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Poverty and Social Assistance Priorities in the Western Balkans

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Presentation on theme: "Poverty and Social Assistance Priorities in the Western Balkans"— Presentation transcript:

1 Poverty and Social Assistance Priorities in the Western Balkans
What Kind of Social Agenda for the Western Balkans? Sarajevo, May 25-26, 2011 Boryana Gotcheva The World Bank

2 Objectives of the presentation and outline
Poverty trends before and after the crisis Renewed role of social assistance Performance (targeting accuracy and coverage) of social assistance The reform of social assistance for more effective poverty reduction

3 Positive developments before the crisis
Before the crisis, the WB countries experienced high GDP growth combined with progress on poverty reduction

4 But the crisis stalled progress

5 In the aftermath of the crisis, the countries have to cope with higher poverty risks
… in a worsening fiscal environment, and unresolved structural problems, where Labor force participation rates remain some of the lowest in Eastern Europe … Activation as a policy priority … while households continue to rely heavily on migration and foreign labor markets Agriculture’s contribution to growth is decreasing while poverty remains disproportionally rural Turning agriculture into an engine of growth Sustaining poverty reduction in rural areas Some groups such as the Roma are at distinct disadvantage (‘pockets of poverty’) Forwarding the poverty reduction and social inclusion agenda

6 … and need to prevent and offset crisis-inflicted negative changes in behavior of households
With long-term negative impact on the quality of human capital, such as: Cutting on health care expenditures: preventive medical examinations, prescription drugs; dental medicine Cutting on certain education expenditures: extra-curricular activities and lessons, book and magazine subscriptions Purchase of cheaper but lower quality food Cutting on expenditures for cultural and recreational activities (Summary findings from crisis surveys in the Western Balkan region, )

7 The crisis evoked a renewed role for social assistance in poverty reduction
PROMOTE human development (invest in human capital) for long-term poverty alleviation PROTECT * alleviation of long-term chronic poverty * helping the poor in coping with shocks and transient poverty PREVENT from falling into chronic and multi-generational poverty (risk mitigation) COVERAGE TARGETING GENEROSITY Role depicted graphically with the “3Ps” FLEXIBILITY

8 A comprehensive mix of social assistance programs already existed when the crisis hit
Last Resort Social Assistance Disability benefits War Veteran Benefits Last resort social assistance: protect poor and vulnerable (these allowances are means-tested). Family and child allowances: ensure vertical and horizontal equity for families with children, protect children’s rights, boost fertility, protect incomes and jobs (may or may not be means-tested). Disability allowances: protection of disabled, mainly those who are unable to work (often not means-tested). War veterans benefits: protection of disabled during regional military conflicts; survivors and recognition for service (region specific objective) – not means-tested. Less comprehensive SA schemes in Albania and Kosovo (new programs). In the rest – well established systems/models that build on the comprehensive SA system of FY, and close to EU models Family and Child Allowances

9 However, specific program design and implementation characteristics limited the capacity of social assistance to reduce poverty Low and, more importantly, inequitable spending on different types of social assistance programs Mixed performance in protecting the poor Low flexibility for immediate crisis response Implementation drawbacks Built-in work disincentives in LRSA

10 Low and contracting social assistance spending envelope
Considerable and increasing spending on pensions Only Croatia and Serbia managed to increase spending on social assistance as share of GDP Overall, social assistance spending remains lower than the ECA average of 1.7% of GDP BiH and Croatia are exceptions, with high SA spending as share of GDP, mostly due to the proliferation of war veteran related benefits

11 … and inequitable, with growing share of spending on categorical programs
High spending on veteran benefits – CR and BiH; BiH data does not include unpaid arrears Increasing spending on disability benefits – AL, BiH (elimination of some in FBiH) Low spending on LRSA, except for Kosovo (higher poverty rate)

12 Mixed performance of social assistance
Impressive targeting The percent of benefits going to the poorest consumption quintile is high; targeting accuracy differs a lot across programs and countries Low coverage The percent of poorest quintile who receive benefits, is low Generosity: moderate over-all, but low for LRSA Contribution to consumption: average transfer amount as a fraction of average consumption for beneficiary households in poorest quintile Unit transfers as a fraction of minimum wage

13 Standardized methodology for performance measurement indicators
Welfare indicator Harmonized consumption aggregate1 Individuals ranked on Per capita consumption before cash transfer2 ADePT SP3 Standardized software to compute indicators ECAPOV consumption aggregate developed using a standard basket of goods and services so as to ensure comparability across the region. Limitations of using household surveys Limited to those programs that are included in specific questions on household surveys (for instance, Albania disability benefits question missing from survey instrument) Cannot capture full range of transfers that are included in public spending – 29 to 60 percent of spending is captured in Western Balkan countries (the range across countries) Developed by ECSPE (ECA Databank) – a standard basket of goods and services across all countries, and all expenses are similarly deflated across countries and expressed in per capita terms Individuals are sorted into quintiles for each transfer using "per capita consumption - per capita transfer“ Developed by DECRG

14 Impressive targeting accuracy, masking regressive veteran benefits
Impressive targeting accuracy of social assistance in the Western Balkans Close to 80% of social assistance in Albania is absorbed by the bottom quintile; over 70% in Kosovo and Montenegro; over 60% in Serbia and over 50% in Croatia. FYROM – 45%, and BiH – below 40% and the worst performer in ECA. Leakage of benefits to the richer quintiles is limited, except for BiH – over 16% (pre-transfer) and 27% (post-transfer) quintiles TARGETING ACCURACY is very high for LRSA, also high for other benefits delivered by the CSW (family and disability are correlated with poverty) MASKS the absence of targeting of veterans benefits which are regressive

15 Low coverage of the poor, and high rate of exclusion of deserving poor
But low coverage. Only Croatia’s social assistance covers (slightly) over 50% of those in the bottom consumption quintile. Most of the Western Balkan social assistance systems cover 30% to 40%; BiH and Montenegro – 20% (lowest performers in ECA)

16 Coverage is especially low for the last resort social assistance programs
As low as 5% of Q1 in BiH and 7% in Serbia Only in Kosovo is close to 40% of Q1 Due to rigorous means test, and Low income thresholds, and Presence of binary filters that overrule the means test and increase exclusion error

17 Implementation characteristics also limit coverage
Key implementation characteristics Rigorous enforcement of eligibility rules Home visits before determining eligibility with high discretionary power, not standardized Limited outreach efforts to identify deserving poor High cost of application; no unified registries Leakage due to weak internal audit, errors and fraud detection arrangements Leakage of resources

18 Work disincentives in the design of LRSA
Registration as unemployed is required when applying for last- resort social assistance Additionally earned incomes are 100% deducted from the due benefit When making a transition from SA to work, much of the incremental income from work is taxed away (work does not pay, as per OECD tax-benefit model calculations) Absence of institutional structures for joint support for income smoothing (passive cash transfers) and job brokerage services (‘one-stop’ shops) No incentives for social workers and job brokers to deal with ‘hard-to-serve’ cases Limited supply of active labor market programs specifically designed for last resort social assistance beneficiaries

19 Reform priorities: second generation reforms in social assistance
“Second generation” reforms of safety nets: promoting links of cash transfers to Jobs / activation agenda Social services and human capital development Increase coverage Focus on the errors of exclusion rather on the errors of inclusion Reduce spending on rights-based programs and increase spending on means-tested ones with good targeting accuracy Consolidate small and duplicative programs Introduce smart design features that do not exclude working poor from eligibility for social assistance

20 Reform priorities: second generation reforms in social assistance
Target better, strengthen and standardize eligibility criteria Eliminate the use of Yes/No filters in LRSA program designs Introduce single, simple scoring formula, with objective weights (AL, BiH) Design taxation and benefit rules in a way that encourages the transition from social assistance to work – ‘make work pay’ Lower taxes on low earned incomes Gradual benefit reduction as recipients’ earned income increases Introduce earned income disregards (up to a certain level) Increase the ‘exit threshold’ for means tested programs, compared to the entry thresholds Track / measure targeting accuracy and coverage Regular HBS, LSMS, SILC modules Improved questionnaires MIS, unified registries

21 The World Bank social protection engagement in the Western Balkan countries
Budget support in coordination with the EU and IMF SBAs Investment lending Analytical and advisory services at regional and national level Poverty analyses Poverty and social impact assessments Public expenditure reviews Pension actuarial analyses Social assistance smart safety nets, activation, breaking the welfare traps and dependence on social transfers Numerous cross sectoral analyses on labor markets, skills and competitiveness

22 The World Bank social protection engagement in the Western Balkan countries
Country / instrument Policy dialogue and related lending Investment lending Analytical and advisory services Albania X Bosnia and Herzegovina Croatia FYR Macedonia Kosovo Montenegro Serbia

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