Social Protection and the Poor in Bangladesh Qaiser Khan, Kalanidhi Subbarao, Josh Al-Zayed and Shaikh S. Ahmed, World Bank Presented at Conference on What Works for the Poorest: Knowledge, Policies and Practices Dec 3-5, 2006, BRAC Center, Dhaka, Bangladesh

Social Protection Goes Beyond Poverty alleviation  Social Protection includes poverty alleviation and safety net programs but it goes beyond to address risks and vulnerabilities  Social protection is increasingly important for countries like Bangladesh which are transiting from a rural economy where traditional safety nets work well to an industrial economy where new safety net tools are needed

Risk, poverty and vulnerability  Risk: – uncertain event that may damage people’s well- being  Poverty: – not having enough now of something valuable  Vulnerability: – probability now of not having enough of something valuable in the future

Why do we care about vulnerability?  Chronic poor could be seen as the very vulnerable, temporary poor as the vulnerable, and the non-poor as non-vulnerable to poverty but vulnerable to income fluctuations nonetheless. 1.Poverty  vulnerability in theory nor in practice

Social risk management matrix

Type of Shocks – useful classifications

Need for Social Protection Some recent poverty thinking:  Income distribution matters for growth….  Distribution of assets matters more.  Growth helps the poor, but level of investment is most important - implication?: transfers, but not at cost of investment.  Transfers themselves as an investment, in human capital – e.g. nutrition, education

Three Constraints to Safety Nets in Very-Low-Income Countries  The Information Constraint  The Administrative Constraint  The Fiscal Constraint

What is Possible? (I) The Information Constraint  Information - not known, expensive (e.g. pensions elsewhere)  Proxy indicators e.g. demographic, dwelling  Link to another program (e.g. PWP, nutrition)  3 Ways around the Information constraint: Self-targeting Community targeting Universal programs

Self-targeting  Two examples –  Public workfare programs with a wage rate slightly below the market wage – enables participants to self- select themselves into the program  Food subsidies – if restricted to types of food consumed only by the poor, self-targeting is possible

What is Possible? (II) Community Targeting  Communities, or representatives identify beneficiaries (subject to criteria), deliver benefits  Information may be better, lower cost  Risks: favoritism, difficulties of inclusion/exclusion; divisive. Administrative support.  Remarkably little experience - Rajasthan, Malawi, Uzbekistan  Generally limited (e.g. Armenia), jury still out.

What is Possible? (III) The Administrative Constraint  Weak capacity, labor-intensive, supervisory staff  Policy implications? –Choose simple program designs –Simple, repetitive steps, sustain over a long period –Choose a few simple, nationwide programs –Explore possibility of using existing administrative systems.

What is Possible? (IV) The Fiscal Constraint - Typically VLIC total public expenditure spending $50-75 p.c. p.a. - Typically VLIC total public expenditure spending $50-75 p.c. p.a. - Illustratively: $20 per annum ($1.67/month) to 40% below poverty line = 21% of public spending; not affordable. - Illustratively: $20 per annum ($1.67/month) to 40% below poverty line = 21% of public spending; not affordable. - No way of defining ‘right’ mix, but some programs can reach the poorest groups if carefully designed

Program Choices  Cash Transfers - Selected, Universal (e.g. pensions, unemployment)  Public Works: self-targeting, create assets, counter-cyclical but Expensive ($2/$1 transferred); critical get wage rate right; create ‘good’ assets; costs can be reduced if quality assets created  Food Programs - Free Dist’n, Food- for-Work, Food Stamps, School Feeding.  Food Subsidies/Free food/Conditional transfers  Agricultural Inputs - Subsidies, Free Packs  Nutrition Programs - Child nutrition, micro-nutrient supplementation

Problems with Food distribution programs Seasonal Price/Supply Smoothing Potentially attractive in VLICs. Options: NFR, buy surplus, release stocks; controlled food grain price Risks: captured by non-poor (urban consumers, middle-men for re-sale)  Gov’t cannot afford to intervene on sufficient scale (high cost, ultimately ineffective)  discourages dev’t of private markets Prefer: Arms length interventions, make use of trade option as did Bangladesh; buy-sell at commercial prices, influence aggregate supply, check if market failure exists

Conditional food/cash transfers  Where possible, useful to link free transfers (either food or cash) to behavioral change from recipients: for example, transfers could be conditional upon children in the family attending the school, or getting vaccinated etc. Known as “conditional cash transfers”, highly successful in Bangladesh, Mexico, Nicaragua, Turkey and now being implemented in several countries

Effectiveness of Safety Net Programs in Bangladesh Targeting Effectiveness Measured as Ratio of Recipients to group size by Income Group ( ) Lowest 10% LowestQuintile2ndQuintile3rdQuintile4thQuintileTopQuintileTotal VGD Test Relief VGF Other Targeted Total Targeted

Selection Criteria viewed by Recipients in Bangladesh Reason of inclusion in targeted programs in percent Poor/ Landless Divorced/ Widows Disabled/ Other OthersTotal Non-Targeted Targeted Total

Recipient’s Perceptions of Bangladesh Programs Participants Perception about assistance from targeted programs in percent Lowest 10 % LowestQuintile2ndQuintile3rdQuintile4thQuintileTopQuintileTotal Very Helpful Moderately Helpful Slightly Helpful Not Helpful

Estimates of Leakage from the VGD, VGF and FFE Program2000 HIES- based survey estimates (metric tons) 95% Confidence Interval for estimate Program Off- take for FY (metric tons) Survey estimate as % of total program allocation (confidence intervals) VGD99,978[72,894, 127,061] 216,675[34%–59%] VGF70,760[44,251, 97,267] 149,138[30%–65%] FFE49,951[27,192, 72,710] 285,973[10%–25%]

Comparative Losses from Different Programs LeakageVGDPESPRMP A. Losses due to delivery of amount less than stipulated and other unauthorized expenses (per taka) B. Losses due to beneficiaries not meeting… B(i)…at least one targeting criteria B(ii)…at least three targeting criteria Total Losses…. …A+B(i) …A+B(ii)

What the data shows  Bangladesh targeting criteria is good at targeting the poorest  Bangladesh programs are perceived by the beneficiaries as helpful specially the poorest  Relatively high leakage from food based programs and despite popular assumptions they are not better targeted

What the data does not show  Programs are very rural focused but the country is getting rapidly urbanized with increasing proportion of the poor living in urban areas  Programs have significant administrative leakages  Too many programs run by too many Government departments and thus a large administrative overhead which can be reduced and used to provide benefits  Too many layers of decision making in selection of beneficiaries

Old Age Income support in Bangladesh- a rapid evolution

Grameen Bank’s Pension Saving Scheme Growing rapidly

Way to the future  Rationalize programs by using the one player that gets involved in all programs i.e. union parishads.  Expand the better safety net programs such as old age pensions, Public works and widow/ disability payments using UPs to select beneficiaries and distribute benefits  Build on Bangladesh’s massive micro-finance network to provide social protection for those just above the poorest – e.g. Grameen Bank already provides pensions and insurance (life and health to over 6.5 million members.

Illustration of new urban poverty and vulnerability challenge

Addressing the Urban Poverty Challenge  In an ironic reversal of history, enrollment rates in metro areas for the poorest quintiles are worse than rural areas – this represents both past successes in rural areas and new challenges in urban areas.  New approaches to urban safety nets and safety ladders are needed

Move to ex-ante risk management from ex-poste risk coping  Bangladesh current programs are characterized by ex-poste risk coping programs with the possible exception of Grameen’s pension scheme  New programs need to address ex-ante risk management. They could include expanded pensions, health insurance, unemployment insurance, catastrophic risk insurance i.e. floods.