Safety Nets in the Western BalkansDesign, Implementation and Performance

Brussels , December 2010

Boryana Gotcheva and Ramya Sundaram

World Bank, Europe Central Asia RegionSocial Protection Team

Outline

2

PART IScope and objectives of social assistanceExpenditure on social assistancePerformance: Protecting the chronic poorPART IIDesign and implementation features.Recommendations: alleviation of long-term chronic

poverty.PART IIIFlexibility of response of social assistance programs

to crisis.Recommendations to improve flexibility.

Objectives of social protection

3

PROMOTIONof human

development (investment in human capital)

for long-term poverty

alleviationPROTECTION* Alleviation of long-term chronic poverty* Help to the poor in coping with the worst forms of shocks and transient poverty

PREVENTIONfrom falling into chronic and multi-generational poverty (risk mitigation)

COVERAGETARGETING

GENEROSITY

FLEXIBILITY

Social Insurance

Labor Market Programs

Social Assistance

Framework for analysis of social assistance

4

Main types of social assistance programs in the Western Balkan countries

5Family and Child

Allowances

War Veteran Benefits

Last Resort Social Assistance

Disability benefits

Considerable variation in level of spending and proportion spent on

means-tested programs

6

BiH

Alba

nia

Serb

ia

Koso

vo

Mon

tene

gro

FYR

Mac

edon

ia

Croa

tia

Rom

ania

Ukr

aine

Russ

ia

Geo

rgia

Lith

uani

a

Mol

dova

Bulg

aria

Arm

enia

Kyrg

yz R

epub

lic

Latv

ia

Western Balkans Other ECA

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Exp

endi

ture

as

perc

ent o

f GD

P

2008

Last Resort Social Assistance Other means-tested programs Categorical programs

Over time, the composition is shifting toward categorical programs

7

2000 2001 2002 2003 2004 2005 2006 2007 2008 20090.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Albania onset of the crisis

2005 2006 2007 2008 (budget)-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Bosnia and Herzegovina

Expe

nditu

re a

s pe

rcen

t of G

DP

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 (budget)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Montenegro

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%Serbia

LRSA Other means-tested programs Categorical programs

Measures of Performance of Social Assistance

8

We use household surveys to assess performance:Coverage: percent of poorest quintile who

receive benefits.Targeting accuracy: percent of benefits going

to the poorest quintile.Generosity (Adequacy): 2 types of measures:

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

Standardized methodology for developing performance indicators

9

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

Which programs deliver coverage?

10

LRSA, Family and child benefits

Scholarships, War Vets, Utilities Subsidies

Per

cent

of p

erso

ns c

over

ed

Per

cent

of p

erso

ns c

over

ed

Percent of those in poorest

quintile who receive benefits

Regional averages across all

ECA countries

Q1 Q2 Q3 Q4 Q50

5

10

15

20

25

30

35

40

Coverage of Social Assistance Programs

AVERAGE LRSA (Nobs=22)

AVERAGE FCB MT (Nobs=9)

AVERAGE FCB NON-MT (Nobs=23)

Q1 Q2 Q3 Q4 Q50

5

10

15

20

25

30

35

40

Coverage of Social Assistance Programs

AVERAGE SCHOLARSHIP (Nobs=13)

AVERAGE UTILITY (Nobs=11)

AVERAGE WAR VETERANS (Nobs=3)

Which programs deliver targeting accuracy?

11

LRSA, Family and child benefits

Scholarships, War Vets, Utilities Subs

Per

cent

of b

enef

its re

ceiv

ed

Per

cent

of b

enef

its re

ceiv

ed

Percent of benefits

received by those in the

poorest quintile

Regional averages across all

ECA countries

Q1 Q2 Q3 Q4 Q50

10

20

30

40

50

60

70

Targeting of Social Assistance Programs

AVERAGE LRSA (Nobs=22)

AVERAGE FCB MT (Nobs=9)

AVERAGE FCB NON-MT (Nobs=23)

Q1 Q2 Q3 Q4 Q50

10

20

30

40

50

60

70

Targeting of Social Assistance Programs

AVERAGE SCHOLARSHIP (Nobs=13)

AVERAGE UTIL-ITY (Nobs=11)

AVERAGE WAR VETERANS (Nobs=3)

Coverage of last-resort social assistance

12

Arm

enia

FB

Prog

Koso

vo S

A

*Rus

sia C

A

FYR

Mac

edon

ia S

FA

Alba

nia

NE

Kyrg

yzst

an U

MB

Geor

gia

TSA

*Aze

rbai

jan

TSA

Mon

tene

gro

FMS/

MO

P

Bulg

aria

GM

I

Pola

nd S

A be

nefit

s

Rom

ania

GM

I

Croa

tia S

. Allo

wan

ce

Hung

ary

Regu

lar S

A

Esto

nia

MT

Bene

fits

Serb

ia M

OP

Ukra

ine

XP p

rogr

am

Latv

ia G

MI +

dw

ellin

g

Lith

uani

a S.

Ben

efit

BiH

CSW

*Uzb

ekist

an S

A fo

r low

in

com

e

Kaza

khst

an T

SA

0

5

10

15

20

25

30

35

40

45

Coverage of the Poorest Quintile (%)

Per

cent

of p

erso

ns c

over

ed

Targeting accuracy of last-resort social assistance

13

Bulg

aria

GM

I

Serb

ia M

OP

Koso

vo S

A

Esto

nia

MT

Bene

fits

Kaza

khst

an T

SA

Croa

tia S

. Allo

wan

ce

Ukr

aine

XP

prog

ram

Lith

uani

a S.

Ben

efit

Rom

ania

GM

I

Hun

gary

Reg

ular

SA

Geo

rgia

TSA

Alba

nia

NE

*Aze

rbai

jan

TSA

Arm

enia

FB

Prog

Pola

nd S

A be

nefit

s

Mon

tene

gro

FMS/

MO

P

FYR

Mac

edon

ia S

FA

Kyrg

yzst

an U

MB

BiH

CSW

*Uzb

ekist

an S

A fo

r low

inco

me

Latv

ia G

MI +

dw

ellin

g

*Rus

sia C

A0

10

20

30

40

50

60

70

80

90

Percent of Total Benefits Received by the Poorest Quintile (%)

Per

cent

of b

enef

its re

ceiv

ed

Generosity of last-resort social assistance

14

Geor

gia

TSA

Koso

vo S

A

Esto

nia

MT

Bene

fits

Mon

tene

gro

FMS/

MO

P

Croa

tia S

. Allo

wan

ce

Serb

ia M

OP

Arm

enia

FB

Prog

Lithu

ania

S. B

enefi

t

BiH

CSW

Hung

ary

Regu

lar S

A

FYR

Mac

edon

ia S

FA

Bulg

aria

GM

I

Ukra

ine

XP p

rogr

am

Alba

nia

NE

Kaza

khst

an T

SA

*Rus

sia C

A

Pola

nd S

A be

nefit

s

Kyrg

yzst

an U

MB

Latv

ia G

MI +

dw

ellin

g

Rom

ania

GM

I0

10

20

30

40

50

60

Benefits as Percent of Post-Transfer Consumption, Beneficiary Household, Poorest Quintile

Per

cent

of h

ouse

hold

con

sum

ptio

n

Another measure of generosity of last-resort social-assistance transfers

Last-resort social assistanceAverage Transfer Value per capita (Beneficiary

Households Only), % of minimum wage

Total Poorest Quintile

Albania NE 4.4 4.1Bosnia-Herzegovina CSW

13.1 14.7

Kosovo SA 7.2 7.2FYR Macedonia SFA na naMontenegro FMS/MOP 45.4 43.5Serbia MOP 12.6 12.9Serbia CA 5.3 5.6

15

Summary: Mixed performance in protecting the poor

16

Impressive targeting accuracyoMost LRSA programs in the Western Balkans

transfer at least 50 percent of benefits to the poorest quintile.

oLeakage of benefits to the richer quintiles is limited.

But low coverageoLess than 50 percent of the poorest quintile are

covered by LRSA programsAnd low generosity

oThe typical LRSA transfer is less than 15 percent of minimum wage

RESULT: sub-optimal use of effective instrument for channeling resources to the poor – the most

needy

Outline

17

PART IScope and objectives of social assistanceExpenditure on social assistancePerformance: Protecting the chronic poorPART IIDesign and implementation features.Recommendations: alleviation of long-term chronic

poverty.PART IIIFlexibility of response of social assistance programs

to crisis.Recommendations to improve flexibility.

Consistency with minimum income programs in the EU

18

Encompassing benefit programs

Last resort programs

Only categorical schemes and/or absence of nationalminimum income scheme

AustriaLuxemburgPolandRomaniaSlovak Republic

BelgiumCzech Republic Netherlands Sweden

Bulgaria DenmarkEstoniaLatviaLithuania Portugal Slovenia

FinlandFranceGermanyIrelandUnited Kingdom

GreeceHungaryItalySpain

Bosnia and Herzegovina,

FYR Macedonia,

Serbia, Montenegro

Newly introdu

ced

With long implementation record:

evolved from the FY SA system

Albania, Kosovo

Prevalent institutional structure: centralized design, central budget financing and decentralized management

19

“Ministry of Labor & Social Policy”(Responsible for design, planning, monitoring, oversight)

Typical Departments:

Social Assistance

Child & FamilyProtection

IT, Statistics

LaborRelations

Pensions and

Disability

War Veterans Affairs

CSW CSW CSW PES PES

CSWs responsibleFor implementation (registration, eligibility,beneficiary registries,payrolls and in somecases making payments,etc.)

Some beneficiaries also required to register with PESs

Ministriesof Economy

(also manage benefits in

some countries)

Energy agencies

(also manage benefits in

some countries)

Similar design elements of the last-resort programs

20

Benefit levels not linked to a poverty

line !

Benefit determina

tion

Eligibility criteria / targeting

Asset test / filters

Income test

verifiable income

Geographic targeting

Benefit formula: minimum income

approach

Benefit base

Benefit

update

Associated rights

Implicit equivale

nce scales

Linked to cash and/or

in-kind benefits, and free health insurance

Weak links to social

care services

No links to employment

and activation services

Additional filters (Yes/No)

Key implementation characteristics are also similar

21

Key implement

ation characteris

tics

Rigorous enforcement of eligibility rules

Home visits before

determining eligibility with

high discretionary

power, not standardized

Limited outreach efforts to identify

deserving poorGaps in data

collection and data

management; no unified registries

Weak internal audit, errors

and fraud detection

arrangements

Explaining low coverage of last-resort social assistance

22

Strict rules of eligibilityo Low income thresholds for eligibility, numerous YES/NO filterso Mandatory unemployment registration Could lead to

work-disincentivesDifficulty with proving citizenship and/other

personal documents in post-conflict contextRigorous enforcement of ruleo Excessive burden of producing documents at certification and

re-certification could be also costlyo Mandatory home visit at initial certification; and annually

Low benefit levels can be discouragingo Except when there is health care coverage tie-in, or other

rightsThe complexity of rules can be also discouragingLack of incentives for outreach to the poor

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?

Yes22.8%

Not eligible for MOP

Yes17.2%

Yes8.5%

Yes7.5%

Yes6.0%

Yes1.4%

1. Does family own more than 0.5 ha of land?

2. Does family own any vehicles?

Percentage of bottom decile not eligible for MOP after applying all filters is 54.7%

3. Is there a working age unemployed family member who is not registered with NES?

4. Is there more than 1 room per person in dwelling?

5. Is there at least one family member with no ID number?

6. Does family own more than two houses?

No 77.2%

No 82.8%

No 98.6%

No 94.0%

No 92.5%

No 91.5%

Serbia’s MOP programExclusion errors due to filters. Out of Individuals in Bottom Decile (=746,778 individuals)

Explaining low generosity of last-resort social assistance

25

Eligibility thresholds are not anchored to poverty lineso Rather they depend on residual budget considerations

Irregular indexation of eligibility thresholds and benefits levels o Attenuates adequacy of transfers

Excessively high economies of scale are often assumedo Reduce adequacy of transfers in larger units of

assistance‘Ceilings’ on number of eligible recipients in

one unit of assistanceo Discriminates against larger units of assistance, which are

typically also poorer

Recommendations

26

Increase coverageo Increase spending on means-tested programs, particularly those

with good targeting accuracyo Decrease errors of exclusion by modifying eligibility criteriao Introduce smart design features that reduce work disincentives,

but extend LRSA coverage to working poorStrengthen and standardize eligibility criteriao Eliminate the use of Yes/No filterso Introduce single, simple scoring formula, with objective weights

Introduce features to reduce work disincentiveso Gradual benefit reduction as recipients’ earned income increaseso Earned income disregards (up to a certain level)o Access to LRSA for the working poor

Recommendations

27

Increase generosityo Protect consumption of the poor / benefit levels in real termso Regularly index benefits and access thresholds to inflationo Change the implicit (and very severe) equivalence scales

assumed, so larger families are not penalizedStrengthen benefits administrationo Create a national registry of all applicants and beneficiarieso Simplify application procedures and document verificationo Improve monitoring, oversight and controls to reduce errors

and fraudImprove implementationo Improve outreach effortso Structure screening of welfare characteristics during home

visits

Recommendations

28

Increase the impact of cash social assistance by linking it to services such aso Social care services to

reduce multiple vulnerabilities and address different reasons for social exclusion

o Activation services, connecting the poor to job pools, and removing other obstacles to work

Promote activation o Institutional structures ‘one-stop shops’o Incentives for social workers and job brokers to deal with

‘hard-to-serve’o ‘Make work pay’ design taxation and benefit rules

in a way that encourages the transition from social assistance to employment

Agenda ahead

Western Balkans: Legislative frameworks

Western Balkans: qualitative research In-depth interviews

policy makers civil servants CSW academia & civil society

OECD & EU data

ECA SP Database

Western Balkans: Public expenditure (benefits, beneficiaries)

Western Balkans: Survey data (HBS & LSMS)

ECA Crisis Monitoring

ECA Crisis Response Surveys

Western Balkans

SSN Report

Policy Dialogue Public

Expenditure Reviews

Other diagnostic work

Operations o DPL o SIL

DPL FYROM

Case studies (background papers)

Albania BiH FYROM Kosovo Montenegro Serbia

Report

Report

OECD Tax-Benefit Model BiH (FBiH, RS) Serbia FYROM

ECA POV Database

SP Adept

29

Outline

30

PART IScope and objectives of social assistanceExpenditure on social assistancePerformance: Protecting the chronic poorPART IIDesign and implementation features.Recommendations: alleviation of long-term chronic

poverty.PART IIIFlexibility of response of social assistance programs

to crisis.Recommendations to improve flexibility.

Response of Social Benefits in ECA to Crisis

Aylin Isik-Dikmelik & Yulia Smolyar*The World Bank

*In collaboration with ECSHD Social Protection Team

Immediate crisis context

32

-20

-15

-10

-5

0

5

10

15

ECA: Real GDP Growth Rates, 2009 and 2010

2009

Ann

ual

perc

enta

ge c

hang

e

ECA 2009 -5.2

ECA 2010 4.0

Source: IMF WEO database, October 2010

Role of Social Benefits in Crisis --Theory

Two Main Response Channels

33

RESPONSE CHANNELS FOR SOCIAL BENEFITS

Automatic Stabilizers

Unemployment Insurance

Social Safety Nets (Poverty Targeted)

Policy Interventions in SB

Unemployment Insurance

Parameters

SSN Parameters and Activation

Conditions

Fiscal Adjustments in SB

SB Administration

Overall SB Crisis Response in ECA: Social benefits did respond

Unemployment insurance = first response Ukraine, Turkey, Croatia, Bulgaria, Latvia, Armenia, Romania,

Social assistance benefits protecting existing beneficiaries Helping smooth consumption of those already receiving benefits

Lag in response: Some social assistance benefits responding with delay In terms of increasing coverage (new beneficiaries: Croatia, Bulgaria, Latvia,

Georgia) And/or topping up benefits (e.g., Latvia, Ukraine, Serbia, Kyrgyz Republic, Georgia)

Delayed response by social assistance may reflect increased demand As unemployment benefits run out (time limits); and Other coping mechanism are being exhausted; and/or Due to Policy Interventions in social assistance

34

SB crisis response in Western Balkans

35

Countries in the Western Balkans entered the crisis with safety nets in place.

Expenditures on social assistance were typically protected, in the face of significant cuts in other public expenditures.

Social assistance continued to protect those already receiving benefits.

However, the ‘automatic stabilizer’ role for social assistance did not materialize in Western Balkans

The number of beneficiaries have increased only slightly.

Serbia: Crisis hit in Q1 of 2009Lag in Labor Market Impacts

36

No increase in number of registered unemployed in early months of 2009

(compared to 2008)

Janua

ry

Februa

ryMarc

hApri

lMay Jun

eJul

y

August

Septem

ber

Octobe

r

Novem

ber

Decembe

r660000

680000

700000

720000

740000

760000

780000

800000

820000

Serbia -Registered Unemployed

200820092010

Num

ber o

f Reg

istre

d U

nem

ploy

ed

Crisis Hits: GDP growth turns neg-ative: 2009 Q1

Labor Impacts: Registered unem-ployed starts increasing: June 2009

Serbia SA response: Long-run expansion of targeted benefits ... not yet due to crisis

37

January

February

March AprilMay

JuneJuly

August

September

October

November

December

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

SERBIA: Material Support to Low Income Households

2006 2007 2008 2009 2010

Num

ber o

f ben

efici

ary

fam

ilies

Crisis Hits: 2009 Q1

Macedonia, FYR: Small Labor Market Impacts Unemployment: Change in

Stock Masking Flow?

38

Janua

ry

Februa

ryMarc

hApri

lMay Jun

e JulyAug

ust

Septe

mber

Octobe

r

Novembe

r

Decembe

r330,000335,000340,000345,000350,000355,000360,000365,000

Total Registered Unemployed

2008 2009

Crisis hits: 2009 Q1

Janua

ry

Februa

ryMarc

hAp

ril May June July

Augu

st

Septem

ber

Octobe

r

Novem

ber

December

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Newly Registered unemployed

2008 2009

Crisis Hits: 2009 Q1

Labor Impacts

Macedonia, FYR: Declining trend continues for main LRSA (SFA)

39

Slight increase in early 2009; number of beneficiaries still lower than 2008, reflecting

design issues and budget cuts.

Janua

ry

Febru

aryMarc

hApri

lMay Jun

e July

August

Septe

mber

Octobe

r

Novem

ber

Decembe

r -

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Social Financial Assistance

2008 2009

Num

ber

of b

enefi

ciar

ies

Crisis hits:2009 Q1

Montenegro: Lag in Labor Market Impacts

40

January

February

March

AprilMay

JuneJuly

August

Septem

ber

October

November

December

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000Registered Unemployed

2008 2009 2010

Crisis Hits: 2009 Q1 Labor Im-pacts

Montenegro: LRSA (MOP) Minimal Increase

41

Janua

ry

Februa

ryMarc

hApri

lMay Jun

e JulyAug

ust

Septe

mber

Octobe

r

Novembe

r

Decembe

r12,400

12,500

12,600

12,700

12,800

12,900

13,000

13,100

13,200

MOP Number of families

2008 2009

Crisis Hits: 2009 Q1

Labor impacts

US Response (TANF and Food Stamps)

Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-101

3

5

7

9

11

13

15

17

19

21

1.66 1.63 1.83

12.1

14.1

19.1

United States - Temporary Assistance for Needy Families & Supplemental Nutrition Assistance Program Recipients

Temporary Assistance for Needy Families, TANF (Families in Millions)

Supplemental Nutrition Assistance Program, SNAP (Households in Millions)

Rec

ipie

nts

SNAP: Responded flexibly

Central Financing and Design

TANF: Not much response

Decentralized Financing and Design

42

Policy Response (1): Fiscal Adjustments

Protect and/or cut spending on Social Assistance for allocative efficiency

43

Spending Increase in SA Programs

Freeze, Elimination, Cuts in SA Programs

Belarus XBosnia and Herzegovina

XCroatia X XLatvia XMacedonia, FYR XMoldova X XSerbia X

Policy Response (2):Revisiting Parameters of SSN

44

Threshold Increase

Benefit Increase

Change in Duration of

Benefits

Revise Eligibility Criteria

Belarus X XGeorgia XLatvia XMacedonia, FYR

XMoldova X XRomania XTurkey XUkraine X

Policy Response (3):Administration: looking for efficiency gains

45

Benefits Consolidation

Information Management

Financing Arrangements

Armenia XBelarus XCroatia XLatvia XMoldova X XRomania XTajikistan XUkraine X

Potential constraints for response

46

•Extremely low eligibility thresholds

•The institutional setup: Decentralized vs. Centralized Financing and Design

Design Features

•Fiscal pressures: HUGE constraint•Political Economy:

•Change in the composition of SP spending: a shift from means tested to categorical programs during times of growth

•Stigma effect

Policy Side

Constraints

Lessons Learned from SA Crisis Response Be better prepared for crisis (get systems ready before crisis hits)

Protecting spending is necessary but not sufficient to ensure SA response.

Manage increases in categorical spending in better times and in crisis Be aware of marginalization of best-targeted programs. Remember, fast expansion is very difficult to achieve!

Regular Monitoring is Important. Do not count on automatic response. Be prepared for discretionary intervention (increased threshold, revised

eligibility etc.)

Revisit program design and administration based on outcomes in the current crisis. Look for bottlenecks that constrain the response.

FLEXIBLE Safety Nets47

THANK YOU!

Western Balkans: Legislative frameworks

Western Balkans: qualitative research In-depth interviews

policy makers civil servants CSW academia & civil society

OECD & EU data

ECA SP Database

Western Balkans: Public expenditure (benefits, beneficiaries)

Western Balkans: Survey data (HBS & LSMS)

ECA Crisis Monitoring

ECA Crisis Response Surveys

Western Balkans

SSN Report

Policy Dialogue Public

Expenditure Reviews

Other diagnostic work

Operations o DPL o SIL

Case studies (background papers)

Albania BiH FYROM Kosovo Montenegro Serbia

Report

Report

OECD Tax-Benefit Model BiH (FBiH, RS) Serbia FYROM

ECA POV Database

SP Adept

48