The System of Cash Transfers in Bosnia and Herzegovina

1
The System of Cash Transfers in Bosnia and
Herzegovina

• Issues in the design of an effective and
  affordable system

Christian Bodewig The World Bank
2
The challenge of improving efficiency and equity
of cash transfer system in BiH given limited
resources

• Need for reform of cash transfer system in BiH
  for reasons of
• Fiscal affordability
• Effective and equitable social protection and
  poverty alleviation
• Implications for Reforming
• Veterans Benefits
• Social and Child Assistance
• Employment Services
• Pensions

3
The challenge of improving efficiency and equity
of cash transfer system in BiH given limited
resources
Key observation Overall spending on cash
transfers in BiH is substantial, but the
structure of spending across different programs
has failed to evolve to meet the needs of a
society and economy moving from post-conflict
reconstruction to longer-run development.
4
Veterans Benefits I BiH has one of the most
extensive and generous veterans entitlements in
the world

• Veterans benefits single major cash transfer in
  both Entities around 4 of GDP, with
  additional spending at sub-Entity level,
  estimated at around 1.3 of GDP in FBiH and 0.4
  in the RS
• Additional significant indirect transfers,
  resulting in substantial forgone revenues from
  health contributions and co-payments, and tax and
  customs revenues, adding up to around 1 of GDP
• Added up this is roughly equivalent to spending
  on the entire education system at all levels in
  both Entities and three quarters of health
  expenditures

5
Veterans Benefits II but benefits are poorly
targeted and fail to effectively protect those
most in need

• Poor targeting Despite large amount of
  resources, system fails to protect most
  vulnerable beneficiaries. Beneficiaries mainly
  family beneficiaries (around 60 of total) and
  veterans with lower categories of disability
  (60-65 of disabled veterans)
• Entitlements not related to ability to work,
  actually having work or receipts of benefits from
  other parts of cash transfer system
• Legislated entitlements remain far above
  available resources and are unsustainable
  systems are already accumulating increasing
  arrears

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Veterans Benefits Reform suggestions

• Harmonize legal frameworks
• FBiH single Entity law
• Simplify/rationalize entitlements
• Consider removing those with disabilities below
  50-60 from benefit entitlement, though not from
  system altogether
• Eliminate benefits for grandparents and siblings
• For parents target benefits to those most in
  need, in particular where working or receiving
  other cash transfers
• For spouses, impose restrictions related to
  re-marriage
• For children reduce maximum age for benefits to
  end of school
• Initiate re-certification and improve
  reliability, timeliness and transparency of data

7
Social Welfare and Child Protection Both
Entities, particularly the Federation, spend
least in regional comparison
Comparative Social Welfare and Child Protection
Spending (in of GDP)
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Social Welfare and Child Protection Financial
crisis and lack of coherent and sustainable
structure

• Even where there are legislated entitlements,
  they are often irrelevant due to resource
  constraints
• Small proportion of registered beneficiaries
  actually receive benefits
• Wide variation of benefits paid across Cantons in
  the Federation, especially in child protection
• Decentralized financing at municipal level
  vicious circle of poorest areas least able to pay
  benefits
• Unclear division of responsibilities across
  governments
• Poor coordination between different benefit
  programs and delivery mechanisms

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Social Welfare and Child Protection Reform
suggestions I

• Policy Framework Legislate new Social Protection
  Strategies in both Entities emphasizing
• Realistic core set of entitlements, with clearly
  defined financing source incl. transfers from
  Entity budgets to finance one or more core
  benefit equitably
• Create incentives for adequate local government
  spending on social protection through matching
  grants
• Review existing targeting criteria in light of
  newly available data from LSMS, and evaluation of
  CSW ability to means-test effectively in highly
  informalized economy
• Provide equal incentives for community-based and
  institutional care

10
Social Welfare and Child Protection Reform
suggestions II

• Institutional Framework
• Redefine institutional responsibilities for
  social protection
• Establish sound regulatory framework for CSWs
• Role of NGOs in Welfare Provision
• Establish legislative and regulatory framework
• Data Reporting System

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Employment Services Lacking in focus, clear
institutional structure, accountability and
transparency

• Challenges for Employment Services
• Demand for effective programs likely to rise with
  further privatization and enterprise
  restructuring
• Need for effective intervention through
  unemployment benefits and effective job search
  services
• Institutional issues
• Incomplete implementation of Federation EI
  institutional arrangements, with
  Hercegovacki-Neretvanski Canton EI still to be
  established
• Parallel existence of former "State" EI without
  clear legal basis

12
Employment Services Lacking in focus, clear
institutional structure, accountability and
transparency

• Programmatic and operational issues
• Unemployment benefits Despite large number of
  registered unemployed, very low share actually
  receive benefits
• Wage subsidy programs often unfocussed,
  unmonitored, ineffective and inefficient
• Relatively high operating costs, especially MEI
  and RS EI

13
Employment Institutes Reform suggestions

• Institutional and operational issues
• Set up new, small agency at State level
• In FBIH Hercegovacki-Neretvanski Employment
  Service to join FBIH EI structure as Cantonal EI
• Strengthen program monitoring and evaluation
  capacities
• Policy issues
• Unemployment benefits increases in replacement
  rates and duration not justified by regional
  comparators and BiHs level of income and
  available resources
• Decrease spending on wage subsidies in FBIH and
  MEI
• Focus more on pre-lay-off job search services and
  general job-search
• Build on Pilot Emergency Labor Redeployment
  Project (PELRP) lessons

14
Pensions Improving financial discipline,
transparency and accountability

• Significant steps made towards stabilization and
  sustainability of the pension systems
• Key aligning benefit levels with present and
  future resource realities so as to avoid running
  arrears
• Critical to short-term financial sustainability
  cash rationing rule tying pension levels above
  minimum to availability of regular pension
  resources on a monthly basis, by application of
  pension coefficient

15
Pensions Improving financial discipline,
transparency and accountability

• Medium-term reform priorities stabilize
  contributions, strictly stick to cash rationing
  rule and pay pensions on time. Further
  stabilization requires
• Continued economic growth
• Regularization and formalization of WS payments,
  expansion of formal sector employment
• Severance payments no pensions!
• No payroll contribution exemption/relief
• Enforce existing financial planning and reporting
  rules for the pension funds
• Initiate thinking about systemic reforms through
  joint working groups

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Summing up

• Reforming veterans benefits key priority in
  reforming cash transfer system
• Need to free up resources from veterans programs
  for social welfare and child protection programs,
  while working on improving access to productive
  employment opportunity for persons with special
  needs and ability to work
• Need to ready employment services for expected
  increase in demand for services due to economic
  restructuring
• Reform agenda supported under SOSAC II