Social Protection and Financial Inclusion

Social protection has played an important role in reducing poverty and inequality in the region. However, coverage varies greatly from country to country and many programs are at risk of being scaled back due to budget constraints. Continued focus on social security such as unemployment insurance, affordable health care and pensions is needed to ensure vulnerable populations are not left behind.

Several countries have made efforts to expand basic services and provide a social safety net since the early 2000s—largely driven by spending on Conditional Cash Transfer Programs and other forms of social assistance. Despite notable gains in access to education and health care, out of pocket expenses remain high. Unemployment benefit coverage remains particularly low with only 38% of labor forced covered compared to over 80% in Europe.  Financing these programs has become increasingly difficult with total tax revenue in the region averaging 19% compared to 34% in OECD countries. Further efforts are needed to broaden the tax base in order to provide an adequate safety net in spite of the economic downturn.

In addition to basic social services, the lack of adequate financial services constrains the ability of people, particularly low-income individuals, to save, borrow for investment purposes (health, education, small business development) and build assets over time. It can thereby leave individuals more vulnerable to poverty and perpetuate income inequality. Over half of all adults are unbanked and there are large disparities in financial access across the income distribution: only 17% of individuals from the bottom 40% have access to finance on average (ranging from as low as 3.4% in Paraguay to over 40% in Brazil).