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Social Safety Nets and Macroeconomic Crises:

Are ECA Countries Ready?

Emil D. TesliucHDNSP

Workshop on Macro Risks and Micro ResponsesFebruary 15, 2008

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Outline

SSNs as Shock Absorbers: What does it take?

Are Existing Social Safety Net Programs Ready for the Next Crisis?

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SSNs as Shock AbsorbersWhat does it take?

SSN objectives during crises:– Protect (old and new) poor against irreversible welfare losses (physical,

human capital)– Help gain accepted to do needed reforms

Characteristics of well-performing SSN programs– Automatic stabilizers– … or at least programs that can be scaled-up timely, and scaled-down once

the crisis is over– Good at identifying the intended target groups (cost effective)– That injects money into the pockets of those with high marginal propensity to

consume (fiscal stimulus)– Self-targeted (public works)

Complementing other protective measures:– health, education, pensions, unemployment benefits, basic infrastructure

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Challenges of SSN programs during crises

When good SSN programs exist, need $$$ and staffing for scaling-up

When well-performing programs not available, response will be inefficient: costlier, late

Targeting difficult– Household circumstances change often– Informal economy goes up– Eligibility - recertification, more often

Which one to help: Old poor or new poor? Chronic vs. transitory poverty?

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Overview of Social Safety Net Programs in the ECA region

We look at:– Spending levels– Program mix– Coverage of the poorest– Targeting accuracy

The SSNs in ECA fall into four groups– based on their preparedness to avert the effect of

the crises, and the type of SSNs

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ECA is second only to OECD in terms of SP spending

Social Protection Spending, Region Averages

2.5 1.73.6

1.3 1.0 0.9

13.2

8.33.0

3.8 2.91.4

0

2

4

6

8

10

12

14

16

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OECD (N=23) Eastern Europeand Central Asia

(N=25)

Middle East andNorthern Africa

(N=10)

Latin Americaand Carribean

(N=25)

East Asia Pacific(N=4)

South Asia (N=5)

% o

f G

DP

Social Safety Nets Social Insurance

Notes: Data on 69 countries taken from WB Public expenditure reviews or other similar work. For OECD, data from the OECD Social Expenditure database (OECD, 2004). Different years, most data from 2000 to 2003.

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… and SSN spending levels seem adequate, except for few outliers

ECA Region: Social Safety Nets' Expenditures

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5

Tajikistan

Kyrgyz Republic

Poland

Romania

Albania

Bulgaria

Latvia

Macedonia, FYR

Serbia

Georgia

Azerbaijan

Moldova

Russian Federation

Croatia

Uzbekistan

Montenegro

Armenia

Turkey

Kazakhstan

Czech Republic

Kosovo

Belarus

Ukraine

Slovak Republic

Bosnia and Herzegovina

% of GDP

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Program mix

Similar with OECD in terms of programs mix:– family allowances; social pensions; heating/housing

allowances; last resort programs SSN programs more narrowly targeted than in EU

– less categorical targeting, in favor or income and asset testing, hybrid means-testing, proxy-means testing

Regional specificity:– Legacy programs: privileges still plague some countries;

subsidies– CCTs are rare. Found only in Turkey and Macedonia– Workfare, public works programs, also rare

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Few of the poorest are left out, except for countries in Central Asia, Caucasus and former Yugoslavia

90% 20% 40% 60% 80% 100%

Tajikistan

Uzbekistan

Kyrgyzstan

Moldova

Georgia

Azerbaijan

Armenia

Albania

Belarus

Bosnia Hertzegovina

Kazakhstan

Macedonia

Serbia-Montenegro

Romania

Bulgaria

Russia

Lithuania

Poland

Estonia

Hungary

Only Social Assistance Both SI and SA Only Social Insurance Not covered

Coverage of the poorest quintile by Social Protection Programs

Countries ranked in decreasing order by per capita GDP in 2000 PPP

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Tajikistan

Uzbekistan

KyrgyzstanMoldova

Georgia

Bosnia Hertzegovina

Serbia-Montenegro

Azerbaijan

Armenia

Albania

Belarus

KazakhstanMacedonia

Romania

BulgariaRussia

Lithuania

Poland Estonia

Hungary10

20

30

40

50

%

0 3 6 9 12 15GNP per capita, in '000s $, 2000 PPP

Data source: World Bank, 2008

Not Receiving Any SP Transfer

Share of Individuals in the Poorest Quintile2

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Errors of Inclusion

Share of Beneficiaries from the Poorest QuintileNon-contributory cash transfers in US, LAC and ECA

0

20

40

60

80

100

Food

TA

NF

Bra

zil

Chi

le

Jam

aica

Mex

ico

Arg

enti

na

Rom

ania

Bul

gari

a

Lit

huan

ia

Hun

gary

Est

onia

Pola

nd

Mol

dova

Kyr

gyzs

tan

Alb

ania

Bel

arus

Serb

ia

Arm

enia

Rus

sia

Geo

rgia

Bos

nia

Uzb

ekis

tan

Mac

edon

ia

Aze

rbai

jan

Taj

ikis

tan

US LAC ECA

%

Programs using:

Income testing

Proxy-meanstesting

Approaching OECD standards in best of cases;

But remains mediocre in many others

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Two cost-effective SSNs models have emerged

Low(er) income countries (Armenia, Albania, Kirghiz Republic)– Targeted programs = the SSN, typically one large program– Greater coverage (10-20% of the population), budget of 1-2% of GDP– Informal labor market; passive labor market policies small or no role– Passive systems (little emphasis on exit policies)

Medium Income Countries (Bulgaria, Lithuania, Romania)– Targeted programs = residual programs, complementary to an

extensive social protection system– Children, elderly, heating …– … plus a last-resort program with small coverage (5-10% of the

population). With budgets between ¼ and 1% of GDP; cost-effective. – Emphasis on exit policies– Strong links with employment/labor offices

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Regional solutions adapted to regional circumstances

Entitlement programs of moderate fiscal costs Accurate targeting systems, similar with OECD , but

well-adapted to country circumstances:– Income / asset testing combined with formal economy test (all

6 countries) and work-test (Albania, Bulgaria, Romania) – Hybrid means-test: Imputed incomes based on occupational

or asset profile (Bulgaria, Kirghizstan, Lithuania, Romania)– Proxy-means test (Armenia, Georgia, Turkey)

Ready for the next crisis: Open eligibility, frequent recertification

Programs that operate with modest but sufficient administrative costs

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Cost-effective solutions to identify poor beneficiaries

Share of beneficiaries from the poorest quintileTargeted vs un-targeted programs

41%

30%

37%

27%

58%

60%

64%

27%

0% 10% 20% 30% 40% 50% 60% 70%

Low income countries (LICs)

Ndihme Ekonomika, Albania

Family Poverty Benefit, Armenia

Unified Monthly Benefit, Kirghizstan

Average non-pension program, LIC

Medium income countries (MICs)

Guaranteed Minimum Income, Bulgaria

Social Benefit, Lithuania

Guaranteed Minimum Income, Romania

Average non-pension program, MIC

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Share of administrative costs in total cost of the program

11.0% 10.0%7.8%

9.9%

6.5% 7.1%

2.2%

13.4%10.5%

6.0%

0%

2%

4%

6%

8%

10%

12%

14%

16%

Uni

ted

Sta

tes

Uni

ted

Kin

gdom

Alb

ania

Bul

garia

Lith

uani

a

Rom

ania

Arm

enia

Bra

zil

Col

ombi

a

Mex

ico

Means Tested Programs Proxy Means Tested programs

%

Substantial know-how on how to target narrowly, adapted to the circumstances of ECA region, transferable to other countries and regions

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Many ECA countries have the necessary SSN in place

Automatic stabilizers in place:– Unemployment programs, means-tested / last resort

programs– Challenge: given $$$ and increased in staff

Competent /strong administrative systems Have developed effective, efficient and flexible/

agile mechanisms to identify the poor Proven: SSNs already helped cushion the

effect of previous crises: – Example from Armenia

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Country

Unemployment benefits/ assistance

Public works / Workfare

Last resort / Guaranteed Min. Income

Has at least one program?

Albania 1 0 1 1Armenia 1 0 0 1Azerbaijan 1 0 0 1Belarus 1 0 0 1Bosnia-Herzegovina 1 0 0 1Bulgaria 1 1 1 1Czech Republic 1 ? 1 1FYR Macedonia 1 0 ? 1Estonia 1 0 1 1Georgia 1 0 0 1Hungary 1 0 ? 1Kazakhastan 0 0 1 1Kyrgyzstan 1 0 1 1Latvia 1 ? 1 1Lithuania 1 0 1 1Moldova 1 0 0 1Poland 1 1 0 1Romania 1 0 1 1Russia 1 0 1 1Serbia-Montenegro 1 0 1 1Slovakia 1 ? 1 1Slovenia 1 1 1 1Tajikistan 1 ? 0 1Uzbekistan 1 0 0 1

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Armenia:Poverty Family Benefit (PFB) Program

Setting: Landlocked country in the Caucasus, population 3 million people, per capita GDP US $873 (2003), low income, high poverty, food insecurity.

– Triple shocks: independence from Soviet Union disrupted trade patterns; severe earthquake wiped out significant industrial capacity and housing in 1998; conflict with Azerbaijan and trade blockade

• Pre-reform: – Inherited a generous and regressive cash benefit system (26 small cash and in-kind

programs), and extensive quasi-fiscal social programs (electricity subsidy) Reform (1998/1999):

– Consolidation of all social assistance program into one, the PFB, targeted to the poor using a proxy-means test. Electricity subsidy discontinued

Institutional consolidation of the PFB (1999 - present) Results to date:

– Improvements in targeting accuracy , coverage – (27% of the households covered vs 15%) – and generosity (higher benefits)– Further improvements in targeting and generosity– Low share of admin costs (2% of program budget)– No labor disincentives

Fraction of Social Assistance Budget Captured by Each QuintileNote: Consumption ranks in 2003 and 1998/9 are not-comparable

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32

43

-

5

10

15

20

25

30

35

40

45

50

1998 1999 2003 Year

% b

enef

its

rece

ived

by

quin

tile

Poorest Quintile Q2 Q3 Q4 Richest Quintile

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… but not all ECA countries have found a cost-effective SSN model

Some countries are marred by: – Impropriate programs (legacy …)– Unclear objectives– Poor design– Understaffing– Underfunding– Inexistent or poor monitoring, oversight, evaluation

The remaining challenge is to get these countries prepared

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Add’l Slides: Features that contribute to accurate targeting

Lowering barriers to participation

Lowering inclusion errors Improving program

administration

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Key phases influencing targeting accuracy for transfer programs

OUTREACHOUTREACH

ELIGIBILITYDETERMINATION

ELIGIBILITYDETERMINATION

PAYMENTSPAYMENTS

EXITEXIT

BENEFICIARIESBENEFICIARIES

RECERTIFICATIONRECERTIFICATION

• M&E• Audit•Quality Control

• M&E• Audit•Quality Control

APPEALSAPPEALSAPPEALSAPPEALS

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What implementation aspects are shared by programs / countries with well-run SSNs?

Lowering barriers to participation

Lowering errors of inclusion

Improving program administration

Effective dissemination of information about the program Location of point-of-service close to the beneficiaries, minimize visits and waitingMinimize documentation required, free-of-charge provision of documents attesting eligibilityIntroduction of one-stop or one-window system Single application for multiple benefitsUse of multiple targeting methods

Cross-check the information provided by applicants against other public databases Perform home-visits to assess the means of the households Frequent re-certification Introduction of a unique identification number for beneficiariesReduce data-entry mistakes in computerized databasesEffective audit and control processesUse of multiple targeting methods

Train staffProvide adequate documentation for staffStrong monitoring, especially performance monitoring systemsCollaboration across agencies Strong monitoring, especially performance monitoring systemsUse the same targeting instrument across many poverty-focused programs