about committing themselves to new enterprises or technologies that can help them escape from poverty. Conversely, failures in social protection will undermine MDG achievement. If households, for example, face a sudden financial shock they may have to divert microcredit loans from productive investment into consumption. And, desperate for income, they may withdraw children, particularly girls, from school in order to work. Household expenditure on health, especially of women and girls, is also likely to be curbed in times of financial insecurity.
extending cash transfers to offering guarantees of employment. Opportunities for cooperation The economic crisis of 2008 may not have started in Asia and the Pacific, but its impact here was immediate. What might the region do in future to protect itself – and the MDGs – from such contagion? In the short term, the most practical way of filling the gap left by declining exports is through a fiscal stimulus. In the medium and longer term, however, many countries will want to generate domestic demand in a more sustainable way by increasing household incomes and consumption, alongside boosting corporate investment.
Asia-Pacific countries already have most of these forms of social protection. Many countries have schemes of social insurance, for example, but these usually reach only a small proportion of the workforce – generally government workers and some of those employed in the formal sector. Across Asia and the Pacific, only 20 per cent of the unemployed and underemployed have access to labour market programmes, such as unemployment benefits, training or public works programmes, including food-for-work programmes. Only 30 per cent of older people receive pensions.
How can households be induced to save less and consume more? This depends on why people are saving. One reason could be to smooth incomes over the lifetimes of household members. Governments who wished to address this would need to consider increasing child benefits and old-age pensions. Another motive for saving is to set aside funds for emergencies: households will want to provide for unforeseen exigencies such as sickness or loss of income. Governments could respond with stronger social protection and more secure access to public health care or education, which would not only help achieve the healthrelated MDG targets but also reduce anxiety about having lower savings. Another motive for saving is to finance anticipated expenditure – to pay for expensive consumer goods, for example, or children’s schooling. Policies to counter this would involve better credit so that households could make more balanced choices between current and future consumption. Consumption is also likely to increase if a greater share of national income goes to the poor. Investing in the capacities and capabilities of the poor is also likely to increase their contribution to GDP thus ensuring a more inclusive pattern of growth. Reducing poverty by broadening the economic base can unleash latent demand.
Expenditure on social protection in most AsiaPacific countries tends to be small relative to GDP, though it can represent a high proportion of government budgets. There are four main sources of finance: taxation, reprioritizing expenditures, official development assistance, and borrowing. Of these, the most important in the future is likely to be taxation, since, even in some low-income countries, there is scope for increasing fiscal space by reforming their tax systems and improving the efficiency of tax collection. In some countries, however, the potential for additional tax will be limited in the short run, partly for reasons of political economy and also because of the extent of the informal economy. Taxation should therefore be combined with other sources of finance. This region should certainly be able to do more. Prior to the current crisis, it had been growing at an average annual rate of 8 per cent – creating economic resources that can and should be allocated to building systems capable of reaching all members of society at all times. And there are signs that countries are moving towards more comprehensive social protection systems – from
But policies should not just aim to alter the choices of households. Governments will also want to give appropriate incentives to the private sector – through policies on exchange rates, taxation and subsidies – to make it more profitable for companies to invest in sectors that are oriented
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ACHIEVING THE MILLENNIUM DEVELOPMENT GOALS IN AN ERA OF GLOBAL UNCERTAINTY : ASIA-PACIFIC REGIONAL REPORT