a nationally defined SPF. Considering Costing vs. Affordability Questions regarding affordability are common in policy discussions about establishing a SPF or any of its components, or about social protection programmes in general. Conducting a costing exercise is, therefore, often seen as a crucial input in determining whether a programme or set of programmes is affordable in a particular country. However, costing is only the technical component of the affordability equation. Affordability cannot be determined from a costing exercise alone because it also involves political decisions and choices between different budget priorities. The process of setting budget priorities should also involve a comparison of the cost effectiveness of programmes or policies, which is beyond the scope of the SPF Costing Tool. Determining whether a set of programmes is affordable also requires considering different financing options. In order to finance a particular programme, countries can raise revenue through a variety of means, both national (tax revenue, social contributions, investment income, etc.) and international (bilateral or multilateral aid, debt forgiveness measures, taxes/levies on foreign transactions and investments, etc.). These sources of income can play a role in financing social protection regardless of the estimated cost of a particular programme. Thus, while costing is a crucial first step for implementers and policy-makers, an evaluation of affordability of different options requires further information and processes in addition to the SPF Costing Tool. It provides technical information about cost but cannot substitute for the political process of setting budget priorities nor can it help compare the cost effectiveness of different programme options because it does not calculate impacts (beyond a rapid estimate of income effects). Applying the SPF Costing Tool Following the development of the SPF Costing Tool in 2010, several countries led structured costing exercises using the Tool, often with the support of SPF partners. The Tool has been used to date in two different ways. The first has been a simple application: users enter preferences on the coverage and benefit level of programmes under consideration as well as data and forecasts on the demographic, labour market and general economic situation of the given country. Based on these data points and on its built-in assumptions about how these different variables interact, the Tool automatically provides programme cost, coverage and poverty impact estimates. This approach can be combined with other types of tools. Senegal, for example, conducted a basic social protection costing study by combining this simple application of the SPF Costing Tool with poverty impact estimates derived from the World Bank s ADePT tool.
4 The second, or elaborated, application of the Tool differs significantly. In addition to entering country-specific data, the user also considers the Tool s in-built assumptions about how different parameters affect each other and modifies them as he/she sees fit for the given national context. As such, the relationships between demographic, labour, and macroeconomic variables will be different, as will their relationship to the cost and poverty impact estimates. The extent to which the Tool s assumptions are modified varies from one country s application of the Tool to another. Nonetheless, all applications are somewhat based on the SPF Costing Tool s built-in assumptions. Countries that carried out elaborated costing exercises using the Tool include Argentina and Egypt. (Please note that any application of the Tool should take into account its limitations outlined in Section 3.)
5 Section 2. What Does the SPF Costing Tool Do? The Tool s simplicity lends itself well to an initial basic assessment of the potential costs of different sets of policy options under different economic scenarios. The SPF Costing Tool is also useful as it requires relatively limited technical background and is therefore accessible to a wide range of practitioners and policy makers. Users should keep in mind that calculation results are estimates (not exact predictions) and that they are based on the Tool s built-in assumptions expressed as weights and relationships between variables that are not specific to national circumstances. At the same time, it should be noted that the estimates calculated are only as useful as the data that is entered in the Tool. Better predictions can be made if reliable data is available. Input requirements will be described fully in Section 3. This section will discuss what outputs, given certain inputs, the user can expect from the SPF Costing Tool. New and Existing Programmes The SPF Costing Tool allows the user to cost both new programmes and modifications to existing ones. These modifications may entail changes in the benefit amount, the size of the population covered, or the design of the benefit. The alterations will then interact with other parameters such as the age of eligibility, the coverage rate, and the duration of eligibility, to change the final cost estimate provided. Social Protection Programmes Covered The set of interventions the Tool can provide cost estimates for include: - old-age pensions - child benefits - disability benefits - orphan benefits - education stipends - birth lump-sum benefits - youth labour market programmes - unemployment benefits Outputs The outputs of the SPF Costing Tool can be expressed in terms of the answers to three main questions: i. Who will be covered by the SPF programmes and what benefit amount will they receive? - The Tool provides coverage information, segregated by gender, and information on benefit level, namely: the annual benefit amount per beneficiary and the benefit amount as a percentage of per capita GDP. The SPF Costing Tool provides these estimates in spreadsheet format and illustrates them using graphs.
6 ii. What is the cost of increasing benefits, their coverage or implementing a new programme? - The Tool will provide these measures in the following forms: gross local currency amount, % of GDP, % of total government expenditure, and % of total government revenue. The SPF Costing Tool provides these estimates in spreadsheet format and illustrates them using graphs. CAUTION: The Costing Tool does not account for the added cost of providing services such as healthcare and education, for which there may be an increase in demand as a result of changes in social protection programmes. Equally, the Tool does not consider what impacts social protection programmes might have that may reduce overall costs (for example, better household nutrition may lead to a reduced demand for healthcare). iii. What is the impact on the poverty gap of implementing a given programme or of modifying an existing one? - The Tool will provide a measure of the poverty gap before and after SPF interventions under the main model scenario, or the scenario which is considered to be most realistic. The SPF Costing Tool provides these estimates in spreadsheet format. CAUTION: Only a basic income effect, directly caused by expected increases in cash following benefit disbursement, is accounted for. Thus, the Costing Tool only provides a rough estimate of a programme s impact on income poverty. Additionally, the Tool provides graphic representations of the demographic, labour, and macroeconomic inputs provided. Projections for Different Scenarios The SPF Costing Tool calculates SPF cost/expenditure estimates under three different scenarios: main model, optimistic, and pessimistic. For each of these scenarios, the user is asked to make assumptions on two variables: growth in labour productivity and inflation rate (see next section for further details). Based on these inputs, the Tool will make expenditure predictions for the three different scenarios and express them as: a gross amount, a percentage of GDP, a percentage of total government expenditure, and a percentage of total government revenue.
7 Section 3. How to Use the SPF Costing Tool: Inputs and Data Sources The overview of data inputs below is a more technical complement to the SPF Costing Tool User Manual, which provides visual snapshots of the Tool along with user-friendly, pictorial explanations of how to enter inputs. It is recommended that the Manual be consulted prior to using the Tool. Further instructions are also contained within the Tool itself. The SPF Costing Tool requires that the user enter values for a number of different categories, each of which is discussed below. In addition, the Tool provides default values for several parameters (for example, administrative costs as a percentage of benefit amount), which should be replaced with context-specific values whenever possible. Users should only work with Excel cells that are in white. Cells in grey have been automatically generated by the Tool (based on values entered by the user on other spreadsheets) and are necessary for accurate calculation of programme cost. Population Data This component of the Tool asks for demographic data, namely the number of males and females of each age (between 0 and 100 years of age) that lived or are expected to live in the years 1980-2050. National projected statistics should be used if available. If not available, it is recommended that users enter data from the United Nations Population Division, DESA, which is available here: http://esa.un.org/unpd/wpp/unpp/panel_indicators.htm. Population values should be entered into the SPF Costing Tool s sheet entitled PopulationData. Labour Market Data This component requires three types of inputs: - Labour market participation rates, disaggregated by age group and gender for the most recent year available, as well as rates expected to be reached by 2030. - Unemployment rates, disaggregated by age group and gender for the most recent year, as well as expected rates, to be reached by 2015 and 2030. - Formality of labour market rate (% of formal employment to total employment) for 2008/09 and projected formality rate at the end of the projection period. If national statistics are available, it is recommended that users give them preference. If they are not, ILO Labour Market Data, both historical and projected, can be copied from the ILO s spreadsheets and pasted into The SPF Costing Tool s sheet entitled LabourForceAssumption. This data is available free of charge at: http://laborsta.ilo.org/applv8/data/eapep/eapep_e.html. Economic Data Economic data is entered in the Costing Tool s sheet entitled EconomicAssumptions and is divided into three sections:
8 - Historical data The user is asked to enter current GDP in local currency units, the real GDP growth rate, inflation (CPI), and the average monthly wage for years 2005 to 2010. - Projection assumptions These cover two main variables: labour productivity growth rate and the inflation (CPI) rate. For the sake of convenience, the tool provides users with the average historical value for each of these variables. Users can use the historical averages for the projection horizon or, if they believe that the economy is operating at a level that is different from its long term path, they can enter the values expected to be reached by 2015, 2020, and 2030. These assumptions will be made for three potential scenarios: a main model scenario, an optimistic scenario and a pessimistic scenario. - Public finance This section requires revenue (tax, non-tax, and grant) and expenditure (recurrent, capital, and others) figures expressed in the current local currency for the most recent year for which data is available. For each one of these inputs, the user is also asked to provide the values that they are expected to reach by the year 2030 as a percentage of GDP. These percentages can be based on theoretical considerations or on the most recent historical data. For the sake of convenience, the tool automatically generates these ratios for the year 2010. Also note that, when entering the inputs above, national data should be given precedence. If this data is not available or is believed to be faulty, however, users are encouraged to refer to World Bank data, available at: http://databank.worldbank.org/data/databases.aspx. Benefit Parameters Benefit parameters are entered into the SPF Costing Tool s sheet entitled BenefitAssumptions either for one social protection programme or for a set of programmes, which can include: old-age pensions, child benefits, disability benefits, orphan benefits, education stipends, birth lump-sum benefits, youth labour market programmes, and/or unemployment programmes. The parameters that need to be entered differ from programme to programme but they involve a combination of some of the following basic elements: - age of the target beneficiaries, - number of target beneficiaries as a percentage of the total population or of relevant subgroup, - benefit amount as a lump sum or as a percentage of per capita GDP, - differential parameters (depending on gender, number of children in household, or depending on whether the beneficiary is disabled, for example), - poverty rate among target beneficiaries, and - administrative cost as a percentage of the benefit amount.
9 If costing is only being undertaken for one programme, the user should ensure that 0 is entered as the benefit amount projected for the remaining programmes. Section 4. Limitations: What Can the SPF Costing Tool Not Do? This section aims to explain some of the limitations of the SPF Costing Tool and put forth suggestions for alternative tools that may be better suited to providing the type of estimates not covered by the SPF Costing Tool. Non-Cash Programmes The SPF Costing Tool does not provide cost estimates for non-cash social protection instruments. While building a social protection system entails many different types of interventions including family support services, user-fee removal, insurance and legislation the Tool is only specifically adapted to estimating the cost and impact of cash transfers. This is due to several reasons. First, non-cash instruments are more difficult to cost in a generic fashion, as they involve human resource-intensive aspects as well as synergies between programme components and supply-side services that make costs difficult to predict due to their variability. Second, when it comes to social protection policy options that interact with other sectors, such as education and health, practitioners already have access to existing tools. Externally Funded Programmes The Tool operates on the basic assumption that all funding for the social protection programmes implemented will be public. While private and international funding can support the government s budget and the country s social protection system (including the SPF), external funding that is specifically allocated for social protection alone cannot be separated out by the SPF Costing Tool. As a result, the projected cost/expenditure figures are calculated as a percentage of GDP, government revenue, and government spending proportions that are not as useful when extra-budgetary financing of all or some social protection programmes is a possibility. Supply-side Interactions The SPF Costing Tool calculates the estimated cost of implementing a set of social protection programmes, whether as part of a country s efforts to implement a Social Protection Floor or as part of other efforts to expand social protection systems. As previously mentioned, the SPF Costing Tool can help cost programmes that ensure a minimum level of income security, food security and adequate nutrition. On the other hand, the Tool cannot provide cost estimates for programmes, such as health insurance or home-based care, that aim to increase access to essential services more directly. This is because these types of programmes presuppose direct interactions with the supply-side of social policy. The existence and effectiveness of service providers (for example, sufficient schools and teachers) is a complex parameter, outside the realm of social protection, which the Tool is not built to take into account.
10 Another limitation is that the Costing Tool does not account for the additional demand for social services which can result from changes in social protection programmes. For example, the implementation of a school feeding programme may increase attendance and the need for more teachers and infrastructures. Equally, the Tool does not consider what effects social protection programmes might have that may reduce overall costs. For example, better household nutrition may reduce demand for healthcare services. Interactions between Social Protection Programmes The tool does not account for the fact that participating in one or more cash transfer programmes may preclude individuals or households from being eligible for other social protection programmes. Indeed, the income effect caused by receiving a given amount may place recipients above the income threshold for other benefits. Similarly, some social protection programmes can empower recipients to move out of poverty on their own, making them ineligible for other types of support. Broader Impacts of Social Protection The SPF Costing Tool does not provide estimates of social protection s impact on populations beyond basic income effect estimates. Indeed, one of the more significant limitations of the Tool is the fact that it only estimates the impact of SPF interventions on income poverty. It is widely recognized that in order to have a deep impact on individuals and communities, policy is best informed by broader measures of wellbeing such as vulnerability and social exclusion. Multi-dimensional indicators of poverty could also be used to measure impact, given that they pick up on vulnerabilities that income poverty measures are not sufficiently sensitive to detect. In regard to social protection policy design and implementation, in particular, it is especially useful to estimate the impact of social protection on individuals access to services such as health, education, water and sanitation, etc. Micro-simulations The SPF Costing Tool does not offer the ability to conduct precise micro-simulations for a particular country or sub-national group. This is due to the fact that its in-built assumptions about how different parameters affect each other and the cost and poverty estimates are not context-specific. As such, the World Bank s ADePT Costing Tool may be a useful complement to the SPF Tool in that it provides: 1) simulations of the expected impact (beyond simple income effects) on households of continuing or modifying an existing national social protection programme which are based on historical impact findings; and 2) disaggregated data that demonstrates impact on households throughout the income distribution.
11 Section 5. Other Tool Options Other Tools Rapid Assessment Protocol (RAP), developed by the ILO The RAP provides a step-by-step approach to conducting an assessment that includes a stocktaking and mapping of social protection, a preliminary analysis, and the identification of priority areas for intervention. This assessment can serve as the basis for discussing and simulating alternative financing options and fiscal space. For more information, see presentation on the RAP s origins and features. Rapid Assessment Protocol (RAP+), developed by the ILO The RAP+ uses micro, household-level data to provide users with a more refined estimate of the number of beneficiaries targeted and the cost of the benefits proposed. It also allows the user to assess the hypothetical impact of alternative benefit packages on the poverty headcount and the poverty gap. ADePT, developed by the World Bank, 2007-2010 The ADePT software allows users to easily generate reports using data from sources such as household surveys all presented in print-ready, standardized tables and charts. It can also be used to simulate the impact of economic shocks, farm subsidies, cash transfers, and other policy instruments on poverty, inequality and labour. Basic Social Protection Tool, developed by ILO, 2008 This user-friendly tool allows the user to make 30-year projections of the fiscal cost of implementing a basic set of social protection programmes, as well the external funds required to achieve SPF objectives given certain fiscal and macroeconomic data. CORE Plus, Version 1, developed by Management Sciences for Health, September 2007 This tool helps estimate the cost of providing primary health care services. As such, it is particularly relevant for estimating the parallel, supply-side costs of implementing SPF programmes, such as health insurance, that grant universal access to primary healthcare. Planning, Costing and Budgeting Framework, developed by Management Sciences for Health, August 2007 This flexible framework facilitates high-level healthcare planning, linking a plan to a budget that would achieve these goals and objectives. Integrated Health Model, Version 2.0, developed by the UNDP, November 2007 This tool focuses on the scale-up costs of the health system as a whole, helping ensure implementers capacity to deliver integrated packages of health services. Education Sector Costing Tool, UNDP Pacific Centre This tool can be used to cost all levels of education, from pre-school to tertiary.
Reviews of Existing Tools Final Reports of Technical Review of Costing Tools a review of health-related costing tools by the World Health Organization, September 2008. 12