1. Trends and challenges in The World Bank perspective in MENA
Social Security
The World Bank perspective in MENA
Gustavo Demarco
Inter-regional Tripartite Meeting on The future of Social Security in Arab Countries
Amman, May 2008

2. Social Protection: The World Bank’s perspective
Social protection policies are designed to protect the population against the risk of poverty.
Managing risks associated with income loss is part of the strategy of poverty prevention and social risk management.
Social Insurance programs to protect workers’ incomes are integrated with Social Safety nets and other informal safety nets mechanisms.

3. World Bank Programs of client support in Social Protection

4. World Bank SP Areas of Client Support in MENA - 1
Social Insurance:
Old-age, disability and survivorship pensions
Unemployment insurance
Health insurance
Maternity benefits
Social Safety Nets:
Social funds
Subsidy targeting
Means-testing methodologies
Transfer delivery mechanisms (CCT)
Subsidy reform

5. World Bank SP Areas of Client Support in MENA – 2
Labor market analysis and policy advisory services:
MILES approach: integrated analysis of macroeconomic, investment climate, labor, education and social protection policies
Youth
Unemployment
Access to education and school retention
Risky behaviors (violence and crime, substance abuse, HIV-AIDS, early pregnancy)
Lack of participation in development policies

6. Main issues of concern in Social Insurance programs
Basic principles of design:
Long term financial sustainability
Equitability
Adequacy
Affordability
Coverage extension
Administrative efficiency
Governance
Coverage Extension
Integration of Social Insurance programs

7. Basic Principles of policy design
Social choices as reflected in pension systems design are often not compatible with financial sustainability;
Explicit subsidies reflect the social preference to protect lower income pensioners from the risk of poverty, but…
When pension systems are unsustainable, non explicit subsidies are imposed to a group of the society;
Non explicit subsidies may produce (unintended?) regressive income redistribution.

8. Choices regarding the replacement rate for the average full career worker

9. Choices regarding the minimum pension

10. Choices regarding the ceiling

11. Financial sustainability of PAYG systems
Pay-as-you-go systems can be financially self-sustainable over the long term – even in the presence of population aging.
Condition:
The accrual rates have to be consistent with the implicit rate of return on contributions, and this in turn has to be in line with expected wage growth rate (3%-4% per year).

12. Most Pension systems in MENA are unsustainable

13. Sustainable combinations of retirement age, contribution rate and accrual rate

14. Administrative efficiency
Institutions: fragmentation; size, economies and diseconomies of scale
Processes
Resources: HR, IT, budgeting
Audits and Supervision
Customer service and Communication
→ Strategic Planning

15. Governance
Clear definition of roles and responsibilities associated to all critical processes
Improved transparency and accountability
minimize political interference in the appointment of staff in decision making processes that require technical expertise
Define procedures of accountability of staff at all levels, and especially at the highest levels of the organizational pyramid

16. Pension Coverage in MENA

17. Coverage Extension Within the formal (mandated) scheme through
Better design (cost-benefit link)
Implementation, information, and credibility
Incentives, e.g. matching contributions in DC plans
Minimum pension in mandated schemes
Require careful design to avoid distortions
Basic retirement income (“Zero pillar”)
Are they elderly the most vulnerable and what are the opportunity costs of financing
Design issues: universal, social pensions, or social assistance
Implementation issues: How to deliver pensions of small amount to rural population in thinly population areas where the age cannot be determined

18. Social Security Programs in MENA

19. The need for Unemployment Insurance in MENA
High unemployment in MENA disproportionally affects (i) women, (ii) the urban population and (iii) youth
Sources of Unemployment:
Low rates of economic growth
Heavy reliance on service / lacking manufacturing
Lack of human development
Rapid female labor force inclusion
Youth bulge
Public sector employment, which (i) distorts the labor market by artificially raising expectations and encouraging queuing, (ii) leads to inappropriate investment in human capital with skills biased towards the public sector, and consequently (iii) the education system becomes oriented to producing credentials rather than skills causing a skill mismatch problem

20. Unemployment Insurance Mechanisms
Risk-Pooling
Savings Insurance
The “Lucky” employed pay the benefits of “unlucky”
the unemployed.
Redistribution creates
incentives “to play” the
system (moral hazard).
Hard to implement in
countries with large
informal sector and low
institutional capacity.
Employee and employer
contributions are recorded on
individual accounts, this saving is the source of benefits in case
of unemployment.
No redistribution, moral hazard is reduced. Unemployment insurance account balances constitute restricted individual wealth.

21. Social Health Insurance: Key issues
Expanding the contributory system
Harmonizing fragmented risk pool
Redirecting public subsidies to priority groups and programs
Shifting from supply-side financing of services to demand-based financing
Introducing strategic purchasing (purchaser/provider split)

22. Health Expenditure in MENA (% of GDP, 2004)

23. Public Expenditure on Health in MENA (% of Total Health Expenditure, 2004)

24. Conclusions
A comprehensive income protection strategy for workers needs to be integrated in the broader perspective of policy design.
Integrated social insurance programs need to address a complex variety of issues related with financial sustainability, equitability, efficiency and coverage extension.
MENA countries may benefit from the international experience, particularly in countries in the region that are leading reform processes.