Governments in the Pacific region and Timor-Leste have been prioritizing formal social protection for over 50 years, and significant changes have occurred in the last two decades. Nationwide spending on social assistance programs has nearly doubled, with benefits being extended to a larger number of individuals. While some nations are at the forefront of this initiative, others are still catching up; overall, these trends can provide valuable insights for future developments in social protection.
A recent study backed by the Australian Government’s Partnerships for Social Protection (P4SP) examined the trends related to social protection investments in the area. The report, titled “Investing in social protection for good times and bad: An assessment of social protection financing in the Pacific and Timor-Leste,” explores who is funding social protection in the Pacific, the evolution of these investments, the effects of inflation, and the fiscal outlook for these nations as they recover from the COVID-19 pandemic. It builds on previous research analyzing social protection expenditures across ten countries in the region.
A notable aspect of the social protection systems in the Pacific and Timor-Leste is the availability of age and disability benefits. Although such programs exist in many low- and middle-income nations globally, eight out of the 14 Pacific countries covered by the study have implemented both, typically offering them universally. Additionally, nations like the Marshall Islands, Papua New Guinea, Timor-Leste, and Tonga have been trying out new cash benefits for families with children, thus providing support to groups that previously lacked formal government assistance.
For countries offering social assistance benefits, expenditures have increased significantly since 2013, rising from 0.9% to 2.3% of Gross National Income (GNI). Kiribati has seen the most substantial rise due to a comprehensive unemployment benefit scheme and the expansion of its Senior Citizens Allowance. Meanwhile, Fiji has tripled its social protection spending over the past decade, with the most considerable increases occurring in the last five years.
Social assistance has proven to be effective in alleviating poverty. In the Cook Islands, more than two-thirds of households benefit from child payments, which have helped reduce the child poverty rate from 17% to 12%. Similarly, Kiribati’s primary social assistance programs, including the Senior Citizens’ Allowance and the Support Fund for the Unemployed, are believed to have more than halved the national poverty rate.
The COVID-19 pandemic led to a surge in investments in social protection systems. Countries with pre-existing frameworks leveraged them to distribute immediate support, such as bonus payments in Timor-Leste and Fiji.
As the crisis recedes, nations continue to enhance their social protection systems, demonstrating the efficacy of these frameworks in supporting vulnerable populations during both good and challenging times. Social protection systems not only assist households and strengthen the economy during downturns but also contribute to long-term economic stability. Furthermore, providing social protection benefits can enhance government credibility and popularity in democratic contexts.
During the pandemic, official development assistance (ODA) played a critical role in financing social protection in the Pacific. ODA allocated to social protection surged to nearly USD90 million in 2021, significantly higher than the previous decade’s maximum of USD25 million. This funding represented a notable portion of GNI for Fiji, the Marshall Islands, Palau, Tonga, and Tuvalu.
Beyond the pandemic, ODA continues to assist the ongoing establishment of sustainable social protection systems throughout the region. For example, ODA has enabled the introduction of new child and family benefits in nations such as the Marshall Islands, Papua New Guinea, Tonga, and Timor-Leste. While ODA levels have decreased since the peak of the pandemic, it remains essential for financing social protection transfers and developing sustainable systems.
Social assistance has also shielded families from inflationary pressures in countries where benefits are sufficiently high. For instance, age and disability benefits in Timor-Leste and the Cook Islands exceed international averages, while Kiribati offers one of the highest pension benefit levels globally.
No nation in the region currently ties social assistance benefits to inflation rates, but some have made occasional adjustments to ease household burdens. For instance, the Fijian government introduced a temporary inflation mitigation package in 2022, raising benefits to keep pace with rising costs. Short-term benefits in Samoa also provided some relief, though they fell short of fully addressing price increases.
However, in numerous countries, low benefit levels limit their effectiveness against inflation. Although average benefits across the Pacific are close to global averages, many countries fall short in comparison. For example, Fiji, Tonga, and Tuvalu offer age and disability benefits that are below the global average when assessed against GNI per capita. Those with lower benefits have less ability to insulate households from the impacts of inflation.
Reflecting on past investments in social protection can guide future strategies as Pacific nations and Timor-Leste face fiscal challenges, such as limited growth prospects, population surges, high public service costs in remote areas, and increased government spending for natural disaster responses.
Countries have various financing options available for social protection, including domestic revenue mobilization, higher allocations from sovereign rents, reallocating funds from other sectors, increasing ODA shares, and pursuing external debt. Each nation’s options will differ based on its unique policy landscape and macroeconomic conditions.
Ultimately, an incremental approach is advisable for financing structures. Gradual changes to eligibility criteria and benefit levels, alongside the introduction of new programs, can broaden social protection coverage sustainably over time. To achieve this, countries need to fully examine their financing options.
Development partners will continue to play a vital role in financing social transfers and enhancing transfer systems, yet the majority of investments will need to originate domestically. It is crucial to maintain the quality of life for current social protection recipients. Hence, exploring formal indexation methods will be essential for safeguarding beneficiaries against inflationary shocks that frequently affect the region.