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case of sovereign wealth funds SWFs, which can potentially be used for national socio- economic development and social protection. The logic behind SWFs
– such as the Abu Dhabi Investment Authority, Norway’s Government Pension Fund Global, and
Singapore’s Temasek Holdings and Government of Singapore Investment Corporation – is to maximize financial returns on investment, usually in international capital markets.
While creating an SWF is an option available to most governments, many have questioned the logic of investing earned public income for capital market growth when those resources
could be invested in social and economic goods and services urgently needed at home. The Bolivarian Republic of Venezuela, for example, has used its fiscal reserves to finance a
number of development objectives both domestically and regionally. On the other hand, Timor-Leste, a country with very low scores on human indicators of development and a
high proportion of people living in poverty 50 per cent in 2007, up from 36 per cent in 2001, has an estimated US6.3 billion stored in an SWF investing overseas. The key point
is that governments have multiple options in how to use their reserves for socio-economic development, and the alternatives should be carefully evaluated see box 8.
6.8 Option 8: Adopting a more accommodating macroeconomic framework
This entails allowing for higher budget deficits and higher levels of inflation without jeopardizing macroeconomic stability e.g. through quantitative easing in the United
States. The goals of macroeconomic policy are multiple, from supporting growth, price stabilization or inflation control to smoothing economic cycles, reducing unemployment
and poverty, and promoting equity. In recent decades, macroeconomic frameworks have placed strong emphasis on short-term stabilization measures, such as controlling inflation
and fiscal deficits, as part of broader efforts aimed at liberalizing economies, integrating them into global markets and attracting investment. While these macroeconomic objectives
are not necessarily unsound, there is an increasing risk in many developing countries that other important objectives, such as employment-generating growth and social protection,
lose priority and come to be underemphasized. It is important to underscore that there are
diverse views on what constitutes an “acceptable” level of inflation or fiscal deficits, and that, as part of the crisis response, there has been a growing recognition of the need to ease
budget constraints and allow for an increasing degree of deficit spending, especially to support socially relevant investments and employment-generating economic growth IMF,
2009; Epstein, 2009; Pollin, Epstein and Heintz, 2008; Islam and Chowdhury, 2010a; Islam and Chowdhury, 2010b; UNCTAD, 2011; UNCTAD, 2012; UNCTAD, 2013.
In summary, there are ample opportunities for countries to increase fiscal space for social protection through a combination of tailored strategies. Usually it is appropriate for
governments to consider a mix of the different strategies, as in the examples presented in table 5. Each country is unique, and the full range of available fiscal space options should
be carefully examined – with close attention to the potential risks and trade-offs associated
with each opportunity – at the national level through an inclusive dialogue to ensure a
socially responsive recovery. All of the fiscal space options described in this report are supported by policy statements of the United Nations and international financial
institutions. ILO Recommendation No. 202 emphasizes the responsibility of national governments in financing national social protection floors, and in mobilizing the necessary
resources to ensure the financial, fiscal and economic sustainability of these arrangements. The Recommendation also notes explicitly that national resource mobilization strategies
may include the effective enforcement of tax and contribution obligations, reprioritizing expenditure, andor a broader and sufficiently progressive revenue base. The
Recommendation further states that countries whose economic and fiscal capacities are insufficient to implement the guarantees may seek international cooperation and support to
complement their own efforts Paras 11
–12; see also ILO, 2012a.
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Table 5. Fiscal space strategies: Country examples
7. Why social protection floors are key to recovery and must be part of
the post-2015 development agenda
As the global community struggles to emerge from recession and slow growth, and assesses the current development agenda and the progress made towards the achievement
of the Millennium Development Goals, it is high time to recall the three main reasons why social protection is one of the necessary conditions for sustainable development. First, it is
a human right and a core element of labour rights. It is also a social and political necessity,
as States need a capacity to intervene where markets have failed; effective national social protection systems are powerful tools to provide income security, to prevent and reduce
poverty and inequality and to build inclusive society; thus they strengthen social cohesion and contribute to establishing and maintaining social peace. Social protection is also an
economic necessity
to sustain domestic consumption and demand by raising household income. Adequate social protection enhances productivity and human development,
-enables workers to adapt to change, and facilitates equitable and inclusive structural change. Investing in social protection is investing in a healthy, productive and
equitable society.
7.1 Social protection floors reduce poverty and inequalities Social protection reduces poverty and social exclusion
Social protection is a crucial instrument in addressing all forms of poverty. Cash transfer schemes have successfully reduced poverty in Africa, Asia, Central and Eastern
Europe, and Latin America, potentially delivering much faster results than those expected from the “trickle-down” effects of economic policies. Although in practice benefits have
tended to be lower than needed, a cash transfer at an adequate level can bring people out of poverty overnight. Equally importantly, cash transfers have had even larger effects on
reducing the depth of poverty. For example, South Africa’s non-contributory grants have reduced the poverty gap by more than one-third Woolard, Harttgen and Klasen, 2010, the
Oportunidades programme in Mexico has reduced the numbers living in poverty by 10 per cent and the poverty gap by 30
per cent Skoufias and Parker, 2001, and Kyrgyzstan’s Social Protection Programme has reduced the number of people living in extreme poverty
by 24 per cent and the poverty gap among beneficiaries by 42 per cent World Bank, 2003. The expansion of food assistance in the United States is reported to have reduced
the number of households in extreme poverty by half CBPP, 2014. Overall, social
