Governments in the Pacific region and Timor-Leste have been enhancing formal social protection measures for over five decades, but the past twenty years have seen significant changes. Social assistance expenditures have nearly doubled across these areas, leading to gradual expansions in benefits that now reach a wider array of individuals. While some nations are at the forefront of these advancements, others are falling behind, revealing important insights for future growth and investment in social protection.
A recent study backed by the Australian Government through the Partnerships for Social Protection (P4SP) program examined the trends in social protection investments within the region. The report titled “Investing in social protection for good times and bad: An assessment of social protection financing in the Pacific and Timor-Leste” analyzes the financing sources for social protection, the evolution of investments, the repercussions of inflation, and the fiscal outlook for these countries in the aftermath of the COVID-19 pandemic.
Age and disability benefits are particularly notable in the social protection frameworks of the Pacific and Timor-Leste. Eight out of the fourteen studied Pacific countries have established both types of schemes, typically on a universal basis. Notably, countries such as the Marshall Islands, Papua New Guinea, Timor-Leste, and Tonga have begun to introduce innovative cash benefits directed at families with children, a demographic that previously lacked formal government assistance.
Since 2013, expenditures on social assistance benefits have surged from 0.9% to 2.3% of Gross National Income (GNI). Kiribati has seen the most significant growth, implementing a large-scale unemployment benefit scheme and enhancing the scope of its Senior Citizens Allowance. Additionally, the government of Fiji has increased its social protection spending threefold over the last decade, with the majority of increases occurring in the past five years.
Social assistance programs have proven to be impactful in reducing poverty levels. In the Cook Islands, child benefit payments have enabled two-thirds of households to lower child poverty from 17% to 12%. In Kiribati, major social assistance initiatives, including the Senior Citizens’ Allowance and the Support Fund for the Unemployed, have reportedly cut the national poverty rate by more than half.
The COVID-19 pandemic prompted a surge in investment for social protection systems. Countries with pre-existing frameworks successfully employed them to distribute support, such as enhanced benefits in Timor-Leste and Fiji.
Even as the effects of the pandemic have lessened, nations have continued to refine their social protection systems. This reflects the crucial role of social protection in assisting vulnerable populations during both prosperous and challenging times. Effective systems not only help households and economies withstand adverse conditions but also contribute to the foundational elements necessary for thriving during better economic periods. Moreover, the distribution of social protection benefits can enhance government legitimacy and popularity in democratic settings.
Official development assistance (ODA) played a vital role in financing social protection in the Pacific during the pandemic. ODA dedicated to social protection surged to nearly USD 90 million in 2021, more than tripling previous decade highs. These funds significantly impacted economies, translating to over 1% of GNI in nations like Fiji, the Marshall Islands, Palau, Tonga, and Tuvalu.
Looking ahead, ODA will continue to support the long-term development of social protection systems in the region. Efforts include introducing new child and family benefits in countries like the Marshall Islands, Papua New Guinea, Tonga, and Timor-Leste. Although current ODA figures remain well below pandemic levels, there is still an opportunity for these funds to aid in financing social protection initiatives and establishing sustainable systems.
Social assistance has also provided households with a buffer against inflation, particularly where benefits are sufficiently robust. In Timor-Leste and the Cook Islands, age and disability benefits exceed global averages, while Kiribati’s pension ranks among the highest worldwide based on similar metrics.
No country in the region currently indexes social assistance benefits to price changes; however, some nations have made temporary adjustments to help households cope. For example, Fiji’s government implemented short-term inflation relief measures in 2022 and further raised benefits in 2023 to alleviate inflationary pressures. Although Samoa’s temporary increases made a difference, they only partially addressed rising costs.
Conversely, in many nations, inadequate benefit levels have restricted households’ ability to shield themselves from inflationary challenges. Although benefit averages in the Pacific align with global norms, the reality is that many countries offer benefits below the global average. For instance, in Fiji, Tonga, and Tuvalu, age and disability benefits are lower than the global average when analyzed as a proportion of GNI per capita. In areas with reduced benefit levels, households are less prepared to withstand inflation.
By reflecting on past investments in social protection, stakeholders can better anticipate how these investments may evolve. This is crucial as Pacific island countries and Timor-Leste face financial constraints, such as slow growth, rising populations, high public service delivery costs in remote areas, and increasing government spending on disaster responses.
Countries have various financing options for social protection, including boosting domestic revenue, reallocating funds from different sectors, increasing ODA contributions, and taking on additional external debt. These options differ per country based on policy choices and the macro-fiscal environment.
An incremental, pragmatic approach to social protection financing is essential. Gradual modifications to eligibility criteria and benefit amounts, along with the development of new programs, can sustainably broaden coverage over time. This process will necessitate a thorough exploration of all potential financing avenues.
Development partners will continue to contribute to both social transfer financing and system enhancement, though the majority of funding will originate from domestic sources. Ensuring that the quality of life for current social protection recipients remains intact is critical. To this end, it will be important for countries to consider formal indexing measures to safeguard beneficiaries from the inflationary shocks that frequently impact the region.