armenia: social impact of the global economic crisis gohar gyulumyan the world bank aiprg conference...
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ARMENIA:Social Impact of the Global Economic Crisis
Gohar GyulumyanThe World Bank
AIPRG Conference
YerevanJune 7, 2009
Outline
• Social Impact of the Global Economic Crisis on Armenia
• International Experience on Crisis Responses – OECD experience– Middle income country experience
• Policy Options for Armenia– Existing social protection programs – Leverages to mitigate crisis implications
Main Channels of Transmission
• Labor Market and Migration (unemployment, remittances)
• Product and services markets (deceleration of growth, decline in trade/tourism)
• Capital market (decrease in FDI and bank borrowing, contraction of
fiscal space)
Social Impacts of the crisis
• Poverty and unemployment (ARMENIA: Implications of the Global Economic Crisis for Poverty
WB Report No. 47770-AM)
• Social divergence, One-factory towns
• Deterioration in accessibility of health and education services for poor and vulnerable
Budget cuts, less remittances/OOP payments
Overall poverty: Reversals of the gains in poverty reduction?
Extreme poverty could increase by a substantially larger margin and reaches level not seen since the early 2000s
What is driving the increases in poverty?
Labor market measures in the stimulus packages of OECD countries ...
Many OECD countries have announced large economic recovery packages with measures that will create (or preserve) jobs, for example:
Overall funds
% of total funds
United States $787 billion 3.1 Extension of max duration of UBs
5.0 Subsidies to offer job losers access to health insurance
0.5 ALMPs (especially training)
United Kingdoma £20 billion Hiring subsidies
< 10 Additional training places
Business start-up counselling and financial support
Work-focused volunteering options
Germany €30+50 billion; 2009-10Reduction in employers’ SS contributions by 1/2 for short-time workers; full reduction if short-time work is used for training/upskilling
3.0Subsidy to the employment services for training/upskilling purposes; special subsidy for training of temporary agency workers.
Hiring of 5000 additional staff for the public employment services
France € 26 billionEmployer contributions reduced/eliminated for employees hired up to 1.6 MW by firms of <=10 employees
1.9 Extra spending on ALMPs
2.9Advanced payment to future beneficiaries of the Revenue de Solidarité Active (RSA)
a. £1.8 billion are allocated to the Dept. of Work and Pensions over 2009-10, through Jobcentre Plus and private and voluntary providers.
Labour market programmes
8
Country Responses to Current Economic Crisis
Bulgaria ALMP targeted at the newly unemployed Temporary wage subsidies to workers placed on short working hours Increased unemployment benefit size
Romania Increased duration of unemployment benefits Exemptions from paying contributions during the partial paid leave Subsidies to enterprises for hiring new employees and new employees
coming from long-term unemployment
Latvia Increase duration of unemployment insurance Increase the adsorptive capacity of ALMPs by including part-time workers in
training
Kazakhstan
Public works: construction and maintenance of pipe water, electricity and gas, and sewage facilities, schools, hospitals, highways and local roads , etc.
Extension of unemployment benefits (to be funded from social insurance fund)
Training
Social safety net and labor market interventions in low/ middle income economies
Country Responses to Current Economic CrisisUSA Food Stamp Program
Additional budget ; Increase benefit levels Ease restrictions and time limits for jobless adults
BrazilBolsa Família Program (CCT)
Expanding budget for program for 2009 Expanding coverage Raising eligibility threshold
Mexico Programfor Returning Migrants
New employment for returning migrants Border towns Wage levels to cover basic food, health and transportation costs
Responses to Past Economic CrisisArgentina Demand driven public works program, supplemented by a cash transfer
for those who cannot work
Thailand Public works with skill differentiation, supplemented by expansion of pre-existing safety net programs
Korea • Public works with institutional structures quickly established at regional locations where the unemployed registered• PW according to skill levels (semi-skilled, skilled, etc)
Mexico Progresa (CCT)
Conditional cash transfer program, supplemented by public works program
Responding through existing social safety net programs
What are the options for Armenia?
Relatively well targeted social safety net program Family Benefit program ALMPs and Public Works Job earning possibilities Job training/job matching/ job fairs /job clubs Community demand driven public works projects SMEs
Unemployment benefits Large number of job seekers and unemployed remain unregistered Coverage is low Expect longer unemployment spells Could be linked with active labor market programs
Public spending on health and education Increase efficiency of Basic Benefit Package in health Allocation of State order in higher education
Make the stimulus work for all Incorporation of social responsibilities into economic stimulus packages
While the Family Benefit was fairly well targeted at family level, its performance grew weaker over time…
2006
…FB’s coverage of the poorest quintile also worsened
Increase FB budget
Increase benefit size
Expand coverage to include the “new poor”
Raise the eligibility threshold
Better integration of the existing data, screening of applicants with readily available filters and categories
Upgrade the MIS into a live database, introducing cross-checks and stepping up electronic data verification.
Consider a regression-based Proxy Means Test, which can address the underreporting of income (but transition
has to be gradual)
Outreach campaigns targeted to poor communities
Simplify the application process and annual re-certification
Responding
through
the existingsocial safety net program
Responding
through
the existingsocial safety net program
FB can be an effective instrument to delivery support to the poor and increase domestic demand, but further improvements in targeting will be key
Public Works Current status
AMD 700 million (no increase over 2008 allocation) and only funds part of the community designed projects
Priority to: first time applicants, marzs with more job seekers and high poverty
Short duration (3 months) Recommended measures to enhance crisis response
Expand the public works program (absorptive capacity exists) Increase duration of PW projects Ensure poor communities with weak capacity are not left out Set PW wage less than market wage not draw labor away from other
productive uses Eligibility Criteria (e.g., one person per family?)
Education: Ensure increasing completion rate Introduce innovative funds for universities, move from merit-based to needs-based public funding for students in
Universities
Health Public provision for full costs of services in BBP, Budget allocation for co-payment for poor and vulnerable,
Health and Education
Concluding Remarks
The global economic crisis has serious social implications and could reverse the precious gains made in the 2000s
Job losses/earnings and loss of other incomes are the main channels of transmission of the crisis
Policy response options using existing programs: Protect funding for core social spending for poor and vulnerable, better targeting of the Family Benefit, Temporary expansion of unemployment benefit Increased efficiency of Public works program
Combinations of different programs effective at reaching different segments of the population affected by the crisis (CSR)
Pay attention to risks of difficult-to-reverse consequences: School attendance, healthcare utilization, nutrition, heating, etc