What Kind of Social Agenda for

the Western Balkans?Sarajevo, May 25-26, 2011

Boryana GotchevaThe World Bank

1

Poverty and Social Assistance Poverty and Social Assistance Priorities in the Western Priorities in the Western

BalkansBalkans

Objectives of the presentation and outline

2

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

Positive developments before the crisis

3

But the crisis stalled progress

4

In the aftermath of the crisis, the countries have to cope with

higher poverty risks

5

… 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 marketsAgriculture’s contribution to growth is decreasing

while poverty remains disproportionally ruralTurning agriculture into an engine of growthSustaining 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

… and need to prevent and offset crisis-inflicted negative changes in

behavior of households

6

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 foodCutting on expenditures for cultural and

recreational activities

(Summary findings from crisis surveys in the Western Balkan region,

2009-2010)

The crisis evoked a renewed role for social assistance in

poverty reduction

7

COVERAGETARGETING

GENEROSITY

COVERAGETARGETING

GENEROSITY

FLEXIBILITYFLEXIBILITY

A comprehensive mix of social assistance programs already

existed when the crisis hit

8

Family and Child Allowances

War Veteran Benefits

Last Resort Social Assistance

Disability benefits

However, specific program design and implementation characteristics

limited the capacity of social assistance to reduce poverty

9

Low and, more importantly, inequitable Low and, more importantly, inequitable spendingspending on different types of social assistance programsMixed performanceperformance in protecting the poorLow flexibility for immediate crisis responseImplementation drawbacks Built-in work disincentives in LRSAwork disincentives in LRSA

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

10

0% 5% 10% 15% 20% 25%

Ukraine 09*Hungary 08

Serbia 09*Poland 08

*Slovenia 08Croatia 09

Romania 09Montenegro 09

BiH 07*Slovakia 08

Bulgaria 08*Estonia 08

Lithuania 08Belarus 09

FYR Macedonia 09Moldova 08

Russia 08Latvia 09

Albania 09Turkey 08

Kyrgyz Republic 09Armenia 09

Azerbaijan 09Georgia 08Kosovo 09

Tajikistan 09

Social Assistance

Labor Market

Social Insurance

… and inequitable, with growing share of spending on

categorical programs

11

0.0%

1.0%

2.0%

3.0%

4.0%

BiH

08

Serb

ia 0

9

Koso

vo 0

9

Alb

ania

09

Mon

tene

gro

09

FYR

Mac

edon

ia 0

9

Croa

tia 0

9

Rom

ania

09

Russ

ia 0

8

Ukr

aine

09

Bela

rus 0

9

Lith

uani

a 08

Arm

enia

09

Mol

dova

08

Aze

rbai

jan

09

Bulg

aria

08

Geo

rgia

08

Kyrg

yz R

epub

lic 0

9

Latv

ia 0

9

Tajik

ista

n 09

Western Balkans Other ECA

Last-Resort Social Assistance Family and Child Allowances Disability Benefits War Veteran Benefits Social Pension Other

Mixed performance of social assistance

12

Standardized methodology for performance measurement

indicators

13

1.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

2.Individuals are sorted into quintiles for each transfer using "per capita

consumption - per capita transfer“

3.Developed by DECRG

Welfare indicator

Harmonized consumption aggregate1

Individuals ranked on

Per capita consumption before cash transfer2

ADePT SP3 Standardized software to compute indicators

Impressive targeting accuracytargeting accuracy, masking regressive veteran

benefits

14

0102030405060708090

Alb

ania

200

8

Koso

vo 2

006/

07

Mon

tene

gro

2009

Serb

ia 2

007

Croa

tia 2

008

Arm

enia

200

8

Geo

rgia

200

7

Rom

ania

200

9

Ukr

aine

200

8

Pola

nd 2

008

Bulg

aria

200

7

FYR

Mac

edon

ia 2

006

Hun

gary

200

4

Latv

ia 2

008

Mol

dova

200

9

BiH

200

7

Overall Social AssistancePercent of Total Benefits Received by the Poorest Quintile

Low coverage Low coverage of the poor, and high rate of exclusion of

deserving poor

15

0102030405060708090

100

Hun

gary

200

4

Rom

ania

200

9

Latv

ia 2

008

Bulg

aria

200

7

Pola

nd 2

008

Ukr

aine

200

8

Croa

tia 2

008

Mol

dova

200

9

Arm

enia

200

8

Koso

vo 2

006/

07

Serb

ia 2

007

FYR

Mac

edon

ia 2

006

Geo

rgia

200

7

Alb

ania

200

8

BiH

200

7

Mon

tene

gro

2009

Overall Social AssistanceCoverage of the Poorest Quintile (%)

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

16

Yes81.8%

Not eligible for NE

Yes25.9%

Yes14.9%

Yes3.7%

Yes0.8%

Yes0.4%

6. Does anyone in the family receive Survivor Pension?

2. Does anyone in the family receive old-age pension?

Percentage of bottom decile eligible for NE after applying all filters is 7.9%

3. Does family receive remittance from abroad?

4. Does family own a car?

5. Does family have rental income?

No 18.2%

No 74.1%

No 99.6%

No 99.2%

No 96.3%

No 85.1%

Albania’s Ndihma Ekonomike ProgramExclusion errors due to filters. Out of Individuals in Bottom Decile (= 122,172 individuals)

1. Does anyone in the family work?

Implementation characteristics also limit coverage

17

Work disincentives Work disincentives in the design of LRSA

18

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

Reform priorities: second : second generation reforms in social generation reforms in social

assistanceassistance

19

“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

Reform priorities: second : second generation reforms in social generation reforms in social

assistanceassistance

20

Target better, strengthen and standardize eligibility criteria Eliminate the use of Yes/No filters in LRSA program designs Introduce single, simple scoring formulasingle, 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

The World Bank social protection engagement in the Western Balkan

countries

21

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

The World Bank social protection engagement in the Western Balkan

countries

22

Country / instrument

Policy dialogue and related lending

Investment lending

Analytical and advisory services

Albania X X X

Bosnia and Herzegovina

X X X

Croatia X X

FYR Macedonia

X X X

Kosovo X X X

Montenegro X

Serbia X X X