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1 Social Safety Nets and Macroeconomic Crises: Are ECA Countries Ready? Emil D. Tesliuc HDNSP Workshop on Macro Risks and Micro Responses February 15,

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Presentation on theme: "1 Social Safety Nets and Macroeconomic Crises: Are ECA Countries Ready? Emil D. Tesliuc HDNSP Workshop on Macro Risks and Micro Responses February 15,"— Presentation transcript:

1 1 Social Safety Nets and Macroeconomic Crises: Are ECA Countries Ready? Emil D. Tesliuc HDNSP Workshop on Macro Risks and Micro Responses February 15, 2008

2 2 Outline SSNs as Shock Absorbers: What does it take? Are Existing Social Safety Net Programs Ready for the Next Crisis? 1 2

3 3 SSNs as Shock Absorbers What does it take? SSN objectives during crises: – Protect (old and new) poor against irreversible welfare losses (physical, human capital) – Help gain accepted to do needed reforms Characteristics of well-performing SSN programs – Automatic stabilizers – … or at least programs that can be scaled-up timely, and scaled-down once the crisis is over – Good at identifying the intended target groups (cost effective) – That injects money into the pockets of those with high marginal propensity to consume (fiscal stimulus) – Self-targeted (public works) Complementing other protective measures: – health, education, pensions, unemployment benefits, basic infrastructure 1

4 4 Challenges of SSN programs during crises When good SSN programs exist, need $$$ and staffing for scaling-up When well-performing programs not available, response will be inefficient: costlier, late Targeting difficult – Household circumstances change often – Informal economy goes up – Eligibility - recertification, more often Which one to help: Old poor or new poor? Chronic vs. transitory poverty? 1

5 5 Overview of Social Safety Net Programs in the ECA region We look at: – Spending levels – Program mix – Coverage of the poorest – Targeting accuracy The SSNs in ECA fall into four groups – based on their preparedness to avert the effect of the crises, and the type of SSNs 2

6 6 ECA is second only to OECD in terms of SP spending 2

7 7 … and SSN spending levels seem adequate, except for few outliers 2

8 8 Program mix Similar with OECD in terms of programs mix: – family allowances; social pensions; heating/housing allowances; last resort programs SSN programs more narrowly targeted than in EU – less categorical targeting, in favor or income and asset testing, hybrid means-testing, proxy-means testing Regional specificity: – Legacy programs: privileges still plague some countries; subsidies – CCTs are rare. Found only in Turkey and Macedonia – Workfare, public works programs, also rare 2

9 9 Few of the poorest are left out, except for countries in Central Asia, Caucasus and former Yugoslavia 9 Coverage of the poorest quintile by Social Protection Programs Countries ranked in decreasing order by per capita GDP in 2000 PPP 2

10 10 2

11 11 Errors of Inclusion Programs using: Income testing Proxy- means testing Approaching OECD standards in best of cases; But remains mediocre in many others 2

12 12 Two cost-effective SSNs models have emerged Low(er) income countries (Armenia, Albania, Kirghiz Republic) – Targeted programs = the SSN, typically one large program – Greater coverage (10-20% of the population), budget of 1-2% of GDP – Informal labor market; passive labor market policies small or no role – Passive systems (little emphasis on exit policies) Medium Income Countries (Bulgaria, Lithuania, Romania) – Targeted programs = residual programs, complementary to an extensive social protection system – Children, elderly, heating … – … plus a last-resort program with small coverage (5-10% of the population). With budgets between ¼ and 1% of GDP; cost-effective. – Emphasis on exit policies – Strong links with employment/labor offices 2

13 13 Regional solutions adapted to regional circumstances Entitlement programs of moderate fiscal costs Accurate targeting systems, similar with OECD, but well-adapted to country circumstances: – Income / asset testing combined with formal economy test (all 6 countries) and work-test (Albania, Bulgaria, Romania) – Hybrid means-test: Imputed incomes based on occupational or asset profile (Bulgaria, Kirghizstan, Lithuania, Romania) – Proxy-means test (Armenia, Georgia, Turkey) Ready for the next crisis: Open eligibility, frequent recertification Programs that operate with modest but sufficient administrative costs 2

14 14 Cost-effective solutions to identify poor beneficiaries 2 Substantial know-how on how to target narrowly, adapted to the circumstances of ECA region, transferable to other countries and regions

15 15 Many ECA countries have the necessary SSN in place Automatic stabilizers in place: – Unemployment programs, means-tested / last resort programs – Challenge: given $$$ and increased in staff Competent /strong administrative systems Have developed effective, efficient and flexible/ agile mechanisms to identify the poor Proven: SSNs already helped cushion the effect of previous crises: – Example from Armenia 2

16 16

17 17 Armenia: Poverty Family Benefit (PFB) Program Setting: Landlocked country in the Caucasus, population 3 million people, per capita GDP US $873 (2003), low income, high poverty, food insecurity. – Triple shocks: independence from Soviet Union disrupted trade patterns; severe earthquake wiped out significant industrial capacity and housing in 1998; conflict with Azerbaijan and trade blockade Pre-reform: – Inherited a generous and regressive cash benefit system (26 small cash and in-kind programs), and extensive quasi-fiscal social programs (electricity subsidy) Reform (1998/1999): – Consolidation of all social assistance program into one, the PFB, targeted to the poor using a proxy-means test. Electricity subsidy discontinued Institutional consolidation of the PFB (1999 - present) Results to date: – Improvements in targeting accuracy, coverage – (27% of the households covered vs 15%) – and generosity (higher benefits) – Further improvements in targeting and generosity – Low share of admin costs (2% of program budget) – No labor disincentives 2

18 18 … but not all ECA countries have found a cost-effective SSN model Some countries are marred by: – Impropriate programs (legacy …) – Unclear objectives – Poor design – Understaffing – Underfunding – Inexistent or poor monitoring, oversight, evaluation The remaining challenge is to get these countries prepared 2

19 19 Add’l Slides: Features that contribute to accurate targeting Lowering barriers to participation Lowering inclusion errors Improving program administration

20 20 Key phases influencing targeting accuracy for transfer programs OUTREACH ELIGIBILITY DETERMINATION ELIGIBILITY DETERMINATION PAYMENTS EXIT BENEFICIARIES RECERTIFICATION M&E Audit Quality Control M&E Audit Quality Control APPEALS

21 21 What implementation aspects are shared by programs / countries with well-run SSNs? Lowering barriers to participation Lowering errors of inclusion Improving program administration  Effective dissemination of information about the program  Location of point-of-service close to the beneficiaries, minimize visits and waiting  Minimize documentation required, free-of-charge provision of documents attesting eligibility  Introduction of one-stop or one-window system  Single application for multiple benefits  Use of multiple targeting methods  Cross-check the information provided by applicants against other public databases  Perform home-visits to assess the means of the households  Frequent re-certification  Introduction of a unique identification number for beneficiaries  Reduce data-entry mistakes in computerized databases  Effective audit and control processes  Use of multiple targeting methods  Train staff  Provide adequate documentation for staff  Strong monitoring, especially performance monitoring systems  Collaboration across agencies  Strong monitoring, especially performance monitoring systems  Use the same targeting instrument across many poverty-focused programs

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