At the onset of the COVID-19 pandemic, governments around the world faced the challenge of providing effective financial support to help citizens weather the fallout from the accompanying economic crisis. That crisis unfolded at unprecedented speed, leaving many households vulnerable to sliding into poverty before governments could design and implement new social programs.
One potential source of strength were pre-existing social programs that guaranteed a basic income to a large share of the population. One year after the pandemic began, it is crucial to take stake stock of how effective such programs were in developing countries.
Our recent study of a pension program in Bolivia leads us to believe that such programs could play an important role in helping households avoid poverty, even though they were not designed to act as automatic stabilizers amid shocks in the labor market or to provide emergency relief.
Our study analyzes a pre-pandemic pension program with broad coverage in Bolivia. We find that the program reduced financial insecurity, food insecurity, and stress during the pandemic with the greatest impacts on the most vulnerable households. Some countries may be at last seeing light at the end of the tunnel. But the lessons learned from the experience in Bolivia amid the pandemic are important for showing how developing countries can build resilient and comprehensive systems of social protection for the future.
We analyzed the impacts of Renta Dignidad, a near-universal non-contributory pension program established in 2008, at the onset of the pandemic. The program delivers around USD 50 on a monthly basis to individuals age 60 or older, regardless of their income, and reaches around 28% of Bolivian households. To study the causal effect of becoming eligible for the program, we exploited the fact that all Bolivians become eligible for it upon turning 60. Specifically, we compared different measures of well-being between individuals who were lucky enough to have turned 60 during the months preceding the lockdown to those who turned 60 a few months later and hence were not eligible to receive Renta Dignidad’s benefits yet. We then used near-real-time data collected during April 2020, just weeks after the start of the lockdown, to estimate the effects of the program.
The Pension Program was Crucial in Preventing a Decline in Food Security.
As mobility restrictions were put in place, many households lost their livelihoods and faced increases in the prices of key necessities. Among survey respondents, 18% reported that someone in their household went hungry in the month preceding the data collection. By providing a basic income to beneficiaries, Renta Dignidad led to a 9-percentage-point decline in the probability that someone in the household went hungry during that same time period (see Figure 1). The program also reduced the probability that a respondent reported eating less healthily and increased the probability that beneficiaries had at least a week’s worth of financial resources to cover basic needs.
Figure 1: Program eligibility and the probability of going hungry during the first month of the pandemic.
The Hardest-Hit Households Benefited the Most
The positive impacts were concentrated among households that were hardest hit by the crisis. They were largest for households with low incomes prior to the pandemic and those in which someone lost their livelihood due to the lockdown policies.
Figure 2: Effects of the program on hunger, by income and exposure to business closures.
While lower-income households benefitted the most, middle-income households that lost their source of income also benefited substantially. These households are often excluded from means-tested programs. But, as previous IDB work shows, they are particularly vulnerable to sliding into poverty.
These effects were unintended: The pension program was designed to provide a basic income to the elderly. Nonetheless, during the onset of the pandemic the program was able to help households attenuate the effects of the unexpected closures of small and probably informal businesses that tend to be operated by household members of prime working age
Implications for the Design of Social Programs
The COVID-19 pandemic may be a one-in-a-life-time event. But the results from our study have important implications for the future design of social protection networks in developing countries.
First, the Bolivian program was a well-established program with broad coverage that was able to provide relief during an unexpected shock. This seems to suggest that strengthening pre-existing programs may lead to a timely delivery of financial relief to households in contexts in which time is of the essence. However, the positive impacts of pre-existing programs depend on the way the programs are implemented. In the Bolivian case, initially, the program only delivered resources in person, and, as a result, only 60% of eligible households in the study sample cashed out the benefits during April 2020.
Second, while the program protected the poorest households, it also protected those that experienced a severe labor market shock. It was thus able to provide relief in line with the primary goals of a social safety net composed of an income-targeted transfer and an unemployment insurance program. This suggests that programs that provide basic incomes and have broad coverage can serve as an effective policy tool in contexts where high informality leads to low coverage through unemployment insurance schemes.
It is not obvious that most countries can sustainably afford such a program; In the case of Bolivia, data compiled by the Economic Commission for Latin America and the Caribbean (ECLAC) shows that its program cost over 1.3% of GDP in 2018. A more-affordable option is to invest in modern social registries and targeting systems that can dynamically update eligible beneficiaries. The pandemic, though hopefully on its way out, has severely tested governments in terms of their ability to provide a safety net for their citizens in times of crises. Future pandemics or natural disasters may again challenge governments to act fast.