ARMENIA: Social Impact of the Global Economic Crisis Gohar Gyulumyan The World Bank AIPRG Conference Yerevan June 7, 2009

Outline Social Impact of the Global Economic Crisis on Armenia International Experience on Crisis Responses – OECD experience – Middle income country experience Policy Options for Armenia – Existing social protection programs – Leverages to mitigate crisis implications

Main Channels of Transmission Labor Market and Migration (unemployment, remittances ) Product and services markets (deceleration of growth, decline in trade/tourism ) Capital market (decrease in FDI and bank borrowing, c ontraction of fiscal space)

Social Impacts of the crisis Poverty and unemployment (ARMENIA: Implications of the Global Economic Crisis for Poverty WB Report No AM) Social divergence, One-factory towns Deterioration in accessibility of health and education services for poor and vulnerable Budget cuts, less remittances/OOP payments

Overall poverty: Reversals of the gains in poverty reduction?

Extreme poverty could increase by a substantially larger margin and reaches level not seen since the early 2000s

What is driving the increases in poverty?

Labor market measures in the stimulus packages of OECD countries... Many OECD countries have announced large economic recovery packages with measures that will create (or preserve) jobs, for example: 8

CountryResponses to Current Economic Crisis Bulgaria ALMP targeted at the newly unemployed Temporary wage subsidies to workers placed on short working hours Increased unemployment benefit size Romania Increased duration of unemployment benefits Exemptions from paying contributions during the partial paid leave Subsidies to enterprises for hiring new employees and new employees coming from long-term unemployment Latvia Increase duration of unemployment insurance Increase the adsorptive capacity of ALMPs by including part-time workers in training Kazakhstan Public works: construction and maintenance of pipe water, electricity and gas, and sewage facilities, schools, hospitals, highways and local roads, etc. Extension of unemployment benefits (to be funded from social insurance fund) Training Social safety net and labor market interventions in low/ middle income economies

CountryResponses to Current Economic Crisis USA Food Stamp Program Additional budget ; Increase benefit levels Ease restrictions and time limits for jobless adults Brazil Bolsa Família Program (CCT) Expanding budget for program for 2009 Expanding coverage Raising eligibility threshold Mexico Program for Returning Migrants New employment for returning migrants Border towns Wage levels to cover basic food, health and transportation costs Responses to Past Economic Crisis Argentina Demand driven public works program, supplemented by a cash transfer for those who cannot work Thailand Public works with skill differentiation, supplemented by expansion of pre-existing safety net programs Korea Public works with institutional structures quickly established at regional locations where the unemployed registered PW according to skill levels (semi-skilled, skilled, etc) Mexico Progresa (CCT) Conditional cash transfer program, supplemented by public works program Responding through existing social safety net programs

What are the options for Armenia? Relatively well targeted social safety net program Family Benefit program ALMPs and Public Works Job earning possibilities Job training/job matching/ job fairs /job clubs Community demand driven public works projects SMEs Unemployment benefits Large number of job seekers and unemployed remain unregistered Coverage is low Expect longer unemployment spells Could be linked with active labor market programs Public spending on health and education Increase efficiency of Basic Benefit Package in health Allocation of State order in higher education Make the stimulus work for all Incorporation of social responsibilities into economic stimulus packages

While the Family Benefit was fairly well targeted at family level, its performance grew weaker over time… 2006

…FBs coverage of the poorest quintile also worsened

Increase FB budget Increase benefit size Expand coverage to include the new poor Raise the eligibility threshold Improve Targeting Increase Family Benefit Spending Better integration of the existing data, screening of applicants with readily available filters and categories Upgrade the MIS into a live database, introducing cross- checks and stepping up electronic data verification. Consider a regression-based Proxy Means Test, which can address the underreporting of income (but transition has to be gradual) Outreach campaigns targeted to poor communities Simplify the application process and annual re-certification Responding through the existing social safety net program Responding through the existing social safety net program FB can be an effective instrument to delivery support to the poor and increase domestic demand, but further improvements in targeting will be key

Public Works Current status AMD 700 million (no increase over 2008 allocation) and only funds part of the community designed projects Priority to: first time applicants, marzs with more job seekers and high poverty Short duration (3 months) Recommended measures to enhance crisis response Expand the public works program (absorptive capacity exists) Increase duration of PW projects Ensure poor communities with weak capacity are not left out Set PW wage less than market wage not draw labor away from other productive uses Eligibility Criteria (e.g., one person per family?)

Education: Ensure increasing completion rate Introduce innovative funds for universities, move from merit-based to needs-based public funding for students in Universities Health Public provision for full costs of services in BBP, Budget allocation for co-payment for poor and vulnerable, Health and Education

Concluding Remarks The global economic crisis has serious social implications and could reverse the precious gains made in the 2000s Job losses/earnings and loss of other incomes are the main channels of transmission of the crisis Policy response options using existing programs: Protect funding for core social spending for poor and vulnerable, better targeting of the Family Benefit, Temporary expansion of unemployment benefit Increased efficiency of Public works program Combinations of different pr ograms effective at reaching different segments of the population affected by the crisis (CSR) Pay attention to risks of difficult-to-reverse consequences: School attendance, healthcare utilization, nutrition, heating, etc