Module 11: Costing policy options using the Rapid Assessment Protocol

1. Module 11: Costing policy options using the Rapid Assessment Protocol ILO, 2013

2. Key questions • What are the different cost projection tools used by the ILO? • What is the role of the RAP model? • What is the structure of the RAP model? • What are the different steps in using the RAP model? • What are the possible sources of data? • What are the advantages and limitations of the RAP model?

3. ILO’s costing tools ILO/FACTS: ILO’s Financial, Actuarial and Statistical branch • Actuarial valuations of social security schemes • In-house actuarial expertise and model development ILO Social Budget Model (1990’s) • Comprehensive modelling of social expenditure • Several modules for projecting data • Tedious to use and requires experienced user Rapid Assessment Protocol (RAP) • Built on the Social Budget Model • Compact (1 Excel file), flexible and easy-to-use • Allows for ‘rapid’ costing of SPF benefits

4. Steps of ABND • Step 1 – Building the assessment matrix including the identification of priority recommendations ABND FACTSHEET • Step 2 – Rapid Assessment Protocol to estimate the cost of implementing the social protection provisions • Step 3 – Finalisation of the assessment report for endorsement and further action by the higher levels of government

5. Second step of ABND • Step 1 – Building the assessment matrix including the identification of priority recommendations ABND FACTSHEET • Step 2 – Rapid Assessment Protocol to estimate the cost of implementing the social protection provisions • Step 3 – Finalisation of the assessment report for endorsement and further action by the higher levels of government

6. Labour market (EAP) Demographic data (POP) 1. Input data Structure of RAP General government operations (GGO) Macroeconomic data (ECO) Costing of benefits 2. Estimated cost of benefits in absolute terms, as % of GDP, and as % of government expenditure 3. Projected cost of combined benefit packages Summary and results

7. Structure of RAP 1. Input worksheets AR GGO (SQ) POP EAP ECO 2. Benefit worksheets to estimate the cost of scenarios BS 1 BS 2 BS 3 BS 4 BS 5 SUM 3. Summary of benefit costs

8. Coresia RAP: ‘Population’

9. Coresia RAP: ‘Economically Active Population’

10. Coresia RAP: ‘Economic’

11. Coresia RAP: ‘General Government Operations’

12. Using the RAP Number of people in the target group x (Cost of benefits per head + Administrative cost per head) Cost of implementing benefits =

13. Using the RAP

14. Using the RAP • Affordability of the proposed scenarios and their impact on the fiscal space can be assessed • The additional expenditures may be financed by workers’ and employers’ contributions, government budget •  Preliminary fiscal space analysis is conducted by comparing the cost of the scenarios with GDP and adding the cost to government expenditures - in the GGO(Benefits) worksheet • Fiscal space can be created by raising or introducing taxes, borrowing from international institutions or markets, cutting down on low-priority expenses

15. Using the RAP Scenario 1: Non-contributory pension for disabled in Indonesia 2012 2013 US$31.5/month 202,400 30% 15% Benefits Target group Coverage Admin cost US$30/month 200,000 20% 15% Inflation: 5% Pop growth: 1.2% Take-up rate: 10% Admin cost same Benefit cost = (31.5x12) x 202,400 x 30% = US$22,952,160 Admin cost = 15% x 22,952,160 = US$3,442,824 Total cost = US$26,394,984 Benefit cost = (30 x 12) x 200,000 x 20% = US$14,400,000 Admin cost = 15% x 14,400,000 = US$2,160,000 Total cost = US$16,560,000

16. Using the RAP Scenario 1: Non-contributory pension for disabled in Indonesia 2012 2013 US$26,394,984 US$721 billion US$138 billion Total cost GDP Government expenditure US$16,560,000 US$641 billion US$113 billion RAP calculation Projection Projection Total cost as % of GDP = US$26,394,984/721 billion = 0.004% Total cost as % of govt. exp. = US$26,394,984/138 billion = 0.019% Total cost as % of GDP = US$16,560,000/641 billion = 0.003% Total cost as % of govt. exp. = US$16,560,000/113 billion = 0.015%

17. Presenting the results of RAP • Cost (as a percentage of GDP) of low and high scenarios in Cambodia

18. Presenting the results of RAP • Cost (as a percentage of GDP) of low and high scenarios in Indonesia

19. Presenting the results of RAP • Cost (as a percentage of GDP) of low and high scenarios in Thailand

20. Presenting the results of RAP • Cost (as a percentage of GDP) of low and high scenarios in Viet Nam

21. Sources of data • national statistical offices • census and surveys • social security institutions and line ministries • ministry of planning: GDP and population projections • ministry of interior: registration for social benefits • ministry of commerce: inflation • ministry of finance: budget, economic indicators • central banks • research institutes, universities • UN/ILO population models, IMF’s World Economic Outlook (alternative data sources)

22. Advantages and limitations of RAP • RAP can illustrate different policy options and provide a tangible basis to initiate and facilitate national dialogue • Long-term sustainability of the programme can be checked by comparing the cost of implementation with economic indicators like GDP and government expenditure • Results are simplistic and indicative • Further detailed and actuarial studies are needed before designing a scheme