1. Brussels, December 2010 Boryana Gotcheva and Ramya Sundaram World Bank, Europe Central Asia Region Social Protection Team

2. Outline 2 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 Objectives of social protection 3 PROMOTION of human development (investment in human capital) for long-term poverty alleviation PROTECTION * Alleviation of long- term chronic poverty * Help to the poor in coping with the worst forms of shocks and transient poverty PREVENTION from falling into chronic and multi- generational poverty (risk mitigation) COVERAGE TARGETING GENEROSITY COVERAGE TARGETING GENEROSITY FLEXIBILITY

4. Social Insurance Labor Market Programs Social Assistance Framework for analysis of social assistance 4

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

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

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

8. Measures of Performance of Social Assistance 8 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 9 1.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 2.Individuals are sorted into quintiles for each transfer using "per capita consumption - per capita transfer“ 3.Developed by DECRG Welfare indicatorHarmonized consumption aggregate 1 Individuals ranked onPer capita consumption before cash transfer 2 ADePT SP 3 Standardized software to compute indicators

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

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

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

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

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

15. Another measure of generosity of last- resort social-assistance transfers Last-resort social assistance Average Transfer Value per capita (Beneficiary Households Only), % of minimum wage TotalPoorest Quintile Albania NE4.44.1 Bosnia-Herzegovina CSW13.114.7 Kosovo SA7.2 FYR Macedonia SFAna Montenegro FMS/MOP45.443.5 Serbia MOP12.612.9 Serbia CA5.35.6 15

16. Summary: Mixed performance in protecting the poor 16 Impressive targeting accuracy oMost LRSA programs in the Western Balkans transfer at least 50 percent of benefits to the poorest quintile. oLeakage of benefits to the richer quintiles is limited. But low coverage oLess than 50 percent of the poorest quintile are covered by LRSA programs And low generosity oThe 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 17 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 18 Encompassing benefit programs Last resort programs Only categorical schemes and/or absence of national minimum income scheme Austria Luxemburg Poland Romania Slovak Republic Belgium Czech Republic Netherlands Sweden Bulgaria Denmark Estonia Latvia Lithuania Portugal Slovenia Finland France Germany Ireland United Kingdom Greece Hungary Italy Spain Bosnia and Herzegovina, FYR Macedonia, Serbia, Montenegro Newly introduced With long implementation record: evolved from the FY SA system Albania, Kosovo

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

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

21. Key implementation characteristics are also similar 21 Key implementation characteristics Rigorous enforcement of eligibility rules Home visits before determining eligibility with high discretionary power, not standardized Limited outreach efforts to identify deserving poor Gaps in data collection and data management; no unified registries Weak internal audit, errors and fraud detection arrangements

22. Explaining low coverage of last-resort social assistance 22 Strict rules of eligibility o Lownumerous o Low income thresholds for eligibility, numerous YES/NO filters o Mandatory unemployment registration Could lead to work- disincentives Difficulty with proving citizenship and/other personal documents in post-conflict context Rigorous enforcement of rule o Excessive burden of producing documents at certification and re- certification could be also costly o Mandatory home visit at initial certification; and annually Low benefit levels can be discouraging o 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. Yes 81.8% Yes 81.8% Not eligible for NE Yes 25.9% Yes 25.9% Yes 14.9% Yes 14.9% Yes 3.7% Yes 3.7% Yes 0.8% Yes 0.8% Yes 0.4% Yes 0.4% 6. Does anyone in the family receive Survivor Pension? 2. Does anyone in the family receive old-age pension? Percentage of bottom decile eligible for NE after applying all filters is 7.9% 3. Does family receive remittance from abroad? 4. Does family own a car? 5. Does family have rental income? No 18.2% No 74.1% No 99.6% No 99.2% No 96.3% No 85.1% Albania’s Ndihma Ekonomike Program Exclusion errors due to filters. Out of Individuals in Bottom Decile (= 122,172 individuals) 1. Does anyone in the family work?

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

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

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

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

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

29. Agenda ahead 29

30. Outline 30 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. Aylin Isik-Dikmelik & Yulia Smolyar* The World Bank *In collaboration with ECSHD Social Protection Team

32. Immediate crisis context 32 Source: IMF WEO database, October 2010

33. Role of Social Benefits in Crisis --Theory Two Main Response Channels 33 RESPONSE CHANNELS FOR SOCIAL BENEFITS Automatic Stabilizers Unemployment Insurance Social Safety Nets (Poverty Targeted) Policy Interventions in SB Unemployment Insurance Parameters SSN Parameters and Activation Conditions Fiscal Adjustments in SB SB Administration

34. Social benefits did respond 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 34

35. SB crisis response in Western Balkans 35 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 already receiving 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 2009 Lag in Labor Market Impacts 36 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 37

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

39. Macedonia, FYR: Declining trend continues for main LRSA (SFA) 39 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 40

41. Montenegro: LRSA (MOP) Minimal Increase 41

42. US Response (TANF and Food Stamps) 42

43. Policy Response (1): Policy Response (1): Fiscal Adjustments Protect and/or cut spending on Social Assistance for allocative efficiency 43 Spending Increase in SA Programs Freeze, Elimination, Cuts in SA Programs BelarusX Bosnia and HerzegovinaX CroatiaXX LatviaX Macedonia, FYRX MoldovaXX SerbiaX

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

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

46. Potential constraints for response 46 Extremely low eligibility thresholds The institutional setup: Decentralized vs. Centralized Financing and Design Design Features Fiscal pressures:Fiscal pressures: HUGE constraint Political Economy:Political Economy: Change in the composition of SP spending: a shift from means tested to categorical programs during times of growth Stigma effect Policy Side Constraints

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 FLEXIBLE Safety Nets 47

48. THANK YOU! 48