Measuring Social Spending
is More than an Exercise in Accounting

Titicaca Lake, Bolivia Photo: Flickr, Christian Pérez

Although the percentage of GDP used for social spending has risen consistently over the past 20 years throughout the region, the way in which indicators of social public spending are measured and the differences in concept and coverage restrict their use and comparability in the region.

For this reason, ECLAC has proposed a new model of detailed analysis of the resources allocated to social policies as a way to improve the effectiveness of social management.

Countries in the region have made significant efforts to increase their budgets for education, health and, fundamentally, social security and assistance (poverty reduction programmes), maintaining a pro-cyclical approach, except during the last quinquennium.

An analysis of how social public spending is distributed according to per capita income quintiles shows that social security tends to concentrate in the highest-income strata, while resources for education and health are distributed fairly evenly in the different strata. This allows for an estimated redistributive impact that almost doubles primary household income in the first quintile, but that in terms of volume is only a little more than half of the amount transferred to the highest-income quintile.

Despite this progress, measuring social public spending in the region has been understood mainly as an exercise in accounting and therefore, spending is not associated to social policy goals. Additionally, the way in which social spending indicators are measured in each country varies greatly.

The measurement of social spending in 15 of 21 countries considers only the central government or the budgetary central government (includes only the amounts approved in the Budget Law), in two countries they take into account the general government (includes all levels of public administration) and three countries include state-owned companies. Only one country measures the entire public sector.

There are also differences in how social functions are defined: although most countries measure health, education and social protection, the delimitations of these functions vary from country to country.

Additionally, no country takes into account non-public social spending (material or monetary contributions from beneficiaries, the private sector and NGOs, for example).

Lastly, Public Finance Statistics (PFS) and the Systems of National Accounts (SNA) are not integrated, which impedes analyzing economic activity as a whole and social spending, restricting it to the indicator on spending as a proportion of GDP.

These observations are a result of ECLAC’s periodic collection of official data on social public spending in 21 Latin American and the Caribbean countries between 1990 and 2008, in addition to databases from censuses, household surveys, living conditions and other specific studies. All of this data has allowed ECLAC to cross social spending levels with the characteristics of beneficiaries.

With this data, ECLAC is promoting a model for a detailed analysis of the resources allocated to social policies that may:

i) Quantify resources in relation with social policy goals and analyze its cost-impact, considering the share of public and private resources;

ii) Disaggregate information per different target populations, enforcing agents, sources of finance, etc.;

iii) Adapt to the reality of each country without limiting the use of their current accounting systems, but allowing the dissemination of comparable systems at a regional level;

iv) Broaden knowledge and countries’ capabilities to assess and analyze progress since 1990 in eradicating extreme poverty and hunger;

v) Strengthen governments’ institutional capabilities to assess, design and implement programmes to reduce poverty, malnutrition and the vulnerability of workers to contribute to achieve the first Millennium Development Goal in 2015.

In order to fulfill these goals, with the initial cooperation of GTZ and later the AECID, ECLAC developed a model of measurement and analysis in which social spending is understood as the “amount of resources used to finance plans, programmes and projects aimed at generating a positive impact on some social problem.”

In consequence, social spending is not considered an isolated element of accounting analysis, but an important component of social management whose impact should be measured based on how they meet social goals, the degree of resource distribution and the economic benefits for society.

In addition, the model considers the use of social data and management results through beneficiary selection and monitoring systems, process assessments and the impact of programmes and specific projects, as well as censuses, household surveys, specialized surveys and administrative records.

This methodological proposal has been shared with several countries in the region and is currently being applied in the Plurination State of Bolivia, El Salvador, Panama, Paraguay and Peru, with the active participation of national teams in different State agencies.

The challenge ahead lies in expanding and improving the instrument so that it may strengthen the quality of countries’ social policy management and raise their effectiveness and efficiency, while at the same time count with a more exhaustive and comparable system at a regional level.