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Paper short abstract:

The paper explores using a major part of Overseas Development Assistance (ODA) in Uganda to fund large-scaling of social cash transfers. We analyse the economic impact of providing old age pensions and child grants at selected scaling scenarios using the UGAMOD tax-benefit microsimulation model.

Paper long abstract:

The paper explores the radical idea of using a major part of Overseas Development Assistance (ODA) in Uganda to fund large-scaling of social cash transfers (SCTs). We use UGAMOD, a tax-benefit microsimulation model, to analyse the economic impact of providing scaled old age pension and child grants. Ten selected scenarios include different levels of universal and means-tested SCTs allocating between 4% and 115% of ODA in Uganda (currently about 2.37 billion USD).

Donor funding for SCTs has typically been given either to provide immediate relief for recipients, in particular in humanitarian aid, or as a tool to help governments in the Global South to build their own social protection systems, which are seen as an integral part of a responsible state taking care of its vulnerable citizens. However, ambitious “out of the box” thinking is emerging which explores large-scaling SCTs in the Global South as a way to substantially reduce or even eliminate poverty.

Our key conclusion is that shifting substantial parts of current ODA in Uganda to SCTs is predicted to lead to relatively large reductions in poverty levels. It is a banal and trivial point that giving poor people money results in reduced poverty. But the scale at which this could be achieved within current aid budgets in Uganda is far from banal. Our data suggest that reducing national poverty by close to 1/3 or 2/3 is possible and this would, seen in isolation, be remarkable. This comes with considerable opportunity costs, which are discussed in the paper.