Social Safety Nets and Macroeconomic Crises: Are ECA Countries Ready?

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Social Safety Nets and Macroeconomic Crises Are
ECA Countries Ready?

• Emil D. Tesliuc
• HDNSP
• Workshop on Macro Risks and Micro Responses
• February 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?
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• 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
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• 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
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• 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
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and SSN spending levels seem adequate, except
for few outliers
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Program mix
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• 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
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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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Errors of Inclusion
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• Approaching OECD standards in best of cases
• But remains mediocre in many others

Programs using Income testing Proxy-means testi
ng
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Two cost-effective SSNs models have emerged
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• 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
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• 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
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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
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• 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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ArmeniaPoverty Family Benefit (PFB) Program
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• 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

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but not all ECA countries have found a
cost-effective SSN model
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• 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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Addl 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
OUTREACH
EXIT
ELIGIBILITY DETERMINATION
RECERTIFICATION
APPEALS
APPEALS

• ME
• Audit
• Quality Control

PAYMENTS
BENEFICIARIES
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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 waiting Minimize documentation required, free-of-charge provision of documents attesting eligibility Introduction of one-stop or one-window system Single application for multiple benefits Use 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 beneficiaries Reduce data-entry mistakes in computerized databases Effective audit and control processes Use of multiple targeting methods Train staff Provide adequate documentation for staff Strong monitoring, especially performance monitoring systems Collaboration across agencies Strong monitoring, especially performance monitoring systems Use the same targeting instrument across many poverty-focused programs
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