Even before Covid-19 upended our lifestyles, social and political risk were already on the rise in a number of countries and regions, largely due to the mismanagement of social protection. How has Covid-19 changed social risk? To answer this we have updated our proprietary Social Risk Index (SRI) which we developed and introduced in spring 2020. The SRI identifies underlying strengths, weaknesses and perceptions of a country’s political, institutional and social frameworks, signaling the general susceptibility to “systemic social risk” events that could be game-changers with regard to politics and policymaking, as well as business and investment decisions. The main takeaways are detailed below.

The Covid-19 crisis has widened the gap between advanced economies (AEs) and emerging markets (EMs) when it comes to systemic social risk. Our Social Risk Index (SRI) identifies countries particularly vulnerable to systemic social risk, including events such as anti-government protests and other incidents that could become game-changers for politics and policymaking, as well as business and investment decisions. In 2021, systemic social risk declined for AEs overall, with the four Nordic countries and Switzerland making up the top five of our ranking. However, there are four exceptions (the US, France, Portugal and Greece) that experienced a deterioration in their SRI score. And in EMs overall, systemic social risk has risen: While Estonia (rank 16), Czechia (19^th) and Slovenia (20^th) are the best-ranked EMs, Congo DR, Sudan, Afghanistan, Nigeria and Zimbabwe exhibit the highest levels of social risk. Congo DR and Afghanistan have also experienced some of the largest deteriorations over the past one and a half years, along with Myanmar and Peru.

Taking stock of Covid-19 economic policy responses, we found soft evidence that on trend social risk mostly declined in countries (i) with a strong fiscal response and/or (ii) where unemployment was kept in check, and vice versa. Diving deeper, we find that if labor market policies to tackle Covid-19 were implemented predominantly through support to firms, as seen in most low- and lower-middle-income economies, then any substantial change in social risk can be attributed to the choice of Covid-19 interventions. In this context, the policy response does not appear to have paid off in countries such as Ukraine, the Philippines and Sri Lanka. In contrast, if policies to tackle Covid-19 included a significant share of direct job-protection measures and cash transfers, as seen in most upper-middle- and high-income economies, then any substantial change in social risk is more attributable to underlying vulnerabilities or strengths than to the Covid-19 response. In this context, countries such as Belarus, Lebanon and Peru are clearly facing underlying vulnerabilities that more than offset any positive effects of Covid-19 policy response.

As governments work to build stronger institutions after the Covid-19 crisis, there are three priorities to focus on to minimize social risks in the future: food security, gender inequality and income inequality.   Global food prices have surged by +43% since the beginning of the pandemic, and 70-161 million additional people are estimated to have experienced food deprivation during the crisis. In this context, a deep change in the global food and agriculture system is needed if we are to nourish the portion of the population that is hungry today and the additional 2bn people the world will have by 2050. Gender equality also took a hit after Covid-19, with violence against women and girls increasing in many parts of the world, and holes in social protection amid rising poverty leaving women more vulnerable than men. In this context, recovery programs should take into account gender consequences, removing legal barriers against women and reinforcing efforts to protect them from violence. Finally, rising income inequality in both developed and developing countries requires governments to rebuild and rethink the design and implementation of traditional public intervention in labor markets, social insurance and other social policies.