1. Overview of Poverty Reduction and Social Inclusion Policies in the Western Balkans Will Bartlett European Institute – LSEE London School of Economics 1

2. Outline Pre-crisis growth and poverty reduction Impact of economic crisis on poverty and social exclusion Poverty reduction and social inclusion policies Anti-crisis measures What should be done in context of EU accession and regional cooperation? 2

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6. Poverty profiles Rural poverty higher than urban – Bosnia LSMS 2007 rural 18%; urban 8% – Regional dimension within countries Education and poverty – In BiH without degree 21%; with degree 1.1% Employment does not protect against poverty – In Albania >50% of poor are employed in low skilled jobs 6

7. Economic crisis Global economic crisis struck in late 2008 as external drivers of growth collapsed – Exports – FDI – Remittances – Credit growth Variable impact in 2009, – IMF support for Bosnia and Serbia, – Continued growth in Albania and Kosovo Slow recovery in 2010, except for Croatia 7

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10. Poverty and inequality in crisis Poverty increased as growth, main driver of poverty reduction, collapsed Increase in poverty 2008-9 was higher in Macedonia (8.4%) than in Croatia (3.4%) – Possibly indicating lesser effectiveness of social safety net in mitigating poverty in Macedonia Inequality increased – suggesting ability of elites to protect against income effects of crisis 10

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13. 13 Macedonia: Urban equivalised income shares by quintile, 2008-09 (%)

14. Social protection systems Social insurance systems – Pensions (plus second private pillar in HR, MK, XK) – Health insurance (tax financed system in XK) – Unemployment benefits (limited coverage) Social assistance programmes – Means tested social assistance (weak targeting) – Rights based social transfers (veterans benefits) – Family and child benefits 14

15. Pension systems Pensions have a significant impact in reducing poverty State-managed PAYG systems (AL, BA, SR, ME) – State managed pension schemes challenged by aging populations Three pillar pension systems (HR, MK, XK) Crisis impact on pension fund unit values – Despite vulnerability, three pillar reforms are proposed in BA, SR) 15

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18. Health insurance Health system is based on social insurance principles – Kosovo is an exception – tax financed system – State system covers minimum health needs Large gaps in coverage due to non-payment of contributions Private sector fills gaps in provision ( in Albania and Kosovo especially) 18

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20. Social assistance programmes Means tested social assistance – Subjective assessments by social workers – In Albania, Ndhime Ekonomike, approved by local councils Poor targeting and low coverage limits their effectiveness in reducing poverty – In BiH only 30% of assistance expenditure reaches poorest quintile – Roma and IDPs fall through the net – Kosovo, better targeting but low coverage reduces effectiveness 20

21. Categorical benefits Rights based social assistance – Veterans benefits – In FBiH, the government extended the rights of war veterans in 2008 and cash transfer expenditure increased sharply, up to 4% of GDP – Benefits to veterans are highly regressive, covering a larger proportion of the upper quintile of households than the poorest quintile in FBiH. Family benefits including child allowance 21

22. Policy measures responding to crisis Public expenditure restraint – – IMF SBAs in Bosnia, Serbia, Kosovo and PCL in Macedonia (under negotiation Serbia) Anti-crisis programmes – Reform / cut social assistance (BA, SR, HR, MK) – Reduced wages in public sector (BA, SR, HR, ME) – Public sector hiring restricted (BA, SR) – Public sector employment cut (SR) – Pension freeze (SR, HR) – Three pillar pension reform announced (BA, SR) 22

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24. What should be done? Modernisation of public sector to increase effectiveness – Social enterprises? Diverse providers? – Bring elites back as consumers of public services Regularise informal sector to raise tax revenues – Also to close gaps in eligibility Active inclusion involving targeted actions for deprived and vulnerable groups – Especially in line with EU Roma Strategy (2011) Scope for regional cooperation – Learning from best practice – Use of IPA under Lisbon Treaty horizontal social clause 24

25. Research at LSEE Work on various aspects of social inclusion – Social impact of crisis – Health system reforms – Decentralisation and regional policy – Roma inclusion – Skills gaps and vocational education LSEE research network on social cohesion – collaboration with local researchers and policy makers 25

26. Thank you for your attention! comments welcome at: w.j.bartlett@lse.ac.uk 26/02/2014Will Bartlett LSE26