Social protection Assessment based national dialogue in Myanmar Workshop on evaluating the cost of social protection policy options September 3rd-5th, 2014 Nay Pyi Taw

Packages proposed by the groups

Session 4: assessing the impact on fiscal space

Key questions What is affordability? What is fiscal space? How to forecast government revenues and expenditures? How to calculate fiscal space and finance fiscal deficit? How to convince governments to invest in social protection?

Affordability SPF benefits proposed in the ABND exercise may be financed in many ways, depending on policy choices and the social model in the country: workers’ and employers’ contributions government budget For contributory schemes, the contributions must be affordable for workers and employers If out-of-pocket payments are required, they should not limit access to social services

Fiscal space Fiscal space is the budgetary capacity of a government to provide resources, without jeopardizing the sustainability of its financial position or the stability of the economy If budgetary capacity is not sufficient, additional fiscal space may be created by raising taxes (i.e. income taxes, value added taxes, special taxes on imports, natural resources, etc.), borrowing from international institutions or markets, cutting down on low-priority expenses Borrowing should not compromise macroeconomic sustainability in the long-term

Forecasting GGO Official budget projections or projections made by research institutes (e.g. IMF in Myanmar) should be used Based on historical data, government revenues and expenditures can be forecast: Government revenues and expenditures are expressed as a percentage of GDP at current price for previous years It is projected in the same proportion When different scenarios of GDP data are available, several forecasts of government revenues and expenditures may be made. For Myanmar, one scenario was developed based on the IMF projections for GDP.

Forecasting government revenues Source: IMF, 2014. Note: The Government of Myanmar is currently implementing a number of new measures to improve the efficiency of tax collection and is reviewing its tax law. The above projections do not take these on-going changes into consideration. It is possible that as a consequence of the current reform process the government revenues be actually higher than the present forecast.

Forecasting government expenditures Source: IMF, 2014.

Calculating fiscal space Projected government balance = government revenues - government expenditures In developing countries, budget balance is usually negative Due to GDP growth, the negative balance may progressively shrink in a few years When SPF benefits are introduced, the budget balance becomes more negative and fiscal space will take longer to become positive

Forecasting budget balance Fiscal space at status quo in Myanmar Note: As mentioned earlier, it is possible that, as a consequence of the current reform process, the government revenues be actually higher than the present forecast, this would have an impact on the forecasted balance.

Forecasting budget balance Fiscal space after implementing proposed SPF packages in Myanmar

Necessary fiscal space Options to create fiscal space How to choose? Budget reallocation Analysis of current budget Taxes (income, value-added, imports, natural resources, etc.) Capacity to raise taxes Identification of significant sources of un-taxed revenues Social contributions Identification of the potential contributors and their capacity to contribute Cost / feasibility of collecting contributions Loan / donor funding Temporary solution, depends on willingness of international institutions / financial markets

Group exercise How to create fiscal space? Form four groups. Each group will make five ideas  to create fiscal space for social protection in Myanmar in order to finance a social protection floor. Ideas need to be specific: what would be re-allocated / raised / borrowed, from whom? You have 20 minutes 