Challenges Facing SSNs in Emerging and Developing Economies:

IMF Working Papers, May 3, 2024

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Uses the standard social welfare framework to assess social safety nets (SSNs) performance in terms of targeting efficiency and budget effort.
Applies this framework to the World Bank’s ASPIRE database.
Discusses proxy-means testing as a tool to enhance targeting efficiency and highlights the need for careful design to manage the horizontal inequity inherent in proxy-means testing.

The variation in poverty alleviation achieved by SSNs in emerging markets and developing economies (EMDEs) is driven mainly by variation in budget effort.
Increasing transfer spending is therefore key to strengthening SSNs in EMDEs.
The inability of many EMDEs to finely target transfers to poor households means required spending increases are prohibitive over the short term, especially in low-income countries.
Enhancing targeting efficiency is emphasized as crucial to making spending increases feasible.

Prioritize increases in transfer spending (budget effort) to improve poverty alleviation from SSNs in EMDEs.
Strengthen targeting efficiency to reduce the fiscal cost of achieving given poverty-reduction objectives.
Consider implementing proxy-means testing to improve targeting, with careful design to mitigate horizontal inequity and other distributional concerns.