Safety Nets in the Western Balkans Design, Implementation and Performance

1. Safety Nets in the Western BalkansDesign, Implementation and Performance Brussels , December 2010 BoryanaGotcheva and RamyaSundaram World Bank, Europe Central Asia Region Social Protection Team

2. Outline PART I • Scope and objectives of social assistance • Expenditure on social assistance • Performance: Protecting the chronic poor PART II • Design and implementation features. • Recommendations: alleviation of long-term chronic poverty. PART III • Flexibility of response of social assistance programs to crisis. • Recommendations to improve flexibility.

3. Objectives of social protection COVERAGE TARGETING GENEROSITY FLEXIBILITY

4. Framework for analysis of social assistance

5. Main types of social assistance programs in the Western Balkan countries Disability benefits Last Resort Social Assistance War Veteran Benefits Family and Child Allowances

6. Considerable variation in level of spending and proportion spent on means-tested programs Last Resort Social Assistance Other means-tested programs Categorical programs Expenditure as percent of GDP 2008

7. Over time, the composition is shifting toward categorical programs LRSA Other means-tested programs Categorical programs Expenditure as percent of GDP

8. Measures of Performance of Social Assistance 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

9. Standardized methodology for developing performance indicators 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

10. Which programs deliver coverage? Percent of persons covered Percent of those in poorest quintile who receive benefits LRSA, Family and child benefits Percent of persons covered Regional averages across all ECA countries Scholarships, War Vets, Utilities Subsidies

11. Which programs delivertargeting accuracy? Percent of benefits received by those in the poorest quintile Percent of benefits received LRSA, Family and child benefits Percent of benefits received Regional averages across all ECA countries Scholarships, War Vets, Utilities Subs

12. Coverageof last-resort social assistance Percent of persons covered

13. Targeting accuracy of last-resort social assistance Percent of benefits received

14. Generosity of last-resort social assistance Percent of household consumption

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

16. Summary: Mixed performance in protecting the poor • Impressive targeting accuracy • Most LRSA programs in the Western Balkans transfer at least 50 percent of benefits to the poorest quintile. • Leakage of benefits to the richer quintiles is limited. • But low coverage • Less than 50 percent of the poorest quintile are covered by LRSA programs • And low generosity • The 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

17. Outline PART I • Scope and objectives of social assistance • Expenditure on social assistance • Performance: Protecting the chronic poor PART II • Design and implementation features. • Recommendations: alleviation of long-term chronic poverty. PART III • Flexibility of response of social assistance programs to crisis. • Recommendations to improve flexibility.

18. Consistency with minimum income programs in the EU Bosnia and Herzegovina, FYR Macedonia, Serbia, Montenegro With long implementation record: evolved from the FY SA system Newly introduced Albania, Kosovo

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

20. Similar design elements of the last-resort programs Eligibility criteria / targeting Income test verifiable income Asset test / filters Additional filters (Yes/No) Geographic targeting Benefit levels not linked to a poverty line ! Benefit formula: minimum income approach Benefit base Benefit update Implicit equivalence scales Benefit determination No links to employment and activation services Linked to cash and/or in-kind benefits, and free health insurance Weak links to social care services Associated rights

21. Key implementation characteristics are also similar

22. Explaining low coverage of last-resort social assistance • Strict rules of eligibility • Low income thresholds for eligibility, numerous YES/NO filters • Mandatory unemployment registration Could lead to work-disincentives • Difficulty with proving citizenship and/other personal documents in post-conflict context • Rigorous enforcement of rule • Excessive burden of producing documents at certification and re-certification could be also costly • Mandatory home visit at initial certification; and annually • Low benefit levels can be discouraging • Except when there is health care coverage tie-in, or other rights • The complexity of rules can be also discouraging • Lack of incentives for outreach to the poor

23. Albania’s NdihmaEkonomike Program Exclusion errors due to filters. Out of Individuals in Bottom Decile(= 122,172 individuals) Not eligible for NE 1. Does anyone in the family work? Yes 81.8% No 18.2% Yes 25.9% 2. Does anyone in the family receive old-age pension? No 74.1% Yes 14.9% 3. Does family receive remittance from abroad? No 85.1% Yes 3.7% 4. Does family own a car? Yes 0.8% No 96.3% 5. Does family have rental income? Yes 0.4% No 99.2% 6. Does anyone in the family receive Survivor Pension? No 99.6% Percentage of bottom decile eligible for NE after applying all filters is 7.9%

24. Serbia’s MOP program Exclusion errors due to filters. Out of Individuals in Bottom Decile(=746,778 individuals) Not eligible for MOP 1. Does family own more than 0.5 ha of land? Yes 22.8% No 77.2% Yes 17.2% 2. Does family own any vehicles? No 82.8% 3. Is there a working age unemployed family member who is not registered with NES? Yes 8.5% No 91.5% Yes 7.5% 4. Is there more than 1 room per person in dwelling? Yes 6.0% No 92.5% 5. Is there at least one family member with no ID number? Yes 1.4% No 94.0% 6. Does family own more than two houses? No 98.6% Percentage of bottom decile not eligible for MOP after applying all filters is 54.7%

25. Explaining low generosity oflast-resort social assistance • Eligibility thresholds are not anchored to poverty lines • Rather they depend on residual budget considerations • Irregular indexation of eligibility thresholds and benefits levels • Attenuates adequacy of transfers • Excessively high economies of scale are often assumed • Reduce adequacy of transfers in larger units of assistance • ‘Ceilings’ on number of eligible recipients in one unit of assistance • Discriminates against larger units of assistance, which are typically also poorer

26. Recommendations • Increase coverage • Increase spending on means-tested programs, particularly those with good targeting accuracy • Decrease errors of exclusion by modifying eligibility criteria • Introduce smart design features that reduce work disincentives, but extend LRSA coverage to working poor • Strengthen and standardize eligibility criteria • Eliminate the use of Yes/No filters • Introduce single, simple scoring formula, with objective weights • Introduce features to reduce work disincentives • Gradual benefit reduction as recipients’ earned income increases • Earned income disregards (up to a certain level) • Access to LRSA for the working poor

27. Recommendations • Increase generosity • Protect consumption of the poor / benefit levels in real terms • Regularly index benefits and access thresholds to inflation • Change the implicit (and very severe) equivalence scales assumed, so larger families are not penalized • Strengthen benefits administration • Create a national registry of all applicants and beneficiaries • Simplify application procedures and document verification • Improve monitoring, oversight and controls to reduce errors and fraud • Improve implementation • Improve outreach efforts • Structure screening of welfare characteristics during home visits

28. Recommendations • Increase the impact of cash social assistance by linking it to services such as • Social care services to • reduce multiple vulnerabilities and • address different reasons for social exclusion • Activation services, connecting the poor to job pools, and removing other obstacles to work • Promote activation • Institutional structures ‘one-stop shops’ • Incentives for social workers and job brokers to deal with ‘hard-to-serve’ • ‘Make work pay’ design taxation and benefit rules in a way that encourages the transition from social assistance to employment

29. Agenda ahead

30. Outline PART I • Scope and objectives of social assistance • Expenditure on social assistance • Performance: Protecting the chronic poor PART II • Design and implementation features. • Recommendations: alleviation of long-term chronic poverty. PART III • Flexibility of response of social assistance programs to crisis. • Recommendations to improve flexibility.

31. Response of Social Benefits in ECA to Crisis AylinIsik-Dikmelik & YuliaSmolyar* The World Bank *In collaboration with ECSHD Social Protection Team

32. Immediatecrisis context Source: IMF WEO database, October 2010

33. Role of Social Benefits in Crisis --Theory Two Main Response Channels

34. 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

35. SB crisis response in Western Balkans • 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 alreadyreceiving benefits. • However, the ‘automatic stabilizer’ role for social assistance did not materialize in Western Balkans • The number of beneficiaries have increased only slightly.

36. Serbia: Crisis hit in Q1 of 2009Lag in Labor Market Impacts No increase in number of registered unemployed in early months of 2009 (compared to 2008)

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

38. Macedonia, FYR: Small Labor Market Impacts Unemployment: Change in Stock Masking Flow? Labor Impacts

39. Macedonia, FYR: Declining trend continues for main LRSA (SFA) Slight increase in early 2009; number of beneficiaries still lower than 2008, reflecting design issues and budget cuts.

40. Montenegro: Lag in Labor Market Impacts

41. Montenegro: LRSA (MOP) Minimal Increase

42. US Response (TANF and Food Stamps)

43. Policy Response (1): Fiscal Adjustments Protect and/or cut spending on Social Assistance for allocative efficiency 43

44. Policy Response (2):Revisiting Parameters of SSN

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

46. Potential constraints for response

47. 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 Nets 47

48. THANK YOU!