The impact of the international financial crisis on child poverty in South Africa

This paper reports on a study to provide insights into the magnitude of the shocks associated with the crisis in macroeconomic terms in South Africa, the country’s capacity to withstand or cushion these shocks, and the extent of fragility in terms of poverty levels and child wellbeing. The analysis combines macro-economic and micro-economic tools to assess the extent of the crisis’ impact on the country. Computable General Equilibrium modeling is employed to estimate the impact of the crisis on key macro variables. Results of the macro model are then used to assess the individual and household level effects of the crisis using household survey data and suitable micro-econometric techniques. The study finds that the poverty headcount ratio increases little in the moderate crisis scenario, but substantially under the severe scenario. However, under both scenarios there is a relatively successful return to close to the Business as Usual trend. It is important to note though that under both scenarios, more poverty sensitive measures (the poverty gap ratio and the poverty severity ratio) decline more, and remain in negative territory longer, showing that the major impact of the crisis is on the poorest, and that this impact is most difficult to overcome. Setting too high poverty lines and focusing on the poverty headcount ratio only would conceal some of this effect. Of particular importance to this study and of pertinence for other developing countries is how the effects of the crisis are mediated through the Child Support Grant, a uniquely South African feature which has been expanded greatly in recent years and is particularly aimed at children in poor families. This offers a potential source of protection against poverty for poor children, if the care-givers regard such grants as firstly for the benefit of the children concerned.