Home > Development Economics > Refugees: Cash v Handouts

Refugees: Cash v Handouts

November 18, 2015 Leave a comment Go to comments

For many countries giving refugees cash has been a low priority as a policy to reduce poverty. Less than 6% of humanitarian aid in 2014 came in the form of cash as the concern has been that refugees in desperate situation may not spend the money on the right goods and services. In theory aid ensures that this is not the case as aid agencies supply goods and services refugees really need. However aid agencies do not always allocate resources efficiently to those in need as there is either too much of some items or not enough of others.

Furthermore, receiving aid in handouts usually involves standing in queues in public which can be embarrassing and have an effect on social acceptance. Aid in cash gives refugees more autonomy over their spending so that they can participate in the life of the community e.g. pay off debts, contribute to ceremonies and other occasion that are culturally important. Handouts does not allow for this. A UN initiative, found that 70% of Syrian refugees in Iraq had traded handouts from aid agencies for cash, including as much as two-thirds of the rice they received.

A concern over the cash methodology is that the injection of money into an economy will appreciate the currency of the receiving country’s currency which makes exports less competitive and imports cheaper – see previous posts on Dutch disease. This could lead to less growth of export-orientated industries and the injection of cash can also push up the price of basic goods and services leaving some refugees worse off. However giving cash need not lead to Dutch disease for various reasons:

  1. The number of refugees in most countries is tiny relative to the host population therefore an influx of money is unlikely to have significant effects.
  2. More cash might increase inflation but contrary to this it may also create jobs and growth in the receiving economy.
  3. Aid in handouts will distort the domestic economy as it acts as competition and drives down prices for local producers who may not be able to compete.
  4. Cash is also fair cheaper to distribute – America’s government has estimated that transport and other overheads eat up 65% of spending on emergency food aid. See graphic.

Changes in technology, growing access to financial services, greater urbanisation, and the emergence of government social safety nets are all creating unprecedented opportunities for humanitarian support to reach people in new ways. For example:

 During the 2011 famine in Somalia, which killed more than a quarter of a million people, aid agencies used remittance companies to provide cash transfers to more than 1.5 million people, helping them to survive and recover.

 In Lebanon, more than a million refugees now use smart card vouchers to buy goods at local shops, or ATM cards to withdraw money instead of receiving in-kind aid.

 In the response to Typhoon Haiyan in the Philippines, half a million people received cash through the extension of an existing government social protection programme.

However cash does have its problems when shops are shut.

Sources:

The Economist – Hard-nosed compassion. Sep 26th 2015 | From the print edition

Centre for Global Development: Doing cash differently. How cash transfers can transform humanitarian aid. September 2015.

Cash v Aid

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