report no. 54396-eca social safety nets in the western ... · report no. 54396-eca social safety...

June 2011

Document of the World BankR

eport No. 54396-EC

A

Social Safety nets in the Central B

alkans Design, Im

plementation, and Perform

ance

Report No. 54396-ECA

Social Safety nets in the Western BalkansDesign, Implementation, and Performance

Human Development Sector UnitSouth East Europe Country UnitEurope and Central Asia Region

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ACRONYMS AND ABBREVIATIONS

ALMPs BH

Active Labor Market Policies Bosnia and Herzegovina

CARDS Community Assistance for Reconstruction, Development and Stabilization CSW Center for Social Work ECA Europe and Central Asia EC European Commission EU European Union FBH Federation of Bosnia and Herzegovina FYR Macedonia Former Yugoslav Republic of Macedonia FMS/MOP F&E GDP

Family Material Support (Last-resort program in Montenegro) Fraud and Error Gross Domestic Product

GMI Guaranteed minimum Income HBS Household Budget Survey HMT Hybrid Means Testing ID Identification Number IDPs IFC

Internally Displaced Persons International Finance Corporation

IMF International Monetary Fund ILO International Labor Organization ISC Initiative for Social Cohesion IPA Instrument for Pre-Accession LFS Labor Force Survey LSMS Living Standards Measurement Survey LRSA Last-Resort Social Assistance MISSOC Mutual Information System on Social Protection (of the EC) MLSP MOLSAE MOP

Ministry of Labor and Social Policy Ministry of Labor, Social Affairs and Equal Opportunities Material Support for Low-income Families (Last-resort program in Serbia)

MT M&E

Means Testing Monitoring and evaluation

NGO NE NS OMC O&C

Non-governmental Organization Ndihma Ekonomike (Last-resort program in Albania) Ndihma Sociale (Last-resort program in Kosovo) Open Method of Coordination Oversight and Control

PES Public Employment Services PIO Pension Insurance Office PMT Proxy Means Testing RS SSS WHO

Republika Srpska State Social Services World Health Organization

Vice President: Philippe Le Houerou Country Director: Jane Armitage Sector Manager: Kathy A. Lindert Task Team Leader: Boryana Gotcheva

Table of Contents

Acknowledgements ........................................................................................................................ i Executive Summary ...................................................................................................................... ii 1. Introduction and Overview ...................................................................................................... 1

1.1 Economic Developments and Trends in Poverty and Unemployment ............................... 1 1.2 Medium-term Challenges and Role for Safety Nets ........................................................... 3 1.3 The Prospects for Joining the European Union: Social Policy Agenda .............................. 5

2. The Architecture of the Safety Nets in the Western Balkan Countries ............................... 8

2.1 Overview of Social Protection ............................................................................................ 8 2.2 Social Assistance Program Mix and Its Determinants ........................................................ 9 2.3 Overview of Spending on Social Assistance .................................................................... 12 2.4 Institutional Structures for Managing Safety Nets............................................................ 17

3. Last-Resort Social Assistance Programs in the Western Balkan Countries ..................... 20

3.1 Policy Design and Regulatory and Financing Arrangements ........................................... 20 3.3 Main Design Elements ...................................................................................................... 25 3.4 Associated Rights: Links with Other Programs and Social Care Services ....................... 36

4. The Administration of Social Benefits in the Western Balkan Countries ......................... 38

4.1 Determining Eligibility ..................................................................................................... 38 4.2 Authorizing and Transferring Payments to Beneficiaries ................................................. 48 4.3 Registries, Data Management, and Information Flows .................................................... 49 4.4 Oversight and Control of Fraud and Error ........................................................................ 52

5. Performance of Social Assistance Programs in the Western Balkans ............................... 56

5.1 Methodology ..................................................................................................................... 56 5.2 Coverage ........................................................................................................................... 58 5.3 Targeting Accuracy ........................................................................................................... 60 5.4 Generosity ......................................................................................................................... 64 5.5 Possible Disincentives: Welfare Dependency and/or Work Disincentives? ..................... 66 5.6 Linking Benefit Receipt to Activation and Other Services .............................................. 70

6. Summary and Conclusions..................................................................................................... 73

6.1 Summary ........................................................................................................................... 73 6.2 Recommendations ............................................................................................................. 76

References .................................................................................................................................... 79

Annex 1: Last-resort Social Assistance Programs of the Western Balkan Countries Compared to the Models of Minimum Income Programs in the EU and OECD Countries .. 82

Annex 3: Documents Required When Applying for LRSA Programs in Western Balkan Countries ............................................................................................................... 86

Figures Figure 1: Typical Institutional Structure for the Safety Net in the Western Balkans .................... iv Figure 2: Social Assistance Spending by Main Types of Programs (% GDP, 2008 – 2009) ..........v Figure 3: Spending on Social Assistance by Targeting Method (% of GDP, 2009) ..................... vi Figure 4: Targeting Accuracy of All Social Assistance in the Western Balkan Countries ......... viii Figure 5: Coverage of All Social Assistance in the Western Balkan Countries ............................ ix Figure 6: Generosity of Social Assistance in the Western Balkan Countries ..................................x Figure 7: Targeting Accuracy of Last-resort Social Assistance in the Western Balkan Countries .x Figure 8: Coverage of Last-resort Social Assistance in the Western Balkan Countries ................ xi Figure 9: Generosity of Last-resort Social Assistance in the Western Balkan Countries ............ xii Figure 10: Excluding poor with ‘filters’ in Albania and Serbia .................................................. xiv Figure 11: Real GDP Dynamics and Poverty Risks Following the Crisis .......................................2 Figure 12: Western Balkans $5 Poverty Rates ................................................................................3 Figure 13: Conceptual Framework ..................................................................................................8 Figure 14: Social Protection Spending (% of GDP, 2008 – 2009) ..................................................9 Figure 15: Social Assistance Spending by Main Types of Programs (% GDP, 2008 - 2009).......13 Figure 16: Spending on Social Assistance by Targeting Method (% of GDP, 2009) ...................14 Figure 17: Trends in Spending on War Veterans’ Benefits (% of GDP, 2000 – 2009) .................15 Figure 18: Trends in Spending on Disability Benefits (% of GDP, 2000 – 2009) ........................16 Figure 19: Trends in Spending on Last-resort Social Assistance (% of GDP, 2000 – 2009) ........17 Figure 20: Typical Institutional Structure for the Safety Net – Western Balkans .........................18 Figure 21: Last-resort Social Assistance Eligibility Criteria .........................................................26 Figure 22: How Filters Exclude the Urban Poor (bottom 10 percent) in Albania’s Ndihma Ekonomike .....................................................................................................................................27 Figure 23: How Serbia’s LRSA (MOP) Filters Exclude Poor .......................................................28 Figure 24: Key Implementation Issues for the Last-resort Programs ............................................54 Figure 25: Coverage of the Poorest Quintile by Overall Social Assistance in the Western Balkan Countries ........................................................................................................................................59 Figure 26: Coverage of the Poorest Quintile by LRSA Programs in the Western Balkan Countries60 Figure 27: Targeting Accuracy of Overall Social Assistance in the Western Balkan Countries ..61 Figure 28: Leakage of Overall Social Assistance Transfers to the Top Population Quintile ........62 Figure 29: Targeting Accuracy of Last-resort Social Assistance Programs in the Western Balkan Countries ........................................................................................................................................63 Figure 30: Leakage of Last-resort Social Assistance Transfers to the Top Population Quintile ...64 Figure 31: Generosity of Social Assistance Transfers in the Western Balkan Countries ..............64 Figure 32: Generosity of Last-resort Social Assistance Programs in the Western Balkan Countries ........................................................................................................................................65

Boxes

Box 1: Social Assistance Regimes in the EU Member States ...................................................... 24 Box 2: Exclusion Criteria for Ndihma Ekonomike in Albania ..................................................... 29 Box 3: Kosovo: Tightening the Eligibility for the Last-resort Income Support Program by Excluding Households that Own a Car ......................................................................................... 30 Box 4: Targeting in Albania ........................................................................................................ 32 Box 5: Linking Last-resort Social Assistance with Other Benefits and Services in Montenegro 37 Box 6: Implementation Guidelines for Non-contributory Social Programs in FYR Macedonia . 40 Box 7: Barriers Preventing the Roma from Accessing to Social Assistance in Serbia ................ 43 Box 8: The Verification of Household Assets in Kosovo............................................................. 46 Box 9: A Checklist of the Content of a CSW Registry................................................................. 50 Box 10: Examples of Good Practices for the Oversight and Control of LRSA Benefits ............. 54

Tables Table 1: Average Transfer Value of Overall Social Assistance (Beneficiary Households of ....... ix Table 2: Average Transfer Value of Last-resort Social Assistance (Beneficiary Households Only) as a Share of Minimum Wage (%) ................................................................................................ xii Table 3: Design Elements of Last Resort Social Assistance in the Western Balkans ................. xiii Table 4: Last-resort Social Assistance Programs: Summary of Implementation Responsibilities and Functions by Level of Government....................................................................................... xvi Table 5: Tax Wedge at Various Levels of the Average Wage in BH, FYR Macedonia, and Serbia (%, 2008).................................................................................................................................... xviii Table 6: Main Economic Indicators and Poverty Trends in the Western Balkan Countries .......... 1 Table 7: The Number of Registered Unemployed in the Countries of the Western Balkans ......... 4 Table 8: Main Social Benefits in the Western Balkan Countries ................................................. 11 Table 9: Last-resort Social Assistance Programs in the Western Balkan Countries .................... 21 Table 10: Strengths and Weaknesses of Centralized and Decentralized Financing ..................... 23 Table 11: Characteristics of the Minimum Income Programs in the EU Member States ............. 25 Table 12: Last-resort Social Assistance Benefit Amounts in the Western Balkan Countries, end of 2010 .......................................................................................................................................... 34 Table 13: Equivalence Scales for the LRSA Programs in the Western Balkan Countries ........... 35 Table 14: Indicators for Dynamic O&C in the Western Balkan LRSA Programs ....................... 52 Table 15: Social Assistance Transfers in Household Surveys and Administrative Data: Comparison and Percentage of Social Assistance Spending Covered.......................................... 57 Table 16: Number of Beneficiaries of Social Assistance and LRSA Programs in the Western Balkan Countries (end of 2008) .................................................................................................... 58 Table 17: Absolute Poverty Rates in Western Balkan Countries ................................................. 59 Table 18: Average Transfer Value of Overall Social Assistance (Beneficiary Households of Indicated Transfer Only) as a Share of Minimum Wage (%) ....................................................... 69 Table 19: Average Transfer Value of Last-resort Social Assistance (Beneficiary Households Of Indicated Transfer Only) as a Share of Minimum Wage (%) ....................................................... 69 Table 20: Tax Wedge at Various Levels of the Average Wage in BH, FYR Macedonia, and Serbia (%, 2008) ........................................................................................................................... 70 Table 21: Poverty Indicators: Impact of the Last-resort Social Assistance Programs .................. 75 Table 22: Last-resort Social Assistance Programs: Simplified Summary of Implementation Responsibilities and Functions by Level of Government ............................................................. 77

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Acknowledgements This report was prepared by a World Bank team lead by Boryana Gotcheva (task manager) and Ramya Sundaram (ECSHD) as part of the Western Balkans Safety Nets Regional Analytical and Advisory Work. It summarizes the findings of six background reports (country case studies) prepared by Boryana Gotcheva, Ufuk Guven, Rajna Cemerska, Marijana Jasarevic, and Aylin Isik-Dikmelik (ECSHD) and Vedad Ramljak, Ana Krsmanovic, Nikica Mojsoska, and Nexhmedin Dumani (consultants). Rajna Cemerska, Lorena Kostallari, Marijana Jasarevic, Flora Kelmendi (ECSHD), and Agim Demukaj (PREM) collected the administrative data and supervised the review of legal documents and other literature. Trang Van Nguen, Victoria Strokova, and Natsuko Kiso (ECSHD) provided data analysis and technical input. Victoria Strokova was in charge of ensuring consistency and comparability of administrative data, building a database and ‘visualizing’ findings in charts and figures. Sreypov Tep, Regina Nesiama, Lejla Zaimovic, Hermina Vukovoic-Tasic, Dragana Varezic, Nejme Kotere, Marija Gavric, and Jasminka Sopova provided administrative and technical support. The team coordinated with Johannes Koettl, task manager for the Western Balkans MILES study, on the methodological approaches taken to analyze work disincentives in social assistance, and with Caterina Ruggeri Laderchi on the poverty alleviation impact of social benefits, and on the simulation of impacts of policy changes on benefits’ take up and coverage in Serbia. Her leadership was instrumental for organizing the international conference on “Poverty Reduction and Social Inclusion in the Western Balkans” (December 2010, Brussels) where the findings of this report were presented to policy makers from the Western Balkan countries, European Commission officials, academia and development partners. The team benefitted from comments and contributions from the Bank’s country economists and from its poverty and social protection specialists. The team also benefitted immensely from the extensive comments provided by the peer reviewers Ruslan Yemtsov (HDNSP), Dena Ringold (HDNCE) and Christian Bodewig (EASHS). The note was prepared under the overall supervision of Kathy Lindert, Sector Manager Social Protection (ECSHD).

The team is very grateful to its counterparts from the governments of Albania, Bosnia and Herzegovina, FYR Macedonia, Kosovo, Montenegro, and Serbia for their commitment to organizing and participating in workshops and insightful discussions, for being very open to sharing their ideas and concerns, and for their readiness to discuss the research findings with outstanding professionalism as well as to provide high-quality administrative data. The contributions of the State Secretary for Social Assistance in Serbia, the Assistant Ministers for Social Assistance in the rest of the Western Balkan countries, the heads of Social Assistance Departments, and all of their teams were particularly important for ensuring the breadth and quality of the report. The team is also very grateful to the social workers from the Centers for Social Work and Municipal Social Assistance departments that we visited for their competence and patience while providing us with details of the implementation aspects of the safety nets.

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Executive Summary Objectives. This report provides a comparative perspective on the design, implementation, financing, and performance of the non-contributory cash transfer programs (social assistance) across the six countries in the Western Balkan region1 and benchmarks their performance against similar programs in other countries in Central and Eastern Europe. Primary focus of the analysis is the means-tested last-resort social assistance programs that exist in all six Western Balkan countries. We examine their core (‘first generation’ reform) features, taking stock of basic indicators of their scope and performance – targeting accuracy, coverage and adequacy (generosity), and reviewing their financing, institutional set up, eligibility criteria, main design aspects, and implementation processes in the context of the main functions of social protection - the three ”P’s for equity, resilience and opportunity: (i) protection from destitution and losses of human capital; (ii) prevention against drop in wellbeing, income and expenditure shocks; and (iii) promotion of human capital development, opportunities, livelihoods and better jobs (World Bank, 2011a; Grosh M. et al., 2008).

Economic and Policy Context. The recent severe economic crisis challenged the ability of the safety nets to protect the poor and vulnerable during such times. They were already small in terms of coverage before the crisis. The ‘reaction’ of most of the programs was slow and with a time lag, and some of them reacted more flexibly than others. The real GDP growth in the six Western Balkan countries was robust before the crisis – at 6.8 percent in 2007 and 5.9 percent in 2008, and they were less severely affected, with an average GDP decline of 1.7 percent in 20092 and recovery of GDP growth in 2010-2011 (World Bank, 2011d). Nevertheless the poverty risk in 2010 for households remained as high as in 2009, as a result of job losses, less hours worked, lower earnings and wage arrears. Remittances went down and undermined the informal safety nets and coping capacity of households. It is unlikely that remittances will recover quickly as they mainly originate from countries affected by the euro-zone economic and financial tensions. The growth projections are modest assuming that European leaders are able to resolve the crisis in a manner that does not involve a disorderly default and avoids contagion effects. However, should the crisis worsen, Western Balkan countries performance could be much worse (World Bank, 2011d).

During the crisis and in its aftermath, the demand for unemployment benefits and social assistance increased while at the same time government revenues decreased resulting in pressures to reduce spending on social protection, health, and education. Maintaining effective protection within a reduced post-crisis fiscal envelope requires significant reforms to curtail spending on rights-based or categorical (non-means-tested) benefits, increase uptake and extend the coverage of means-tested social assistance, reduce work disincentives that are built into the design of last-resort social assistance, and increase their flexibility and responsiveness to crises and shocks. The internal demand for reforms is reinforced by the prospect of joining the EU: even though the Western Balkans countries do not have to comply with mandatory social acquis (social dimensions of integration), their safety nets should support the EU’s employment activation and social inclusion agenda. 1 Albania, Bosnia and Herzegovina, FYR Macedonia, Kosovo, Montenegro, and Serbia 2 Compared to an overall GDP decline of 5.2 percent of GDP in Europe and Central Asia

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Safety Nets Architecture. The Western Balkan countries operate two types of safety nets, which are the result of two different systemic approaches with the transition to democracy. The two entities of Bosnia and Herzegovina (BH) - the Federation of Bosnia and Herzegovina (FBH) and the Republika Srpska (RS) – in addition to FYR Macedonia, Montenegro, and Serbia undertook evolutionary and gradual improvements to the structure and design of the pre-transition safety net, whereas Albania and Kosovo overhauled their old systems completely and introduced entirely new benefits. The systems that undertook gradual reforms are generous in terms of the scope of risks covered; they provide multiple and often categorical benefits that are fragmented, which undermines the efficiency of social assistance as a whole. The new systems have fewer types of benefits and therefore less fragmentation but provide lesser scope of protection, especially for families with children and the unemployed. Both types of systems are faced with a region-specific need to protect those who suffered as a result of the regional armed conflicts of the 1990s. They also face region-specific difficulties of identifying and reaching poor and socially excluded in the aftermath of mass migration and internal displacement.

Reflecting the historical legacy of these systems and their multiplicity of objectives, the mix of non-contributory (social assistance) programs in the Western Balkans countries typically consists of four broad categories: (i) last-resort social assistance programs, mostly targeted to the chronic poor and with less capacity to identify and protect the transient poor; (ii) family and child protection benefits with multiple objectives (to alleviate poverty of families with children, as well as increase fertility rates, encourage child raising in family environment, protect the jobs and incomes of mothers of young children); means-tested rather than universal, and in limited number of cases conditional to behavior that promotes early childhood development; (iii) disability benefits for those without disability insurance; and (iv) region-specific benefits for war veterans and for their families, for the families of fallen soldiers, and for civilian victims of war which combine elements of social assistance with recognition and reward. The countries also provide in-kind benefits in the form of direct and indirect subsidies, cash utility subsidies, community and home-based social services as well as institutional care for children deprived from parental care, for the elderly and people with disability. The safety net usually also includes health insurance coverage as an associated right to last-resort social assistance or disability benefits.

In the 2000s, the regulatory and institutional framework was changed significantly in most of the Western Balkan countries to (i) eliminate or reduce regional differences in the provision of last-resort social assistance (mostly in Serbia); (ii) clarify the division of labor between the central and local levels with respect to the design, financing, and implementation of last-resort programs; and (iii) reduce errors of inclusion. The institutional structures that have been established to design and deliver the safety net benefits are similar among the Western Balkan countries. Program design, planning, monitoring, and oversight are the responsibility of the central governments, except in BH where these are entity-level responsibility, while implementation is delegated to the local level (see Figure 1). All Western Balkan countries operate a network of Centers for Social Work or Welfare (CSWs), which are either municipal (local level) implementation units, or de-concentrated structures of the central ministry. The CSWs play no role in policy development in either case; they only deliver non-veteran related cash transfers, or share the delivery with municipalities as is the case in Serbia.

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Figure 1: Typical Institutional Structure for the Safety Net in the Western Balkans

Source: World Bank, 2011c.

Two specific characteristics of the safety nets’ institutional arrangements stand out: (i) not all social assistance is concentrated in the respective ministry of labor and social policy or welfare; some non-contributory programs, most often these are the electricity benefits, are managed by other ministries and agencies; municipalities and also cantons in FBH have the right to establish own benefit systems, and (ii) the benefits for war veterans and families of fallen soldiers are managed separately from ‘mainstream’ social assistance: designated ministerial departments (in Serbia, Montenegro, Kosovo, RS) or separate ministry (FBH) are responsible for policy making, while the benefit delivery is assigned to separate veteran benefit departments in the municipalities. In the recent years, the institutional arrangements for implementing social assistance are evolving in different directions. Kosovo decentralized the CSWs to the municipal level with the aim of quicker and more effective response to the needs of local communities with limited resources. At the same time, FYR Macedonia centralized social policy implementation by converting its CSWs into implementing agents of the Ministry of Labor and Social Policy to ensure that uniform implementation rules apply nationwide, and increase the ownership of social policies by the CSWs.

Expenditure on Social Assistance. Public outlays on social assistance in the Western Balkan countries, measured as a share of GDP, are comparable with the other countries from the World Bank’s Europe and Central Asia (ECA) region (see Figure 2): they amount to 1.8 percent of GDP compared to average spending in all ECA countries of 1.7 percent of GDP. BH is a notable exception: with 3.33 percent of GDP going to social assistance in 2008-09 and even more - 3.9 percent of GDP - in 2010, BH it is one of the biggest spenders in ECA. However, if expenditure on war veteran benefits were brought down to the average regional level of 0.4-0.5 percent of

“Ministry of Labor & Social Policy”(Responsible for design, planning, monitoring, oversight)

Typical Departments:

Social Assistance

Child & FamilyProtection

IT, Statistics

LaborRelations

Pensions and

Disability

War Veterans Affairs

CSW CSW CSW PES PES

CSWs responsibleFor implementation (registration, eligibility,beneficiary registries,payrolls and in somecases making payments,etc.)

Some beneficiaries also required to register with PESs

Ministriesof Economy

(also manage benefits in

some countries)

Energy agencies


some countries)

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GDP, the overall spending on social assistance in BH would go down to the average for the Western Balkan countries.

Figure 2: Social Assistance Spending by Main Types of Programs (% GDP, 2008 – 2009)

Source: Europe and Central Asia Social Protection Database, World Bank

Spending on social assistance is inequitable, with a growing share of allocations to categorical programs. Throughout the 2000s, categorical benefits were consistently absorbing a higher share of social assistance spending than means-tested benefits. Only FYR Macedonia spends more on means-tested than on categorical programs. However after 2008, the share of categorical benefits in the overall spending envelope increased there as well3 due to the elimination of the means test for some of the child allowances and the main categories of disability benefits. While in Kosovo and Montenegro spending on categorical and means-tested programs is almost at parity, the bias towards categorical benefits is pronounced in Albania and Serbia due to spending on disability benefits (Albania) and wage compensations during maternity (Serbia). The pronouncedly large spending on categorical benefits in the two BH entities is mostly due to the plethora of categorical benefits paid to war medal holders, to demobilized soldiers4, disabled war veterans and families of fallen soldiers. Their history is indicative of the importance of managing such benefits: it is easy to inflate them in good times but very difficult to contract when the budget envelope tightens. Over time the composition of spending is shifting towards categorical programs (see Figure 3).

3 In 2008, the means-tested programs in FYR Macedonia absorbed 0.75 percent of GDP, against 0.22 percent of GDP allocation on categorical programs. In 2009, the spending on means-tested programs increased marginally to 0.77 percent of GDP compared to a significant growth in the spending on categorical programs that reached 0.34 percent of GDP. 4 Only in FBH, until 2010.

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Western Balkans Other ECA

Last-Resort Social Assistance Family and Child Allowances Disability Benefits War Veteran Benefits Social Pension Other

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Figure 3: Spending on Social Assistance by Targeting Method (% of GDP, 2009)


Spending priorities differ across countries. Spending on the last-resort social assistance is relatively high in Montenegro (close to 0.5 percent of GDP) and also in FYR Macedonia, and the highest in Kosovo (over 0.7 percent of GDP), where it reflects the high incidence of poverty and the concentration of spending over fewer benefit programs. Spending on the last-resort social assistance is very low in Serbia and BH, resulting in small-scale programs with narrow coverage and big exclusion errors. At the same time, the Western Balkan countries spend more on disability allowances than other Europe and Central Asia countries, with Albania having the largest spending (0.9 percent of GDP) in the region, and Montenegro having the highest growth rate in spending on disability benefits in recent years. Expenditure on child allowance is higher among ECA countries outside the Western Balkans where Albania and Kosovo have no stand-

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alone child benefits, while other countries restrict them by targeting the monthly child allowance with a rigorous income test (Serbia, BH) or means test (Montenegro). Spending on war veterans’ benefits dominates the spending in BH and is also high in Kosovo.

Most last resort social assistance programs are financed from the central budgets. The only exception from this scheme is the FBH where it is the responsibility of the cantons5. The centralized financing is earmarked and takes the form of capitation grants that also take into account the size of the units of assistance (families). Albania and Kosovo are exceptions. In Albania the central budget allocates block grants to the municipalities; and in Kosovo the municipalities are provided with block non-earmarked grants. Conventional wisdom in the public finance literature suggests that redistribution is a role most appropriately handled by central governments, because they are inherently in the best position to handle interregional inequalities and risk pooling (Grosh et al., 2008). At the same time the decentralized financing could ensure a faster flow of funds and an allocation of resources in accordance with local priorities. However, it is prone to local political bias. Moreover, given the small size of municipalities and their limited tax base, just municipal financing for the safety net would not be sufficient for meaningful reductions in poverty and vulnerability, particularly during downturns.

Performance of Social Assistance. We use household survey micro data to assess performance outcomes in terms of:

� coverage - percent of poorest quintile who receive benefits; � targeting accuracy - percent of benefits going to the poorest quintile, and � generosity (adequacy) using two types of measures of contribution to consumption -

average transfer amount as a fraction of average consumption for beneficiary households in poorest quintile and unit transfers as a fraction of minimum wage.

We use standardized methodology to develop the performance indicators. Welfare is measured with a harmonized consumption aggregate6 and individuals are ranked based on per capita consumption before cash transfer7. Standardized software (ADePT SP) is used to compute indicators. For comparative purposes, those belonging to the quintile with the lowest consumption are defined as poor.

The targeting accuracy of all social assistance programs is respectable. Due to the means testing of a wide range of programs, overall social assistance is accurately targeted to the poor in Montenegro and Serbia (see Figure 4). In Albania and Kosovo, where all and last-resort social assistance largely overlap, the targeting performance of social assistance is also high as expected. Leakage to the richest quintile is negligible: less than 5 percent in Serbia, Kosovo and Albania, 7 percent in Montenegro and 10 percent in FYR Macedonia. Exception is BH, which has the second largest leakage of social benefits to the non-poor and rich - due to the regressive cash transfers to veterans - over 17 percent of all social assistance is provided to the richest population quintile. 5 Except for one of the ten cantons where the canton shares the responsibility for financing with the municipalities 6Developed by the World Bank’s poverty team – a standard basket of goods and services across all countries, and all expenses are similarly deflated across countries and expressed in per capita terms 7 Individuals are sorted into quintiles for each transfer using "per capita consumption - per capita social assistance transfers“

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Figure 4: Targeting Accuracy of All Social Assistance in the Western Balkan Countries


The impressive targeting accuracy of overall social assistance is overshadowed by weak performance in terms of coverage. The coverage of the poorest quintile with all types of social benefits is outstandingly low in all Western Balkan countries (see Figure 5). The highest coverage has been registered for the safety net in Kosovo however its ability to protect the poor – despite relatively high by regional standards - is limited to only 40 percent of the poorest quintile. Coverage is extremely low even in countries which have multiple safety nets programs designed with the objective of protection against, and mitigation of multiple risks related not just to poverty, but also to disability, temporary loss of ability to work because of taking care after the birth of a young child or increase in the number of dependent children in the family. The safety nets of Montenegro and the two entities of BH reach only 20 percent of the poorest quintile. The low safety nets coverage is associated with program design which limits access and allows for substantial errors of exclusion. For example, in the FBH, access to civilian disability benefits is granted only in case of 90 or 100 percent disability (that is disability which is permanent, irreversible and requiring care and attendance by other persons). In some countries, the non-contributory disability benefits are income-tested with low eligibility income thresholds. Similarly, the monthly child allowance is income-tested quite rigorously (Serbia) or means-tested with the same targeting mechanism as the last-resort benefit (Montenegro). The low coverage is also associated with limited outreach of social workers to poor and vulnerable communities and absence of incentives for expansion of coverage. And, last but not least, the extremely low coverage of the last-resort social assistance in BH, Serbia and Montenegro undermines the capability of their safety nets to reach a higher share of the poor with at least one type of non-contributory cash transfer.

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Figure 5: Coverage of All Social Assistance in the Western Balkan Countries


The generosity of benefits varies significantly among the Western Balkans countries. When measured as a fraction of the post-transfer consumption of beneficiary households, generosity of all social assistance is relatively high compared to social assistance schemes delivering similar benefits in ECA countries (see Figure 6). Another measure of the generosity of benefits that can be useful in considering adverse incentive effects is the comparison of benefits levels to minimum wages. From Table 1, we can see that, except in the case of Montenegro where the social assistance transfer is about 75 percent of the minimum wage, social assistance benefits in the Western Balkans are not very generous compared with minimum wages – ranging between 7 and 20 percent of the minimum wage.

Table 1: Average Transfer Value of Overall Social Assistance (Beneficiary Households of Indicated Transfer Only) as a Share of Minimum Wage (%)

Albania NE 2008 15.0% Bosnia-Herzegovina CSW 2007 19.5%

FYR Macedonia SFA 2006 Na Kosovo NS 2006/07 7.2% Montenegro FMS 2008 74.8% Serbia MOP 2007 17.6%

Source: Household budget survey data, staff calculations. World Bank, 2011c.

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Figure 6: Generosity of Social Assistance in the Western Balkan Countries

Source: Europe and Central Asia Social Protection Database, World Bank Performance of Last-resort Social Assistance Programs. The targeting accuracy of some of the Western Balkan last-resort social assistance programs is very high. The last-resort social assistance in Montenegro which transfers more than 80 percent of all program budget to the poorest population quintile, as well as the benefits of Serbia and Kosovo, which transfer more than 70 percent of program allocations to the poorest quintile, are among the most accurately targeted and compare well with the best programs in ECA countries like Lithuania, Bulgaria and Romania (see Figure 7). The last-resort social assistance in Albania and FYR Macedonia seem also relatively well targeted by the same yardstick – these programs manage to transfer between 50 and 60 percent of their benefits to the poorest quintile, however they suffer from certain leakage of resources to the non-poor: over 9 percent of the last-resort benefit in FYR Macedonia and 6.5 percent in Albania are received by the wealthiest quintile (elite capture). Targeting accuracy is much weaker in BH, where the poorest quintile receives only 40 percent of all benefits delivered by the CSWs, while at the same time a significant share of the benefit budget is captured by the richest 20 percent of the population.

Figure 7: Targeting Accuracy of Last-resort Social Assistance in the Western Balkan Countries


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The last-resort social assistance programs are considered an important element of the social assistance systems of the Western Balkan countries as their main goal is to alleviate poverty of chronic and transient poor, and promote the social inclusion of vulnerable and marginalized segments of the population. However, their coverage is low and do not always reflect the poverty rates and trends in poverty. Plausibly the biggest programs are to be found in Albania, covering over 12 percent of the population. Coverage of the poor is the highest in Kosovo, with two out of five individuals in the poorest quintile receiving last-resort social assistance (see Figure 8). However, this is low when compared to Kosovo’s poverty rate - almost 35 percent of Kosovo’s population currently lives below the poverty line of €1.55 per person per day, and 12 percent of the population lives in extreme poverty - on less than €1.02 per adult equivalent per day (World Bank and Statistical Office of Kosovo, 2011). In the rest of the Western Balkan countries coverage of the poverty alleviation programs is low. When measured with administrative data, last-resort social assistance in BH is negligible in scope reaching only 0.25 percent of the population, followed by FYR Macedonia with coverage of 0.5 percent of the country’s population8 in 2009 and 2010. Coverage of the poor is particularly low in BH, where fewer than 5 percent of individuals in the poorest quintile receive monthly last-resort assistance, family and child protection benefits and civilian disability benefits combined. Coverage of last-resort program is also low in Serbia. However, coverage is expanding, going from 6 percent of the poorest quintile in 2007 to over 10 percent in 2011. Increases in the eligibility thresholds, which adjusted at the rate of inflation every month, has been the primary reason for this expansion in coverage.

Figure 8: Coverage of Last-resort Social Assistance in the Western Balkan Countries


Generosity of last-resort social assistance is uneven. Albania’s Ndihma Ekonomike is the least generous program while the Kosovo’s program appears as most generous (see Figure 9). Each of the other programs accounts for between 25 to 30 percent of the post-transfer consumption of the poorest quintile. When generosity is measured as a fraction of the minimum wage (see Table 2), on the other hand, it appears quite low in all countries (less than 15 percent of the minimum

8 Administrative data and staff calculations; estimates / approximate numbers for Albania because administrative data is collected for households only (102,000 households at the point of estimation)

0

5

10

15

20

25

30

35

40

45

Last-resort Social AssistanceCoverage of the Poorest Quintile (%)

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wage) and is as low as 4 percent of the minimum wage in Albania. Exception is Montenegro where the transferred amount represents a quite substantial fraction (about 43 percent) of the minimum pay standard.

Table 2: Average Transfer Value of Last-resort Social Assistance (Beneficiary Households Only) as a Share of Minimum Wage (%)

Albania NE 2008 4.1% Bosnia and Herzegovina CSW 2007 14.7% FYR Macedonia SFA 2006 Na Kosovo NS 2006/07 7.2% Montenegro FMS 2008 43.5% Serbia MOP 2007 12.9%

Source: Household budget survey data, staff calculations. World Bank, 2011c.

Figure 9: Generosity of Last-resort Social Assistance in the Western Balkan Countries


In summary, the last-resort social assistance schemes in the Western Balkan countries have an impressive record in terms of their targeting accuracy and a relatively good record in terms of their generosity, but they tend to have only very limited coverage of the poor.

Design Characteristics of Last-resort Social Assistance Programs. In the Western Balkan countries, last-resort social assistance programs have gone through the so-called ‘first generation’ reforms which determine their core features. In all countries, the programs are centrally designed, have national coverage, and treat all citizens equally by legislating common eligibility criteria and uniform application procedures nationwide. The two exceptions are Albania, where targeting rules are not yet standardized and geographic targeting produces regional variations in treatment, and the FBH where the benefit mix and main eligibility criteria are set in entity-level legislation while other design elements and even amounts to be paid can be regulated by the cantonal level social protection laws. In those Western Balkan countries, where the current safety nets have evolved from the former Yugoslav system (BH, FYR Macedonia, Montenegro and Serbia), the last-resort programs are designed along the lines of the models of ‘minimum resources’, “last-resort subsidy” or ‘near last-resort subsidy” programs. These models

0

10

20

30

40

50

60

70

Last-resort Social AssistanceBenefits as Percent of Post-Transfer Consumption,

Beneficiary Household, Poorest Quintile

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exist in many of the EU Member States (EU, 2006). In the case of Kosovo and Albania, where the new programs were set up, they tend to integrate last resort social assistance with protection for other vulnerable groups. For example, in Kosovo, the benefit for the poor contains also elements of monthly child allowance and unemployment benefit. The main design characteristics of the last-resort cash transfers in the Western Balkan countries are summarized in Table 3.

Table 3: Design Elements of Last Resort Social Assistance in the Western Balkans Albania Bosnia and

Herzegovina FYR

Macedonia Kosovo Montenegro Serbia

Institutional level at which the benefit is designed

Central government and local governments

Cantonal governments (FBH) Central government (RS)

Central government

Central government

Central government Central government

Regional differentiation

Municipal Cantonal (FBH) No No No Before 2004 – municipal

Income test No. Imputed income from land and livestock

Income thresholds differentiated with size of the unit of assistance

Implicit equivalence scales OECD equivalence scale

Disregards of incomes from other benefits

Disability benefit and Pensions

All social assistance

Social assistance with exceptions

Basic and disability pension; one-time social assistance



Earned incomes disregards

No No No No No Yes, from ALMPs

Asset test Yes, verified through official registries and home visit Exclusionary filters

Car Land Livestock Agricultural produce

Land 0.5 ha Second dwelling; Productive assets; Savings Arable land Livestock

Land 0.5 ha Business vehicles livestock

Land 0.5 ha Land 0.5 ha Immobile or mobile property

Benefit formulae Full benefit (urban); discount of imputed income from agriculture (rural)

Difference between maximum benefit due / benefit base (which varies depending on the number of

members of the household or family) and actual income of the unit of assistance

Linkage with other benefits and rights

Conditional to community work or public works participation

Health insurance Public works Job brokerage Training

Health insurance; Public works Job brokerage Training

None ‘Package’ of benefits Public works Job brokerage Training

Health insurance Public works Job brokerage Training

Source: National social protection laws. World Bank, 2011c.

Eligibility for last resort social assistance is determined by social workers at the CSW based on the centrally defined eligibility criteria, which can include an income and asset test and additional indicators of the economic and demographic status of the unit of assistance. The ‘burden of proof’ rests with the applicant, and presented documents are subject to verification. Administratively pre-set minimum income thresholds serve as eligibility cut-offs, and also as ‘ceilings’ / maximum amounts. The thresholds are set in different ways: as nominal levels using implicit national equivalence scales taking into account family size (Montenegro, FYR Macedonia, Kosovo); family size and composition (Albania); explicit equivalence scale (Serbia) or flat rate without equivalence scale (the RS). The setting of eligibility thresholds is done differently in each of the ten FBH cantons: by linking to cantonal average of minimum wage, the minimum wage in FBH or government defined income minima. In all countries the eligible

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beneficiaries receive the difference between the administratively set ceiling and the actual income of their unit of assistance. Easy to verify incomes are usually considered, only in Serbia the CSWs make efforts to assess incomes from informal employment, land, savings, property or intellectual rights. Incomes from social transfers are disregarded in one way or another; incomes that are earned due to participation in active labor market programs are disregarded in Serbia. This approach to benefit determination could cause disincentives to work due to the infinite marginal taxation effects of any kind of earned income causing a full loss of benefits.

In parallel with low income thresholds, the CSWs determine eligibility for last-resort social benefits by applying a variety of exclusionary filters and denying claims of applicants who are in possession of certain immobile or mobile assets included in negative lists, participate in economic activities or employment, or are in receipt of remittances. Permanent address and citizenship status are also used as filters which results in excluding refugees, internally displaced persons, travelling Roma and other migrant population. The filters are binary, e.g. possession of assets automatically disqualifies the applicant, regardless of the size of the measured income or needs. Figure 10 provides two examples of how the application of exclusionary filters affects the access to last resort social assistance in different program design contexts.

Figure 10: Excluding poor with ‘filters’ in Albania and Serbia

Source: Staff calculations with most recent household level micro data. World Bank, 2011c.

While the intention of these filters is to improve targeting accuracy and to ensure that benefits are only given to those who are truly unable to work and/or have low incomes, they can have some perverse results. For example, they can cause significant errors of exclusion among the poor (one of the factors that contribute to low coverage) and possible disincentives to work among able-bodied adult applicants due to the requirement to register as unemployed which also serves as a verification of not having any income from work. These filters, along with the low income thresholds that determine eligibility, make last resort social assistance accessible mostly by chronic long-term poor, but often disqualify transient poor.

One common filter – which can be either exclusionary or non-exclusionary – is the proof of unemployment status or mandatory registration with the public employment services. In Montenegro, BH, FYR Macedonia, Serbia, and Albania, the requirement to register as unemployed is a way to ascertain that the relevant member of the unit of assistance is not working and receives no formal income. In the absence of unemployment registration, the application will be disregarded (in Montenegro for single-member families) or income from

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work will be imputed in the overall family income (in FYR Macedonia). Unemployment registration is also a way to ensure that able-bodied recipients of social assistance have turned to the employment services and can potentially be offered participation in public works or active labor market programs. In most of the Western Balkan countries the unemployment status serves as a stand-alone filter with an exclusionary power which could be quite high, as already shown in the case of Albania or with less power as in the case of Serbia. The existence of this filter precludes protection of the working poor through the last-resort social assistance program.

The determination of benefits assumes excessively high economies of scale (a recent reform in Serbia makes it an exception where an OECD equivalence scale applies as of April 2011) which are discriminatory against large units of assistance because benefits ensure basic food consumption and also because poverty is correlated strongly with family size with large families being at a disproportionately higher risk of being poor. Large units of assistance are also discriminated against by limitations in the number of eligible recipients in one unit of assistance. Many programs lack proper indexation (to inflation) rules for eligibility thresholds and benefit levels. Moreover, the benefits are not linked to national poverty lines and/or other minimum income or consumption standards and their purchasing power and adequacy are not monitored against such standards.

Implementation Arrangements for Last-resort Social Assistance Programs. The implementation arrangements for the last-resort social benefits have many strong features: including on-demand applications, clear initial points of contact, regular verification of eligibility, and clear recertification procedures, redress and grievance procedures, however they are also administratively burdensome (could require over 20 different application documents), and costly (see Table 4 for details).

The CSWs determine eligibility based on detailed rulebooks that try to limit discretion in decision making. The information from the presented documents is reconciled through data matching with official registries (tax, cadastre, agricultural land, vehicle, housing registry, among others), direct verification with issuing agencies, and home visits. Eligibility determination is usually a two-stage process that allows appealing a decision on eligibility or benefit amount to a second level body. The social workers not only guide the application process but are also tasked with referring the applicant to other benefits or social services if available within the safety net system. As a whole, the last resort social assistance programs in the Western Balkan countries apply more stringent verification of applicants’ eligibility when compared to other benefits, such as disability and/or family and child benefits. The CSW staff has a greater degree of discretion in some cases, but the system is still over-reliant on administrative data and paper-based documents.

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Table 4: Last-resort Social Assistance Programs: Summary of Implementation Responsibilities and Functions by Level of Government

Albania Bosnia and Herzegovina

FYR Macedonia Kosovo Montenegro

Serbia

Institutional level at which the benefit is implemented

Municipal Cantonal (FBH) Central through de-concentrated units (RS)

Central through de-concentrated units (CSWs)

Municipal Central through de-concentrated units (CSWs)


Intake, registration Local Local (at CSWs) Local (at CSWs) Local Local (at CSWs) Local (at CSWs) Eligibility determination

Central and local

Central (RS) Cantonal (FBH)

Central Central Central Central

Verification Local Local (CSWs) Local (CSWs) Local Local (CSWs) Local (CSWs) Database management Local Local (FBH)

Central (RS) Local (CSW level)

Central Central Central

Existence of central registry

No Yes (RS) No (FBiH)

Yes Yes Yes Yes

Payment authorization Local Central (RS) Cantonal (FBH)


Payments process Local - Post offices (rural) Banks (urban)

Cantonal – Post Offices and banks (FBH); Central - Post offices and banks (RS)

Central/Local – post offices via Post Office Bank

Local – post offices

Central - banks Central – banks

Oversight Central and local


Central and CSWs

Central and local Central and CSWs Central and CSWs

Local level independent Linked to central ministry

Linked to central ministry (RS), cantonal and municipal (FBH)

Linked to central ministry

Linked to municipal government



Source: National legislations and CSWs administrative rulebooks. World Bank, 2011c.

The beneficiaries increasingly receive their payments through the banking system rather than through the post offices. The exceptions are Montenegro and Kosovo where payments are made only through the post offices. In Albania local communities and leaders get involved in the payment of last resort social assistance and sometimes even in determining the amount that each beneficiary household should receive.

Benefit administration suffers from a number of weaknesses. Application processes are separate for each type of benefit, except for Montenegro where some are delivered under the same eligibility rules and application process. They are complex and bureaucratic, requiring the applicant to produce up to 27 official documents (which can be costly and time consuming to obtain) and to make multiple visits to the CSW office, as well as to submit to home visits by social workers for verification. The Western Balkan countries are investing in upgrading their registries (program-specific databases) and in improving the existing data management and information flows. However, registries are still too incomplete to constitute management information systems. They are rather stand-alone databases that are not integrated into country-level automated welfare information systems as is the case in many developed countries. At best, they cover payroll data for approved beneficiaries. Data on rejected applicants are not digitalized and, therefore, policymakers have no way to monitor and evaluate errors of exclusion. Also, except for the databases in Serbia and Montenegro, there is no information about the family as a single unit of assistance. It is difficult to track benefits and services that are provided to the whole unit, and not to separate individuals. The registries are also not connected on-line to other government databases, and internal and external cross-checks are either not performed, or slow and ineffective. Finally, oversight and controls mechanisms are inadequate and inefficient.

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In summary, the design and implementation features contribute to the mixed performance outcomes of the last-resort social assistance programs in the Western Balkan countries. The very strict rules of eligibility and their rigorous enforcement reduce the errors of inclusion but limit coverage. The use of filters makes determination of eligibility inequitable, (high errors of exclusion), less transparent, (lack of objective or transparent “weights” across eligibility criteria) and inefficient (possible disincentives to work, as discussed above). Often, the means test and filters are supplemented by a mandatory ‘field / house visit’ for reality check of eligibility with vaguely defined scope of verification and high discretionary power in ultimate decision making on eligibility.

Few of the programs make any outreach efforts to cover deserving poor who are left behind, instead most take a predominantly bureaucratic and paper-based approach to identifying beneficiaries. Indeed, the programs are open for applicants on demand, but the information made available about the programs is not always sufficient (particularly in terms of reaching vulnerable groups). The eligibility determination is complicated and not always transparent; and practices can vary across CSWs. The burden and financial costs of applying and collecting supporting documents is borne entirely by the applicants.

Work Disincentives in Last-resort Social Assistance? Some last resort social assistance programs in the region may contain some inadvertent disincentives to work. Existing evidence about whether recipients become dependent on transfers and experience work disincentives in last-resort social assistance programs is mixed. On the one hand, some design features such as the exclusionary filters regarding labor market participation, the weak or absent work availability test, the very broad definition of those who are not expected to work, and the unlimited duration of benefit receipt, along with price effects (marginal tax wedges) potentially introduce disincentives for able-bodied adults to work and earn income. Disincentives for formal work could also be associated with the benefit formula which – as mentioned - discounts each additional amount earned from the benefit amount due. Work disincentives could potentially stem for benefit generosity—however, except in the case of Montenegro, benefit levels do not seem to be so generous as to create major disincentives for able-bodied adult beneficiaries to substitute inactivity for labor.

Administrative data provides complementary evidence on relative benefit size. It indicates that benefits in the Western Balkan last-resort programs, with the exception of the Montenegro family assistance benefit, are set at sufficiently low levels that make it unlikely that they create disincentives to work. Moreover, in the analysis above we compare the benefit level for the first member of the unit of assistance for a single-member unit of assistance which is relatively more generous compared to the benefit levels for larger units. The low benefit level combined with steeply declining implicit equivalence scales for determining benefit levels for multi-member units of assistance lead us to conclude that there are fewer disincentives to work in the Western Balkans last-resort programs than in those of the OECD and EU Member States. Montenegro is an exception. The benefit level there is set at a level that is higher than the minimum pay standard for low skilled laborer after tax. An additional design aspect with potential work disincentives is that in Montenegro eligibility for last-resort social assistance is associated with up to ten additional rights to benefits and services (health coverage, child allowance, electricity subsidy, etc.) making it even more generous and attractive. To curtail this effect, the able-bodied persons with no dependent children are ineligible for the benefit.

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Evidence of marginal taxation on earnings has been obtained9 for three Western Balkan countries ‒ BH (each entity), Serbia and FYR Macedonia (see Table 6). This research reveals that people working in low-skilled, low-paying jobs have a fairly high tax wedge on their earned incomes, which is likely to give them a disincentive to graduate from social assistance into full-time work. Compared with the situation in the OECD and EU countries for which similar data is computed regularly, the tax wedge in FYR Macedonia and the RS is at the low end of the spectrum, while the tax wedge in Serbia and the FBH is considerably higher than the median. The gap between the tax wedge on low wages (33 percent of the average wage, which is used as an approximation of a minimum wage) and the full average wage in the Western Balkan countries is narrower than in the comparator countries, which implies that there are fewer incentives to move out of welfare and into work when the job is a low-paying one.

Table 5: Tax Wedge at Various Levels of the Average Wage in BH, FYR Macedonia, and Serbia (%, 2008)

Bosnia and Herzegovina FYR Macedonia Serbia

Tax wedge for single earner with no children 33% of average wage 37.8 (FBH) 31.1 (RS) 28.5 36.7 50% of average wage 39.5 (FBH) 32.8 (RS) 30.9 38.0 100% of average wage 41.8 (FBH) 34.5 (RS) 33.2 39.3

Tax wedge for one-earner couple with two children 33% of average wage 37.8 (FBH) 30.6 (RS) 28.5 36.7 50% of average wage 37.8 (FBH) 30.6 (RS) 30.9 38.0 100% of average wage 37.9 (FBH) 33.0 (RS) 33.2 39.3 Source: OECD Tax and Benefit model. World Bank, 2011c. Notes: The tax wedge is defined as the share of income tax and social security contributions by employers and employees over total labor costs. The numbers presented in this table refer to a one-earner couple with two children who receives average wage and works 33 or 50 percent part-time or full-time. Alternatively, in most, though not all, countries this can be interpreted also as the tax wedge of a one-earner couple with two children, working full-time, but receiving 33, 50, or 100 percent of average wage. In the latter case, working full time at 33 percent of average wage might be below the legal minimum wage. Values refer to 2009. Long-term stay on social assistance is determined also by the very weak or virtually absent coordination of cash transfers with social care services or support for employment to address in a holistic way multiple vulnerabilities and promote activation of those who can work. In the Western Balkan countries, the services in support of employment are not integrated with the cash social assistance and the social care services. Institutionally, their provision is separated: the employment services are rendered by employment offices / public employment services while social assistance is provided by the CSW, although both offices often work with the same clients (beneficiaries). The case management for job brokerage and employment is separate from the case management for social assistance (income smoothing); the concept of ‘one-stop-shop’ is not yet embraced and only Serbia is piloting models of linking social assistance to activation. The only formal institutional linkage between the employment services and CSW is exercised through the mandatory registration as unemployed; however it rarely serves for targeted interventions for activation and increasing employability. The data exchange between the CSW and the employment services is sporadic; real-time connectivity and reciprocal access to databases is not available. The able-bodied beneficiaries of social assistance are rarely treated with activation policies, and even more rarely sanctioned for not taking offered jobs or training. The scope of application of work tests / workfare requirements is extremely limited due to the lack of institutional capacity, including human and financial resources to organize and

9 Calculated using the OECD Tax-Benefit Model, see Annex 5.

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implement such activities. Concurrently, the supply of active labor market programs which are specifically targeted at activation of hard-to-serve individuals (those who are long-term unemployed and on social assistance) is also limited for the same reasons.

A Roadmap for Reforms. In the aftermath of the first wave of the global crisis, and in anticipation of new challenges, the Western Balkan countries face enormous fiscal pressures. Demand for social assistance which might increase following persistent high unemployment and possible future economic decline, will have to be met with a reduced fiscal envelope and with increased cost-effectiveness of spending. Maintaining effective protection in this case would involve: (i) making benefits more flexible to respond to crises and policy shocks; (ii) addressing issues of incentive-compatibility so that those who are capable to work are motivated to look for employment and earnings outside social assistance; and (iii) making the receipt of benefits conditional on using social, health, education, and job search services.

The last-resort programs in the Western Balkan countries build on the existing foundations of social assistance by undertaking a number of measures to make these benefits more equitable, efficient, and transparent.

1. Increasing coverage of the poor and the poorest quintile, by (i) protecting and even increasing spending on means-tested programs, particularly those programs with very good targeting accuracy, and shifting spending away from categorical programs; (ii) decreasing errors of exclusion by modifying eligibility criteria; and (iii) introducing smart design features that reduce work disincentives (see 3 below), but that provides last-resort benefit coverage to the working poor.

2. Strengthening and standardizing eligibility criteria using a continuous (non-binary) scoring formula. In economies with a significant informal sector, the income tests do not work very well and need to be supplemented by additional information on the applicant’s poverty status. The application of filters on top of (weak) means-testing results in significant distortions (errors of exclusion and possible disincentives for work) and suffers from non-transparent relative weighting across eligibility criteria. We recommend the standardizing and improving of eligibility criteria by: (i) eliminating the use of binary filters and (ii) strengthening means testing10 using a single continuous scoring formula that incorporates objective weights and variables that are empirically associated with poverty status. This formula could be adapted for urban (non-farming households) and rural (farming households) areas. This would reduce errors of inclusion (leakages to the non-poor), reduce errors of exclusion (the denial of benefits to poor families due to the application of ad hoc filters), reduce potential disincentives to work (from the application of binary filters that exclude anyone with labor market participation) and increase transparency in the system (use of explicit, objective weights across eligibility variables).

3. Introducing features to reduce work disincentives, such as gradual benefit reductions as a recipient’s earned income increases, higher exit thresholds from social assistance, earned

10 It is interesting to note that there is a complete disconnect between the poverty line in a particular country and the income threshold for eligibility for the last-resort social assistance program in that country. Setting eligibility thresholds closer to the poverty line (or to a relative poverty line) can further assist in the LRSA program achieving its goal of protecting the chronic poor – such linking of eligibility thresholds and poverty lines will also address some of the concerns related to regularly indexing the thresholds to price inflation.

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income disregards (up to a certain level), and the elimination of binary filters that bar beneficiaries from participating in the labor market.

4. Increasing the generosity of the last-resort social assistance by indexing benefits and eligibility thresholds to price inflation. The generosity of the programs can be further enhanced in some countries by changing the implicit equivalence scales to increase the size of the benefit to large multi-member families, which tend to be poorer than smaller families.

5. Strengthening benefits administration by: (i) automating information systems and creating a national registry of all applicants and beneficiaries; (b) simplifying and standardizing intake and application procedures; (iii) increasing the benefit take-up by reducing the financial, time and psychological (stigma) costs of application; (iv) improving monitoring, oversight, and controls to reduce fraud and errors; and (v) to the extent possible, integrating the registry systems for all social assistance benefits (not just last-resort programs) to enable cross-check and to unify benefits management. These improvements would not only increase equity and efficiency but would also make the system more transparent, thereby helping the governments improve accountability to the public.

6. Improving and streamlining implementation, even prior to the complete automation of information systems and national registries, by: (i) reducing the number of required documents and minimizing the number of documents that have to be submitted for re-certification; (ii) ensuring that all of the documents required to prove eligibility are provided free-of-charge and that as much as possible the flow of documents is through administrative channels and do not require beneficiaries to travel extensively to collect and submit these documents; (iii) improving the screening for welfare characteristics during the home visits by more structured observations; and (iv) increasing outreach efforts.

7. Finally, strengthening the links between the last-resort social assistance programs and other programs, such as labor market activation services and other social support services, could enhance the effectiveness of the safety nets in the Western Balkans countries. Guiding social assistance beneficiaries towards other support services could make them more employable (through education and training), connect the poor with available jobs (through job information, job search help, and matching services), and remove other obstacles to work (by providing them with access to other social services or productivity-enhancing schemes). This would also make social policy more coherent, taking it beyond cash handouts and towards providing integrated and proactive support.

The reform of social assistance in the Western Balkan countries is far from over. In keeping with the objective of increasing the efficiency and effectiveness of social protection while staying within a smaller fiscal envelope in the post-crisis environment, the new legislative agenda involves both parametric design changes and more radical steps towards making the safety net pro-active and incentive-compatible.

1

1. Introduction and Overview

1. This report compares the design, implementation, financing, and performance of the non-contributory cash transfer programs (social assistance) in the six countries in the Western Balkan region11 and analyzes them in the context of their ability to mitigate risks causing chronic and transient poverty, and also in the context of their links to social care and employment services. Its main focus is on analyzing the means-tested minimum income (last-resort social assistance) programs that exist in all six countries. The report examines the core features of these programs, taking stock of basic indicators of their scope and performance and reviewing their eligibility criteria, main design aspects, and implementation processes. 2. The introductory section describes the economic, social, and policy environments in which social assistance programs operate in the Western Balkans. Two main factors have influenced recent changes in the structure, design, and implementation of these programs. First, the recent economic crisis and resulting increases in poverty and vulnerability has focused the spotlight on social assistance programs and their ability to respond, prevent and mitigate risks. Second, the longer-term goal of the governments of the region to accede to the European Union (EU) has fostered harmonization of elements of social policy including objectives, design elements, and administration of social assistance with the social benefit systems in the EU Member States.

1.1 Economic Developments and Trends in Poverty and Unemployment

3. Severe Recession and Sluggish Recovery. The recent global economic crisis has been very severe in Eastern Europe and Central Asia, with real GDP in the region declining by 5.2 percent in 2009. Countries in the Western Balkans were less severely affected, except for Montenegro, where GDP declined by 7 percent (see Table 6). Although growth has resumed in other Western Balkans countries in 2010, the recovery is anemic, with growth rates expected to be lower than pre-crisis rates (see Figure 11).

Table 6: Main Economic Indicators and Poverty Trends in the Western Balkan Countries

Country Real GDP

growth (%, 2009)

Real GDP growth

(%, 2010)

Ease of doing

business ranking (2010)

Poverty rate (%)

Poverty headcount $2.5 a day

Poverty headcount $5 a day

Albania 2.8 2.3 82 12.4 (2008) 13.3 62.1 Bosnia and Herzegovina -3.4 0.5 116 14.0 (2007) 1.5 11.0 FYR Macedonia -0.7 2.0 32 19.0 (2006) 8.6 32.1 Kosovo 0 0.6 113 45.0 (2008) 57.1** 91.6** Montenegro -7.0 -1.7 71 4.9 (2008) 5.7 30.0 Serbia -2.9 2.0 88 6.9 (2009) 1.1* 14.6* Sources: IMF (2010), World Bank (2009a). Staff calculations - poverty estimates and simulations using 2007 LSMS (Serbia) and HBS data for Albania, Kosovo, Bosnia and Herzegovina, Montenegro, and FYR Macedonia. IMF Staff Reports on Kosovo. Note: * (2007); ** (2006/7)

11 Albania, Bosnia and Herzegovina, FYR Macedonia, Kosovo, Montenegro, and Serbia

2

Figure 11: Real GDP Dynamics and Poverty Risks Following the Crisis

Source: World Bank (2010). Poverty and Social Inclusion Conference, Brussels, December 2010.

4. Impact on Households. The main way in which households have been affected by the crisis has been through the labor market. There have been job losses in the formal sector in Albania and Kosovo, but surprisingly formal employment has been increasing elsewhere, most notably in Montenegro, followed by BH and Serbia. However this masks other negative labor market impacts on households. In the crisis monitoring survey in Montenegro fielded in 2009, workers reported reduction in their salaries and in the number of hours worked, having to take compulsory administrative leave, and delayed wage payments. Furthermore, the informal sector is shedding jobs,12 which is particularly significant because the share of people working in the informal sector in Western Balkan countries is higher than in the EU Member States and the contribution of informal sector income to overall household income is higher. Analysis of labor force data has also shown that these negative labor market outcomes have disproportionately affected poorer households, with the lowest consumption quintiles in all countries having experienced the largest increases in unemployment and largest decreases in employment. For example, in Serbia, total unemployment in the lowest quintile increased by 40 percent between October 2008 and October 2009 while total employment decreased by 12 percent.13

5. Increase in Poverty? Steady progress in reducing poverty in the region was made during the 2000s as a consequence of the robust economic growth that followed the end of the armed conflicts. Between 2002 and 2008, poverty in the region declined by 15 percent, but estimates suggest that in 2010 it was around 5 percentage points higher as a result of the economic crisis than it would have been under a no-crisis scenario (see Figure 12). 12 Analysis based on data from the Serbia Crisis Response Survey (2010). 13 For comparison, employment decreased by only 0.9 percent and unemployment increased by only 7.7 percent during the same period for those in the top consumption quintile. Note that this quintile information refers to the consumption distribution in October 2009 as the LFS in October 2008 did not collect a summary consumption module.

-6.0

-2.0

2.0

6.0

10.0

2008 2009 2010 2011

The crisis hit

Albania

Bosnia and Herzegovina

Kosovo

Macedonia, FYR

Montenegro

Serbia

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

23.0

24.0

25.0

26.0

27.0

28.0

29.0

30.0

31.0

2008 2009 2010

Millions

Percent

More people at risk of poverty

Headcount $5 a day, crisis scenario (Millions)

Headcount $2.5 a day, crisis scenario (Millions)

Headcount, $5 a day (%) Base scenario

Headcount, $5 a day (%) Crisis scenario

3

Figure 12: Western Balkans $5 Poverty Rates

Source: World Bank (2009c) Note: Simulations of poverty rates with available HBS / LSMS data).

6. The Role Played by Safety Nets during the Crisis. The global economic crisis has focused renewed attention to the importance of safety nets. While many developing countries found themselves struggling to set up such programs in the midst of the crisis, most ECA countries, including those in the Western Balkans, entered the crisis with safety nets in place. The unemployment insurance and social assistance benefits in the countries of the Western Balkans were potential response mechanisms to protect the poor and vulnerable during the crisis. Crisis monitoring data shows that spending on safety nets increased slightly, in real terms, in Serbia, Montenegro, and Kosovo in 2009. This is a significant development, particularly in the face of the large cuts being made in other areas of public expenditure. For instance, the national budget was cut by 27 percent in Serbia, but expenditures on social assistance were protected. Demand for social benefits typically increases in times of crisis, and it was assumed that social protection schemes would somehow respond as potential “automatic stabilizers” by expanding during the crisis to help households in smoothing consumption. Crisis monitoring results14 suggest that the “automatic stabilizer” response was not always automatic. Specifically, analysis of monthly coverage data from 2008-2010 suggest that there has been a lag in the response of poverty-targeted benefits, with the number of beneficiaries barely increasing and only with a delay. Certain design elements of these programs might have contributed to a slow response. Findings from crisis surveys indicate that this lack of a flexible response at a time when there is a much increased need for protection is likely to leave poor households with little choice but to resort to coping strategies that are harmful in the long run. As a result, the adverse impact of the crisis on such households may continue well after macroeconomic recovery. However, safety net programs did provide some measure of protection for those who were already receiving benefits.

1.2 Medium-term Challenges and Role for Safety Nets

7. The Aging Population. The demographic trends in the Western Balkan countries are not favorable to reducing the demand for social assistance and for social protection more broadly. Populations are aging quickly, especially in Serbia and Montenegro, and birth rates are falling,

14 Isik-Dikmelik (2010); Isik-Dikmelik (2011)

35.2

32.7

29.7 28.1 25.8

30.4 30.2

20 22 24 26 28 30 32 34 36

2006 2007 2008 2009 2010 $5 a

day

pov

erty

rat

es

Base Scenario Crisis Scenario

4

except in Kosovo. These trends have various economic, budgetary, and social consequences, but their most notable effect will be to reduce future labor force participation rates and to increase public spending on pensions, health care, and long-term care. The demographic situation has been exacerbated by the emigration of people of fertile age and has been further complicated by intensive intra-regional migration and displacement due to the regional conflicts and also for ethnic and economic reasons. 8. High and Persistent Unemployment. Unemployment remains high throughout the region as indicated by the numbers of registered unemployed and the numbers of unemployed competing for one job vacancy (see Table 7). Analysis of recent labor force survey (LFS) data reveals that the share of long-term unemployed (those who have been unemployed for more than one year) and the share of those who have stopped actively looking for a job (discouraged workers) are both well above the average for Europe in all Western Balkan countries.

Table 7: The Number of Registered Unemployed in the Countries of the Western Balkans (March 2009)

Number of Unemployed

Registered with Employment Offices (’000)

Growth Rates of Registered

Unemployment March 2009

compared to March 2008, %

Number of Vacancies

Claimed by Enterprises to Employment Offices (’000)

Number of Registered

Unemployed per vacancy

(persons)

Number of Registered

Unemployed Placed in

Employment (’000)

Official Unemploymen

t Rates compared with

EU27 (percentage

points) Albania 141.5* 0.4* 1.1* 70.8* 1.2* +3.4 Bosnia and Herzegovina

492 -4.8 — — — +30.7

Kosovo 338.6 0.7 0.7 501.6 0.6 +35.7 Montenegro 29.2 -6.7 4.6 6.3 2.6 +2.1 Serbia 758 -4.7 58 13.1 21 +3.7 FYR Macedonia

351.3 -1.8 — — 4.8 +25.7

Sources: IMF (2009).National statistics from European Commission Eurostat Note: * February 2009

Weak Investment Climate. Compared with the rest of Europe, Western Balkan countries are characterized by a lower level of economic development, less favorable business environment and investment climate (except in FYR Macedonia), and a less dynamic private sector. After the crisis started, foreign direct investment declined dramatically and the demand for external financing increased, especially in Serbia. Other than FYR Macedonia, the Western Balkan countries are not among those countries ranked near the top of the World Bank’s Ease of Doing Business Index 2010 (World Bank, 2009a) as is evident in Table 3. Governments should place a high priority on improving the business environment to encourage new investment and developing infrastructure to ease access to markets and the flow of goods in order to encourage job creation and to facilitate faster GDP growth.

9. Post-crisis Fiscal Tightening and Reform of Safety Nets. In the aftermath of the global crisis, even as there are small signs of recovery, the Western Balkan countries face enormous fiscal pressures. Improving the investment climate and spurring the development of the private sector can ease some of this pressure by increasing revenues. Reducing high and persistent unemployment can reduce the demands placed on social protection and more specifically on

5

social assistance. At the same time, in order to meet the increased demands on social protection from the aging population, governments will need to increase the cost-effectiveness of spending in the social sectors. Maintaining effective protection for the poor and vulnerable within the reduced fiscal envelope would involve: (i) making benefits more flexible to respond to crises and policy shocks; (ii) addressing issues of incentive-compatibility so that those who are capable to work are motivated to look for employment and earnings outside social assistance; and (iii) making the receipt of benefits conditional on using social, health, education, and job search services. In addition, governments could create savings by speeding up public sector reforms.

1.3 The Prospects for Joining the European Union: Social Policy Agenda

10. Social Acquis. The EU’s social acquis communautaire (the social dimensions of integration) covers limited areas of labor market policies and family protection measures, also elements of the social dialogue, gender equality, portability of pensions, and other social security entitlements. The Western Balkan countries are faced with the challenge of adapting their policies to accord with these elements of the acquis. The desire to become a part of the European Union (EU) is high on the political agenda of the Western Balkan governments. Currently these countries are at different stages of their path towards achieving EU member state status. This raises the question of whether their social protection policies are consistent with the championed by the European Commission (EC) strong commitment to harmonious, cohesive and inclusive societies respecting fundamental rights in healthy social market economies. This also raises the question of to what extent the countries have the knowledge, capacity and preparedness to reform their social protection policies in line with the fundamental goals of the Renewed Social Agenda of the EU, promoting:

� Creating opportunities by generating more and better jobs and facilitating labor mobility. � Providing access for all citizens to good quality education, social protection, health care

and services that can help overcome initial inequalities and enable all citizens to enjoy longer, healthier lives.

� Fostering social inclusion and integration, participation and dialogue and combating poverty as well as supporting those exposed to the temporary, transitional problems related to globalization and technological changes.

11. Overarching Lisbon Objectives and Europe 2020 Strategy. As mentioned, the social acquis has a limited coverage and at this point there is no specific acquis (common legislation) that regulates specifically social assistance and services in the EU. Nevertheless, the countries that aspire to join it are expected to make the structure and regulation of their safety nets consistent with models that already exist in EU member states, all of which regard the access to social assistance (and health and social protection more broadly) as a fundamental right. The EU considers the existence of adequate, accessible, financially sustainable, adaptable, and efficient social protection systems and social inclusion policies to be a precondition for promoting social cohesion and equal opportunities for all. The accession countries are also expected to adhere closely to the Lisbon objectives on achieving greater economic growth and more and better jobs. They are also expected to strengthen governance and transparency and to involve stakeholders in the design, implementation, and monitoring of social policy. Europe 2020 is the EU's growth strategy for the coming decade. In a changing world, it calls for the EU to become a smart, sustainable and inclusive economy. These three mutually reinforcing priorities should help the

6

EU and the Member States deliver high levels of employment, productivity and social cohesion. Concretely, the Union has set five ambitious objectives - on employment, innovation, education, social inclusion and climate/energy - to be reached by 2020. Each Member State will adopt its own national targets in each of these areas. Concrete actions at EU and national levels will underpin the strategy. The candidate and accession countries are expected to respond to Europe 2020 Strategy in a similar way - by adopting national goals and measures, and reporting on them.

12. Open Method of Coordination (OMC) – Learning from Each Other. Considering that the common EU legislation in the social sphere is limited, and few EU directives can be directly or indirectly transposed in the national legislation, the objectives (benchmarks) set by the EU need to be achieved by each member state and future member state by implementing individual national policies. In support of this effort the Lisbon Agenda sets the OMC – a process that facilitates pooling of knowledge, experience and best practices from the various Member States so that they, but also acceding countries can learn from the variety of experiences but chose and plan their own route towards achieving the common goals.

13. Pre-accession Instruments. In 2000, the EC initiated the Stabilization and Association Process for the Western Balkan countries and launched the first financing instrument, the Community Assistance for Reconstruction, Development and Stabilization (CARDS) Program 2000-2006. This was followed by the Instrument for Pre-accession (IPA)15 for 2007-2013 which main objective is ‘accession driven” - to bring the institutions and standards in the Western Balkan countries in line with the acquis so that they become able to meet their obligations as Member States. The IPA financial envelope (2007-2013) amounts to Euro 11.5 billion.

14. Regional Cooperation. In parallel, after the war in Kosovo, in 1999 the international development community launched the Stability Pact for South-East Europe as the first comprehensive conflict-prevention strategy, aimed at strengthening the efforts of the countries of South Eastern Europe in fostering peace, democracy, respect for human rights, economic prosperity and security. Over the years, the focus of the Stability Pact has shifted from confidence building among the countries torn by a decade of conflict, and rebuilding the destroyed infrastructure, to a framework for regional co-operation in South Eastern Europe, and for supporting the integration of these countries into European and Euro-Atlantic structures, including through coordination of social policies. The Stability Pact established the Initiative for Social Cohesion (ISC) with the strong cooperation of the Council of Europe and the International Labor Organization (ILO) to coordinate social protection and employment policy, health and housing policy, and social dialogue. The Stability Pact’s successor, the Regional Co-operation Council, continued promoting the social development agenda in recognition that notwithstanding the restored economic growth, the region has failed to create a substantial number of new jobs in the formal sector and to enhance equity and social inclusion. The vehicles applied to advance regional cooperation are exchange of information, knowledge and expertise in the area of employment, labor market and social policy via the Employment and Social Policy Network, the Centre of Public Employment Services of South East European countries and the Regional Program on Social Security Reforms and Social Security Co-ordination. During 2011-2013, the

15 IPA is an integrated pre-accession instrument providing assistance to candidate countries (Croatia, FYR Macedonia, Turkey and Iceland) and potential candidates (Albania, Bosnia and Herzegovina, Serbia and Montenegro) as well as Kosovo (under UNSCR 1244/99).

7

Regional Co-operation Council is implementing a strategy focused inter alia on linking economic and social developments. 15. Organization of the Report. The report is organized as follows. Chapter 2 analyzes the architecture of the safety nets in the Western Balkan countries (program mix, objectives, expenditure stocks and flows, central and local government responsibilities, and management structures). Chapter 3 discusses the main design characteristics of the last-resort social assistance (LRSA) programs and what role they play in targeting, benefit uptake, and exclusion outcomes. Chapter 4 describes the implementation arrangements for the LRSA programs. Chapter 5 analyzes the performance of both overall social assistance and the LRSA programs in terms of their targeting accuracy, coverage, and generosity, and concludes with a discussion of whether disincentives to work are built into the design of these LRSA programs and whether there is a need to promote activation and move beyond stand-alone cash transfers to the poor. Chapter 6 summarizes the main findings of the report and proposes a typology of priority reforms / actions needed in the countries with “established” ex-Yugoslav legacy social systems (Serbia, Montenegro, FYR Macedonia and Bosnia and Herzegovina) as well as in those with “newer” programs (Albania and Kosovo).

8

Social Protection

Social Insurance

Labor Market

Social Assistance

2. The Architecture of the Safety Nets in the Western Balkan Countries

16. The safety nets in the Western Balkan countries evolved in the transition period. Some of the countries implemented radical reforms that completely overhauled the institutions of the past, while others made a gradual transition to a safety net architecture aimed at mitigating the social risks associated with a functioning market economy. In this chapter, we compare the design, implementation, and financing of the social assistance programs in the countries in the Western Balkans and analyze them in the context of their links – where these exist – to social welfare and employment services.

2.1 Overview of Social Protection

17. Conceptual Framework: Social Insurance, Labor Market Programs and Social Assistance. Social assistance is one of three building blocks (pillars) of a multi-dimensional approach to and understanding of social protection (see Figure 13). Along with social insurance and labor market programs, social assistance (i) protect individuals and households from destitution and human capital loss; (ii) prevents against adverse events, income and expenditure shocks entailing poverty or vulnerability over a person’s lifetime and mitigates the risk against falling into chronic and multi-generational poverty; and (iii) promotes improved opportunities, livelihood and better jobs. While most social insurance programs and some labor market programs aim mainly to replace income and require formal employment and contributions before conferring pension and unemployment benefit rights (contributory programs), social assistance programs have diverse objectives and are financed from general taxes (non-contributory programs). 18. More Spent on Social Insurance than on Social Assistance. Public outlays on the three pillars of social protection vary considerably in the Western Balkan countries with Serbia spending close to 13 percent of GDP on social insurance. On the other extreme, Albania spends a bit more than half of that share of its GDP on all social protection (see Figure 14), and Kosovo spends even less – below 4 percent of GDP on all social protection.16 Within the overall social protection spending envelope, Western Balkan countries (excluding Bosnia and Herzegovina) devote an average of 1.8 percent of GDP to social assistance (non-contributory safety net programs), with another 9 percent spent on pensions and other forms of social insurance and labor market programs.17

16 The main source for spending data is administrative, obtained mainly through requests to the Ministries of Labor and Social Policies and Statistical Office websites. These data may sometimes be incomplete – it is likely that we capture most cash transfers, but the transfers that we may have missed are social care services, spending by local government units, and consumer subsidies. We continue to try to collect even these difficult to find data so as to have as complete and correct a comparison as possible across all ECA countries. 17Bosnia and Herzegovina is included in this average with spending only on pensions (for social insurance) and only on unemployment benefits (for labor market programs).

Figure 13: Conceptual Framework

9

Figure 14: Social Protection Spending (% of GDP, 2008 – 2009)

Source: Europe and Central Asia Social Protection Database, World Bank. Note: Data for BiH is from 2007 (most recent available). Data is preliminary for some countries and are currently being validated. 19. Defining Social Assistance. In this report, we designate any non-contributory public transfer as a social assistance transfer. Given this definition, social assistance is a broad concept not limited to benefits for the poor only. The main categories of social assistance programs which we identify and analyze as part of the social assistance umbrella in the Western Balkans are the following four:

� Last-resort social assistance programs whose main objective is to alleviate chronic or transient poverty and provide income support to the most poor and vulnerable

� Family and child support with services and allowances that aim to protect families with children as well as increase fertility rates, encourage child raising in family environment, protect the jobs and incomes of mothers and parents more broadly and promote the development of human capital

� Disability allowances that provide financial and in-kind support to the disabled who are not eligible for contributory disability benefits and / or pensions

� War veterans’ benefits that compensate the families of fallen soldiers for the loss of the breadwinner, protect disabled former soldiers and their families, and, in certain instances, reward veterans of wars for their services.

2.2 Social Assistance Program Mix and Its Determinants

20. A number of factors determine the scope of social assistance in the individual Western Balkan countries and the priorities and development of each program. Legacy Factors Influencing the Composition of the Safety Net in the Western Balkans 21. Legacy of the System in the Former Yugoslavia. The composition of social safety nets in the Western Balkan countries is influenced considerably by the historical legacy of the social assistance system that existed in the former Yugoslavia, which was both fragmented and at the

0% 5% 10% 15% 20% 25%

Ukraine 09*Hungary 08

Serbia 09*Poland 08

*Slovenia 08Croatia 09

Romania 09Montenegro 09

BiH 07Bulgaria 08

*Slovakia 08*Estonia 08

Lithuania 08Belarus 09

FYR Macedonia 09Moldova 08

Russia 08Latvia 09

Albania 09Turkey 08

Kyrgyz Republic 09Armenia 09

Azerbaijan 09Georgia 08Kosovo 09

Tajikistan 09

Social Assistance

Labor Market

Social Insurance

10

same time generous. Yugoslavia had a generous system of categorical benefits and social services for families and individuals facing different risks and income shortages at different stages of the lifecycle. These ranged from paid maternity leave and birth grants to universal monthly child allowances, scholarships, categorical disability benefits and benefits for those taking care of disabled family members, minimum income guarantees, social pensions, home-based social services, institutional care for children, the elderly, and people with disabilities, and funeral grants. Many benefits were paid through employers even when financed from the public budget. Residual arrangements of the same kind continue to exist in some countries of the former Yugoslavia where employers continue to deliver some of the social assistance. 22. Legacy of Armed Conflicts. The design of the social assistance benefit structure in the Western Balkan countries is also influenced considerably by the need to provide care for and recognize those who suffered as a result of the multiple regional armed conflicts of the 1990s.18 The present system has to address the social consequences of these conflicts by sustaining a much broader set of cash and in-kind benefits for different categories of beneficiaries than other ECA countries have to provide. These extra beneficiaries include disabled war veterans and their survivors, the families of fallen soldiers, civilian victims of war and civilians disabled during the wars, former members of the armed forces, and demobilized soldiers.19

Multiplicity of Objectives and Fragmentation of Benefits 23. Multiplicity of Objectives. As mentioned earlier, social assistance benefits in the Western Balkans have multiple objectives which determine the mix of programs. In addition to the four main types of programs: (i) last-resort social assistance; (ii) family and child protection benefits; (iii) disability benefits; and (iv) benefits for war veterans and their families, social assistance includes in-kind benefits in the form of direct and indirect subsidies and services like home-based or institutional care and free health insurance for the recipients of LRSA or disability benefits. 24. From Fragmentation to Packaging Benefit Delivery. In most of the countries of the region, the various benefit programs are completely separate from each other, meaning that they have not been designed ‘as a system’ - to complement each other in addressing different risks and maximize their overall impact on the beneficiary. This fragmentation means that each program has its own stand-alone design and implementation rules20 and even – when means-testing is involved – different eligibility criteria, access thresholds and testing procedures. However, there are cases when benefits and services are delivered ‘in packages’ that combine

18 The military conflicts also caused mass migration and internal displacement. As a result, social assistance systems in the Western Balkans today face major problems in trying to assess applicants’ eligibility and in checking the required documentation that indicates citizenship, family composition, employment, pension income, and income and asset status. While these circumstances are easily verifiable in most countries, it is difficult to do so in the post-conflict Western Balkans because of incomplete registry data, missing personal documents, and the destruction of institutional archives. 19 The benefits that are given range from personal and survivors’ pensions to allowances for care-giving, non-contributory unemployment benefits, employment assistance and other services for those who have been demobilized; stipends and free textbooks for children, allowances for orphans and widows, and a range of employment, education, and health care services. 20 A drastic example is the design of disability benefits in the Federation of Bosnia and Herzegovina, where the laws differentiate between disability benefits for civilian disabled, for civilian victims of war, and for disabled war veterans. Each category is subject to different disability assessment procedures, leading to different disability rates being assigned for similar conditions. The number and generosity of benefits are determined by the disability rate and differ substantially across the three categories. For example, the disabled veterans receive benefits if categorized with a disability rate of 20 percent and above, while the civilian disabled are eligible only in the case of a severe, permanent, and irreversible disability of 90 or 100 percent.

11

several benefits and services with the monthly cash social assistance to address multiple needs and vulnerabilities of the assisted individual or family. For example, in Montenegro, the recipients of LRSA are also eligible for free health care, provision of care by a third person (care giving services) in the case of severe disability, monthly child allowances when there are children in the family or household (the “unit of assistance”), free summer camps for children, and compensation for funeral costs. Also, in Kosovo, the recipients of monthly income support are eligible to receive ad hoc support, for example, free wood or coal for heating purposes from the municipalities. In FYR Macedonia, the government is introducing a “conditional cash transfer” benefit to top up existing targeted social financial assistance benefits with an additional allowance that is conditional on regular school attendance by the children of the household.

25. Different Types of Benefit Systems. In the Western Balkans, some countries have a social assistance system that is gradually reforming itself from the Former Yugoslavia (those in Serbia, Montenegro, the entities of BH,21 and FYR Macedonia) while others have systems that have been started anew (Kosovo and Albania). The countries that reformed gradually operate a wide range of programs that cover different risks: 20 different types of benefits in Serbia, 14 in Montenegro, 8 in FYR Macedonia, 17 in the Federation of Bosnia and Herzegovina (FBH), and 10 in Republika Srpska (RS), not counting the plethora of war veterans’ benefits that exist in both entities of BH, also in Serbia and FYR Macedonia. The countries that have started new systems offer a more selective mix of benefits. Albania operates one LRSA and one non-contributory disability benefit program, while Kosovo has altogether four social assistance benefits. The main benefits of each type are summarized in Table 8.

Table 8: Main Social Benefits in the Western Balkan Countries Type of benefit


FYR Macedonia Kosovo Montenegro Serbia

Last-resort social assistance Minimum income support

Ndihma Ekonomike

Permanent social assistance

Social financial assistance (for able to work) Permanent assistance (for unable to work)

Last-resort income support

Family material support (FMS/MOP)

Family Material Support (MOP); Cash Family Assistance (2011)***

Other benefits Ad hoc social support

One-time social assistance

One-time social assistance, assistance for social housing, or for orphans aged 18-26

Ad hoc assistance by municipality



Family and child benefits Monthly child benefits

Child allowance (FBH, RS)

Child allowance Last-resort income support

Child allowance Child allowance, increased child allowance

Birth grant One-time newborn kit (FBH) Birth grant (RS)

One-time assistance for newborn babies

Universal birth grant

Parental benefit/birth grant

Other family and child benefits*

Wage compensation during maternity Financial support for unemployed mothers

Parental benefit for the 2nd born child ; Parental benefit for the 3rd born child; Parental benefit for 4th child, and pension benefit to non-working mother who gave birth to 4th child; Financial assistance for orphaned children, and for 4th

Compensation for working and non-working women, and for parents working part-time

Wage compensation for maternity leave (working women)

21 Bosnia and Herzegovina consists of two entities – the Federation of Bosnia and Herzegovina (FBH) and Republika Srpska (RS), which operate separate social assistance systems.

12

Type of benefit



child Non-contributory disability benefits

Monthly disability benefit

Disability allowance

Personal disability benefit for non-war disabled (FBH, RS) Personal disability benefit for civilian victims of war (FBH, RS) Family benefit for civilian victims of war (FBH, RS)

Special allowance for child with moderate or severe disability

Disability pension for adults Disability pension for children

Personal disability benefit

Caregivers’ allowance

Attendance and assistance allowance / care by third person

Care-giving (social service)

Care by another person for non-war disabled and for civilian victims of war (FBH, RS)

Financial assistance for care giving by other person

Other person’s care allowance

Increased caregivers’ allowance for getting other person’s help

Other disability allowances

Orthopedic allowance for non-war disabled and civilian victims of war (FBH, RS)

Allowance for reduced work hours while providing home-based care for a child with disability

Assistance for professional rehabilitation and enabling to work

Benefits for war veterans and their families Benefit for participants in wars / military conflicts

Monthly cash benefits for demobilized soldiers and medal holders (FBH)**

Wage compensations for working veterans

Benefits for disabled war veterans

Basic military disability allowance (FBH, RS)

Disability benefits Benefits for war invalids

Cash compensation for disabled war veterans

Cash compensations for disabled war veterans

Allowance for care-giving to disabled war veterans

Allowance for care-giving by another person (FBH, RS)

Caregivers’ allowance Caregivers’ allowance for war invalids

Caregivers’ allowance

Allowances for special equipment

Orthopedic allowance (FBH, RS)

Orthopedic allowance

Orthopedic allowance

Benefits for families of fallen soldiers / survivor benefits

Survivor’s benefits (FBH, RS)

Survivors’ benefits Benefits’ for Martyrs’ families Benefits for war invalids after death

Survivors’ benefits

Survivors’ benefits

Benefits for civilian victims of war and their families

Monthly allowance, orthopedic allowance, caregivers’ allowance

Allowance for civilians disabled during wars

Benefits for families of civilian victims, civilian war invalids and their families

Allowance for civilians disabled during wars

Compensation for disability acquired during the war

Source: National social protection laws Note: * Benefits in case of foster care are not included; ** Discontinued by October 2010; *** The cash social assistance is the ‘successor’ of the MOP as of April 12, 2011, and has the same objectives.

2.3 Overview of Spending on Social Assistance

26. Spending at the Level of Regional Standards. Social assistance spending in the Western Balkan countries, measured as a share of GDP, is comparable with the other ECA countries (see Figure 15). According to the most recent available administrative data, it is at the level of the average spending in ECA – 1.8 percent of GDP. BH is a notable exception; with an

13

amount equal to 3.33 percent of its GDP22 going towards social assistance, it is the second biggest spender in ECA (after Croatia, and comparable with Romania). Not counting expenditures on war veterans’ benefits, however, BH spending on social assistance is not higher than 1.4 percent, meaning below the Western Balkans average.

Figure 15: Social Assistance Spending by Main Types of Programs (% GDP, 2008 - 2009)

Source: Europe and Central Asia Social Protection Database, World Bank. Note: Data are preliminary for some countries and are currently being validated. 27. Diverse Spending Priorities. The structure of budget allocations across social assistance programs that reflects spending priorities has some distinct features:

� The Western Balkan countries spend more on disability allowances than most of the other ECA countries with Albania having the largest spending on disability allowances in the region. Bosnia and Herzegovina ranks second in ECA (together with Belarus) in terms of spending on disability benefits mostly due to the presence of disability benefits for the civilian victims of war, and despite the radical cuts in the disability entitlements for those whose disability is non-war related in the FBH.

� The Western Balkan countries spend considerably less than the ECA average on child and family allowances. Expenditure on child allowances is higher in countries outside the Western Balkans; for example, Estonia allocates about 78 percent of its social assistance expenditure to universal (non-means-tested) child allowances. In the Western Balkan region, however, Kosovo and Albania have no stand-alone child benefits. In the rest of the Western Balkan countries the main child benefit – the monthly child allowance – is means-tested with criteria which in terms of rigor are comparable with the income test for last-resort social assistance and entail lower spending. The spending priorities of Serbia seem different with the difference coming from the presence of a considerable spending (up to one third of the overall social assistance budget) on a program for wage compensation during maternity leave for working mothers which is treated as a non-contributory social benefit in Serbia, paid by employers but financed by the state budget

22 Expenditure on social assistance in BiH was even higher in 2007 (3.8 percent of GDP). In 2008, it went down to 3.33 percent, but this was partially due to the lack of data on the demobilized soldier unemployment allowance and other related benefits in the FBiH, as well as due to non-recorded arrears. Spending on the demobilized soldier benefit package was 0.28 percent of GDP in 2007.

0.0%

1.0%

2.0%

3.0%

4.0%

BiH 08

Serbia

09

Kosov

o 09

Albani

a 09

Monte

negro

09

FYR M

acedo

nia 09

Croatia

09

Roma

nia 09

Russia

08

Ukrai

ne 09

Belar

us 09

Lithuan

ia 08

Armen

ia 09

Moldo

va 08

Azerba

ijan 09

Bulga

ria 08

Georg

ia 08

Kyrgyz

Repu

blic 09

Latvia

09

Tajikis

tan 09

Western Balkans Other ECA

Last-Resort Social Assistance Family and Child Allowances Disability Benefits War Veteran Benefits Social Pension Other

14

through the Ministry of Labor and Social Policy. Similar programs exist in other ECA countries as well but in most of the cases they are contribution-based and treated as part of the social insurance pillar.

� Another specific feature of spending, as already mentioned, is that a high share of the budget allocated to war-related benefits and compensations. These dominate the structure of spending in BH, and are also considerable in Kosovo, Serbia and Montenegro.

28. High Spending on Categorical Benefits. Throughout the 2000s, categorical benefits have absorbed a higher share of social assistance spending than means-tested benefits as is evident from Figure 16. The spending on categorical benefits prevails distinctly in BH, mostly due to the benefits extended to disabled war veterans and their families, and to non-contributory unemployment benefits for demobilized soldiers in FBH. Only FYR Macedonia spends more on means-tested social assistance than on categorical programs. It applies a means test to the LRSA and, to a certain extent, to the monthly child allowance. Till 2008, it also used to apply a means test to the main disability benefits. While Kosovo and Montenegro keep spending parity between the two types of programs, the bias towards categorical benefits is quite strong in Albania and Serbia, and especially in BH. In Montenegro, the near parity between spending on categorical and means-tested benefits is due to the fact that the child allowances and several other benefits are means-tested using the same eligibility criteria and income thresholds as for the Material Support for Low-income Families Program (FMS/MOP). The targeting the child allowances to poor families with children and the linking of eligibility to the FMS/MOP leads to a higher overall benefit adequacy (more meaningful financial support for the poor), however there is always a trade-off between good adequacy and good coverage – it is equally important for the system to be able to cover (include) a higher share of those who are eligible for social assistance.

Figure 16: Spending on Social Assistance by Targeting Method (% of GDP, 2009)

Source: Europe and Central Asia Social Protection Database, World Bank Note: Spending for BH is calculated using 2008 budget data. 29. Categorical Benefits Squeezing Out Last-resort Programs. Over time, expenditures on categorical benefits have increased, squeezing out spending on last-resort poverty targeted programs. Specifically, expenditures on war veterans’ benefits and disability benefits have increased in the Western Balkan countries.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

FYR Macedonia

Montenegro Albania Kosovo Serbia BiH*

0.770.50 0.36

0.730.43 0.52

0.340.64 1.00

0.80 1.51

2.82Categorical

Means-tested

15

� Expenditures on war veterans’ benefits have increased in several countries. The spending in Kosovo increased most significantly by ECA regional standards (along with Croatia) between 2004 and 2009, following the adoption in 2006 of a law on the status and rights of martyrs’ families, disabled veterans and members of the Kosovo Liberation Army, and families of civilian victims of armed conflict in Kosovo, which provides more generous benefits than the law of 2000. Further increases are expected with the adoption of an even more generous legislation in 2010. Spending on war veterans’ benefits have also increased in Serbia since the beginning of the 2000s till 2008 reaching 0.6 percent of GDP. In 2009 however, this spending has been curtailed to 0.5 percent of GDP, and is expected to decline further following the strengthening of eligibility audits, the introduction of an electronic registry of beneficiaries and digitalization of all documentation supporting eligibility. These measures have led to reduction of duplication of benefits and the extent to which benefits are granted even if the applicant provides only partial, or in other ways irregular supporting documentation. The expenditures on war veterans’ benefits in BH declined but from a very high basis in the middle of the 2000s. Spending is expected to decline further because in 2010, the FBH government revoked the unemployment benefits for demobilized soldiers, also because both entities introduced means-testing of benefits for medal holders in mid-2010, and promulgated legislation for means-testing of other veterans’ benefits starting in 2011.

Figure 17: Trends in Spending on War Veterans’ Benefits (% of GDP, 2000 – 2009)


� Expenditures on disability benefits have increased in all six countries of the Western Balkans, and the increase has been most pronounced in Albania, BH, and FYR Macedonia. Spending on disability assistance in Albania has reached 0.9 percent of GDP, the highest in the ECA region. An initial diagnostic (Guven, 2010) of the disability program in Albania has shown that disability legislation is scattered, the criteria for disability assessment are only medical, and are outdated, and the system that is in place for assessing disability cases is deficient and open to conflicts of interests (as the doctors who assess disability cases are also on the reviewing commission). In BH, the spending on non-contributory disability benefits that are not related to the war, registered an extremely large increase between 2006 and 2008 – from 0.2 percent of GDP to 0.8 percent of GDP. The increase was mostly attributed to proliferation of disability benefits in FBH, especially for claimants with moderate disability rate (80 percent and below). The immediate reason for that, as in the case of Albania, is related to the quality of

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2009

2008

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20092009

2009

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0.0%

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FYR Macedonia Kosovo Montenegro Serbia Croatia Romania

Western Balkans Comparators

16

disability assessment which is not aligned with the International Classification of Functioning and Disability of the World Health Organization (WHO). The increased disability spending could not be sustained by the FBH budget. The accumulation of arrears led to taking radical policy measures including cutting of rights to disability allowances so that only those with severe and irreversible disability of 90 or 100 percent remained eligible after completing a new medical assessment of their disability status. Over 60,000 claimants have reapplied and subjected to new medical assessment. Similar lax and fragmented procedures are not uncommon in ECA countries outside the Western Balkan region as well, most pronouncedly in Romania where the scope of increase in the spending on disability allowances is comparable with Albania.

Figure 18: Trends in Spending on Disability Benefits (% of GDP, 2000 – 2009)


30. Reduced Spending on LRSA Benefits. Spending on LRSA benefits has contracted prominently in Albania, Kosovo and FYR Macedonia and to a lesser extent in BH where this program has been consistently very small throughout the 2000s (see Figure 19). In Montenegro, the spending on FMS/MOP remained relatively stable at the level of 0.4 – 0.5 percent of GDP. Serbia is the exception where the expenditure on the last-resort Material Support for Low-income Families Program (MOP) went up from a very low level of 0.02 percent of GDP in 2000 to 0.16 percent in 2009, following significant legislative changes to the Law on Social Protection and Provision of Social Safety to Citizens in September 2004. The changes eliminated the regional and municipal differences in MOP eligibility criteria, introduced a nation-wide eligibility thresholds and indexation rules (World Bank, 2009b). Despite the budget increase though, the spending on MOP is still low by international standards.23 The starkest trade-off between expenditure on an income-tested, last-resort program (the Ndihma Ekonomike) and a rights-based disability program can be seen in the case of Albania, where expenditure on disability benefit increased from 0.46 percent of GDP in 2000 to 0.9 percent in 2008, while expenditure on Ndihma Ekonomike declined from 0.83 percent of GDP to 0.33 percent over the same period. While some reduction in the spending on last-resort programs can be expected during a period of robust growth and poverty reduction as was the case in Albania, the increase in the uptake of disability benefits may indicate that potential beneficiaries are encountering barriers to accessing pensions or that there are faults in the disability assessment procedures.

23 A new Law on Social Assistance was introduced in Serbia as of April 2011, that addresses certain limitations to coverage and take-up of the LRSA program, and provides for more adequate benefit amounts in the case of larger families (with 3 and more members) that will eventually increase the LRSA budget.

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FYR Macedonia

Kosovo Montenegro Serbia Bulgaria Croatia Latvia Romania


17

Figure 19: Trends in Spending on Last-resort Social Assistance (% of GDP, 2000 – 2009)


2.4 Institutional Structures for Managing Safety Nets

31. Central Responsibilities: Design, Planning, Monitoring, and Oversight. Policies on social assistance, disability, the family, and child protection are developed at central level in all the countries of the region, usually by the social and/or labor ministry, which is also responsible for financial planning and for monitoring policy implementation in these areas24 (see Figure 20). These ministries determine and periodically review and update the design of social assistance programs, their eligibility criteria and determination methods, the income thresholds for accessing the programs and other qualifying conditions, and the benefit’s base and level. The central ministries are also supposed to monitor and evaluate the poverty impact and effectiveness of the programs and to take remedial action when coverage and targeting accuracy decline. However, this function is still underdeveloped. Modern evaluation techniques are not being used. Household level micro data are collected annually in all countries except for BH where these data are collected once in three to four years but its use for assessing the targeting and coverage of social assistance programs is limited25. The only data being monitored on a regular basis (monthly and yearly) are administrative data on spending amounts and numbers of recipients by programs, which are used by the ministries mostly to estimate future financing needs and program intake. Nor are any poverty reduction objectives set a priori. The value of the benefit is set on the basis of the available budget and not in relation to an absolute poverty line that would make it possible to assess whether social assistance is helping households to maintain a pre-determined minimum consumption level.

24 The precise institutional setup has changed several times in the 1990s and 2000s. Currently, the development and monitoring of social assistance policies are the responsibility of the Ministry of Labor, Social Affairs, and Equal Opportunities (MOLSAE) in Albania, the Ministry of Labor and Social Policy in the FBH, the Ministry of Health and Social Affairs in Republika Srpska, the Ministry of Labor and Social Policy in FYR Macedonia, the Ministry of Labor and Social Welfare in Kosovo, the Ministry of Labor and Social Welfare in Montenegro, and the Ministry of Labor and Social Policy in Serbia. 25 Not all of the survey instruments capture separately the transfers from last-resort social assistance.

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Figure 20: Typical Institutional Structure for the Safety Net – Western Balkans

32. Example: Institutional Structure in Montenegro. The departmental structure of the ministries reflects the mix of policies for which they are responsible. Figure 20 illustrates how the Ministry of Labor and Social Welfare in Montenegro is organized into five different departments: (i) the department for pension and disability insurance, veterans, and disability protection, which is in charge of pension system reform, pension system policy, and the protection of veterans and disabled people; (ii) the department for social and child protection, which is in charge of protection of the family, protection from social exclusion of people with disabilities, and children deprived from parental care; (iii) the department for labor market and employment, which is in charge of unemployment insurance and employment policy; (iv) the department for labor relations; and (v) the department for information technology and statistical and analytical work in social protection. 33. Alternate Institutional Structures. In other countries, policymaking for specific types of vulnerable populations is combined in one ministerial department. In Serbia and Kosovo, the organizational structures are similar to that in Montenegro, except that war veterans’ benefits are managed by separate ministerial departments. In Republika Srpska, the war veterans’ policies are combined with employment policies in a separate Ministry of Labor and Veterans’ Affairs. Similarly, in the FBH, war veterans’ benefits are designed, monitored, and implemented by a Ministry of Veterans’ Affairs that was especially established for the purpose. Where each country decides to place responsibility for veterans’ benefits reflects their importance on the social policy agenda. Having separate organizational structures to design and implement war veterans’ benefits is a policy decision that emphasizes the specificity of war veterans’ protection in relation to the other population groups that are in need of social protection. 34. Some Fragmentation in Design, Financing, and Implementation. Although most of the benefits are designed by the ministries responsible for social assistance and / or war veterans’ affairs, some are designed, financed, and implemented by other government agencies. For example, electricity or energy subsidies are administered by the national energy authorities, district heating or electricity distribution companies, or by different ministries. These agencies apply their own definitions of poverty or vulnerability (for example, the energy poor), their own income thresholds and other elements of eligibility determination, and their own verification and payment methods.26 26 In Montenegro in 2008 and 2009, the Ministry of Economy and the electricity distribution company administered an electricity bill subsidy, the eligibility for which was restricted to providers of foster care and recipients of social assistance, personal disability benefit, the caregivers’ allowance, minimum pensions, and material support for war veterans. Montenegro also implements a non-contributory benefit for elderly farmers

“Ministry of Labor & Social Policy”(Responsible for design, planning, monitoring, oversight)

Typical Departments:

Social Assistance

Child & FamilyProtection

IT, Statistics

LaborRelations

Pensions and

Disability

War Veterans Affairs

CSW CSW CSW PES PES

CSWs responsibleFor implementation (registration, eligibility,beneficiary registries,payrolls and in somecases making payments,etc.)

Some beneficiaries also required to register with PESs

Ministriesof Economy


some countries)

Energy agencies


some countries)

19

35. Local Level Responsibilities: Implementation. The countries’ social assistance programs are implemented at the municipal level (and the cantonal level in the FBH) by specialized institutions. These institutions are either the implementation arm of the relevant ministry (thus de-concentrated entities of the central administration) or are established and owned by the municipality in which they operate (decentralized implementation). In the countries that emerged from the former Yugoslavia, these institutions are called Centers for Social Work (CSWs). In Albania, they are the State Social Services (SSSs) subordinated to the Ministry of Labor, Social Affairs, and Equal Opportunities (MOLSAE). The SSSs and the CSWs in Serbia, Montenegro, and Kosovo are the implementers for their respective central ministries. In BH and Kosovo the CSWs are local government structures established and managed by the municipalities themselves. 36. Evolution of the Institutional Set-up. The institutional arrangements for social policy implementation are evolving in different directions. Kosovo undertook decentralizing the CSWs to the municipal level with the objectives of better reflecting the needs of local people and communities, of responding more flexibly to changes in the local context and in local needs, and of improving the management of scarce resources. At the same time, FYR Macedonia centralized and converted the CSWs into implementing agents of the Ministry of Labor and Social Policy to improve coordination, ensure that uniform implementation rules apply nationwide, and increase CSW’s ownership and participation in the policy processes. In Serbia, in addition to the CSWs, the Ministry of Labor and Social Policy has established two regional structures that administer war veterans’ benefits. There are also municipal offices for veterans’ affairs that collect documents for eligibility certification and support the provision of benefits. Republika Srpska also maintains municipal departments for veterans’ affairs, and the FBH has established both cantonal and municipal departments. 37. Decentralized Implementation. The CSWs and the SSSs play no role in policy development; they only implement the principles and regulations included in the laws on social, child, and disability protection that are developed at state level at the entity level in RS and entity and cantonal level in the case of the FBH. The CSWs are located in each municipality (in Serbia, Kosovo, BH, and FYR Macedonia) or are responsible for a cluster of municipalities (in Montenegro, for example, there are 10 CSWs that serve 21 municipalities). Each CSW is responsible not only for the municipality in which it is located but also for several surrounding smaller municipalities through affiliates called Services for Social Work, which work with the clients of the system but leave the decision-making to the CSW. The CSWs make the first-instance decisions on awarding cash benefits, managing the accounts, reporting to the relevant ministry, processing payments, and making home visits. They also plan, organize, and deliver social care services. Each CSW reports to its ministry on its activities. On a monthly basis, the CSW sends information to the ministry on the number of people receiving cash benefits, and it prepares a report annually for the ministry on the activities that it carried out in the previous year and its plan for the following year.

that is designed by and delivered through the Ministry of Agriculture, Forestry, and Water Resources. Serbia has an electricity subsidy designed by the Ministry of Economy and Regional Development and delivered by the Energy Agency using eligibility criteria and delivery rules that are not consistent with the rules for last-resort social assistance.

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3. Last-Resort Social Assistance Programs in the Western Balkan Countries

38. This chapter focuses on the last-resort social assistance (LRSA), also known as minimum income support, which is a means-tested social assistance benefit given to individuals (or families) living below a certain subsistence level. Minimum income support is designed to top up the incomes from working or from other public transfers, whether they are contributory (for instance, old age pension) or non-contributory (for instance, child allowances) when they are below a certain pre-determined income standard. In order to understand the role played by LRSA in each country, it is important to consider its institutional and financing arrangements as well as its main design features. It is also important to understand the role it plays in the context of more general policies aimed at promoting the social inclusion of specific target groups.

3.1 Policy Design and Regulatory and Financing Arrangements

39. LRSA Programs across the Region. Each country in the Western Balkans operates at least one minimum income / LRSA program. These programs are income-tested and asset-tested. Exclusionary filters and mandatory reality check through a home visit are implemented in parallel with the means tests. Some come with additional benefits and services attached to them – most often this is free health insurance for the members of the beneficiary unit of assistance, but could be also electricity and/or heating subsidies, or housing benefits, home care in case of disability, funeral grants and others. The statutory basis for LRSA programs differs by country, as indicated in Table 9.27 40. Making LRSA Programs More Efficient. In the 2000s, the legal and regulatory framework was changed significantly in most of the Western Balkan countries. The most notable changes involved: (i) eliminating the regional differences in the provision of the LRSA in Serbia; (ii) clarifying the division of labor between the central and local levels with respect to the design, financing, and implementation of the LRSA programs; and (iii) expanding eligibility conditions aimed mainly at reducing errors of inclusion. The process is not complete. In keeping with the objective of increasing the efficiency and effectiveness of social protection while staying within a smaller fiscal envelope in the post-crisis environment, the new legislative agenda involves expanding the provision of social services, including their outsourcing to non-state providers, regulating more precisely welfare requirements and activation measures to foster overcoming beneficiaries’ long-term dependency on social assistance. The current agenda for legislative changes also focuses on certain parametric reforms aimed at better targeting the LRSA to the poor or improving its adequacy as, for example, improving the precision of the definition of reckonable income and harmonizing the definitions of income for the purposes of income testing of different benefits under different laws or increasing the predictability of benefit increase. 27 For instance, the law regulating minimum income support provides the legal basis for the LRSA in Kosovo, while minimum income support is combined with the regulation of family and child protection benefits, benefits for people with disabilities, and benefits for civilian victims of war in the Federation of Bosnia and Herzegovina. Two new laws are being prepared in the FBH that will provide separate legal frameworks for last-resort social assistance and social services (the Law on Minimum Standards for Social Assistance and Social Services) and on family and child protection (the Law on the Protection of the Rights of Families with Children).

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Table 9: Last-resort Social Assistance Programs in the Western Balkan Countries Albania Bosnia and Herzegovina FYR

Macedonia Kosovo Monte-negro Serbia

Name of program

Ndihma Ekonomike

Permanent Social Assistance

Social Financial Assistance

Last-resort Income Support

Family Material Support (FMS)

Family Material Support (MOP)

Applicable statutory basis

Law No. 9355 on Social Assistance and Services 2005 (as amended)

FBiH: Law on the Principles of Social Protection, Protection of the Civilian Victims of War and Families with Children 1999 and 10 cantonal laws

RS: Law on Social Welfare 1993 (as amended)

Law on Social Protection 2009

Social Assistance Law 2003

Law on Child and Social Protection 2005 (as amended)

Law on Social Protection and Provision of Social Safety to Citizens 2004 (as amended)***

Institutional level at which the benefit is designed

Central government

Cantonal (FBiH) Central government (RS)

Central government

Central government

Central government

Central government

Regional differentiation

Municipal* Cantonal (FBiH) No No No Before 2004 - municipal


Municipal Cantonal (FBiH) Central through de-concentrated units (RS)

Central through de-concentrated units

Municipal Central through de-concentrated units

Central through de-concentrated units

Financing Central budget

Cantonal budgets**(FBiH); Central budget (RS)

Central budget

Central budget

Central budget Central budget

Sources: National social protection laws Notes: *In some cases – when community leaders collect and distribute benefits – differentiation may also occur at community level. ** In one of the 10 cantons, the financing is shared with the municipalities. *** Replaced by a new Law on Social Assistance in April 2011, with no changes with respect to institutional arrangements and financing.

41. Different Design Elements in Different Countries. In most countries, LRSA programs are centrally designed, cover the whole country, and treat all citizens equally by having common nationwide eligibility criteria and uniform application procedures. These principles are fully implemented in Serbia, Montenegro, FYR Macedonia, Republika Srpska (entity-level design), and Kosovo. However, in Albania, the rules governing targeting are neither standardized nor transparent.28 In the FBH, cantonal social protection laws set the amounts of and criteria for social assistance. At the same time, the benefit mix and five main eligibility criteria29 are set centrally by the Ministry of Labor and Social Policy of the FBH. However, although the eligibility criteria are the same across the whole FBH, the definitions of particular provisions vary from canton to canton. Therefore, decisions made at the cantonal level affect how minimum income is defined, how household income is calculated, and what documents are required. As a result, differences have emerged in the extent to which cantons are responsible for designing and financing LRSA programs as well as the other non-contributory benefits. 42. Central (State) Budget Financing. Most LRSA programs are financed from the central budget. Conventional wisdom in the public finance literature suggests that redistribution is a role most appropriately handled by central governments, because they are inherently in the best position to handle interregional inequalities and risk pooling (Grosh et al., 2008). In the Western Balkans, the only exception from this financing scheme is the FBH where the financing of last-

28 The targeting of the Ndihma Ekonomike program in Albania is discussed in more detail in Box 4 later in this chapter. 29 Namely, (i) a person incapable of working or over the age of 65 (male) or 55 (female) or pregnant or post-natal woman; (ii) a person who is working but not generating sufficient resources to ensure survival; (iii) a person with no family members who are legally obliged to provide him or her with support; (iv) a child under the age of 15 (or 27 if in full-time education); and (v) a person who is disabled (if not in receipt of a benefit on some other basis).

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resort social assistance is the responsibility of the cantons, except for one of the ten cantons where the canton shares the responsibility for financing with the municipalities. In some cases, the municipalities are given the right to top-up the state-level social assistance with own resources. For example, in FYR Macedonia the municipalities, the city of Skopje and the municipalities of the city of Skopje can provide additional Social Financial Assistance above the level guaranteed by the state. They are obliged to report every three months to the Ministry of Labor and Social Policy on the amounts spent on additional LRSA. The centralized financing for LRSA is earmarked and takes the form of capitation grants that also take into account the size of the units of assistance (families) except for Albania where the central budget allocates block grants to the municipalities. The strengths of centralized financing rest in the ability of the central budget to ensure equal financing standards across all regions of the country and ensure that people living in poor municipalities receive the same basic amount of social assistance as those living in relatively richer ones. At the same time the decentralized financing could ensure a faster flow of funds and an allocation of resources in accordance with local priorities. However, it is prone to local political bias (eligibility criteria can be adapted to give priority of certain population groups and discriminate against others). Moreover, given the small size of the predominant part of the municipalities in the Western Balkan region and their limited tax base, the municipal financing for social assistance is often not sufficient to bring about any meaningful reductions in poverty and vulnerability. Financing from municipal budgets becomes particularly challenging at the times of crises and economic downturns. In this context, it is not surprising that the LRSA programs in the cantons of the FBH have low coverage and generosity (see Chapter 5 on the performance of the region’s LRSA programs). The main strengths and weaknesses of centralized and decentralized financing models for LRSA programs in the Western Balkan countries are summarized in Table.

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Table 10: Strengths and Weaknesses of Centralized and Decentralized Financing Centralized Financing Decentralized Financing Strengths * The state can ensure equal financing standards (same

eligibility criteria, amounts of benefits and implementation rules) irrespective of the financial status of the municipality

* State financing flows are based on legally binding ‘state responsibility’ that makes them more stable and predictable

* The state has higher capacity for risk pooling

* The state has better access to a wider range of financing sources (budget reallocations, tax increases, foreign grants and/or borrowing)

* The state is better positioned to provide counter-cyclical financing for the safety nets, and for LRSA in particular

* The state is better positioned to protect spending on LRSA at times of economic downturns and to reallocate funds for LRSA from other budget categories

* Better accounting of local needs / local government level discretion

* More flexibility in prioritizing benefits with change in needs and nature of vulnerability

* Provides a link between beneficiaries and taxpayers

Weaknesses * Limited knowledge of local needs and priorities

* National eligibility criteria and financing standards are more rigid; it takes more time to adapt to the changing demand

* Local governments have no incentives to raise own revenues for LRSA

* Less scope for countercyclical financing which becomes even more problematic at the times of crises and economic downturns

* Local government spending may be less and less secure because of lesser stability of municipal revenues

* Interregional disparities in coverage

* Higher risks of cutting benefits in poorer municipalities despite that their population is most in need / less scope for risk pooling

* Risks of ‘benefit-driven migration’ across municipalities

Source: Authors, based on discussions with Ministries and CSWs, also Grosh et al (2008) 43. Mechanics of Transfers from the Center to Municipalities. The central financing of the LRSA programs in Serbia, Montenegro, Albania, and Kosovo as well as the entity funding in the RS ensures an equitable distribution of resources and the consistency of resource allocation with long-term policy objectives. In Serbia and Montenegro, the MLSP and MLSW receive monthly transfers from the central budget determined on the basis of data from the CSWs on numbers of beneficiaries and amounts to be paid out in benefits. The respective ministries then make the payments directly to the final beneficiaries. In Kosovo, the MLSW makes monthly transfers to the CSWs at the municipal level. The same mechanism is applied in FYR Macedonia as well. In Albania, block grants are transferred from the central budget to the municipalities. Beginning in 2010, the block grants will be calculated based on estimates of the concentration of poor people in each municipality derived by combining population numbers from the Census 2001 with regional poverty estimates from the 2008 Living Standards Measurement Survey (LSMS). 3.2 Consistency with the EU Models of Minimum Income Programs 44. Minimum Income Schemes in the EU. Most EU countries operate minimum income schemes to reduce poverty (see Box 1). In these schemes, the benefits are calculated as the difference between measured incomes and pre-determined minimum subsistence levels. Most EU countries have gone beyond cash handouts, however, and have combined minimum income

24

transfers with other social and labor market measures. This combined approach recognizes that the poor need cash assistance to help maintain living standards in their current situation but that they also need other services to help them to surmount the structural barriers to improving their livelihoods and connect them to gainful employment.

Box 1: Social Assistance Regimes in the EU Member States Studies have defined five clusters of countries based on three dimensions of their social assistance schemes ‒ the extent, structure, and generosity of their programs.

1. The Nordic model prevails in The Danish, Swedish, and Norwegian welfare states, which emphasize income equalization and a high level of state intervention. Welfare benefits are targeted to individuals rather than families. Income taxes are progressive, social transfer payments are generous, and the public service sector is large and decentralized. Full employment is a crucial sociopolitical goal. For this reason, the income support schemes in these countries emphasize the (re)insertion of beneficiaries into the labor market through a social policy model designated as flexicurity that combines a proactive labor market policy with substantial protection income for workers. Strategies for active social protection and social inclusion take precedence over anti-poverty policies per se. This kind of active social protection emphasizes the right and obligation of everybody to exploit and develop their working skills and the importance of providing labor market services to all recipients of social assistance, including those who have problems other than employment (for example, the Danish New Chance for Everyone program). Meanwhile, cash benefits are situated at the lowest level of the safety net and are only paid when there are no other support options available. The Nordic model’s employment policies focus on skill improvement and education rather than on work-for-the-benefit or on increasing mobility and job search efficiency.

2. The Continental/Bismarckian model, which exists in Germany, Austria, Belgium, Luxemburg, and France emphasizes earnings-related benefits (social insurance) that replace the lost wage at a higher than minimal level. It covers contingencies such as unemployment, illness, disability, occupational injury, long-term care, and old age. Means-tested benefits supplement these social insurance benefits. The Hartz Reforms (2003-05) changed the Bismarckian system in Germany by adding the principle of the recipient’s obligation to work and “mutual responsibilities” (responsibility of the state to provide protection and responsibility of the beneficiary to invest in his/her employability and competitiveness on the labor market), including signing a social contract mandating taking ‘labor market integration’ jobs, meeting workfare requirements, and being subject to sanctions for non-compliance. In 2003, the right to social assistance was integrated into the Code for Social Security and provided as a last-resort subsidy for the non-employable, while those who are able to work at least three hours a day have been provided with activation services.

3. The British liberal welfare state model is based on flat rate social insurance benefits that are supposed to be supplemented by private provision. In this setting, a large part of the population has to rely on means-tested benefits to make ends meet. Means-tested transfers are closely integrated with the flat-rate social insurance and are based on strong entitlements although with rather low benefits. This model provides flat-rate income protection in order to safeguard minimum social participation. The model is also characterized by active reintegration into the labor market and by efforts to avoid the risk of disincentives to work by making work pay. The provision of income support and incentives for employment, job-seekers’ allowances, workfare requirements, and active job search requirements are usually integrated (for example, in the agency called Jobcenter Plus in the UK). It relies more on evaluating program outcomes and on promoting good governance practices in social assistance than other models.

4. The Southern Europe model (which exists in Italy, Spain, Portugal, and Greece) can be conceived of as a less developed Continental model in which a much larger role is played by family solidarity. Social exclusion then appears to be much more widespread in the Southern countries than in the countries with Continental and Nordic social assistance models. This model places a premium on providing old age benefits and on protecting the aged as a social group to the detriment of family benefits and services and of housing policy.

5. Eastern Europe has been under-represented in comparative research studies until recently. These countries, despite sharing some common traits, have diverse characteristics both in relation to social policies and with reference to their trajectories into democracy and a market economy. They used to have well-developed and generous systems of service provision, in particular for children, but the crises of the late 1980s and early 1990s led to a decline in these public schemes. After a critical period of retrenchment of social policies, a shift took place at the end of the 1990s in the direction of a renewed development of family friendly schemes. At the same time, the recent economic crisis has exposed a serious problem of poverty, which has not been sufficiently curbed by the existing safety nets.

Source: EU (2006)

45. Wide Variations in EU Programs. With the exception of Spain, all EU countries have national minimum income schemes that provide income support, but they vary widely in terms of their structure and coverage. At one end of the spectrum are those schemes where the minimum income is one generalized, all-encompassing benefit (the only or the most important existing income support). It is open to all those who are without sufficient resources and is not limited to specific target groups of the population. At the opposite end of the spectrum, there are those countries where the minimum income is designed as a last-resort subsidy for those who have already exhausted all other possible claims for targeted assistance from other programs. A smaller group of countries is characterized by the presence of categorical schemes and at the same time absence of general last-resort measures (Italy, Hungary, and Greece) or – as already

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mentioned – the absence of a national minimum income scheme (Spain). The rest of the countries are positioned between the three groups with some closer to the group with all encompassing programs and others closer to the group with the minimum income as a last-resort benefit (see Table 11).

Table 11: Characteristics of the Minimum Income Programs in the EU Member States

Encompassing benefit

Last resort

Only categorical schemes and/or absence of national minimum income

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

Source: EU (2006) 46. Western Balkans’ LRSA Programs. The countries of the Western Balkans countries also adopt the “minimum income” model as in the EU Member States but with fewer links to other kinds of support. The non-contributory social assistance programs for the poor (the LRSA programs) are designed in line with the last-resort subsidy model in the EU. Their characteristics are closest to the characteristics of the programs in Bulgaria, Denmark, Estonia, Latvia, Lithuania, Portugal, and Slovenia (see Table 11). A more detailed comparison of the Western Balkan programs with the minimum income programs of the EU and OECD countries is provided in Annex 1.

3.3 Main Design Elements

47. Similar LRSA Designs across the Region. The main design elements of the last-resort social assistance programs are similar across all of the Western Balkans countries in terms of their qualifying conditions, determination of eligibility, the determination of the benefit base and amount, the income and other resources that are taken into account, and the indexation of benefits. These design features are determined at the central level, except in the FBH where the LRSA benefits – as already noted – are designed, financed, and implemented by the cantons. The main similarities and dissimilarities in the designs of the LRSA programs of the Western Balkan countries are summarized in Annex 2. Eligibility Criteria 48. Eligibility is determined at several levels in the Western Balkans, including through: (i) income tests; (ii) asset tests; and (iii) the application of other “exclusionary filters” (Figure 21). All eligibility requirements are applied simultaneously (in parallel) to determine whether a case qualifies for receiving LRSA. In addition, Albania applies geographic targeting. Incomes and assets are verified through documents and home visits.

26

Figure 21: Last-resort Social Assistance Eligibility Criteria

49. Income Testing. Eligibility for the LRSA programs in the Western Balkan countries is determined first and foremost by an income test that takes into account any income received by the applicant that is easy to verify against the data held by tax authorities, employers, and/or pension funds. In general, all sources of income, revenues, and resources are taken into account regardless of their nature and origin. There are several exceptions, however. Income received from social transfers (social assistance, family and child protection, or disability and veterans’ benefits) is not counted in the overall household or family income in Bosnia and Herzegovina, FYR Macedonia, Montenegro, and Serbia. In Albania, disability benefit income is not included in the income calculation formula. In most cases, scholarships are also excluded from the definition of reckonable income for the purposes of social assistance. 50. All Income of the Unit of Assistance Considered. The incomes of all of the members of the unit of assistance (the household or the family) are taken into account. In terms of defining the “unit of assistance” for administrative purposes, the definition of families and households is the same in the countries across the region. The household is defined as a union of family members and relatives who are not obliged to provide for each other but who contribute, either through cash or in kind, to the household, share assets and resources, and spend them collectively. A family comprises people who live together and are legally obliged to provide for each other. The family is the assistance unit in most of the Western Balkan countries, but some interventions are also targeted to households. 51. Harder to Verify Income Not Included. Income that is harder to verify, including income from informal economic activities or semi-formal activities30, is often not taken into consideration. Given the high share of informality in the economy, this means that the amounts of income that are not captured in the means tests are often considerable. This dilutes the accuracy of targeting and is likely to result in errors of inclusion. Some countries such as Serbia are making efforts to take hard-to-verify incomes into account by allowing social workers to request applicants to provide data on their savings, informal cash transfers, incomes from security and other financial instruments, royalties, sales, and rent or lease of assets. In addition, the social workers impute an income close to the current minimum wage to each able-bodied member of the unit of assistance who reports having no income. Also, the able-bodied are automatically excluded from the Serbia’s LSRA program, the MOP, for three months in a calendar year under the assumption that they work informally during the summer and autumn. In Albania, social workers use land productivity coefficients to impute a degree of income from land for rural residents who are thus entitled only to ‘partial’ Ndihma Ekonomike benefit.

30 When, for example, a person is officially (formally) employed at a certain wage or number of working hours, but in fact works longer and earns more without the additional income being formalized.

Eligibility criteria

Income test / verifiable income Asset test / filters Additional filters

Geographic targeting

27

52. Asset Tests. Asset tests are used together with the income test as part of eligibility determination in all of the Western Balkans countries. The asset test takes into account (i) the availability of certain assets such as a second dwelling, or a house or flat under construction, also whether the applicant owns a recreation or holiday house, business space, land, livestock, other mobile or immobile assets that can be put in productive use and generate income; (ii) housing characteristics such as the size of the applicant’s main dwelling, and (iii) whether he or she has savings in saving accounts or has sold or transferred any property in the previous three to five years. Some of the elements of the asset test, such as the possession of agricultural land or livestock, aim to account for the generation of informal income, which is hard to verify, while others are a basis for imputing income. The information on assets is collected from the applicant’s declaration of assets and supporting documents, and is then verified with the relevant agencies and registries (housing register, cadastre and land register, etc.) in parallel with the verification of self-reported incomes. As illustrated in Figure 22 and discussed below, some of the asset tests (mostly those that are explicitly mentioned in the respective legislation and the rulebooks of the CSW implementing the assessment) are done as binary filters, which immediately determine if the household is “in” or “out” of the program regardless of whether the family income is below the statutory threshold or not. Such filters have ‘the power’ to exclude applicants even when they are income poor thus overruling the income test. Other tests influence eligibility but do not necessarily exclude the applicant if he or she does not pass that specific test. For instance, during the visit that social workers make to the applicant’s home before the final determination of an applicant’s eligibility, they assess the household’s “material conditions.” This home visit is designed to assess the overall economic situation of the applicant’s family by looking at diverse circumstances such as the quality of the house, furniture and appliances, the availability of certain mobile assets, the existence of family members who potentially can work. During the home visit, local knowledge can be collected from neighbors and local administrators. The main problem of the home visit is the fact that the information gathering is not structured in a questionnaire, and the approaches are not uniform across cases. Conclusions are based rather on perception rather than on strict enumerated criteria and scoring formula that leaves room for discretion and subjectivity.

Figure 22: How Filters Exclude the Urban Poor (bottom 10 percent) in Albania’s Ndihma Ekonomike

53. Unemployment Status as a Filter. As already mentioned, in all countries, the rigorous income and asset tests are supplemented by other filters that further limit eligibility for LRSA

Yes81.8%

Not eligible for NE

Yes25.9%

Yes14.9%

Yes3.7%

Yes0.8%

Yes0.4%

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 ProgramExclusion errors due to filters. Out of Individuals in Bottom Decile (= 122,172 individuals)

1. Does anyone in the family work?

28

(see Figure 22 and Box 2, for an example). These are usually “binary (exclusionary) filters.” One common filter – which can be either exclusionary or non-exclusionary – is the proof of unemployment status or registration with the public employment services (PES). In Montenegro, BiH, FYR Macedonia, Serbia, and Albania, the requirement to register as unemployed is a way to ascertain that the relevant member of the unit of assistance is not working and receives no formal income. In the absence of unemployment registration, the application will be disregarded (in Montenegro for one-member families) or income from work will be imputed in the overall family income (in FYR Macedonia). Unemployment registration is also a way to ensure that able-bodied recipients of social assistance have turned to the PES and can potentially make use of employment services - public works or active labor market programs that are offered occasionally to beneficiaries of LRSA. It is also a way for the PES to understand that part of the people they serve are receiving social assistance and urge them to design services tailored to their specific needs. In most of the Western Balkan countries the unemployment status serves as a stand-alone filter with an exclusionary power which could be quite high, as in the case of Albania (Figure 22) or with less power as in the case of Serbia, where the rigorous income test excludes the largest part of the deserving LRSA from the poorest population decile (Figure 23). Unlike the rest of the Western Balkan economies, Kosovo applies the unemployment status filter in combination with two other filters: an age filter and a filter identifying those who are not able to work. Category I applicants for the last-resort income support benefit are families with no members who are able to work. Category II applicants are families who do include able-bodied members who can nevertheless receive benefits if the family has one child up to the age of 5, or an orphan up to the age of 15.

Figure 23: How Serbia’s LRSA (MOP) Filters Exclude Poor

54. And More Filters (Land and Housing). The filter for land ownership makes the LRSA in the region less favorable to, and less accessible by, rural residents than urban residents, which could increase the urban-rural divide in treatment. This filter excludes applicants if their household or family unit, or if a single member of the unit, owns more than 0.5 to 0.7 hectares (depending on which country is in question) of land per unit. This limit is low, such amount of land is not necessarily enough for self-sustainment. Often, applicants own land but are not able to cultivate it because of the absence of able-bodied people in the household or because of an underdeveloped lease market. Alternatively, the land may not be accessible if it is located far from the family’s main residence or may be subject to legal disputes. The quality of the land may

Yes22.8%

Not eligible for MOP

Yes17.2%

Yes8.5%

Yes7.5%

Yes6.0%

Yes1.4%

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 programExclusion errors due to filters. Out of Individuals in Bottom Decile (=746,778 individuals)

29

be poor or it may lack irrigation or the road infrastructure necessary to access it. Another filter that negatively affects rural applicants is related to ownership of dwelling that is larger than the statutory standard but that cannot be exchanged for a smaller one or rented out because of an underdeveloped property market. In Serbia, in such a case, the local CSW can decide to provide that family with social assistance if it meets all other conditions after putting a mortgage on their dwelling. Then the CSW pays a benefit which is subtracted from the mortgage amount. This arrangement usually applies to elderly people who live alone and get no support from family and relatives but own a house. It is particularly unfavorable for single elderly people in rural areas who cannot rent out part of their house and have psychological barriers to the mortgage arrangement with the CSW. Ultimately, this results in there being fewer recipients of last-resort social assistance in rural areas than in urban areas, even though rural poverty is higher than poverty in urban areas.

55. And More Filters (Cars). Policymakers in the Western Balkans often try to further fine-tune the targeting of means-tested social assistance by making the eligibility requirements even more restrictive through the application of additional filters. This tends to increase exclusion if there is no robust evidence that the newly introduced filters are strongly correlated with the poverty rate. Also, these filters further reduce the coverage of these programs, which is already low. In order for policymakers to make informed and effective decisions about which additional filters and verifiers of eligibility to introduce, they need accurate, up-to-date data and the capacity to merge different data sets. For example, the authorities in Kosovo recently considered introducing car ownership as an additional eligibility filter. The World Bank provided technical assistance to merge membership data on social assistance from the CSWs with data on car

Box 2: Exclusion Criteria for Ndihma Ekonomike in Albania In Albania, the Ndihma Ekinomike benefit not only applies an income test to its applicants but also a set of exclusion criteria. They are defined at two levels: at the central level by the Ministry of Labor, Social Affairs, and Equal Opportunities (MOLSAE) and at the local level by municipalities and communes. According to MOLSAE’s criteria, a household cannot be granted entitlement to Ndihma Ekonomike if at least one household member owns capital, is employed or self-employed (except for rural households), gets an old-age or survivor pension, is travelling and staying abroad for reasons other than studying or medical treatment, is of working age and able-bodied but is not registered as unemployed with the Public Employment Services, or has had refused to rent or own agricultural land. Able-bodied household members are screened for their refusal to take a job or training offered by the Public Employment Services before or at the time of applying for last-resort social assistance.

Households must not have undertaken any deliberate actions aimed at improving their chances of getting social assistance, for example, by transferring their assets or breaking up the household into smaller units. They would also be declared ineligible if the household fails to accommodate a social workers’ home visit. Finally, they would be refused benefits if the applicants were not paying their electricity bills regularly. The screening continues after the households start receiving Ndihma Ekonomike benefits, which can also be stopped if the beneficiary fails to collect it within six days after it has been transferred to him/her.

Beyond the centrally defined “exclusion criteria”, Law 8008 (1995) and later Law 9355 (2005) give local governments the right to introduce additional local-level criteria as long as they are not in conflict with the centrally defined rules. Usually the local criteria allow a relaxation of certain central ones, which are quite rigorous. For example, locally the timeframe for collecting the benefit can be prolonged beyond six days. In another example, if a rural household is locked in their house to avoid blood feud, they can become eligible for the full Ndihma benefit instead of for a partial one to which rural households are entitled following the assumption that land provides them with some income. Also, in yet another example, the municipal administrations and communes can decide which types of Ndihma benefits are conditional on the recipients’ participation in community work.

Too many filters are binary; in other words, if an applicant household fails in the case of one filter, then they are declared ineligible regardless of their performance on any of the other eligibility criteria. Finally, even when households pass the income and asset screening tests, social administrators can declare then ineligible at the stage of the home visit due to finding “good economic conditions” – a conclusion based on some household characteristics, such as the health condition of a household member with no transparent criteria. This situation gives local officials discretion over how these benefits are awarded, and creates opportunities for abuse. The consequence of these inefficiencies is leakage of Ndihma Ekonomike benefits to non-poor households and the exclusion of poor households.

Sources: Guven (2010), World Bank (2006), and national legislation

30

ownership from the Registrar’s office in order to assess whether excluding families who own cars from eligibility for Kosovo’s last-resort income support benefit would improve its targeting (Box 3). The exercise revealed disparities between the administrative and household budget data on private car ownership. Despite the data limitations, the matching managed to prove that poor and non-poor households would be equally affected by the eligibility restriction, and this discouraged policymakers from making the proposed changes to the targeting design.

Box 3: Kosovo: Tightening the Eligibility for the Last-resort Income Support Program by Excluding Households that Own a Car

Kosovo has considered introducing car ownership as an additional eligibility filter on the basis that car ownership is regressive. However, the savings were difficult to quantify. Using household survey data, we estimated approximately 7.4 million Euro of program savings, while the SA administration’s research suggested 3.3 million Euro of savings from the introduction of a car ownership filter (see Table below). While car ownership is indeed regressive and the resulting distribution of recipients is more concentrated on the poor (see attached figure), the simulation showed that this amendment to the eligibility criteria would exclude the same number of poor and non-poor households from the program.

Car Ownership in the Income Distribution of SA Recipients

SA recipient group Current Car owners Car owners Total Funds To car owners (Number of hhs) (% of group) (000s 2002 Euros) Non-poor 9,985 5,259 53% 7,248 3,579 Poor but not extreme 13,662 3,682 27% 10,744 1,142 Extreme poor 19,709 1,541 8% 15,056 2,684 Total 43,356 10,482 24% 33,048 7,405

Source: Gueorguieva (2008) Notes: Calculations based on the 2005/06 Household Budget Survey

Concentration Curve of Current SA Recipients and if Car Owners were Excluded

Source: Author’s calculations based on the 2005/06 Household Budget Survey.

56. Concerns about Multiple Binary Filters. The current determination of eligibility with multiple levels of criteria and binary filters introduces both inefficiencies and possible inequities that make the process and formulae sub-optimal in the following way.

� Haphazard Subjectivity. While many of the variables used may indeed be good

predictors of the needs or poverty status of applicants, the overlaying of separate filters introduces subjectivity. Mathematically speaking, they introduce discontinuities in the eligibility process with some specific binary filters overriding other continuous (non-binary) variables (such as the partial measurement of incomes and assets). From a substantive point of view (beyond the mathematics), eligibility determination would be better served by bringing these variables into a single, unified, continuous scoring formula (a hybrid means test) that assigns objective weights across the variables (whether

0.2

.4.6

.81

0 .2 .4 .6 .8 1Cumulative share of population, from poorest to richest

Current SA excl. CarEquity line

31

they are binary or continuous). These weights should be derived objectively through their empirical correlation to poverty (for example, through regression analysis of household survey data). Alternatively, if they are deliberately subjective (external to regression analysis), they can be brought into the unified scoring formula transparently by assigning them subjective weights relative to the other objectively weighted criteria.

� Administrative Inefficiency and Lack of Transparency. This haphazard application of

continuous criteria and binary filters, especially where some binary variables indiscriminately override other eligibility criteria, has resulted in systems that are administratively inefficient and that lack transparency. Administratively, it requires applicants to provide numerous documents for each and every variable and filter, which leads to inefficiency since there is no empirical clarity on whether or not these variables effectively predict the applicant’s needs or poverty status. It also reduces the transparency of the system, as households can qualify on many separate variables but their eligibility can be overridden by their failure to meet only one.

� Inequities and Exclusion. In terms of equity, our analysis of the impact of each of these

filters in Albania (see Figure 22 and Box 2) suggests that many of the individual binary filters exclude poor households that ought to qualify for the LRSA program. As a consequence, coverage of LRSA programs in the Western Balkans is quite low (for detailed analysis, see Chapter 5).

� Economic Inefficiencies. Some of the binary filters – such as the filter that requires

applicants to register as unemployed – may introduce work disincentives as will be discussed further in Chapter 5. Admittedly, means-testing can also introduce such inefficiencies if / when increases in earned incomes cause benefit levels to be reduced proportionately. However, countries that rely on means-testing and hybrid means-testing (with continuous weighted scoring across variables) can reduce the potential for such disincentives by introducing higher exit thresholds for the incomes of those who are already on social assistance or earned-incomes disregards We recommend that the Western Balkan countries reconsider their current mix of discontinuous formulas for calculating eligibility on the basis of criteria for incomes, assets, and binary filters, and develop more transparent, and equitable hybrid means tests. These hybrid means tests would combine income, asset, and other criteria with transparent weights that would be calculated based on their relative ability to predict income (consumption) and poverty status.

57. Geographic Targeting. In addition to income and asset tests and other filters, Albania is a case where the typical for the rest of the Western Balkan countries poverty targeting is combined with elements of geographic and community targeting (see Box 4). In Albania, the municipal councils vote for (endorse) the recommendations / proposals of the SSSs and make the final decisions on who should receive the Ndihma Ekonomike benefit. The mayors and community leaders could also apply judgment on how much a unit of assistance should receive.

32

Box 4: Targeting in Albania The targeting of Ndihma Ekonomike in Albania involves two steps. In the first step the Parliament approves the allocation of funds to local governments in the form of block grants. In the second step, the local governments determine which households are eligible and define the level of benefits based on the assessment criteria of the program. Until 2010, the Ministry of Labor, Social Affairs, and Equal Opportunities (MOLSAE) allocated block grants taking into account some demographic and socioeconomic characteristics but did not consider any direct poverty indicators and consequently did not account for regional poverty. As a result, block grants have not always been consistent with the level of regional poverty (as measured by data from Albania’s Living Standards Measurement Study or LSMS survey and the Census of 2001), and some local government units with a large number of poor households did not receive adequate financing. Not surprisingly, significant differences in the adequacy of the Ndihma Ekonomike benefit have emerged across different parts of the country. For example, in Tirana, the benefit accounts for 37 percent of the pre-transfer consumption of households compared with only 9 percent in the mountain areas, even though mean consumption in the mountain areas is significantly lower than in other parts of the country.

In 2010, MOLSAE started using a new methodology based on an estimate of the number of poor people obtained combining information from the Census of 2001 on the number of people in a given municipality with regional poverty estimates from the 2008 LSMS survey. This estimate of the number of poor is now taken into consideration when determining the allocation of Ndihma Ekonomike resources to the municipalities, together with the number of beneficiaries at the municipal level in the previous year.

Source: Guven (2010)

Benefit Determination 58. Minimum Income / Minimum Resources Approach. The Western Balkans economies apply common approaches to LRSA benefit determination with respect to such parameters as the benefit formulae, benefit bases, indexation of benefits and applied equivalence scales (Figure 18). First and foremost, the Western Balkan countries use a common approach to the definition of the actual benefit which is due / received by the eligible unit of assistance. This approach is anchored in a ‘minimum income’ standard which serves both as (a) an eligibility threshold and (b) a ceiling for the benefit amount that could be received by a unit of assistance depending on its characteristics. The benefit formula applied in the Western Balkan countries compares the overall family or household (unit of assistance) income with the administratively pre-defined minimum income standard (threshold) and delivers the difference to the respective unit of assistance. The standard (threshold) should ideally be linked to a minimum subsistence level of income defined with a relative poverty line (such guaranteed minimum income approach is common for the EU member states), or – alternatively – as an absolute poverty line (minimum consumption basket). However, unlike in the EU Member States, the income threshold to access the LRSA benefit is not based on a relative or absolute poverty line, or any other standard (benchmark) of a minimum subsistence level of income or consumption. The Western Balkan countries do not calculate indicators of cost of living or a basket of goods for social assistance purposes. Rather, the threshold depends on the fiscal space available for financing non-contributory social assistance. Benefit update is subsequently often not consistent with the legislative commitments for adjusting the thresholds and benefit amounts to the cost of living, and also often irregular. Despite of the existing legal provisions, and also despite of how the benefit base is determined and whether the amount of social assistance is linked to the consumer price growth, minimum or average wage growth, or other indicator in the economy, the LRSA amounts are updated only if, and when there is fiscal space that would allow such an update. 59. Indexation of Eligibility Thresholds and Benefit Levels. Initially, when the LRSA benefits were first introduced, the thresholds for access were indexed to different indicators as the average wage, the minimum wage, the unemployment benefit, or the minimum pension. Therefore, the thresholds and benefit levels used to rise automatically with each increase in the reference wage, benefit or pension. Nowadays, the Western Balkans countries take a range of

33

different approaches to how they determine their benefit bases. The common trend is towards gradual departure from linking the benefit to, or – in other words - using as bases indicators such as wages, pensions, or other benefits. Instead, the countries are moving towards determining nominal benefit amounts and linking the benefit increase to the rise in consumer prices.

� In FYR Macedonia, Kosovo, Montenegro, and Republika Srpska, the LRSA benefit base used to be defined as a share of the average wage, but now it is defined in nominal terms only. Till very recently in Serbia and still in the FBH, the LRSA was defined as a share of the average wage. The recently adopted Social Assistance Law of Serbia dropped the indexation of the MOP benefit base to the average wage. The draft Law on Minimum Social Standards and Social Services that is under preparation in the FBH also proposes defining the LRSA benefit base as a nominal amount.

� In the case of Albania, the move towards nominal amount of the LRSA is happening without any formal legal changes but simply by the government failing to meet its implicit commitment to indexation. Albania initially used the unemployment benefit as a reference in its Ndihma Ekonomike program. The household head was supposed to receive 95 percent of the unemployment benefit, but the benefit amount has not increased as the unemployment benefit level has increased over time, meaning that the level of Ndihma Ekonomike has been de-facto delinked from the unemployment benefit. As a result, the eligibility thresholds and subsequently the benefits are not set and are not increasing in a transparent way.

� Among the Western Balkan countries only in Serbia the legal framework (both the present and the former social assistance legislation) require the LRSA program eligibility threshold to be indexed to the cost-of-living, or consumer price index. The Law on Social Protection and Provision of Social Safety to Citizens which was in force from 2004 to April 11, 2011 envisaged monthly indexation, while the newly adopted Social Protection Law provides for benefit increase and purchasing power protection by indexation to consumer price growth every six months. In the other countries, benefit growth is ad hoc and lagging behind the price growth, which has meant that the purchasing power of the benefits has been severely undermined over time. We recommend increasing the transparency of the process of setting the benefit level update by committing to periodical indexing it to inflation.

60. Benefit Levels. The amount of benefit given to each unit of assistance (family or household) is equal to the difference between that pre-determined income standard for a unit of assistance of a particular size and the cumulative actual income of its members (see Table 12 and Annex 2)31. The level of benefits – or amount of minimum income – varies from country to country. With available data, it is possible to compare the minimum income policies of the Western Balkan countries to aspects of the same policies of the EU Member States as follows: (i) the relation between the value of the minimum income for a single person and the minimum wage; (ii) local differentiation of amounts; (iii) policies concerning relations between amounts

31 Two of the LRSA schemes require that in certain cases the applying unit of assistance should have no income. This is the case in the Kosovo Category A Last-resort Income Support program and in the provision of Albania’s Ndihma Economike to urban residents (“full Ndihma”) whereas for rural residents, any rural income is subtracted (“partial Ndihma”).

34

(fixed or graduated); (iv) policies that benchmark minimum income levels to poverty lines or consumer baskets; and (v) variations in the minimum income according to family size and composition. The amount specified as the minimum income for a single person living alone is low compared to the EU Member States where the mean value (calculated in 2007 according to comparative price level indices from 2006) was 396 EUR per month. The relationship between the level of minimum income and minimum wage varies more widely among Western Balkans countries than among EU Member States. We found no consistency regarding the share accounted for by the LRSA in the minimum wage and the level of a country’s economic development in the Western Balkans, while among the EU Member States, this share is generally lower in the less developed countries from Eastern and Central Europe than in the Western European countries, with some exceptions (Slovakia, Poland, and the Czech Republic).

Table 12: Last-resort Social Assistance Benefit Amounts in the Western Balkan Countries, end of 2010

Albania Ndihma

Ekonomike

BH Permanent Social

Assistance

Kosovo Last Resort Income Support

FYR Macedonia


Monte-negro Family

Material Support

Serbia MOP / Family

Material Support

EU Member States Minimum Income

Programs

Value for single person (end of 2010)

2600 ALL FBH: 39.3 -68.3KM RS: 41-60 KM

40 EUR 2173 DEN (100%)

60.5 EUR 5700RSD Min – 55 EUR (Romania) Max – 1081 EUR (Luxemburg)

Share of minimum wage or other minimum pay standard

15.3% FBH Min – 12.3% Max – 21.3% RS Min – 12.8% Max – 18.8%

50% 16%* 60% pre-tax 110% after tax **

35% Min – 23% (Latvia) Max – 75% (Luxemburg)

Share of minimum income

The countries do not calculate a guaranteed minimum income (national poverty line or consumption basket) for social assistance purposes

Benefit is a share of a relative or absolute poverty line; mini-mum pension or unemployment benefit

Local differentia-tion of amounts

Municipal and commune differences

Cantonal (FBH) Banja Luka (RS)

No differences No differences No differences No differences No differences Regional and/or municipal differences

Fixed or variable amounts

Variable Variable Variable Variable Variable Variable Fixed or variable

Variations with family composition

Implicit national equivalence scales taking into account family size (Serbia, Montenegro, BH, FYR Macedonia, Kosovo); family size and composition (Albania)

Equivalence scales (national or OECD)

Source: EU Member States and Western Balkan countries: national legislation and statistical data Notes: * The calculation is based on two-thirds of the average wage - there is no official ‘minimum wage’ but the National Collective Agreement recommends that the minimum wage paid is two-thirds of the average. The data (number) for the share of the LRSA in the minimum wage arrived at in this way is not comparable with the results for other Western Balkan countries. It is assumed to be lower because unskilled workers with limited or no work experience will be paid less than the minimum wage as defined in the Collective Agreement in FYR Macedonia. ** For Montenegro the calculation is based on the minimum price of work as per the "Agreement on Stipulation of the Minimum Price of Work" (Official Gazette 02/07 and 45/08) multiplied by the minimal coefficient equal to 1. 61. Equivalence Scales. In the Western Balkan countries, the minimal income threshold is determined for the first adult member of the unit of assistance or for a one-member unit of assistance. The minimum income threshold that applies to a one-member unit of assistance is then taken as the base for calculating the amounts due to larger units. With the exception of Serbia, where the modified equivalence scale of the OECD was introduced recently, implicit equivalence scales are used in the rest of the countries to determine the income thresholds for the larger units of assistance, setting a limit of the number of family or household members that

35

would be eligible for the LRSA benefit32. These equivalence scales are set on the assumption that significant economies of scales can arise from the sharing resources in larger households (see Table 13). However, this assumption may not necessarily be valid given the high share of the consumption of food and personal items in the structure of the consumption of the poor. Also, this assumption is more optimistic than the one built into the most widely applied equivalence scales in OECD and EU countries.33

Table 13: Equivalence Scales for the LRSA Programs in the Western Balkan Countries Albania

Ndihma Ekono-mike

BH Permanent Social

Assistance

Kosovo Last-resort

Income Support

FYR Macedonia


Monte-negro

Family Material Support*

Serbia*** MOP / Family

Material Support

OECD standard

scale

OECD advanced

scale

Head of household

1.0 1.0**** 1.0 1.0 1.0 1.0 1.0 1.0

2nd member 1.0 - each above working age adult; 0.26 -each child; 0.21 - each working age adult

0.375 0.37 0.2 0.5 – each next adult 0.3 – each child

0.7 - each next adult 0.5 - each child

0.5 - each next adult 0.3 - each child

3rd member 0.125 0.37 0.24 4th member 0.125 0.37 0.26 5th member 0.125 0.37 0.2

6th member 0 0 0.125 0 0 7th member 0 0 0.125 0 0 0 Ceiling 5.0 (5) 2.0 (7) 2.48 (5) 1.9 (5) 3.5 (6) 3.8 (5)** 3.0 (5)** Source: OECD and national legislations Notes:* This comparison of Montenegro’s equivalence scales with the rest of the Western Balkan countries does not take into account that the monthly child allowance is means-tested with the same criteria as FMS/MOP and added to the FMS/MOP amount due, thus modifying significantly the initial equivalence scales. ** Assumption for comparative purposes, no actual ceiling on the number of recipients in one unit of assistance. *** As of April 2011, with the adoption of a new Social Assistance Law, Serbia adopted the advanced equivalence scales of the OECD and increased the number of eligible beneficiaries in one unit of assistance from 5 to 6. ***** Variations across FBH cantons and RS but in all cases lower than in the OECD.

62. No Differentiation between Adults and Children. The implicit equivalence scales used in Montenegro, FYR Macedonia, Bosnia and Herzegovina, and Kosovo take into consideration only the number of members in one unit of assistance in calculating the aggregate maximum amount of benefit due to the respective unit of assistance. They do not account for differences in needs (consumption) between children and adults. Serbia followed the same approach till April 2011, however with its new Law, enacted in April 2011 it adopted the OECD practice where the equivalence scales assign different weights on the basis of the needs of individuals at various stages of their lifecycle. In Albania the benefit increases differentiate between adults in different status (of working age and over working age) and children. None of the Western Balkan countries assigns weights to various groups based on their vulnerability (which can be the established function of an accepted definition of vulnerability in society or the function of some objective definition) as evident in Table 12.

32 All countries set ceilings on the number of members of a unit of assistance who can receive LRSA – up to five in Montenegro, BH, and FYR Macedonia, up to six in Serbia, and up to seven in Kosovo. In Albania, the limit is set in a different way – the monthly amount received by one assistance unit cannot exceed 250 percent of the basic unemployment benefit. 33 In all European countries, the amount of minimum income differs according to the components of the family. A couple, composed of two adults, is normally entitled to between 1.5 and 2 times the amount of a single person. The increment for couples compared to single persons is the minimum (1.5) in France, Cyprus, and Luxembourg, whereas the increment for couples compared to single persons is the maximum (2) in Belgium, Denmark, Latvia, Lithuania, the Netherlands, and Portugal. Concerning a couple with a child, this type of family is entitled to between 1.69 and 3 times the amount of a single person. The minimum increment for this type of family is found in Luxemburg (1.69 times a single person), followed by France and Cyprus (1.8 times a single person). The maximum increment is used in Latvia and Lithuania (3 times a single person).

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3.4 Associated Rights: Links with Other Programs and Social Care Services

63. Linked with Other Cash and In-kind Benefits. Most of the last-resort social assistance programs in the Western Balkan region are provided as part of a ‘package’ along with other cash and in-kind benefits and – in some cases – with social care services, which increases their overall generosity and addresses multiple risks and aspects of vulnerability. While clustering or ‘packaging’ of benefits for one unit of assistance do exists, the links with social care services are weak, and the links with activation are rare, sporadic and even non-existent. “Packaging’ or ‘passporting’ of benefits exists in the case in BH, Serbia and in Montenegro where the beneficiaries of the LRSA also receive free health care. In Serbia and Montenegro they also receive energy subsidies, and a caregivers’ allowance for those with severe disabilities. In Montenegro, FMS/MOP beneficiary families with children are eligible for up to ten different benefits that are ‘passported’ to the LRSA, such as monthly child allowances, funeral grants, free textbook or free attendance at holiday and recreation events organized for students (see Box 5). 64. Weak Links with Social Care. However, cash social assistance for the poor is not packaged together with social care services in the Western Balkans as much as in the EU Member States. Even though all of the Western Balkan countries provide social care services through the CSWs, these services are not as a rule provided in conjunction with cash social assistance. In fact, a linkage legally exists only in some of the countries and only in some cases. In FYR Macedonia, Serbia, and Montenegro, applicants for the LRSA are offered social services such as family counseling while their application is being reviewed and before the cash benefit is granted. This scope of services is limited and not sufficient to increase the prospects of benefit recipients to regain employment. Recent studies have highlighted the increasing role played by non-financial factors (such as age, family situation, housing constraints, and the affordability and accessibility of child care) in the decision to move out of social welfare and into paid employment. Following best practices that have been tried in the EU, we recommend that policymakers in the Western Balkan countries should develop special package of programs for those LRSA beneficiaries who cannot be included in employment programs because they are unable to work. These services might include education programs, counseling, and support to beneficiaries with specific needs related to daily life, medical treatment and rehabilitation for beneficiaries with, for example, problems with alcohol or drugs, or family care such as help in looking after old people and children within the family.

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Box 5: Linking Last-resort Social Assistance with Other Benefits and Services in Montenegro In Montenegro, the Family Material Support (FMS/MOP) benefit ranges from €60 to €125 per month depending on the number of family members. This is one of the most generous programs in the region measured as the share of the benefit in the post-transfer consumption of households in the poorest population quintile. However, the generosity of this program is even greater if one takes into account the other entitlements that are associated with becoming eligible for the FMS/MOP. This benefit is packaged with a number of other social assistance benefits, disability benefits, and child protection-related payments from the state budget, as follows:

� The FMS/MOP beneficiaries get free health insurance which is financed from the central government budget. � The FMS/MOP beneficiaries are eligible for disability assistance. Those who are severely disabled or who have a chronic illness that

requires constant nursing care receive caregivers’ allowance at the monthly amount of €60. � FMS/MOP beneficiary families are those who benefit from the main child protection program – the monthly child allowance. It is income-

tested with the same income threshold as for the FMS/MOP. As a result, only children from families of FMS/MOP beneficiaries can qualify for the monthly child allowance. The child allowance is limited to the first three children in an FMS/MOP beneficiary family and varies between €20 and €30 per child.

� The state budget also covers the costs of recreation activities (such as summer camps and vacations) for children from FMS/MOP recipient families.

� The FMS/MOP beneficiaries are entitled to a funeral grant of €300 per person.

Source: Montenegro, Law on Social and Child Protection of 2005

65. No Links to Employment and Activation Services. In the Western Balkan countries, the services in support of employment are not integrated with the cash social assistance and the social care services.

� Institutionally, their provision is separated: the employment services are rendered by employment offices / public employment services while social assistance is provided by the CSW, despite that they often work with the same clients (beneficiaries). The case management for job brokerage and employment is separate from the case management for social assistance (income smoothing); the concept of ‘one-stop-shop’ is not yet embraced, only Serbia is starting the piloting of several models of linking social assistance to activation, including establishing of incentives for LRSA beneficiaries to make the transition from social assistance to work.

� The only formal institutional linkage between the employment services and CSW is exercised through the mandatory registration as unemployed, however it rarely serves for targeted interventions for activation and increasing employability.

� The data exchange between the CSW and the employment services is sporadic; real-time connectivity and reciprocal access to databases is not available. The able-bodied beneficiaries of social assistance are rarely treated with activation policies, and even more rarely sanctioned for not taking offered jobs or training.

� The scope of application of work tests / workfare requirements is extremely limited due to lacking institutional capacity, human and financial resources to organize and implement. Concurrently, the supply of active labor market programs which are specifically targeted at activation of hard-to-serve cases (as long-term unemployed on social assistance) is also limited for the same reasons.

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4. The Administration of Social Benefits in the Western Balkan Countries

66. Improving the design (eligibility criteria and benefit formulae) of social assistance programs is not the only factor governing how these programs perform. Indeed, international evidence34 suggests that the implementation of these programs is also crucial. It can increase coverage by reducing errors of exclusion, make targeting more accurate by reducing errors of inclusion of the non-poor), increase administrative and program cost efficiency, and increase transparency to reduce fraud and errors. This chapter reviews the implementation and administration of LRSA programs in the Western Balkans, including how eligible beneficiaries are identified, how levels of benefits are determined, how the benefit payments are paid, and how data on beneficiary numbers and spending are collected and exchanged, and highlights key implementation characteristics.

4.1 Determining Eligibility

67. Determining eligibility is a multiple-stage process carried out by the CSWs, whether they are de-concentrated branches of their respective ministries of labor and social policy or municipal bodies.

Obtaining Information about Eligibility Criteria, Application Rules, and Forms 68. Information about the Programs. Every citizen or resident has access to program information and application forms. They can download the forms and program descriptions from the internet site of the respective ministry or, more often, they can acquire them as paper copies when they visit their local CSW (or SSS in Montenegro). During this initial visit, potential applicants are interviewed by a social worker who does an initial screening (pre-screening) of the circumstances, following this by explaining the program eligibility criteria, giving advice on which benefits the applicants might be eligible for, and providing them with the blank application form(s). The social worker also advises the applicants about which of the required documents they will need to produce to support their particular applications. While the social worker does an initial screening based on the information provided by the prospective applicants on the spot, the applicants themselves make their own assessment of their potential eligibility, and decide whether to proceed with filling the application and collecting the supporting documents. During the initial visit, the social worker may also suggest that the applicant apply for benefits or services in other departments or outside the CSW and provides information and directions on whom to address for that purpose. At this stage, the ‘case’ is not yet opened / initiated. This would happen only if / when the application is approved officially at first instance. 69. Little Outreach to the Poor. As a rule, the application process starts on the initiative of the individual or family facing poverty or vulnerability and is strongly dependent on the availability of information, self assessment and stigma associated with referring for help to the CSW. The CSW staff handles cases on demand but makes very little effort to make pro-active identifications of those who are eligible but who do not apply on their own initiative. Staff varies

34 Grosh et al (2008), Tesliuc, del Ninno and Grosh (2008) and Castaneda and Lindert (2005)

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from CSW to CSW in terms of their numbers, quality, motivation, and diligence. Moreover, job descriptions and criteria for performance do not provide enough incentives for pro-activity in bringing new beneficiaries to the system. Some NGOs in the Western Balkans region have noted that some CSW staff tend to be legalistic or overly bureaucratic in their treatment of applicants, which can lead to applications being rejected or delayed until the staff are satisfied on the documentation front. At the same time, neither the anecdotal information nor the NGO reports suggest that the same kind of focus is made on identifying the potential beneficiaries or using more indirect means of determining eligibility of applicants for benefits. However, in some cases the rules allow exceptions and sometimes an application for LRSA and other benefits will be opened on the initiative of the CSW staff if they have heard about people who are in need. For example, this possibility is included in the rulebook governing applications for family material support in Montenegro.

Application Processes 70. On-demand Applications. Determining eligibility involves the collection of documents from applicants, the verification of that information, home visits before awarding or rejecting the benefit, and dealing with appeals. While the eligibility criteria are set at the central level, new applicants are processed at the regional or municipal level by the CSW. Applications can be made to the LRSA programs at any time throughout the calendar year.35 Any member of a household or family in need can initiate an application at any point of time and start receiving the benefit if the eligibility criteria are met. In this respect, the application processes in the Western Balkan countries are compatible with those in the EU Member States and the USA. Beneficiary lists are updated every month36 by including new units of assistance and at the same time excluding ones that no longer meet the eligibility criteria. This approach reduces the errors of exclusion and inclusion and acts as a safety net to catch people when they fall in poverty.37 71. Lack of a Single Application Process for Multiple Benefits. The application form for the LRSA program is separate from the forms for the other social benefits. In various OECD countries (such as Germany and the USA), the application processes for different benefits have been combined to make the process more efficient and easier for the applicant.

72. Point of Contact - the CSWs. The initial point of contact for the applicant is the CSW that is closest to the applicant’s permanent residence. The CSWs are staffed with social workers with backgrounds in social work, law, psychology, and pedagogy. Some of them have also received training in making rapid assessments of clients’ needs, in counseling and communications, and in the operational aspects of their work. A permanent residence permit verifying that the applicant’s family or household lives in the catchment area of the CSW is required at the start of the application process. The LRSA cannot be granted to citizens who have no address registration. However, such applicants can usually get a one-time social assistance payment as temporary relief until such time as their residence issues are resolved. The social workers can provide them with information and referrals to other programs or services offered by the CSW, the municipal social departments, charities, or NGOs. 35 In Albania, applications for Ndihma Ekonomike are accepted during the first 15 days of each month. 36 The possibility for monthly updates is a result of the open application process that makes the benefit schemes more flexible compared to other countries where the possibility for applying is ‘locked’ in certain times of the year 37 Castaneda and Lindert (2005)

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73. Standardized Rule Books. The application processes do not vary substantially within countries and among different CSWs. This is because the application procedures are standardized in operations manuals (rulebooks) that are developed at the central level with the objective of ensuring equal treatment for all applicants. Box 6 describes some of the rulebooks that govern eligibility for permanent social assistance and for other non-contributory programs in FYR Macedonia. Similar rulebooks exist that ensure uniform implementation of the LRSA programs in the rest of the Western Balkan countries as well. The least regulated is the application process in Albania.

Box 6: Implementation Guidelines for Non-contributory Social Programs in FYR Macedonia In FYR Macedonia, there is a system of secondary legislation and implementation guidelines that develop further and specify the provisions of the Law on Social Protection (Official Gazette of Republic of Macedonia no.79/09). These include but are not limited to: � A rulebook on the manner of exercising and using the right to social financial assistance (Official Gazette of Republic of Macedonia no.

146/09) � A rulebook on the manner and conditions for exercising the right to financial reimbursement for assistance and care from another person

(Official Gazette of Republic of Macedonia no. 122/2009) � A rulebook on the manner of exercising the right to permanent financial assistance (Official Gazette of Republic of Macedonia no. 146/09) � A rulebook on the reimbursement of salary for shortened working hours due to having to care for a disabled child (Official Gazette of

Republic of Macedonia no. 53/98) � A rulebook on the manner of determining the status of income, property, property rights, and the necessary documentation for exercising

the right to financial assistance to persons who until the age of 18 had the status of child without parents and parental care (Official Gazette of Republic of Macedonia no. 122/09)

� A rulebook on the manner of exercising the right to one-time financial assistance and the necessary documentation for exercising this right (Official Gazette of Republic of Macedonia no. 122/09)

� A rulebook on the criteria for exercising the right to housing for persons who were without parents and parental care until the age of 18 and who are now no older than 26 years of age and who are socially vulnerable (lacking minimum resources or with housing) (Official Gazette of Republic of Macedonia no. 58/2006)

� A rulebook on the professional profile of the members of a professional body that provides assessment and opinion on the specific needs , the method of assessment of the specific needs, keeping records, and the institutions that provide assessment and opinion (Official Gazette of Republic of Macedonia no. 30/2000)

� A decision establishing the network of public institutions for social protection (Official Gazette of Republic of Macedonia no. 147/2008).

Sources: CSWs and legislative documents

74. Little Discretion Possible in Decision-making Based on Documents. The existence of detailed rulebooks and operation manuals limits how much discretion can be exercised by CSW staff in their decision-making.38 Straightforward applications are processed quickly and in a uniform manner in all CSWs. However, applications that involve special cases and require a certain level of discretionary treatment are more difficult to resolve. They are usually discussed within the CSW in question either when they arise or periodically, for example, once a month. The CSWs have some limited room for discretion in deciding on the granting of LRSA benefits in the case of material need that, for various reasons, the applicant cannot supply all of the required documents and/or exactly as specified in the rulebooks. 75. Flexibility versus Uniformity. The lack of discretion is interpreted in different ways. In some Western Balkan countries like Serbia, the CSW staff and policy makers perceive it as a restriction with respect to addressing complicated cases where exclusion is multidimensional and requires case-by-case tailored solutions that can be made possible by expanding the discretionary decision making power of the CSWs. In Kosovo, on the other hand, the government is

38 Albania being an exception where there is more discretion at the local level.

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considering expanding the ability of the CSWs to make case-by-case decisions by moving them out of the jurisdiction of the Ministry of Labor and Social Welfare (MLSW) and into the jurisdiction of the municipalities. This is expected to bring them closer to their clients and to give them a better understanding of local needs and poverty challenges. At the same time however, such an institutional change can contribute to undue easing the criteria for access to social assistance as a result of disconnect between central level priorities (to contain the costs of the program while increasing coverage and targeting accuracy) and local level motivation to include in the program as many beneficiaries as possible.39 In other countries, the policy objective has to limit social workers’ discretion and to ensure that people receive same package of benefits under uniform conditions irrespective of their location. This is the case in FBH where the Ministry of Labor and Social Policy (MLSP) is changing the law to even out the responsibilities across the cantons and homogenize the rules governing the LRSA. 76. Updating Information and Monitoring Changes in Status. Because of their regular interactions with applicants, the staff of the CSWs is in a very good position to monitor changes in the applicants’ profile and shifts in demand for social assistance. They have reported observing more frequent and radical changes during the time of the economic crisis and its immediate aftermath. According to anecdotal information, the main change has consisted of an increase in the number of assistance seekers from the working population, mostly from families where the adults have jobs but their wages are not being paid or are being paid only after a considerable delay. Also, the number of unemployed workers who have exhausted their rights to unemployment benefits is increasing. Finally, increased demand for social assistance is coming from families with no permanent residence who migrate within one country or region-wide in search of work. The CSWs have no formal way of reporting their observations regarding these changes in their clients’ profiles and needs, except for an annual report to their ministries on numbers of rejected applications for benefits and the reasons for those rejections. However, the rejected applications are not currently entered in the electronic databases of the CSWs or the ministries. The annual reports are the only place where they are analyzed and brought to the attention of policymakers. It would also be possible to introduce changes in the CSWs’ rulebooks and application rules to accommodate new cases and emerging new demands, but this process would take time. 77. Two-stage Decision Making on Eligibility. The determination of eligibility is a two-stage process in the Western Balkan countries. The CSW organizes the application process and makes the first decision while the ministries provide the financing and confirm or reject the decisions made by the CSWs. At the first instance, a social worker or a group of social workers prepares the case management plan, which is then discussed at the CSW collegiums or a similar body once a week. The decision is then taken by the group or by the Director of the CSW and signed by him or her. The applicant is informed about the decision and is given the option to contest it before the second instance within a certain period of time, most often within sixty days. The second instance decision maker on eligibility is the respective ministry of labor and social policy. Its decision on eligibility is final within the administrative procedure.

39 The MLSW of Kosovo reports of a sharp increase in the number of LRSA beneficiaries after ‘decentralizing’ of some CSWs. The MLSW audits have revealed increased number of errors that have led to inclusion of applicants who are not eligible for LRSA on legal grounds only, but have been included due to local-level considerations and pressure.

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Collecting Documents

78. Multiple Documents. Applicants must provide a long list of documents to the CSW to verify their family composition and circumstances and their income and asset status. The main documents required in each of the Western Balkan countries are summarized in Annex 3. The documents are required for all members of the unit of assistance (family or household). The largest number of documents is to be submitted when applying for LRSA benefit. The exact number depends on the structure and composition of the unit of assistance, employment, education, or family status, and ranges from 13 in FYR Macedonia to 17 in Serbia and as high as 22 in Montenegro. 79. Obstacles to Obtaining Documents. The onus of collecting and providing documentation is on the applicant. Some of the documents, even such basic records as birth certificates, employment records, or medical histories, are hard to obtain in the Western Balkan countries because of the extensive migration and displacement of population groups and the destroyed, missing, or moved archives that are the legacy of the region’s conflicts. It can take over 30 or even as many as 60 days to acquire all of the necessary documents, depending whether this involves the need to travel and given the waiting periods associated with issuing such documents.40 Paper copies are required. Usually the documents are only valid for a limited period, and this makes the effort even more difficult. Vulnerable groups as migrants, IDPs, and ethnic minorities, the Roma in particular, face these obstacles most often (see Box 7).

80. Costs of Obtaining Documents. Obtaining documents such a birth certificate is not free of charge. Also, collecting the necessary documents may require applicants to travel and incur costs, to their place of birth, place of past permanent residence, or the place where their land or other immoveable assets are located. Sometimes they also have to pay for legal advice on how to recover missing documents or get them for the first time. These costs vary substantially from case to case and are difficult to quantify. Obtaining documents, especially for an initial application, puts a considerable burden on the applicant in terms of both time and spending. For this reason, some countries like Serbia have abolished fees for the purchase of documents for the purposes of accessing to social assistance. However, the municipalities and some agencies that issue documents are free to levy their own fees and administrative charges, and they often do so.41 In Montenegro, at the start of the application process, the applicants receive confirmation in writing from the CSWs that they are applying for the LRSA and this enables them to get the necessary documentation free of charge. Personal documents are issued free of charge in BiH, FYR Macedonia, Albania, and Kosovo.

40 Regular waiting periods are between three and seven working days; express issuing is possible for one to three days but usually a fee is charged for this service. 41 More detailed information on the costs associated with applying for the LRSA in Serbia is provided in World Bank (2010).

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Screening 81. Initial Screening. The initial screening is conducted by a social worker, during either the first or the second visit of the applicant to the CSW. The screening is based on the case as articulated by the applicant, the completed application forms, and the supporting documents. The social worker must check whether all of the necessary documents have been presented, whether they comply with the required formats, and whether the application form is filled out correctly. Usually the application package will be accepted and, if approved, the benefit should be due from the calendar month in which the application was accepted. If the applicant’s documentation is incomplete, then the social worker will make him or her an appointment for a third visit to the CSW and will advise the applicant on how to complete the document package and finalize the submission. The application process can be completed in one or two months depending on how quickly the documents are collected and verified and on how complex the unit of assistance is in terms of its composition, ownership of assets, and income sources. 82. Formal Interview. In some of the countries, after submitting all documentation and undergoing the initial screening, the applicant is obliged to participate in a formal interview with a team consisting of a social worker and a lawyer. In Serbia and Montenegro, interviews are required, but there are no specific rules on when the interview should be scheduled. In Albania, the CSW offices are open for application interviews for the first two weeks of every month.

Box 7: Barriers Preventing the Roma from Accessing to Social Assistance in Serbia The Roma are the poorest minority in Serbia with limited opportunities to break out of poverty and social exclusion. They are most in the need of social assistance, and yet their access to it is greatly limited. Analysis of data from Serbia’s 2007 Living Standards Measurement Study survey reveals that a higher proportion of Roma households is covered by social assistance programs than of the general population, which demonstrates that these programs are well-targeted to the poor. However, many Roma face considerable barriers in accessing programs such as the child allowance and the Material Support for Low-income Households Program (MOP). The most common among these barriers are: (i) a lack of information about existing social programs and their eligibility requirements; (ii) program design characteristics that discriminate against large families or families with many children among which Roma families are overrepresented; and (iii) a complicated application process requiring many documents, which are often hard and expensive for Roma to obtain. The Roma often have no knowledge of where to turn for social assistance and how to apply. This lack of information is coupled with a fear of discrimination and a lack of trust in the ability of the relevant institutions to help them. Information exists but it is not accessible by the Roma if they do not speak the official language well, are illiterate, or do not purchase and read newspapers. This is why it is very important that the staff of the Centers for Social Work (CSWs), which administer the program, are trained in how to work with vulnerable groups such as the Roma and in how to approach and communicate with them. Also, they should actively seek out families in need of social assistance and be motivated to do so by the setting of adequate performance benchmarks.

The Roma are less able to comply with the application requirements because they often have no personal identification cards, birth certificates, citizenship papers, or permanent address registration. Because of that, they cannot register their newborn babies let alone to apply for formal jobs, attend school, or qualify for social assistance. This is a vicious circle that could be broken by relaxing the rules regulating the issuing of personal documents and by legalizing the illegal Roma settlements. Furthermore, the documentation requirements for the MOP and child allowances should be simplified, as well as the application and payment processes.

The social welfare programs should be designed in such a way as to ensure that hard-to-serve applicants are not discriminated against and subsequently underserved. Specifically, in Montenegro and Serbia, the design of the MOP and child allowance should be changed to eliminate any discrimination against families with more than three or four children, because this has a negative effect on predominantly marginalized and poor ethnic groups, particularly the Roma. The rule that allows a maximum of only five members of the same household to receive MOP benefits should also be waived. The issues of Roma access to the safety net in Serbia are analyzed in details in a separate report, which is one of the outputs of this economic and sector work. Source: World Bank (2010)

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83. Informing Applicants of Decisions. Once all steps are completed, the correct documentation submitted, and the verification confirmed (see below), applicants are informed in writing whether their applications have been approved or denied and, if approved, the size of their benefit. The benefit is paid from the month when the application with all supporting documents was submitted, which is also the time when the application is considered accepted. If the case is rejected, the applicants are told the reasons and advised about the procedures for appeals. Typically there is a deadline by which the applicants must contest their cases. The procedures for complaints and grievances are discussed separately. 84. Social Cases. The approved applications become known as “social cases” and are entered in the databases of the CSWs. The full documentation package is kept, including the decision on the denial of application. The rejected applications are filed and stored as hard copies but not on computer so neither the central nor the local authorities can review and analyze the CSWs’ eligibility decisions. However, the CSW does provide this information on rejected applications to their ministry if requested to do so. In Serbia and Montenegro, the CSWs are required to prepare annual reports to their ministries that must contain statistics on the number of rejections and the reasons behind them. These reports are used for analytical and social assistance planning purposes at central government level but are not made public. Verifying Eligibility 85. A Multi-stage Process. The verification of eligibility is a multi-stage process that covers various aspects of eligibility, including the client’s identity, the composition of the unit of assistance, and the information provided in the application form and in the supporting documents. The CSW verifies this information in several different ways including requesting the issuing agency provide the documents again or to confirm their validity, engaging in computer matching where electronic databases exist, conducting home visits to verify the household composition and living conditions of the applicant, and, in some cases, carrying out interviews with members of the applicant’s local community. Closely related to verification is the process of recertification which is addressed further in the text. 86. Extensive Verification of Documents. Usually the same case worker is in charge of receiving and verifying the application and the supporting documentation due to the absence of functional specialization among social workers. The verification involves two phases. The initial verification is internal - the social worker checks the name and personal identification number of the applicant against the CSW’s databases to see whether he or she is already a client within the catchment territory of the CSW or outside it and, if so, what kind of benefits and services he or she is receiving. This is a way to verify whether the applicant is receiving other benefits and – in certain cases – to confirm any income from contributory and non-contributory pensions. At the second phase, the social worker scrutinizes the applicant’s supporting documents to verify the authenticity and content of the information on, for example, the applicant’s income and assets, employment, and disability status. Since the CSW’s rely considerably on official documents issued by central and local government agencies for awarding or denying LRSA benefits, these documents are examined thoroughly in terms of whether they have the right (approved) format and come from the right issuing authority and whether they are issued (signed) by authorized officials.

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87. Verification Methods. The social workers use various methods for verifying the information given in the supporting documents.

� In certain cases, they might call the issuing agency or fax documents to confirm their authenticity. This is necessary when the CSW has no access to the databases of different agencies and cannot exchange data in real time. This is the most common way of verifying data from employers (as contained in employment letters, copies of work record books, or monthly payroll statements).

� Other option is to match and cross-check computerized data, which is possible when the social workers have access to other databases. The process can be slow when the information is coming from databases that are external to the CSW and ministry and is not accessible in real time. In such cases, the CSW might choose to request a data abstract based on the name and personal identification number of applicants and members of their families. This is the most common way in which information on both incomes and assets is cross-checked with national and regional personal income tax authorities, pension funds, business registers, cadastre and land registers (where these exist), housing registers, registers of motor vehicles, and court registers of sales and purchases of immobile property.

� Another verification method is the home visit. It is mandatory in the verification process in Serbia, Montenegro, FYR Macedonia, Kosovo, and Albania, however the findings of the home visit have less weight in the set of eligibility criteria than the income test and the asset and other ‘filters’. These visits are made before a final decision is made on an applicant’s benefit eligibility and each time the applicant’s eligibility is being re-assessed. In other countries, they are conducted selectively either when eligibility is being determined or later once the unit of assistance has begun receiving the LRSA benefit. The main objective of the home visit is to examine certain observable characteristics of the household (the quality of the dwelling, the number of rooms, the size of the house, the availability of furniture, the number of children and adults, any agricultural land, garden, or livestock, the existence of any well-to-do relatives, and any evidence of consumption that is inconsistent with the household’s declared income). Having made these observations, the social worker then recommends the continuation or the suspension of the application process. Anecdotal evidence suggests that home visits do take place even in places when they are not mandated in the LRSA eligibility assessment rulebooks. In Republika Srpska, for example, social workers visit the homes of beneficiaries of the Permanent Social Assistance benefit once or twice a year. However, as the same CSW staff has to deal with a multitude of social issues (such as juvenile crime and family problems) as well as handle the applications for civilian disability benefits, they are often unable to make very many field trips in any one year. Thus in the Banja Luka CSW, home visits are always undertaken prior to the awarding of the benefit, and annual visits must thereafter be made prior to May of each year.

88. Subjectivity of Home Visit Findings. Home visits are an important element of verification of eligibility for LRSA, however the way they are conducted now leaves room for

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subjectivity leading to discretionary decisions and eventually to unequal treatment of applicants. The scrutiny of assets and living conditions during these home visits is not carried out using any uniform methodology or indicator check-lists. This can result in subjective observations that lead to inaccuracies and to errors of exclusion and inclusion. For example, in certain cases the main objective of the home visit is to verify the real composition of the unit of assistance because sometimes the applicants try to hide members who have incomes that might make the household ineligible for the benefit. In other cases, the social workers focus on assessing whether the applicant might be being supported by a partner or relatives who have such an obligation by law. Social workers also try to assess how much the applicant’s family spends and consumes by looking at, for example electricity or heating bills, or by inquiries in local stores, or by looking at indirect indicators of good or bad “material conditions’ like the availability of household appliances, their quality and year of production, etc. This is a long list of indicators which are not evaluated in an uniform way during the home visits due to absence of a methodology for standardized verification of applicant’s material circumstances through a home visit. Kosovo is working towards developing a uniform verification form and a uniform set of questions to be answered in the report on the home visit. In Kosovo, the CSW staff also interviews some members of the applicant’s local community as a way to verify income and asset information (see Box 8).

Box 8: The Verification of Household Assets in Kosovo In Kosovo, the Centers for Social Work (CSW) staff conduct field visits to verify the information on the application forms for the Last-resort Income Support benefit. The home visit is complemented by an interview. During the visit to the household dwelling, the social workers evaluated the family’s sources of income and business-related assets and record their findings on a standardized Social Assistance Verification Form. There are two drawbacks to this process: first, some sources of income, such as remittances and informal businesses, are particularly difficult to verify and, second, no information on observable non-productive household assets is collected.

During the field visit, the social workers also gather information informally from the community in which the applying family lives. At this point the information gathering is rather ad hoc. However, it should be possible to develop a set of standard questions to ask of the local community aimed at verifying whether the members of the applying household are engaged in any informal business. The CSW staff could also find out if the applying household has been making a large number of purchases at the local stores. This is a useful verification practice but at the moment might not be being consistently applied by all CSW staff. Formalizing this good practice by adding a set of questions to the community and on the household’s non-productive assets or by moving to a proxy-means assessment could be a very effective yet low-cost way to improve the last-resort social assistance program.

Source: Gueorguieva (2008)

89. More Verification Needed for LRSA Programs. As a whole, the LRSA programs in the Western Balkan countries require more verification of applicants’ eligibility than other benefits (such as disability and family and child benefits). The CSW staff have a greater degree of discretion in some cases, but the system is still over-reliant on administrative data and paperwork. This means that the caseworkers are usually concerned with reviewing the requisite pieces of documentation for the purposes of deciding whether or not to award benefits and pay relatively little attention to the applicant’s personal circumstances that may not be reflected in the official documentation. Furthermore, the reliance on paper files and the sub-optimal functions of the electronic database(s) further reduce the chances that benefit administrators will detect any instances of “double dipping” or will produce any meaningful analyses of the beneficiary profile(s) in their locality. 90. More Frequent Verification. The LRSA programs also require more frequent re-verification than other programs, which increases the administrative burden. The main reason for this is that any change in income, even a marginal one, needs to be declared by the beneficiary

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and then verified. Also, some of the binary filters (such as the unemployment registration requirement) need to be renewed every month or every two months. In Albania, the beneficiary is required to make a monthly statement of the number of family members living together (‘statement of presence’) and a monthly update on socioeconomic circumstances, and these statements need to be verified.

Recertification 91. Scheduled Recertification. Beneficiaries are required by law to be recertified every six or twelve months, which is also the standard period for extending the LRSA benefit. Scheduled recertification takes place at the end of the benefit period. In most of the countries (Montenegro, FYR Macedonia, BH, and Albania42), scheduled recertification for the LRSA programs takes place after twelve months of benefit receipt. In Serbia, it is also carried out once every twelve months except in the case of the able-bodied registered unemployed and their families who must be recertified every six months. In Kosovo, recertification takes place every six months. In BiH, recertification does not usually happen for those who receive the Permanent Social Assistance benefit. This is largely due to the fact that the profile of the beneficiaries (mostly very old and infirm people or the chronically poor) is such that the authorities do not find it efficient to do so. The recipients are expected to initiate their scheduled re-certification and re-submit updated documents. 92. Ad hoc Recertification. Ad hoc recertification takes place whenever there are any changes in the address, personal identification documents, or economic or demographic characteristics of the unit of assistance. This kind of recertification is also carried out by the CSW social workers. The recipients are expected to initiate ad hoc re-certification in case of change of income or other characteristics that affect their eligibility for LRSA or the due benefit amounts. Social workers, irrespective of whether they are case managers or not, can also initiate ad hoc recertification. In FBH, for example, CSW staff confirmed that any suggestion of a change in a beneficiary’s circumstances – either triggered by the home visit or by other means (even hearsay) – may trigger an ad hoc formal recertification process. If a recertification takes place, the documentation that needs to be resubmitted largely relates to financial information (such as tax authority certificates). Moreover, certain other documents have to be submitted every month as already noted above. Complaints and Grievances 93. Rationale for Complaints and Grievances. In the process of applying or receiving LRSA benefits, there emerge three main spheres (cases) when the rights of the applicant and / or beneficiary could be violated: (i) the case of discrimination meaning unequal treatment with respect to other applicants or beneficiaries and (ii) the case of wrong decision meaning questioning the formal / legal grounds for rejection the award of benefits, for assigning a benefit of certain amount which is perceived as lower compared to the one suggested by the benefit formula, or for penalizing a beneficiary with stoppage or reduction of the benefit, and (iii) on failure to inform on the decision within the legally stipulated deadlines (‘the duty to inform’)

42 As mentioned above, verification in Albania takes place once a year but beneficiaries must also present monthly statements of their location and socioeconomic circumstances.

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which ranges from forty-five days (Kosovo) to sixty days (Montenegro) in case the submitted application is complete and with no mistakes. In most of the cases (Serbia, FYR Macedonia, Kosovo, Albania) the rights to grievances and complaints are regulated by the respective laws on social assistance. The grievance procedure can be initiated by the applicant whose rights have been violated or whose request for social assistance has been rejected, or his/her legal representative. The grievance can be initiated also by the CSWs if a breach of application of regulations is revealed during internal checks and audits. Civil society organizations, ombudsman and other institutions which act in the interest of citizens can also initiate such procedures. 94. Administrative and Legal Procedures. The complaint is filed against the first-instance authority that decides on the award of the LRSA and its amount (the CSW). Some of the laws stipulate deadlines for filing the complaints against the first-instance decision and they range from fourteen days (Kosovo) to up to sixty days. The review process can take place first in the first-instance body (Kosovo) or directly at the level of the second-instance authority (in the respective ministry) and the decision is taken by the minister responsible for social issues (Serbia43, FYR Macedonia, and Montenegro). The respective ministry establishes a committee that reviews complaints and advises the minister on the nature of the decision. As already mentioned, the decision of the ministry is final in the administrative procedure. However, if the claimant is not satisfied with it, he or she can file a law suit in the administrative court.

4.2 Authorizing and Transferring Payments to Beneficiaries

95. Monthly Payments. LRSA benefits are paid monthly. The CSWs prepare monthly requests to their respective ministries of labor and social policy (or the cantonal ministry in the case of FBH) indicating the number of beneficiaries and the amounts of financial resources needed. The ministry then transmits a request for payment to the Ministry of Finance, which instructs the Treasury to make the payment to the relevant commercial banks, post offices, or both. In most of the countries, the CSWs calculate the individual amounts due, except in Serbia where the benefits change every month due to the legal obligation for benefit indexation. Therefore, the Center for Information Technology of the MLSP does the computing based on data provided by the CSWs on the number of units of assistance. 96. Payment Channels. The beneficiaries receive their payments either through the banking system or the post office. In Montenegro and Kosovo, payments are only made through post offices, but the other countries increasingly use the banking system. Post offices still tend to be used in remote areas where there are few branches of the commercial banks. Where banks are used, beneficiaries either open individual accounts in which the benefit is deposited or the CSW opens a single account and instructs the bank on how much to pay to each claimant. The post offices also operate in two different ways. Either the beneficiaries physically go to the post office to collect their transfers or the postal carriers deliver them to the home, particularly to those who cannot physically get to the post office. In FYR Macedonia, the national Post office bank transfers the benefit money to its local branches, and the local CSWs provide the local post office branches with the list and addresses of beneficiaries together with a payment slip 43 In Serbia, there are two notable exceptions: the complaints against CSW decisions on the territory of the Autonomous Province of Vojvodina should be decided upon by the provincial administrative authority responsible for social care affairs while for Belgrade the decisions are made by the city administration.

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indicating the amount to be paid to each beneficiary household. Finally, the local post office delivers the financial assistance directly to the beneficiary at home. The post office bank keeps a copy of the payment slips and prepares reports for the CSWs and charges the Ministry of Finance for the service. In the future, beneficiaries will be encouraged to open individual bank accounts. 97. Albania, an Interesting Exception. In Albania, in exceptional cases, the local community can get involved in the payment of Ndihma Ekonomike and even in determining how much each beneficiary household should receive. These exceptional cases are those that require the payments to be made at the homes of beneficiaries (old age people living alone, single mothers, and households that are locked in their dwellings due to fear of retaliation for killing a male member of a hostile family or clan, known as blood feud). In these cases, the village leader not only acts as cashier but also defines the criteria for categorizing the beneficiaries into groups according to their socioeconomic indicators. The leader also defines the share of benefit to be given to each beneficiary up to the maximum established ceiling.

4.3 Registries, Data Management, and Information Flows

98. Electronic Databases. All Western Balkan countries have some form of electronic database and data management system for their last-resort social assistance programs, though some are more advanced than others. These databases are stand-alone and not integrated into the country-level automated welfare information systems as is the case in many developed countries. Moreover, they are limited in terms of content and cover only payroll data for approved beneficiaries. These databases contain no information on rejected applicants and as such cannot be used to monitor the CSWs’ eligibility decisions. Also, except for the databases in Serbia and Montenegro, the rest contain no information about the family as a single unit of assistance meaning that they cannot track all benefits and services that are provided to the whole unit of assistance, and not to separate individuals. However, the Western Balkan countries are investing in upgrading their registries (program-specific databases) and in improving the existing data management and information flows.

Registries 99. Two Levels of Program-specific Registries. The registries related to the LRSA programs can be maintained at two levels: at the CSW (local) level and / or at the ministry (central) level. 100. Local-level CSW Registries. The CSWs enter the data from the approved paper-based applications for the LRSA into a computerized database (registry) in all the Western Balkan countries except Albania where the SSSs work only with paper-based documentation. As already mentioned, data are only entered for the approved applicants but not for those who were denied eligibility. In each of the countries, these databases are organized in different ways. The CSWs in Serbia and Montenegro assign to each unit of assistance a unique household identification number. In BH and Kosovo, beneficiaries are registered according to a personal identification number. The CSWs use standardized electronic forms and, while the form itself is comprehensive in terms of the information that needs to be entered into the database, this information is still largely referenced to drawn from the official documents that applicants need to submit.

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101. Registry Content. Where available, the electronic databases use the same software across all CSW in a country and contain the same data (see Box 9).

Box 9: A Checklist of the Content of a CSW Registry The registry consists of individual data or data for all household members taken from the approved applications, meaning that it is a beneficiary registry only. The rejected applications are considered “social cases” and are kept only as paper files.

Program data or data on benefits from other programs – social assistance, social insurance, social services, institutionalization, disability benefits, employment-related benefits, employment services, job counseling, data on the current case or full history of benefit receipt, data on changes of circumstances or eligibility; data on penalties or sanctions for abusing the system.

Data in the registry on checklists - about the beneficiary and his/her household/family members are collected on the basis of several different forms, which serve as checklists. These forms include all of the filters that are specified by legislation. These checklists include: � Form for beneficiary data or data for all household members � Form for reporting changes in the material status of the household/family � Form for the assets possessed by the household � Form for the income earned by the household/family � Form on the employment status of the family/household members � Form for updates and amendments to the registry � Forms regarding the health status of the beneficiaries receiving permanent financial assistance.

Data on all benefits and services provided to the respective beneficiary or unit of assistance, institutionalization, job-seeking behavior, data on the current case and full history of benefit receipt, data on changes of circumstances, and data on abuse of the system.

Source: CSW internal documents

102. Central-level Registries. The ministries also maintain a registry for the LRSA programs (except in Albania). Their information technology departments compile the data from all CSW offices. As at the CSW level, the central registries only contain the data related to the approved applicants and not for those who were denied eligibility. As a result, the ministries have no way to cross-check the eligibility decisions made at the local level or to track any applicants who may have been wrongly excluded (except when an appeal is filed) or to monitor and evaluate the effectiveness of the social benefit policy in general. 103. Links to Central Electronic Databases. The CSW registries are linked with the central electronic database of the respective ministry in various ways. In Kosovo, the CSWs feed data into the central database once a month when each CSW sends a diskette or USB file to the MLSW with the list of current beneficiaries for that month and amounts paid to them. In Serbia, the CSWs are connected via the Internet with the Center for Information Technology of the MLSP, which maintains a nationwide centralized database of beneficiaries of cash payments that are administered by MLSP, and the data can therefore be sent in real time. The CSWs rely on the central register for determining the benefit amount per unit of assistance, for computing the monthly benefit indexation, and for issuing receipts for payment. In the two entities of Bosnia and Herzegovina, the data are stored on remote servers in the relevant ministries in Sarajevo and Banja Luka, but these servers are not connected with the computer networks at the CSWs in any reliable way. As a result, paper files continue to be the backbone of the system rather than the computerized database. In Montenegro, the MLSW maintains a central electronic database of FMS beneficiaries. Since the 1990s, the ministry and the CSWs have shared one computer system. CSWs input data on existing beneficiaries and on new entrants and on other changes relevant for FMS eligibility, while the ministry maintains the section of the database used to make the benefit payments. However, the CSWs have access to the ministries’ databases only

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during certain time slots during each month (two or three days at the end of the month or in the beginning of the next month in order to input all relevant changes).

Data Management and Information Flows 104. Access to Data. The electronic database of beneficiaries at the CSW level is accessible to the CSW’s social workers, lawyers, and administrative staff, but only the system administrators in the CSW are authorized to modify it. Data, logical control, and verification of entry are part of database design, also information technology staff of the respective ministry. Summary statistical reports derived from the databases with no individual data can be obtained on request for use within the social assistance system or outside it (academia, civil society, government agencies). 105. Links to Other Databases. The databases of LRSA program beneficiaries are not linked to any other databases maintained by other public institutions. They are created solely for the purpose of processing that particular benefit. However, most of the countries in the region plan to implement upgrades that will allow social assistance related data to be cross-checked with other registries using the personal identification number of the applicant or beneficiary. For example, in Serbia, the MLSP is developing a concept that will make it possible to track a larger number of indicators (including all applications, reasons for rejections, receipt of one-time benefits, etc.), to link the beneficiary registries in the MLSP and the municipalities, and to establish protocols for exchanging data with other agencies, with the registries of the Ministry of Education and the Ministry of Health on the first place. Montenegro and FYR Macedonia are planning to introduce so-called “social card” and electronic databases and to link them to other databases in the MLSW as well as those of other relevant public registers. The idea is to have a system where the applicant would simply have to fill in an application form and all of his or her documentation would already be available to the program administrators via the information system. 106. Main Strengths and Weaknesses. The administration of the existing registries has several strengths. The first of these is the fact that the countries do in fact collect and record information on beneficiaries and spending. Second, the CSWs are becoming increasingly experienced in gathering information and in entering it into computerized data systems. Third, this information is increasingly being used at the central government level to inform policy decisions as the recent economic crisis has emphasized the need to monitor benefits monitoring and to base policymaking on evidence. There are also several weaknesses in the administration of the existing registries. First, there is no integrated information system that would allow the CSWs to track all of the cash transfers and social services received by the members of one assistance unit. A second data storage problem is the lack of compatibility and data exchange between the LRSA registers and the registers of other institutions. Third, the administrations lack a proper accounting system. Fourth, data verification procedures are not well-developed, and there are no procedures in place to ensure the proper protection of personal data. A significant weakness is the absence from the registry of any data pertaining to the applications that were not approved. The files remain in the CSWs, but the information is stored in paper-based files and is therefore not easy to access, summarize, and analyze. Analyses of the data from the rejected applications is not required by the central government, except in Serbia where the MLSP requires the CSWs to submit annual reports on the numbers of rejections and to give the reasons

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why they were denied eligibility. This information could be very useful to policymakers because it would provide them with important signals about changes in the demand for the LRSA benefit.

4.4 Oversight and Control of Fraud and Error

107. Fraud and Error. No social transfer program in any country is completely immune to fraud and error. All programs experience irregularities, ranging from unintentional administrative errors such as a wrong address or missing or inconsistent data to intentional fraud by claimants or corruption by officials. The key is to design and implement effective oversight and control (O&C) tools to detect, remedy, and minimize such irregularities. 108. Oversight and Control. The social transfer programs are overseen and controlled at two different levels. At the ministerial level, the Western Balkan countries have departments that control for fraud and error related to determining the eligibility for the LRSA and the amounts to be paid to different categories of beneficiaries and units of assistance. At the level of the CSWs, detecting fraud and error is the responsibility of each social worker. In addition, in each CSW, there are specialists, often lawyers, who have specific responsibility for making sure that all social assistance legislation is implemented fully and uniformly across all the CSWs and that no documentary errors are made. However, social workers receive no special training related to detecting existing errors or preventing future ones nor do any manuals exist that outline any procedures for detecting, deterring and preventing error and fraud in the system. There are no incentives for the staff to reveal fraud and error.

109. Under-developed Mechanisms for O&C. Mechanisms for O&C in the Western Balkan countries are less transparent and developed than the high standards achieved in social assistance programs worldwide as illustrated in Table 14.

Table 14: Indicators for Dynamic O&C in the Western Balkan LRSA Programs

International standards of good practice / Presence of: Albania BiH FYR Mace-donia

Kosovo Monte-negro

Serbia

Formal central-level oversight mechanisms Y Y Y Y Y Y Centralized guidelines for data collection, eligibility Y Y Y Y Y Y Centralized database management – for current beneficiaries

N Y Y Y Y Y

Electronic record and audit of rejected applications N N N N N N Extensive use of automated cross-checks N N N N N N Household surveys with specific questions on “social benefits” permitting evaluation of accuracy

Y Limited Y Y Y Y

Random sampled audits of databases N N N N N N Staff specialized in O&C Y Y Y Y Y Y Staff specialized in E&F detecting, deterring and preventing N N N N N N Public availability of M&E reports N N N N N N Procedures for citizens’ control (social control) N N N N N N Source: Adapted from Castaneda and Lindert (2005) Notes: Y – presence / yes; N – absence / no. 110. Slow Information Exchange between Databases. According to social workers, there are many instances where beneficiaries can exploit the loopholes that exist in the current system for collecting and verifying data on eligibility. The biggest problem stems from the lack of sophisticated information systems and the insufficient and slow data exchange with other relevant registries. This means that it is not difficult for beneficiaries to conceal from the CSWs

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changes in their material status that might lead them to lose their eligibility for LRSA or to receive a lower monthly benefit. Another fraudulent practice that occurs is when a beneficiary dies but his relatives do not report this immediately to the CSW and continue receiving his/her benefits for some time after demise. It is possible to continue collecting benefit on behalf of a deceased beneficiary for some time, because data matching is a slow process in these countries.44 111. Inability to do Real-time Data Matching. Data matching in real time is not feasible. The CSW databases are currently not suitable and are not used for verifying the accuracy of data presented by beneficiaries. For example, there is no way to cross-check information on beneficiaries using the individual ID code in order to verify if some individuals claim benefits in more than one CSW. The electronic communications are vertical – between the CSW and the central information technology unit of the ministry, and in many cases they are feasible only during specific time slots (e.g. in the first or last three to five days of the calendar month). Horizontal data exchange across the CSWs usually takes the form of exchange of file abstracts produced upon request. Because it is not possible for CSWs to share information with no time lag, it is possible for some people to accumulate benefits that are meant to be mutually exclusive without being detected. The one-off lump sum financial allowance is especially difficult to monitor under the present system. 112. Administrative Control Mechanisms. At central level, each ministry tries to audit all beneficiary files. After doing the audit of documents, the ministry initiates field audits. The sites / cases are selected based on different criteria, for example depending on the number of mistakes made by the CSWs, the number of mistakes found in the audited files, or based on signals left in drop boxes, or information gathered through telephone hotlines. The CSWs also have administrative control mechanisms in place to control, detect, and prevent fraud and error. The CSW lawyers check all documentation submitted by applicants, while social workers carry out home visits before making the final decision on an applicant’s eligibility for the LRSA benefit. Also, staff at the ministry check for any errors that may have been made by CSW staff while they were entering the data. On their own initiative, the CSWs try to inspect all households or families that are receiving LRSA benefits at least once in two or three years. They also implement annual beneficiary audits, which are usually costly and do not result in any significant attrition because the vast majority of the beneficiaries are chronically poor with a long history of proven eligibility for social assistance. In these audits, the CSWs review application documents and carry out spot checks to verify that the documents comply with the actual status of the benefit recipients and thus uncover fraud or error. O&C could become more effective by screening representative samples instead of all – a practice which has been used effectively in other countries (see Box 10).

44 In Montenegro, the CSW exchanges data on deceased persons with the Ministry of Internal Affairs once a year. During the period when the data is not updated, there is room for fraudulent behaviour on the part of either relatives or CSW staff. Similarly, new business owners or the newly self-employed are not immediately detected unless they themselves report these changes in their status. Fraud can also occur when agricultural workers derive income from the use of land without having a formal land right because the land registry is not updated, which enable these people to claim eligibility for LRSA benefits. Weaknesses in land and real estate registers can also leave room for fraud, as can inheritance procedures in which, until the court makes a ruling, there is no entry in cadastre and no ensuing change in a beneficiary’s LRSA eligibility. The inheritance changes are not made automatically but usually on the request of inheritors.

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113. Ways to Improve LRSA Administration. There is room for a number of improvements that could be made to the administration of the LRSA programs that would help to prevent fraud and at the same time increase access to benefits, take-up and efficiency of targeting. The main improvements could be made in the five areas with key implementation issues summarized in Figure 24.

Figure 24: Key Implementation Issues for the Last-resort Programs

� Rigorous enforcement of eligibility rules. The rigorous enforcement of eligibility rules

should not be compromised but at the same time flexible solutions could be introduced for especially vulnerable applicants who objectively are not able to comply with all application requirements, given the legacy of the war and the associated risks of internal or external displacement and difficulties with collecting personal and land ownership related documents.

� Home visits. The home visits should be made more ‘structured’, objective and transparent through the introduction of check lists of observable household

Box 10: Examples of Good Practices for the Oversight and Control of LRSA Benefits There are different ways in which oversight and control over eligibility decisions and benefit calculation can be organized and implemented. Some countries try to audit all beneficiaries, usually auditing those who have stayed in the program the longest first, while the new entrants come last. This is a practice that is highly demanding of resources and time, which can be made more cost-effective by adopting one or more of the following procedures.

� A random sampling of active cases. A more cost-effective practice is to inspect a randomly selected sample of the units of assistance. For example, each month a specified number of active cases would be selected randomly for a desk review to check the accuracy of eligibility documents and for a home visit from social workers who would then recalculate the recipient’s benefit level to identify any payment errors.

� A random sampling of active and negative cases. Data permitting, the audit of the random sample of active cases could be complemented by a review of negative cases – cases where benefits have been terminated or units of assistance have been denied benefits. These reviews would determine the share of households wrongly classified as ineligible or wrongly terminated in the total caseload. These reviews usually consist simply of desk reviews of the caseworkers’ records.

� Data-matching and cross checks. The CSW could expand the number of data sources that they match against their own data and start putting in place infrastructure to exchange data electronically with other services. Studies have shown that expanding data-matching to include additional sources of data, including private sector data, increases the effectiveness of data-matching substantially.

� Audit of critical activities. Another option would be to focus the internal audits on certain parts of the eligibility certification that are critical for the achievement of the program’s objectives.

Risk-based inspections with client profiling. Inspections can be strengthened by focusing on groups of social assistance beneficiaries who are regarded as at “high risk” of committing benefit fraud. The ministries of labor and social policy in the Western Balkan countries could start building up capacity within their central structures to analyze and review existing files with the aim of identifying those beneficiaries and staff most likely to commit benefit fraud. This analysis would have to be specific to each type of benefit and could also be made region-specific.

Source: World Bank (2008)

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characteristics to be scrutinized and assigned ‘weights’/ranks in a scoring formula using common criteria.

� Incentives for bringing needy poor into the system. The CSW should be provided with incentives and capacity building for improved outreach and information dissemination aimed at identifying deserving poor and guiding them through the application process.

� Digital registries should be established for all non-contributory programs allowing data matching using common data exchange standards.

� Improved internal audits, and more efficient detection of error and fraud mechanisms. Less costly and time-consuming and at the same time more effective methods for O&C should be applied for more effective detection of errors and fraud.

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5. Performance of Social Assistance Programs in the Western Balkans

114. This chapter’s focus is on the overall performance of social assistance in the Western Balkan countries and particularly on the performance of the LRSA programs. We use data from household surveys to assess the performance of social assistance programs with respect to: (i) coverage; (ii) targeting accuracy; (ii) the generosity of benefits; and (iv) possible disincentives to work or transfer dependency.

5.1 Methodology

115. The main indicators of performance that we focus on are:

� Coverage: What portion of the population and of each quintile receives the transfers (focusing on the share received by those in the poorest quintile) 45?

� Targeting accuracy: What portion of the expenditure on the social assistance program goes to each quintile? We are particularly interested in the transfer amounts that go to the bottom quintile.

� Generosity: How much is the transfer as a fraction of post-transfer consumption? If this fraction is large, it would imply that the household is fairly dependent on the transfer. This could be either due to (i) the transfer being large so that the household is able to depend only on this transfer and does not have to find other means of generating income or (ii) the household finds it hard to generate any other income and has to adjust its consumption down to the transfer value.

� Unit transfers as a fraction of minimum wage: We use this measure to distinguish between whether a transfer is generous because it is large or because the households that receive the transfer have no other means, and therefore adjust their consumption down to the level of the transfer. When unit transfer values are compared to the minimum wage, it gives us a different measure of the generosity and purchasing power of the transfer.

116. Limitations of the Data. We used data from household surveys to assess the performance of social assistance programs. The extent to which questions on specific transfers were included in the household survey questionnaire drove the extent to which we could measure the performance of these transfers.46 Table 15 lists the social assistance transfers that were included in the household surveys alongside the social assistance transfers for which administrative data were available. The last column in this table provides the ratio of what is captured in the survey to the total social assistance spending from administrative data. This ratio

45 Individuals are ranked on the basis of per capita (pre-transfer) consumption from the lowest to the highest. They are then divided into five equally sized groups, representing 20 percent of the population (called “quintiles”) to form the bottom, second, third, fourth, and top quintile. 46 For instance, the Albania LSMS does not include a question on disability assistance benefits. As a result, although we had performance measures for the last resort program in Albania, the Ndihma Ekonomike, we did not have any results for the disability benefits program, which has become an increasingly important element of social protection in Albania. Similarly, non-contributory public transfers include the social assistance scheme (the last resort program), war veterans benefits, and disability benefits in Kosovo. However, only the social assistance scheme was identified clearly in the questionnaire, and hence was the only non-contributory transfer for which we could analyze performance in Kosovo.

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ranges from about 29 percent in BH to 59 percent in Montenegro. A well-developed and well-administered survey instrument can capture social transfers more completely.47

Table 15: Social Assistance Transfers in Household Surveys and Administrative Data: Comparison and Percentage of Social Assistance Spending Covered

Source: National administrative data and most recent HBS data for each of the countries

47 For instance, the capture ratio is nearly 95 percent for Latvia (consistently at this level in both the 2007 Household Budget Survey and the 2008 Household Budget Survey).

Country / Survey Transfers captured in Household Survey Transfers in Administrative Data % of Spending Captured

in Household Survey

Ndihma Ekonomike Ndihma Ekonomike Benefits for war veterans, social care &

othersDisability allowance

Scholarship Care allowancesEnergy subsidy

Social care, other benefits

CSW benefits including SA, NWI, CVW Social Assistance Benefit

Civilian: Child Protection Allowance Child benefitsVeteran: Military Invalids' and Survivor

Dependent BenefitsNon-war invalids, Civilian war victims

Military invalid, military survivor benefitAllowances for demob. soldiers, medal holders, special

veteran supplementOther veteran, other civilian benefits

Social assistance and other social protection revenues

Social Financial Assistance (SFA), One off financial assistance

Child benefits New born assistance, Child allowance

Invalids and other subventionsDisability Benefits (Permanent Financial Assistance,

Assistance and care, Disability benefit for Civil Disability, Special Allowance, Boarding for disabled children)

Scholarships War pensionsHealth Insurance for SB recipients, Other benefits

Social Welfare benefits Social Assistance SchemeDisability pension, Support for families of children with

permanent disabilityWar veteran benefits

Energy subsidy Welfare and other benefits based on

social careFMS

Disability allowances Other persons careChild allowances Child allowances

Pupils' and students' scholarships and rewards

Food in the kindergartens

Veterans and invalid protection Single payments and subsidized public transport for

disabled persons Social care, services and measures

Child allowance Child allowanceFamily subsistence allowance (MOP) MOP

Parents (maternity) allowance Parental allowance, Wage compensation during the maternity leave

Attendance and Assistance Allowance (Social Assistance)

Caregivers allowance

Other allowances for IDPs, veterans, civilian victims of war, humanitarian aid,

municipal subsidyVeterans and disability benefits

Social work, Education programs before first grade, Foster care

Kosovo HBS 2006/2007 54.3%

Albania HBS 2008 38.6%

Bosnia HBS 2007 28.8%

FYR Macedonia HBS 2006 42.3%

Montenegro HBS 2008 59.3%

Serbia HBS 2007 46.3%

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117. Standardized Consumption Aggregates. The welfare aggregate that we used to rank individuals are standardized consumption aggregates (Alam et al, 2005). These consumption aggregates use the same basket of goods and services across all countries, thus making it possible to make fair comparisons of performance indicators across countries48. To be specific, we used pre-transfer harmonized consumption aggregate per capita to rank individuals.49

5.2 Coverage

118. Very Low Coverage of the Poorest Quintile by Social Assistance. Coverage of the poorest quintile by overall social assistance is very low in the Western Balkans countries, except perhaps in Kosovo (as is shown by Figure 25). Administrative data also confirm this low coverage (Table 16). Kosovo and Serbia have the highest coverage among the Western Balkan countries (with respectively close to 40 and 38 percent of the bottom quintile receiving social assistance). Kosovo has the highest coverage (over 30 percent) according to administrative data. In contrast, BH, despite being the largest spender on overall social transfers within the Western Balkans and the second largest among ECA countries, has the lowest coverage, with about 21 percent of the poorest quintile receiving any type of social assistance benefit. Administrative data indicate very low coverage with social assistance in FYR Macedonia; coverage estimated with household-level micro data is also limited albeit less around 31 percent of the poorest consumption quintile receives any kind of social assistance benefit). Coverage of all social assistance programs as indicated by household-level micro data is also low in Montenegro where only 20 percent of the poorest quintile receives it. The common reason for low coverage is the low spending. Widespread and typical for the Western Balkan region is also the low program take-up by eligible beneficiaries. In addition, in the case of Montenegro, the low spending is combined with program design peculiarities (‘packaging’ of benefits) which has resulted in multiple social assistance benefits being concentrated on the same individuals and families.

Table 16: Number of Beneficiaries of Social Assistance and LRSA Programs in the Western Balkan Countries (end of 2008)

Albania BH FYR Macedonia Kosovo Monte-negro Serbia Number of social assistance beneficiaries

473,000 181,025 30,905 155,500 66,615 781,327**

Share in population (%) 15.0 4.8 1.5 9.0 10.7 10.6 Number of LRSA beneficiaries 400,000* 9,329 11,189 153,550 40,222 168,121 Share in population (%) 12.7 0.25 0.5 8.9 6.5 2.3 Population (2008) 3,143,291 3,773,100 2,061,315 1,733,000 622,344 7,350,221 Source: Administrative data, staff calculations; * Approximate number, administrative data are collected for households only (102,000 households); ** Birth grants are not included Notes: Social assistance consists of LRSA, family and child benefits, and disability benefits

48 The harmonized consumption aggregates, called ECAPOV aggregates, are developed by Victor Sulla and team in the Poverty Reduction and Economic Management unit in the Europe and Central Asia department of the World Bank. 49 For each transfer, we subtracted the value of the transfer from household consumption to obtain pre-transfer consumption. We then divided this pre-transfer consumption by household size to obtain pre-transfer consumption per capita. Note that quintiles of individuals will differ across each transfer as a result of this computation.

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Figure 25: Coverage of the Poorest Quintile by Overall Social Assistance in the Western Balkan Countries

Source: Europe and Central Asia Social Protection Database, World Bank Notes: Performance indicators for Europe and Central Asian countries are calculated using a standardized methodology so as to facilitate comparison across countries. This methodology ranks individuals into quintiles based on harmonized consumption aggregates (Alam et al, 2005) and pre-transfer consumption per capita. A * before a country indicates that the standardized methodology has not been applied in this case. 119. Coverage Low Compared with the New Members of the EU. Coverage of overall social assistance is especially low compared to the new Member States of the EU. In Romania, for example, coverage is as high as 85 percent, and in Hungary it is close to 95 percent. The existence of a multitude of universal family allowances is one of the reasons for such high coverage in these countries, and one could question whether such high coverage is necessarily the most efficient use of public resources. On the other hand, coverage is unusually low in the Western Balkans, primarily because of the very rigorous eligibility criteria to qualify for the LRSA and lack of incentives to encourage social workers to increase in-take or use outreach activities.

Table 17: Absolute Poverty Rates in Western Balkan Countries

Poverty headcount

$2.5 a day $5 a day

Albania 2008 13.3 62.1 Bosnia and Herzegovina 2007 1.5 11 FYR Macedonia 2006 8.6 32.1 Kosovo 2006/07 57.1 91.6 Montenegro 2008 5.7 30

Serbia 2007 1.1 14.6 Source: Staff calculations using HBS and LSMS data 120. Coverage by LRSA Programs Also Low. Coverage of LRSA programs is also quite low in the Western Balkans. Error! Reference source not found. Figure 21 shows that LRSA rograms cover less than 30 percent of the bottom quintile in all Western Balkan countries, except Kosovo, and that the coverage in Serbia and BH is extremely low. Comparing these coverage rates with the size of the intended target population for this benefit ‒ the poor ‒ gives us a slightly different picture. Coverage of these programs is low in Albania and Kosovo compared to the rates of poverty in those countries (see Table 26), whereas coverage may be more adequate in some other countries with lower rates of absolute poverty. At the same time, if relative poverty

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lines were used to define the target group – the yardstick typically used in the EU – then the coverage of some of these last-resort programs would be considered inadequate.

Figure 26: Coverage of the Poorest Quintile by LRSA Programs in the Western Balkan Countries

Source: Europe and Central Asia Social Protection Database, World Bank. Note: Performance indicators for Europe and Central Asian countries were calculated using a standardized methodology so as to facilitate comparison across countries. This methodology ranked individuals into quintiles based on harmonized consumption aggregates (Alam et al, 2005) and pre-transfer consumption per capita. A * before a program indicates that the standardized methodology has not been applied in this case.

121. Several Reasons behind the Low Coverage of LRSA. There are many reasons for this low coverage of the poverty reduction programs. First, tradeoffs with other social benefits programs (such as the categorical disability benefits and war veterans’ benefits) combined with limited budget allocations have likely squeezed available resources for last-resort programs. Second, as a matter of principle, these programs are the last source of financial assistance to which applicants turn when all other possibilities have been already exhausted. They are designed to provide resources to the poorest and most vulnerable members of the society (“fill the deepest part of the poverty gap”) without being able to bring everyone up to an objectively defined minimum standard of living. Third, low coverage is predetermined by the predominantly administrative and bureaucratic approach to identifying beneficiaries. Although the programs are open to all applicants at any time, not enough information is disseminated about them, the determination of eligibility is complicated and not always transparent, and the burden of preparing the application and collecting the many supporting documents is left entirely to the applicants themselves. Finally, the practice of imposing many different binary filters to determine eligibility results in denying benefits to otherwise (by income and asset criteria) poor families and in significant errors of exclusion (as discussed in Chapter 3).

5.3 Targeting Accuracy

122. Respectable Targeting Accuracy of Social Assistance in Most of the Region. Targeting accuracy is respectable in most of the Western Balkans countries. In terms of the percentage of overall social assistance benefits going to the poorest quintile, targeting accuracy is very high in four of the six Western Balkan countries – with Albania, Kosovo, Montenegro, and Serbia at the very top among all ECA countries.50 Overall social assistance in these four Western

50 Note that this analysis is based on partial information on the social assistance transfers in these countries. For instance, since the survey did not capture disability assistance in Albania, it is unclear how targeting accuracy would change if disability allowances were also included in the

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Balkan countries is better targeted than in a number of new EU member states such as Bulgaria, Romania, Hungary, Latvia, and Poland.51 In most of the Western Balkan countries apply income and means tests more widespread as a targeting instrument. They are applied not only to the LRSA programs, but also to the monthly child allowances (e.g. in Serbia and Montenegro) and / or to certain types of disability benefits. The targeting of overall social assistance benefits in FYR Macedonia is moderately accurate; targeting accuracy in BH, on the other hand, is quite low due to the prevalence of a number of non-targeted benefits for war veterans and families of war veterans and fallen soldiers, as well as non-targeted benefits for persons with civilian disability52. It is the second lowest in the ECA region, with less than 40 percent of benefits going to the poorest quintile (see Figure 27). 123. Low Errors of Inclusion but Significant Errors of Exclusion. The strict eligibility criteria and processes in the Western Balkans result in mixed performance. On the one hand, strict eligibility criteria, binary filters, and extensive verification have probably made targeting more accurate by reducing errors of inclusion (of the non-poor). On the other hand, these same factors have probably contributed to low coverage and led to significant errors of exclusion of the poor, as was discussed above.53

Figure 27: Targeting Accuracy of Overall Social Assistance in the Western Balkan Countries

Source: Europe and Central Asia Social Protection Database, World Bank Note: Performance indicators for Europe and Central Asian countries were calculated using a standardized methodology so as to facilitate comparison across countries. This methodology ranked individuals into quintiles based on harmonized consumption aggregates (Alam et al, 2005) and pre-transfer consumption per capita. A * before a program indicates that the standardized methodology has not been applied in this case.

124. Negligible Leakage. Leakage of overall social assistance benefits to the non-poor is not significant in scope in most of the Western Balkan countries. Especially low is the share of the transfers which is absorbed by the richest consumption quintile of the population (elite capture). By this indicator Albania, Kosovo and Serbia where 3 percent or even less of overall social analysis of the performance of overall social assistance in Albania. Similarly, information on disability and war veterans’ assistance in Kosovo was missing from the survey so overall social assistance in our analysis includes only the last-resort transfer program in Kosovo. 51 For the purposes of comparison, we selected mostly EU new member states for which data were available. The LRSA programs in these countries happened to be very accurately targeted. Therefore, targeting accuracy in the Western Balkan countries might look worse than it would if we had compared them with all ECA countries. It also needs to be noted that ECA as a whole has well targeted LRSA programs compared with the rest of the world. 52 The 2007 HBS data for BH reflect proliferation of disability benefits, which were drastically downsized in FBH after 2008. 53 The low benefit levels in some countries may also have contributed to low take-up (self-selection).

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assistance transfers go to the richest, rank among the strongest performers among all ECA countries. Elite capture is limited also in Montenegro where less than 7 percent of all social assistance transfers go to the richest consumption quintile. It is somewhat higher in FYR Macedonia where 10 percent of all social transfers are absorbed by the richest 20 percent of the population (see Figure 28). Among the Western Balkan countries, highest leakage of social assistance benefits to the richest is to be found in BH where over 16 percent of benefits go to those in the richest (poste-transfer) consumption quintile. Thus, social assistance in BH faces a dual challenge of low coverage and low targeting accuracy, or high leakage to the non-poor. The high leakage is attributed to the high share of regressive (non-targeted to the poor) benefits for war veterans and families of fallen soldiers, but also to poor targeting of the programs which are subject to means-test. Compared to Croatia, leakage of social assistance in BH emerges as even more pronounced, given significant similarities between the two social assistance systems, such as (a) common origin, benefit structure and objectives; (b) largest among ECA countries budget allocations on categorical veteran benefits, and (c) high share of informal incomes and remittances in overall income structure combined with limited ability of the social assistance verification mechanisms to catch and verify such incomes.

Figure 28: Leakage of Overall Social Assistance Transfers to the Top Population Quintile

Source: Europe and Central Asia Social Protection Database, World Bank. Note: Performance indicators for Europe and Central Asian countries were calculated using a standardized methodology so as to facilitate comparison across countries. This methodology ranked individuals into quintiles based on harmonized consumption aggregates (Alam et al, 2005) and post-transfer consumption per capita. A * before a program indicates that the standardized methodology has not been applied in this case. 125. Mixed Targeting Performance of LRSA Programs. The targeting accuracy of LRSA programs is impressive in some countries in the Western Balkans but leaves room for improvement in other cases. Montenegro, Serbia and Kosovo have some of the most accurately targeted LRSA programs, that match the targeting accuracy achieved by other best performing LRSA programs in the ECA region, such as Lithuania’s Social Benefit Program, and Romania’s and Bulgaria’s guaranteed minimum income programs (see Figure 29) with Montenegro’s FMS/MOP displaying the highest targeting accuracy of LRSA after Lithuania’s Social Benefit in 2009-10. There is room to increase the targeting accuracy of Albania’s Ndihma Ekonomike program, which has become more accurate since 2005, with targeting accuracy approximating 60 percent of the poorest consumption quintile. However, it is still below the best performing programs in ECA and the Western Balkans, and the government of Albania is undertaking a set of measures aimed at improving the objectivity of eligibility determination processes and

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reducing discretion. FYR Macedonia’s Social Financial Assistance program and especially BH’s Permanent Social Assistance program which deliver around 50 percent and 45 percent respectively of their overall benefit amounts to the poorest quintile, lag considerably behind the well-targeted LRSA programs. Their targeting accuracy need to be strengthened through improving both the design of eligibility determination and implementation.

Figure 29: Targeting Accuracy of Last-resort Social Assistance Programs in the Western Balkan Countries

Source: Europe and Central Asia Social Protection Database, World Bank. Note: Performance indicators for Europe and Central Asian countries were calculated using a standardized methodology so as to facilitate comparison across countries. This methodology ranked individuals into quintiles based on harmonized consumption aggregates (Alam et al, 2005) and pre-transfer consumption per capita. A * before a program indicates that the standardized methodology has not been applied in this case. 126. Large Variations in ‘Elite Capture’. The leakage of LRSA benefits to the richest quintile (‘elite capture’) appears almost non-existent in the case of Montenegro FMS/MOP program. It is negligible (less than 1.5 percent) in the case of Serbia MOP, and also small in the case of Kosovo’s Ndihma Sociale (under 3 percent) as shown by Figure 30. On the other hand, FYR Macedonia’s LRSA (Social Financial Assistance) program appears to render the most significant (9 percent) leakage of benefits to the richest quintile among all ECA LRSA programs for which this performance indicator can be measured54. The leakage to the non-poor is usually due to the deficiency of the income test which can capture the incomes that are easy to verify but is less efficient in accounting for incomes from remittances and other private transfers, informal and occasional jobs, and subsistence agriculture and stock breeding. Other reason is the exclusion from the income test of certain incomes which could be considerable in terms of boosting the consumption of the unit of assistance. Finally, the leakage can be due to weak implementation, oversight and control rules.

54 The leakage of BH LRSA program is not discussed because of lack of precise / sufficiently disaggregated data. In this case, we can compare only with the leakage of all benefits that are delivered through the CSW.

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Figure 30: Leakage of Last-resort Social Assistance Transfers to the Top Population Quintile

Source: Europe and Central Asia Social Protection Database, World Bank.

5.4 Generosity

127. High Generosity of Social Assistance. The generosity (also referred to as ‘adequacy’) of overall social assistance benefits is measured as the share of benefits in total post-transfer consumption, and by this measure appears relatively high in the Western Balkan countries, except in FYR Macedonia. At the higher end, overall social assistance transfers represent more than 40 percent of the consumption of beneficiary households in the poorest quintile in Albania and Kosovo. Only in Georgia, the generosity of all social assistance transfers surpasses 50 percent of the consumption of the poorest quintile. The level of generosity is only partially indicative of the size (generosity) of the transfer. Rather, it is indicative of the low level of consumption of the beneficiary households from the bottom quintile in Albania and Kosovo. At the other extreme, social assistance transfers account for only about 24 percent of total consumption in FYR Macedonia. The generosity of all social assistance in Montenegro, Serbia and BH is higher than 33 and lower than 40 percent of the post-transfer consumption of the poorest 20 percent of the population in these countries. Despite this modest generosity though, they rank at the median or higher, in the distribution of social assistance generosity across ECA where social assistance programs are often not adequately funded and thus not contributing significantly to enhancing the consumption of the poor (Figure 31).

Figure 31: Generosity of Social Assistance Transfers in the Western Balkan Countries


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128. Varied Generosity of LRSA Programs. The overall generosity usually masks significant variations of generosity across programs in the Western Balkan countries. Some of the categorical programs, such as war veteran benefits or certain types of disability benefits could be quite generous. In some countries, certain benefits such as birth grants or parental allowances could be generous as well. The generosity of LRSA transfers is usually among the lowest, which follows both from the benefit formula / minimum income concept and from the low administratively pre-set income thresholds. As evident from Figure 3, the generosity of the individual LRSA programs varies significantly. Albania’s Ndihma Ekonomike program is the least generous among all of the LRSA programs in the Western Balkans. With generosity amounting to 15 percent of the post-transfer consumption of the poorest consumption quintile, it is also one of the lowest in the whole ECA region. On the other extreme is the LRSA program of Kosovo which is relatively more generous – the share of the transfer in the post-transfer consumption of the poorest quintile is over 40 percent. In Montenegro and Serbia, the FMS/MOP and MOP display generosity of 30 percent; the generosity of the permanent social assistance in BH is quite close to 30 percent as well. The actual generosity of the FMS/MOP in Montenegro is in reality higher than when measured with this performance indicator only. Due to the specific for Montenegro linkage of FMS/MOP eligibility to eligibility for monthly child allowances and other benefits, the generosity of the full benefit ‘package’ received by a unit of assistance is further enhanced. Those who are eligible for FMS/MOP are also eligible for at least two more social assistance benefits, and in certain cases (presence of children in the family, or of family members with high disability rate), the size of the ‘package’ can increase even more. In FYR Macedonia, the LRSA’s generosity is around 25 percent, comparable with the modest generosity of the GMI programs in Bulgaria and Romania.

Figure 32: Generosity of Last-resort Social Assistance Programs in the Western Balkan Countries

Source: Europe and Central Asia Social Protection Database, World Bank Note: Performance indicators for Europe and Central Asian countries were calculated using a standardized methodology so as to facilitate comparison across countries. This methodology ranked individuals into quintiles based on harmonized consumption aggregates (Alam et al, 2005) and pre-transfer consumption per capita. A * before a program indicates that the standardized methodology has not been applied in this case.

129. Summary. In summary, the performance of social assistance in the Western Balkans is varied and mixed. While design and implementation features contribute to respectable (and in some cases, impressive) targeting accuracy, these same features cause significant errors of exclusion and low coverage of the poor. The generosity of benefits (as a share of total post-transfer consumption) varies, both by country and program.

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5.5 Possible Disincentives: Welfare Dependency and/or Work Disincentives?

130. Concerns about Long-term Negative Effects of Social Benefits. Policymakers – and politicians – are often concerned that social benefits will cause families to become dependent on transfer income (“addicted to transfers”) over the long term or that they will cause able-bodied adults to reduce their efforts to participate in the labor market. While it is generally recognized that income support programs improve the well-being of the poor and disadvantaged, some experts suggest that cash transfers may give recipients a disincentive to work and thus have large efficiency costs that may outweigh their redistributive gains. These concerns are fueled by: (i) political concerns, with pressure from society regarding fairness (“why should he benefit and not me”) and perceptions of transfer beneficiaries as lazy (“why isn’t he working but receiving transfers”); (ii) the theoretical literature on welfare dependency and work disincentives; and (iii) empirical evidence from some countries (primarily from OECD countries and from several years ago). 131. Adverse Incentives in Theory. The theoretical literature suggests ways in which cash transfer benefits can create a disincentive for able-bodied adult beneficiaries to work. Theoretically, economic models predict that the reduction in work effort will be proportional to the size of the benefit (the income effect) and to the implicit marginal tax rate on earnings (price effect).55 These effects can derive from several aspects in the design of social assistance programs:

� The size of the benefit (generosity): Is the size of the transfer large enough that the

family (adult beneficiary) would decide to substitute “leisure” for “labor?” Programs that provide more generous benefits tend to have a higher possibility of causing welfare dependency and work disincentives.

� Proportional benefits reduction associated with increases in earned incomes: Do benefits decline “dollar-for-dollar” with increases in earned incomes (called “100 percent marginal taxation”)? If so, there is little incentive for the beneficiary to work for additional earnings as these would be taxed away in the form of reduced benefits. As will be discussed below, governments have attempted to reduce these disincentives by introducing gradual benefit reductions (benefits reduced proportionally as additional income is earned), earnings disregards (when some earned income is not counted against eligibility or benefits determination up to a certain level), and/or higher exit thresholds from the program.

� Complete benefits loss for participation in labor market: Are programs designed so that any earned income can cause a family to be ineligible for benefits? Policymakers usually intend these design features to channel benefits only to those incapable of work, but these binary filters for economic activity can actually cause work disincentives (or incentives to hide any earnings in the informal sector) because they essentially result in infinite marginal taxation since the family would lose the entire benefit for any “dollar” of earned income. As discussed above in Chapter 3, these filters are common in the countries of the Western Balkans and may contribute to work disincentives or informality.

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132. Empirical Evidence Internationally: Myth or Reality? Empirical studies have demonstrated how cash transfer benefits can reduce adult work effort. However, most of these studies focused on the very generous and finely targeted programs in the United States.56 Moreover, in 1996, the US government explicitly sought to improve the design of its cash transfer programs to reduce any adverse disincentives to work by replacing the former Aid for Families with Dependent Children program with the new Temporary Assistance for Needy Families program that had a number of features to reduce such effects.57 Outside the USA, there is little evidence of either the existence or the absence of disincentives to work while participating in safety net programs. Research on cash transfers has revealed little or no evidence of reduced work effort by adults in developing countries58 and only a few programs that exhibit such features in low- to middle-income countries. 133. Work Disincentive Effects in the LRSA Programs in the Western Balkans? To assess whether the LRSA programs in the Western Balkan countries create any work disincentives in the absence of impact evaluations, one needs to look for the cumulative presence of: (i) design features that affect the supply of labor (whether the program design allows able-bodied people to claim the LRSA benefit); (ii) income effects (the generosity of benefits measured as their share of the post-transfer consumption of the poorest population quintile or measured as a share of the minimum wage); and (iii) the price effect ‒ the tax wedge on low (minimum wage) earnings from work.

134. Eligibility Filters and the Design of Benefits Programs. Certain design features for cash benefits programs in the Western Balkans could cause welfare dependency and/or adverse incentives to work (or to hide work in the informal sector):

� Exclusionary Filters Linked to Participation in Labor Market. As discussed in Chapter

3, social assistance programs in the Western Balkans countries often adopt “filters” to deny applicants benefits. Some of these binary filters exclude families in which any member of the family is economically active or has a job. While the intention of these filters is to restrict benefits to those unable to work, in practice these filters can have several adverse results, including: (i) excluding the working poor whose earned incomes are simply too low to sustain a minimum level of subsistence (they would be eligible according to the means test but are excluded by the binary filter for economic activity) and (ii) causing disincentives to work (or to hide work in the informal sector) because the family essentially loses the entire benefit for any earned incomes (infinite marginal taxation, as described above).

� Requirements to Register as Unemployed. Some LRSA programs in the Western

Balkans allow able-bodied and working-age beneficiaries to be eligible for income support only if they are registered as unemployed with the public employment services (PES). The unemployment registration serves as proof that they have no income from work (and in some countries also provides them with access to free health care). Again,

56 The programs that have been studied were the Aid for Families with Dependent Children Program (which has now ended) and the negative income tax experiments that allowed poor working families to keep part of their extra earnings to raise them above the poverty line. 57 Grosh et al (2008) 58 Ibid

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the intentions of this filter are good, namely: (i) to verify the applicant’s self-reported claim of having zero income; (ii) to require the beneficiary to signal his or her readiness to work; and (iii) to provide the registered unemployed with job search or training services (though in most cases, the capacity of the public employment services is limited and beneficiaries receive few activation support services of this type). However, the unintended result of this requirement can be to create disincentives for work (or incentives to hide work in the informal sector) because the benefits would be lost if the applicant is found to have a job (even if it does not pay enough to lift the household’s overall income over the statutory threshold).

� Open-ended Benefits (No Time Limits). The LRSA programs in the Western Balkans

countries are open-ended in terms of the duration of benefits as long as the eligibility conditions persist. Indeed, the beneficiaries need to re-apply periodically, and the able-bodied have to re-apply more often than the rest (for example, in Serbia and BH). However, this does not prevent them from staying on benefits for a long time. Social workers in Serbia report that over 90 percent of the current able-bodied MOP beneficiaries reapply on a regular basis and have stayed in the program for more than five years. In Kosovo, field visits59 and experts’ opinions suggest that Category II beneficiaries (those families containing one able-bodied member and a child or children below the age of 6) change their behavior to stay within the eligibility conditions (for example, by having another baby) rather than finding a job. FYR Macedonia has introduced incentives to graduate from the program by reducing the benefit level of its Social Financial Assistance paid to able-bodied individuals by 50 percent after they have been on the program for three years. Meanwhile, Serbia provides the MOP to able-bodied beneficiaries for only nine months in any given calendar year to encourage them to seek seasonal employment and requires them to be recertified every six months. Despite these efforts, the LRSA programs in the Western Balkan countries provide benefits for a long time compared with the EU Member States and the United States where the introduction of five-year lifetime time limits for benefits was an important feature of the 1996 reforms.

� Lack of Earned Income Disregards. Last but not least, the eligibility formulae do not

include any full or partial disregards of earned incomes (up to a threshold), of any short-term or sporadic earnings, or of any income from scholarships when participating in training or compensation for participating in public works or active labor market programs. On the contrary, the benefit is reduced or the payment is stopped entirely as household income rises above the statutory threshold. As noted above, most OECD countries introduce gradual earned income disregards to reduce the marginal tax rate on benefits from earned incomes.

135. Disincentives by the Generosity of Benefits? Are benefits in the social assistance programs in the Western Balkans countries generous enough to cause welfare dependency and/or work disincentives for able-bodied adults? As discussed above, in relation to post-transfer consumption, generosity of overall social assistance benefits is high in all countries except FYR Macedonia (see section 5.4 above). However, poverty-targeted LRSA benefits are less generous, 59 Gueorguieva (2008)

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ranging from just 15 percent of total post-transfer consumption of the beneficiary households in the poorest quintile in Albania to just over 40 percent in Kosovo. 136. Social Assistance Benefits versus the Minimum Wage. Another measure of the generosity of benefits that can be useful in considering adverse incentive effects is the comparison of benefits levels to minimum wages. From Table 18, we can see that, except in the case of Montenegro where the social assistance transfer is about 75 percent of the minimum wage, social assistance benefits in the Western Balkans are not very generous compared with minimum wages – ranging between 7 and 20 percent of the minimum wage.

Table 18: Average Transfer Value of Overall Social Assistance (Beneficiary Households of Indicated Transfer Only) as a Share of Minimum Wage (%)

Albania NE 2008 15.0% Bosnia-Herzegovina CSW 2007 19.5% FYR Macedonia SFA 2006 Na Kosovo NS 2006/07 7.2% Montenegro FMS 2008 74.8% Serbia MOP 2007 17.6%

Source: Household budget survey data, staff calculations

137. LRSA Benefits versus the Minimum Wage. Similarly, in the case of LRSA benefits, we can see once again in Table 19 that only in Montenegro does the transferred LRSA amount represents a substantial fraction (about 43 percent) of the minimum wage. It is below 15 percent of minimum wage in all other Western Balkan countries and is as low as 4 percent of the minimum wage in Albania.

Table 19: Average Transfer Value of Last-resort Social Assistance (Beneficiary Households Of Indicated Transfer Only) as a Share of Minimum Wage (%) Albania NE 2008 4.1% Bosnia-Herzegovina CSW 2007 14.7% FYR Macedonia SFA 2006 Na Kosovo NS 2006/07 7.2% Montenegro FMS 2008 43.5% Serbia MOP 2007 12.9%

Source: Household budget survey data, staff calculations

138. Evidence from Administrative Data. Administrative data provides complementary evidence on relative benefit size. Administrative data for the Western Balkan countries indicates that benefits in the Western Balkan LRSA programs, with the exception of the Montenegro MOP, are set at sufficiently low levels that makes it unlikely that they create any disincentives to work. Moreover, in the analysis above we compare the benefit level for the first member of the unit of assistance for a single-member unit of assistance which is relatively more generous compared to the benefit levels for larger units. The low benefit level combined with steeply declining implicit equivalence scales for determining the benefit levels for multi-member units of assistance lead us to conclude that there are fewer disincentives to work in the Western Balkans LRSA programs than in those of the OECD and EU Member States. Montenegro is an exception. The MOP is set

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at a level that is higher than the minimum wage after tax. An additional factor that encourages dependency on social assistance in Montenegro is the fact that eligibility for MOP is associated with additional rights to benefits and services, making it even more generous and attractive, as already discussed. To curtail this effect, the MLSW does not award the MOP to single-member families when that member is able-bodied. More detailed calculations highlighting the circumstances under which work disincentives emerge (what size of family and benefit package) is presented in Annex 4. 139. Benefits Not Generous Enough. Therefore, we conclude that it is unlikely that benefits in the Western Balkans countries are so generous as to encourage able-bodied adult beneficiaries to make significant reductions in their efforts to find work. However, the immediate full or partial loss of benefits with any increase in earned income has a disincentives effect.

140. Marginal Taxation Evidence. The marginal tax rate on earnings has been researched60 in three Western Balkan countries ‒ Bosnia and Herzegovina, Serbia, and FYR Macedonia (Table 20). This research reveals that people working in low-skilled, low-paying jobs have a fairly high tax wedge on their earned incomes, which is likely to give them a disincentive to graduate from social assistance into full-time work. Compared with the situation in the OECD and EU countries for which similar data is computed regularly (see Annex 5), the tax wedge in FYR Macedonia and Republika Srpska is at the low end of the spectrum, while the tax wedge in Serbia and the FBH is considerably higher than the median. The gap between the tax wedge on low wages (33 percent of the average wage, which is used as an approximation of a minimum wage) and the full average wage in the Western Balkan countries is narrower than in the comparator countries, which implies that there are fewer incentives to move out of welfare and into work when the job is a low-paying one.

Table 20: Tax Wedge at Various Levels of the Average Wage in BH, FYR Macedonia, and Serbia (%, 2008)

Bosnia and Herzegovina FYR Macedonia Serbia Tax wedge for single earner with no children

33% of average wage 37.8 (FBH) 31.1 (RS) 28.5 36.7 50% of average wage 39.5 (FBH) 32.8 (RS) 30.9 38.0 100% of average wage 41.8 (FBH) 34.5 (RS) 33.2 39.3

Tax wedge for one-earner couple with two children 33% of average wage 37.8 (FBH) 30.6 (RS) 28.5 36.7 50% of average wage 37.8 (FBH) 30.6 (RS) 30.9 38.0 100% of average wage 37.9 (FBH) 33.0 (RS) 33.2 39.3 Source: OECD Tax and Benefit model Notes: The tax wedge is defined as the share of income tax and social security contributions by employers and employees over total labor costs. The numbers presented in this table refer to a one-earner couple with two children who receives average wage and works 33 or 50 percent part-time or full-time. Alternatively, in most, though not all, countries this can be interpreted also as the tax wedge of a one-earner couple with two children, working full-time, but receiving 33, 50, or 100 percent of average wage. In the latter case, working full time at 33 percent of average wage might be below the legal minimum wage. Values refer to 2009.

5.6 Linking Benefit Receipt to Activation and Other Services

141. Weak Workfare Requirements. Most LRSA programs in the Western Balkans have a general requirement that beneficiaries must make an effort to improve their social and economic situation. They require able-bodied beneficiaries with “zero incomes” to register as unemployed

60 Calculated using the OECD Tax-Benefit Model, see Annex 5.

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at public employment services and to be ready to take offered jobs or to participate in training. Some of the programs have workfare requirements that mandate the beneficiary, for example, to participate in community work or public work programs organized by the municipalities. However, these workfare requirements are often not strictly enforced: either the public employment services have no resources or they lack the capacity to organize regular public works or training for the LRSA beneficiaries. In addition, the PES usually leaves registered unemployed workers to search for jobs on their own during the first months of their unemployment spell. 142. LRSA Not Formally Linked to Labor Activation Services. Activation policies for LRSA beneficiaries are not yet integrated into the social assistance policies of most of the countries of the Western Balkans. One exception is Serbia where the Employment Strategy 2011-2020, identifies the LRSA beneficiaries as a specific stand-alone vulnerable group and, subsequently, the annual employment action plans give MOP beneficiaries priority placement in active labor market programs.

143. Mixed Potential for Transfer Dependency and Work Disincentives. In summary, the potential for transfer dependency and work disincentives in the LRSA programs in the Western Balkans is mixed. On the one hand, some design features (such as binary filters on labor market participation and the unlimited duration of benefits) and price effects (marginal taxation wedges) may give able-bodied adults a disincentive to work and earn income. On the other hand, with the exception of Montenegro, benefit levels (compared with post-transfer consumption or minimum wages) do not seem to be so generous as to create major disincentives for able-bodied adult beneficiaries to substitute leisure for labor.

144. Reforming LRSA Programs to Avoid Dependency. To avoid the dependency on social assistance trap and to encourage beneficiaries to accept job opportunities, these countries should consider reforming the design of LRSA programs to reduce any potential disincentives to work. These reforms could begin with an overhaul of eligibility criteria to eliminate any distortionary binary filters that exclude economically active (but poor) applicants and instead switch to hybrid means testing formulae (see Chapter 3). Another reform to be considered would be to gradually reduce the amount of minimum income as a beneficiary starts a new job. This strategy of income disregards is widely practiced in the EU. Income from work is deducted in the income calculation in different ways – as a fixed reduction or as a graduated reduction. Moreover, in certain cases, the earnings from work performed as part of an activation requirement could be fully deducted. On the other hand, parts of earnings from work would not be taken into account while calculating the amount of LRSA due to the beneficiary. In addition, there are precedents where the amount of minimum income is increased in cases where at least one member of the unit of assistance is employed. 145. “Back to Work” Allowances. Another strategy to avoid the dependency trap would be to develop benefit systems that aim to ensure that people are better off working and are not discouraged from increasing their earnings. This can be achieved with the kind of back to work allowances that exist in some EU countries. In the UK, for example, the LRSA benefit (the Income Support program) is paid to single parents for two weeks and to beneficiaries receiving help with their mortgage interest for four weeks after they begin work if they have moved off the

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benefit. In Latvia, if the recipient of income support has started to work, the benefit is granted for a further three months at a decreasing rate. 146. Activation Measures Combined with Cash Transfers. Finally, the countries of the Western Balkans could consider making the receipt of LRSA cash transfers conditional on beneficiaries using services to help them increase their employability, reduce or remove barriers to finding employment, and connecting them to the labor market. This is an area on which research should focus in the coming years.

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6. Summary and Conclusions

147. The current economic crisis, with its severe impact on the countries in Europe and Central Asia, has underlined the importance of safety nets, particularly well targeted social assistance programs that can be leveraged as an instrument for crisis response to help protect the poor, both in ordinary as well as in extraordinary times. Countries in the Western Balkans entered the crisis with safety nets in place—including at least one last-resort social assistance program that was targeted through income (and other) tests. Preliminary results from monitoring the response of social benefits during the crisis have indicated that their performance can be improved so as to be better prepared for the next crisis, as well as in the interim.

6.1 Summary

148. Spending on social assistance is on par with other ECA countries. Countries in the Western Balkans spend about 1.4 percent of GDP on non-contributory social assistance programs, on par with the average spent by other ECA countries (1.6 percent). Except for FYR Macedonia which spends more than 50 percent of its social assistance outlay on means-tested programs61, the other Western Balkan countries spend at least 50 percent, and in the case of Albania, Serbia, and BiH, significantly more than 50 percent, on categorical programs that are not targeted. Moreover the expenditure on categorical programs has typically been increasing over the past few years in most of these countries.

149. Design is central while implementation is local. Policies on social assistance are typically developed centrally—there are periodic reviews of and updates to the design of social assistance programs, eligibility criteria, benefits base and level. Implementation of the centrally designed policies is local—local level CSWs determine eligibility (applying centrally designed rules) including making home visits to inspect the ‘subjective’ condition of the household, manage accounts, make payments, and maintain rudimentary databases mainly recording the list of recipients and payments.

150. Each country operates at least one poverty targeted last-resort social assistance program. These programs have characteristics that are similar to the ‘minimum income’ programs in the countries of the European Union. They provide income support in cash for those who have already exhausted other possible claims for different support measures, and who cannot rely on informal family support. They deliver benefits that raise the income of poor households or families up to a pre-determined standard. They are centrally designed, with national coverage and aimed at offering equal treatment of all citizens by having common nationwide eligibility criteria and uniform application procedures. These principles are not yet implemented in Albania, where elements of geographic targeting determine regional differentiation in treatment. In the Federation of Bosnia and Herzegovina these principles do not apply fully as well because cantonal social protection laws set the amounts of and criteria for social assistance while the benefit mix and main eligibility criteria are set centrally.

151. Equivalence scales in LRSA programs assume large economies of scale. The LRSA programs apply benefit formulae where the amount of the benefit given to each unit of assistance 61 Based on data for 2008, when LRSA, child allowances and main disability benefits were means-tested.

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(family or household) is equal to the difference between the pre-determined standard and the recipient’s actual income. To determine the standards (income thresholds) for units of assistance of different size, they apply implicit equivalence scales which favor small-size units of assistance and discriminate against large multi-member ones

152. Eligibility determination is complicated, non-transparent, and leads to large errors of exclusion. The LRSA programs use many different criteria and binary filters to determine applicants’ eligibility. The means tests are rigorous in ascertaining all formal sources of income, but they often fail to account for hard-to-verify sources of income. The programs also apply an asset test and a large number of additional exclusionary filters. Applicants can be rejected if they fail even one single filter regardless of their performance on the other eligibility criteria. As a result, the process is inherently haphazard and subjective because it involves no objective weighting of the filters and no unified formula that ranks the filters in terms of their significance and objectively links them to one another. This leads to administrative and economic inefficiencies, a lack of transparency, and inequalities and exclusion of the neediest

153. The last-resort social assistance programs in the Western Balkan countries offer limited linkages to other supports. Most EU Member States have gone beyond cash handouts, and have combined minimum income transfers with other social and labor market measures. This combined approach recognizes that the poor need cash assistance to help maintain living standards in their current situation but that they also need other services to help them to surmount the structural barriers to improving their livelihoods and connect them to gainful employment. The LRSA programs in the Western Balkans have many fewer links to other kinds of support like active labor market programs which are explicitly targeted to long-term unemployed on social assistance, activation services, social services to address family dysfunction and other vulnerabilities, accessible and affordable child care.

154. The coverage of last-resort social assistance programs is low, but targeting accuracy is good. The complicated process of eligibility determination, with income and asset tests, and further application of in-or-out filters exclude families, who may otherwise be poor, from the LRSA programs. The LRSA programs cover less than 30 percent of the bottom quintile in all Western Balkan countries, except in Kosovo. While there are large errors of exclusion, the errors of inclusion (giving benefits to families who are otherwise well-off) are not typically very large. The targeting accuracy of last-resort social assistance programs in Serbia and Kosovo is impressive, with more than 70 percent of benefits going to families in the poorest quintile. Albania, FYR Macedonia and Montenegro also perform well, with more than 50 percent of benefits going to families in the poorest quintile – only Bosnia and Herzegovina falls short of transferring more than one half of LRSA benefits to the poorest 20 percent of the population.

155. The LRSA programs are not generous. While LRSA benefits appear to be somewhat generous when measured as a share of the consumption of beneficiary households in the poorest quintile (ranging from just 15 percent of total post-transfer consumption beneficiary households in the poorest quintile in Albania to just over 40 percent in Kosovo), they are typically small when measured as a fraction of the minimum wage. Except in Montenegro where the transferred LRSA amount represents a substantial fraction (about 43 percent) of the minimum wage, the

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transfers are below 15 percent of minimum wage in all other Western Balkan countries and as low as 4 percent of the minimum wage in Albania.

156. The ability of LRSA program in reducing number of poor and the poverty gap is limited. While the LRSA programs aim to bridge the poverty gap, given their low coverage and limited generosity the LRSA programs have a small effect on poverty indicators (see Table 21Error! Reference source not found.). As evident from the calculations in Annex 7, quite ignificant additional budget outlays would be needed to bridge the existing poverty gaps with the LRSA programs, if set at the 20th percentile of the population. When the poverty lines are set at lower thresholds (at the 10th or especially at the 5th percentile), filling the poverty gap, or some of it could be more feasible. For example, BH would need outlays of 0.66 percent of GDP to bridge a poverty gap when the poverty rate is 10 percent - plausible within the current spending envelope if categorical benefits are downsized.

Table 21: Poverty Indicators: Impact of the Last-resort Social Assistance Programs

(poverty line defined as the bottom / poorest 20 percent of the population)


157. Eligibility thresholds are not linked to poverty lines. The eligibility thresholds for LRSA programs in the Western Balkans are defined based more on available budget rather than on more objective criteria, for example absolute or relative poverty lines. Usually the level of the benefit and the eligibility threshold are not automatically indexed to price inflation—often leading to attrition of the value of the benefit over time, which may be partly why the generosity of these programs is so low. 158. Implementation could be complicated. The implementation arrangements for the last-resort social assistance benefits have many strong features: including on-demand applications, verification of eligibility, and clear recertification procedures. However, the administration of these benefits also suffers from a number of weaknesses in the Western Balkans countries. Application processes (a separate process for each type of benefit) are complex and bureaucratic, requiring the applicant to produce over 20 official documents (which can be costly and time consuming to obtain) and to make multiple visits to the CSW office (as well as to submit to

Poverty Headcount Poverty Gap (normalized) FGT1

Albania 2008 Poverty indicators 0.200 0.045 Poverty indicators in the absence of LRSA program

0.207 0.049

Bosnia and Herzegovina 2007 Poverty indicators 0.200 0.056 Poverty indicators in the absence of LRSA program

0.202 0.058

FYR Macedonia 2006 Poverty indicators 0.200 0.069 Poverty indicators in the absence of LRSA program

0.210 0.078

Montenegro 2009 Poverty indicators 0.199 0.050 Poverty indicators in the absence of LRSA program

0.209 0.057

Serbia 2007 Poverty indicators 0.200 0.048 Poverty indicators in the absence of LRSA program

0.202 0.050

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home visits by social workers for verification). Registries are too incomplete to constitute management information systems. At best, they cover only payroll data for approved beneficiaries. Data on rejected applicants are not digitalized and, therefore, policymakers have no way to monitor and evaluate the CSWs’ eligibility decisions. The LRSA program registries are also not connected to other government databases, and internal and external cross-checks are not performed. Finally, oversight and controls mechanisms are inadequate and inefficient. 159. Monitoring and evaluation of programs is underdeveloped. The central ministries are supposed to monitor and evaluate the poverty impact and effectiveness of LRSA programs and to take remedial action when coverage and targeting accuracy decline. However, this function is still underdeveloped. Modern evaluation techniques are not being used. Household level micro data are collected in all countries but its use for assessing the targeting and coverage of social assistance programs is limited as the questionnaires do not fully capture social assistance transfers (see Table 22). The only data being monitored on a regular basis (monthly and yearly) are administrative data on spending amounts and numbers of recipients by programs, which are used by the ministries mostly to estimate future financing needs and program intake.

6.2 Recommendations

160. Maintaining the good targeting accuracy. Based on these findings, we recommend that the LRSA programs in the Western Balkan countries maintain their focus on the most poor and vulnerable and the principle of providing equal treatment and access throughout the country (at national level). Programs that reach citizens with low consumption levels tend to be more efficient because there the marginal utility of consumption is particularly high. At the same time, the design of the LRSA benefits in the Western Balkans can benefit from certain improvements to revise the incentives structure for access to the benefit and to increase coverage.

161. Increasing coverage of the poor and the poorest quintile, by (i) increasing spending on means-tested programs, particularly those programs with very good targeting accuracy, while shifting spending away from categorical programs; (ii) decreasing errors of exclusion by modifying eligibility criteria removing some of the ‘exclusion criteria’ and relaxing others, for example the restriction on land ownership or the low age limit for eligible children in Kosovo; (iii) increasing the number of eligible beneficiaries in one unit of assistance; and (ii) introducing smart design features that reduce work disincentives but that provides LRSA coverage to the working poor.

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Table 22: Last-resort Social Assistance Programs: Simplified Summary of Implementation Responsibilities and Functions by Level of Government




Municipal Cantonal (FBH) Central through de-concentrated units (RS)


Municipal Central through de-concentrated units (CSWs)


Intake, registration Local Local (at CSWs) Local (at CSWs) Local Loca l(at CSWs) Local (at CSWs) Eligibility determination

Central and local



Verification Local Local (CSWs) Local (CSWs) Local Local (CSWs) Local (CSWs) Database management Local Local (FBH)

Central (RS) Local (CSW level)

Central Central Central

Existence of central registry?

No Yes (RS) No (FBH)

Yes Yes Yes Yes

Payment authorization Local Central (RS) Cantonal (FBH)


Payments process Local - Post offices (rural) Banks (urban)

Cantonal – Post Offices and banks (FBH); Central - Post offices and banks (RS)

Through national Treasury system to CSWs and from CSWs through post offices

Local – post offices

Local-post offices Central – banks

Oversight Central and local


Central and CSWs

Central and local Central and CSWs Central and CSWs

Local level independent Linked to central ministry

Linked to central ministry (RS), cantonal and municipal government (FBH)


Linked to municipal government



Source: National legislations

162. Improving transparency and reducing complications in eligibility determination. Policymakers should also consider improving the targeting of LRSA programs to the poor to reduce exclusion errors. Means tests are not able to cover all sources of income in countries characterized by a high level of informality of the economy, which means that they need to be supplemented by additional indicators of poverty to ensure accurate targeting of those who are truly in need. Two options worth considering are: (i) a proxy means test (PMT) of assets that screens households for eligibility using a composite score on a multi-dimensional index of observable characteristics (proxies) that are associated with poverty or (ii) a hybrid between a PMT and means test. Eligibility would be more accurately determined according to need by bringing all of the existing binary filters into a hybrid means test with a single, unified, continuous scoring formula that assigned objective weights across all variables (whether binary or continuous). These weights should be derived objectively through their empirical correlation to poverty (for example, a regression analysis of household survey data). Alternatively, if they are deliberately subjective (external to regression analysis), they can be brought into the unified scoring formula transparently by assigning subjective weights relative to the other. 163. Parametric changes in LRSA design to improve targeting. Along with the targeting methods, parametric changes in the design of the LRSA could help improve their targeting performance. Targeting would be improved by a more precise definition of income and assets, as well as a more rigorous test of the availability and willingness to work of able-bodied beneficiaries through work tests, workfare requirements, and participation in public works and training (discussed in more detail in Chapter 5).

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164. Increasing the generosity of LRSA transfers. The generosity of the LRSA can be increased by regularly indexing benefits and eligibility thresholds to price inflation. The generosity of the programs can be further enhanced by changing the implicit equivalence scales to increase the size of the benefit to large multi-member families, which tend to be poorer than smaller families.

165. Improving implementation. There are ways in which implementation arrangements could be strengthened to improve program outcomes, to increase efficiency, and to reduce fraud and error. Specifically we suggest:

� reducing the number of required documentation and minimizing the number of documents that have to be submitted for re-certification;

� ensuring that all of the documents required to prove eligibility are provided free-of-charge, and that beneficiaries do not have to travel far to collect and submit them;

� improving the screening of welfare characteristics during the home visits by better organized and structured observations using uniform questionnaire that looks at the same individual and household characteristics throughout the country;

� expanding the LRSA program databases with information about rejected applications to track more effectively the changes in the demand for LRSA, the changes in the profiles of the applicants and the reasons for their rejection; and

� improving the quality of social assistance-related data (administrative, as well as household level micro-data collected through surveys) and expanding and accelerating access to other registries.

166. Moving out of passive cash transfers. Policymakers should consider moving the LRSA programs away from passive cash transfers only (which can be a subsidy for inactivity). Instead, it should move towards building in design elements that encourage participation in education, training to increase skills and employability, the development of job search skills, and the use of health care services to foster human capital formation and social mobility with the aim of breaking the cycle of poverty.

167. Improving links to other services for LRSA beneficiaries who are unable to work. Following best practices that have been tried in the EU, we recommend that policymakers in the Western Balkan countries should develop special package of programs for those LRSA beneficiaries who cannot be included in employment programs because they are unable to work. These services might include education programs, counseling, and support to beneficiaries with specific needs related to daily life, medical treatment and rehabilitation for beneficiaries with, for example, problems with alcohol or drugs, or family care such as help in looking after old people and children within the family.

168. Improving the capture of social assistance information in household surveys. In order to improve the monitoring and evaluation of the performance of social assistance programs we need to work with national statistics agencies to ensure that regularly conducted household surveys include a well-designed module that captures the main (the largest in terms of expenditure) social assistance transfers that exist in the country. In addition, where possible, increased sampling (using booster samples) of the poorer segments of the population should be performed so as to enable robust statistical analysis of last-resort social assistance programs.

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Annex 1: Last-resort Social Assistance Programs of the Western Balkan Countries Compared to the Models of Minimum Income Programs in the EU and OECD Countries

Country Name of program Type of program*

[

Level of government

responsibility for program

Beneficiaries and units of assistance

Duration Back to work

conditions

Albania Ndihma Ekonomike Near only program

State / central government level

Individual Family

Unlimited No

Austria Guaranteed minimum income (Sozialhilfe Wenen)

Only program Lander Residents Household

Unlimited Yes

Belgium Right to social integration (droit à l'intégration sociale) including the Integration Income (revenue d'intégration/leefloon)

Near only program


Residents Household

Unlimited Yes

Bosnia and Herzegovina

Permanent Social Assistance

Near last-resort subsidy

Cantons (FBiH); State (RS)

Residents Household

12 months (FBiH, RS); unlimited for the incapable to work

No

Bulgaria Monthly social allowance(Месечна социална помощ)



Residents Family

For able-bodied 12 months renewable after 12 months

Yes

Czech Republic Social Assistance Benefit (Dávky sociální péče)

Near only program


Residents Household

Unlimited Yes

Denmark Kontanthjælp (Social assistance)



Residents (7 in the last 8 years) Household

Unlimited Yes

Estonia Subsistence benefit (toimetulekutoet us)



Residents Household

Temporary. Renewed on a monthly basis

Depends on local municipalities

Finland Toimeentulotuki Last-resort subsidy


Residents Household

Unlimited Yes

France Revenu Minimum d'Insertion (RMI)

Last-resort subsidy


Residents Household

3 months Renewable, until 1 year

Yes

FYR Macedonia


Last-resort subsidy


Residents Family

Indefinite. Benefit is reduced by 50% after being received for 3 years

No

Greece No national program No national program

Germany Social Assistance (Sozialhilfe)

Last-resort subsidy

Länder Residents Household

Unlimited Yes

Hungary No national program No national program

Ireland Supplementary Welfare Allowance

Last-resort subsidy


Residents Household

Unlimited Yes

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Italy No national program No national program

Regional Residents Household

Depends on region

Depends on Region

Kosovo Last-resort Income Support (Ndihma Sociale)

Near only program


Residents Family

Unlimited, with recertification each 6 months

No

Latvia Guaranteed Minimum income Benefit (Pabalsts garantētā minimālā ienākuma līmeņa nodrošināšanai)



Citizens and foreigners with identity code

3 months. Renewable (max 9 months per year)

Yes

Lithuania Social Benefit (Socialinė pašalpa)



Residents Household

3 months. Renewable

Yes

Luxemburg Guaranteed minimum income (Revenu Minimum Garanti)

Only program State / central government level

Residents Household

Unlimited Yes

Montenegro Family Material Support (Materjalno Obezbedenje Porodice)



12 months No

Netherlands General non-contributory minimum income (Algemene Bijstand)

Near only program

State, also municipalities

Residents Household

Unlimited Yes

Poland Permanent Allowance (Zasiłek stały) Periodic Allowance (Zasiłek okresowy)

Only program (permanent allowance)


Residents Household

Unlimited Temporary

Yes

Portugal Social insertion income (Rendimento social de inserção)



Residents Household

Generally 12 months; possibility of extension

Yes

Serbia Family Material Support (Materjalno Obezbedenje Porodice)



Residents Household

For able-bodied max 9 months in one calendar year; others - 12 months

No

Slovak Republic

Benefit in Material Need (Dávka v hmotnej núdzi).

Only program State, municipalities

Residents Household

24 months by state, after by municipalities

Yes

Slovenia Financial Social Assistance (denarna socialna pomoč)



Residents Household

3/6 months (12 months for over 60)

Yes

Spain No national program No national program

Autonomous Communities

Residents Family

Generally 12 months; possibility of extension

Depends on community

Sweden Ekonomiskt bistånd Near only program

State and Local All people with the right to stay in the country Household

Unlimited Yes

Romania Social Aid (ajutor social)

Only program State and Local

Residents Family

Unlimited Yes

UK Income Support Last-resort subsidy


Habitual Residence Family

Unlimited No

Source: National legislation of the Western Balkan countries Notes: *”Only program” = a single all-encompassing income support program open to all who are without sufficient resources. “Near only program” = a program that is by design positioned close to the “Only program” model in terms of providing income support for all who are lacking resources chronically or temporarily . “Last-resort subsidy” = programs for those who have exhausted other possible sources of income support. “Near last-resort subsidy” – programs which by design are positioned close to the “Last-resort subsidy” model.

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Annex 2: Main Design Elements of Last-resort Social Assistance Programs

Albania Ndihma Ekonomike

Bosnia and Herzegovina Permanent

Social Assistance

FYR Macedonia Social Financial

Assistance

Kosovo Last- resort Income

Support

Montenegro FMS /Family

Material Support

Serbia MOP / Material Support for Low-Income

Families

Provision Cash and in kind Cash Cash Cash Cash Cash Income test No income for full

benefit (urban residents), imputed income from land, gardens, vine-yards, beehives and livestock for partial benefit (rural residents)

Reckonable income (tax declaration)

Reckonable income below thresholds varying by the size of the unit of assistance

Reckonable income below monthly standard rate Other income Rent Remittances War veterans’ benefits Pensions from abroad Pensions from the Individual Savings scheme

Reckonable income

Reckonable income (tax declaration) Land and livestock Rent and lease Property rights Market value of alienated property Savings Income from securities Imputed income from informal employment

Income that does not count

Disability benefit Pension benefits

All social assistance All veterans’ assistance

All social assistance, except parental benefit(s) and civil disability benefit

Basic pension Disability pension for adults and children; One-time social assistance Certain grants



Asset test Land Livestock Agricultural produce

Land 0.5 ha and more

Second dwelling Commercial-purpose vehicle Combine, tractor and other productive assets Savings Arable land of over 7000 sq. m Livestock

Land 0.5 ha and more Business vehicles Livestock Savings

Land 0.5 ha and more

Land 0.5 ha and more No ownership of immobile property No ownership of mobile property that can be sold or used to provide 6 times MOP income

Eligible categories

Families in need Families with triplets or more Orphans after institutions Victims of trafficking Victims of violence in the family

Families with per capita income below a reference threshold


Category A – no able-bodied Category B – at least one child under 5 years



Home visit At eligibility determination to verify ‘economic conditions’

Yes, at stages of application and annually

Yes, at stages of application and re-certification

Yes, to assess ‘material conditions’

Yes, at stages of application and re-certification

Before final decision on eligibility and at recertification

Commu-nity level targeting

Yes No No No No No

Benefit duration

Indefinite 12 months (FBiH, RS)

Indefinite. Benefit is reduced gradually by 50% in 3 years of

6 months 12 months 9 months for able-bodied; 12 months for

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benefit receipt incapable to work Reappli-cation

Possible, with no time limit

Benefit base Unemployment benefit

Average wage Nominal amount for the 1st member with no reference to wage, benefit or poverty line

Average wage

Limit on number of recipients

No limit Maximum of 5 members in one assistance unit

Maximum of 5 members in one assistance unit

Maximum of 7 in one unit of assistance



Benefit level formula

Full benefit for urban beneficiaries; Difference between benefit base and imputer agricultural income for rural beneficiaries

Difference between benefit base (which varies depending on the number of members of the household or family) and actual income

Disqualify-ing conditions / binary filters

Economically active family member Pensioner in the family Not collecting the benefit within 6 days Lives outside the country Refuses to work or to take land

Presence of reckonable assets, refusal to take a job or training offered by the PES (for working-age able-bodied members of the unit of assistance), evidence that the unit of assistance can support itself by

renting or leasing property which is not used to meet the basic needs / ensure minimum standard of living conditions; presence of relatives or contracts with legal obligation for provision of financial

support

Benefit update

No obligation by law to update

With wage growth

Annual indexation with inflation

No obligation by law to update

No reference to rules for update in the law

Indexation every month, with average wage growth

Linkage with other benefits / programs

Ndihma Ekonomike could be conditional to community work or participation in public works

None Unemployment registration grants free health care Public works Job brokerage Training

Unemployment insurance; Access to free health care; Public works and seasonal work Job brokerage Training

None Monthly child allowance Caregivers’ allowance Funeral grant Free health care when registered as unemployed Public works Job brokerage Training

None Unemployment registration grants free health care Public works Job brokerage Training

Source: National social protection laws

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Annex 3: Documents Required When Applying for LRSA Programs in Western Balkan Countries

Required documents


FYR Mace- donia

Kosovo Monte-negro

Serbia

FBiH RS

1 Application form which is obtained from CSW

x X x X X x x

2 Personal ID card (copy) x X x X x x 3 IDP registration card x 4 Birth certificate for all family members,

certificate of marriage, death certificate if needed

x X x X x x

5 Death certificate x X x x 6 Marriage certificate / certificate of civil

status x X x x

7 Proof of citizenship x X x x 8 Certificate of residence x X x X x 9 Copy of a work book x X X x

10 Statement on joint living / witness declaration of shared household

x x

11 Household list with members’ personal ID numbers

x X x x X x x

12 Initial self-statement of socio-economic status

x

13 Monthly re-statement of socio-economic status

x

14 Average income in the previous month/ quarter / year for family members from wages

x x x (quarter)

x

15 Average income in the previous month/ quarter / year for family members from pensions

x x x (quarter)

x

16 Average income in the previous month/ quarter / year for family members from self employment

x x x (quarter)

x

17 Average income in the previous month/ quarter / year for family members from unemployment benefits

x x x (quarter)

x

18 Confirmation for family members able to work that they are registered in the Public Employment Service

x x x x x

19 Certificate of regular schooling for children aged 15 and over or confirmation that they are registered in the Public Employment Service

x x x x

20 Certificate of ownership from Cadastre for all family member aged over 18

x x x x x

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21 Certificates from Tax Administration for all family member aged over 18, as well as for parents of applicant

x x x x x

22 Ruling on heritage after death of one or both parents of applicant

x x

23 Court document certifying that the applicant cannot rely on family support

x

24 Decision on termination of labor contract

x

25 Proof of ownership of property x x 26 Proof of selling of assets x 27 Office for vehicles declaration x 28 Contract on lifelong support x 29 Certificate from the pension insurance

fund x x x

30 Medical certificate for pregnant women x 31 Medical certificate for those unable to

work or children whose disability occurred prior to 18 years of age

x x x x x

32 Proof of absence of one parent due to military service, prison sentence, accommodation in institution, regular schooling

x

33 Certificate on deletion form register of municipal secretariat for economic affairs

x

34 Ruling on divorce x x 35 Certificate of alimony x x 36 Certificate on income of ex-spouse in

case that alimony is not determined x x

37 Bank account statement x x 38 Social case history x x 39 Document for on-site inspection / home

visit x x x

40 Local community certificate x x 41 Certificate from labor Inspectorate x 42 Certificates from different municipal

offices / departments x

43 Certificate of lethal injury (death) x x 44 Police certificate x x 45 Evidence of paid electricity bills x x

Sources: National social assistance legislation and rulebooks specifying the lists of documents required for different categories of applicants when applying for last-resort social assistance

88

Annex 4: Montenegro: The Generosity of the FMS Compared to the Minimum Wage How generous is Montenegro’s Material Support for Low-income Families Program (FMS) compared to the minimum wage? In some cases, the amount of social assistance benefits received by a recipient household exceeds the minimum wage as defined by the General Collective Agreement. For example, a family with three members, of whom two are children and assuming that all other conditions related to assets are fulfilled, is entitled to receive 87.15€ in FMS benefits plus 37€ for child allowances (18.5€ multiplied by two) for a total amount of 124.15€. If we assume that the parent in this case is an unqualified worker and is offered the job of a cleaning person (usually these people are paid at the minimum wage rate), theoretically he would be better off receiving social assistance than by being employed. If we apply the same logic to other categories of eligible people, we get the results as shown in Annex Table 4.1.

Annex Table 4.1: Income of FMS Beneficiaries Versus Employed People

MOP benefit amount

Child allowance amount

Gross wage Net (disposable

wage)

Other benefits from

employment*

Total disposable

income FMS recipient one member 60.5€ - - - - 60.5€ FMS recipient two members 72.6€ - - - - 72.6€ FMS recipient , two members one child 72.6€ 18.5€ - - - 91.1€

FMS recipient with three members, one child 87.15€ 18.5€ - - - 91.1€

FMS recipient with three members, two children 87.15€ 37€

(2*18.5€) - - - 124.15€

FMS recipient with four members, one child 102.8€ 18.5€ - - - 121.3€

FMS recipient with four members, two children 102.8€ 37€

(2*18.5€) - - - 139.8€

FMS recipient with four members, three children 102.85€ 55.5€

(3*18.5€) - - - 158.35€

FMS recipient with five and more members, three children**

114.95€ 55.5€ (3*18.5€) - - - 170.45€

Employment as a cleaning person - - 90.2€ 60.6€ 38.95€ 99.55€

Notes: * Compensation for meals is included and amounts to 27.5€ monthly for 11 months, since when employee is on an annual leave he is not entitled to this benefit, so on average this amounts to 25.2€ per month. There is an additional summer allowance benefit equal to three minimum wages i.e. 165€, so if we translate this into monthly benefit it would be 13.75€. ** Only the first three children are eligible for a child allowance. Families with three and more members, one of whom is a child, receive a higher income from minimum wage employment than from family material support. However, only people in families with five and more members are eligible for the MOP if one family member has a job paid at the minimum wage rate. Also, other families who include one member employed at minimum wage rate actually lose income, ranging from 24€ for a three-member family with two children to 70€ for a four-member family with two children.

89

Annex 5: How Much Wage Income is Taxed Away in the EU, OECD Countries, Serbia, BiH and FYR Macedonia?

Annex Table 5.1: Tax Wedge for Single Earners with no Children by Level of Average Wage (2008)

Level of average wage (%)

33% 50% 100%

Sweden 41.8 44.6 47.9

Hungary 39.5 43.4 54.1

Romania 37.9 39.9 42.4

BiH – FbiH* 37.8 39.5 41.8

Serbia* 36.7 38.0 39.3

Germany 36.3 43.0 51.5

Belgium 36.0 48.5 55.7

Lithuania 36.0 38.9 41.6

Finland 35.5 38.0 44.9

Czech Republic 35.2 36.8 43.5

Bulgaria 35.1 35.1 35.1

Poland 35.0 37.4 39.6

Latvia 34.7 38.2 41.6

Greece 34.4 34.4 41.5

Estonia 34.0 36.8 39.5

Austria 33.5 39.8 48.5

Slovenia 32.9 35.0 42.9

France 32.5 35.0 49.3

Netherlands 32.1 37.5 45.1

Italy 31.5 36.7 45.8

Slovak Republic 31.4 33.2 38.8

BiH - Republika Srpska* 31.1 32.8 34.5

FYR Macedonia* 28.5 30.9 33.2

Portugal 28.1 30.3 37.3

Spain 28.0 29.3 38.0

Norway 27.5 31.1 37.5

Japan 26.0 27.3 29.5

United States 22.6 25.7 30.1

United Kingdom 19.9 26.6 32.8

Switzerland 15.9 26.9 31.7 Ireland 7.8 14.0 27.0

Source: OECD Tax and Benefit model Notes: The tax wedge is defined as the share of income tax and social security contributions by employers and employees over total labor costs. The numbers presented in this table refer to a single earner with no children who receives average wage and works 33 or 50 percent part-time or full-time. Alternatively, in most, though but not all countries, this can also be interpreted as the tax wedge of a single earner with no children who works full-time but receives 33 percent, 50 percent, or 100 percent of the average wage. In the latter case, working full time for 33 percent of average wage might be below the legal minimum wage. * Values refer to 2009.

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Annex Table 5.2: Tax Wedge for a One-earner Couple with Two Children by Level of Average Wage (2008)

Level of average wage (%)

33% 50% 100%

Sweden 41.8 44.6 47.9

Hungary 39.5 43.4 54.1

BiH - FBIH* 37.8 37.8 37.9

Serbia* 36.7 38.0 39.3

Finland 35.5 38.0 44.9

Bulgaria 35.1 35.1 35.1

Greece 34.4 34.4 39.8

Lithuania 34.4 37.8 41.1

Poland 33.7 33.7 33.7

Germany 33.4 33.4 42.8

Romania 32.9 35.3 40.9

Slovenia 32.9 32.9 35.8

France 32.5 34.1 45.1

Italy 31.5 31.5 40.2

Slovak Republic 31.4 31.4 33.2

BiH - Republika Srpska* 30.6 30.6 33.0

FYR Macedonia* 28.5 30.9 33.2

Portugal 28.1 28.1 31.0

Spain 28.0 28.0 32.0

Estonia 26.9 26.9 31.3

Latvia 26.7 26.7 34.5

Netherlands 26.4 33.4 43.1

Belgium 23.6 35.7 47.0

Japan 22.6 22.5 26.1

Austria 22.0 32.3 44.7

Norway 20.9 26.8 35.3

United Kingdom 19.9 26.6 32.8

Czech Republic 17.7 23.7 31.0

United States 14.9 11.9 17.9

Switzerland 12.6 15.2 32.9 Ireland 7.8 12.2 18.5

Source: OECD Tax and Benefit model Notes: The tax wedge is defined as the share of income tax and social security contributions by employers and employees over total labor costs. The numbers presented in this table refer to a one- earner couple with two children who receives the average wage and works 33 or 50 percent part-time or full-time. Alternatively, in most—but not all—countries, this can also be interpreted as the tax wedge of a one-earner couple with two children, with the earner working full-time, but receiving 33 percent, 50 percent, or 100 percent of the average wage. In the latter case, working full time for 33 percent of average wage might be below the legal minimum wage. * Values refer to 2009.

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Annex 6: Data Tables

Table 6.1: Public outlays on social protection (by pillar), percent of GDP

Social Protection (% of GDP)

Country Social Assistance Labor Market Social Insurance Total Ukraine 09 2.7 0.7 18.4 21.7 *Hungary 08 3.7 0.7 12.8 17.1 Serbia 09 1.9 0.7 12.9 15.6 *Poland 08 1.0 0.9 13.2 15.0 *Slovenia 08 2.2 0.4 12.2 14.9 Croatia 09 3.8 0.4 9.5 13.7 Romania 09 3.4 0.6 9.7 13.6 Montenegro 09 1.1 0.8 11.0 12.9 BiH 07 3.8 0.7 8.0 12.5 Bulgaria 08 1.2 0.5 9.3 11.0 *Slovakia 08 1.8 0.7 8.4 10.9 *Estonia 08 1.9 0.3 8.5 10.6 Lithuania 08 1.5 0.4 8.7 10.6 Belarus 09 1.9 na 8.5 10.4 FYR Macedonia 09 1.1 0.6 8.6 10.3 Moldova 08 1.4 0.1 8.4 9.8 Russia 08 2.7 0.1 6.5 9.3 Latvia 09 0.9 1.0 7.0 9.0 Albania 09 1.4 0.1 5.9 7.4 Turkey 08 0.9 0.1 6.2 7.2 Kyrgyz Republic 09 1.0 0.1 6.1 7.2 Armenia 09 1.5 0.1 4.7 6.3 Azerbaijan 09 1.2 na 4.6 5.8 Georgia 08 1.2 0.0 3.6 4.8 Kosovo 09 1.5 na 2.3 3.8 Tajikistan 09 0.5 0.0 3.1 3.6

Source: Europe and Central Asia Social Protection Database, World Bank. * Staff calculations using Eurostat data.

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Table 6.2: Public outlays on social assistance (by type of program), percent of GDP

Social Assistance Programs (% of GDP)

Country

Last-Resort Social

Assistance

Family and Child

Allowances

Disability Benefits

War Veteran Benefits

Social Pension Other Total

Western Balkans

BiH 08 0.19 0.33 0.80 2.03 na 3.35

Serbia 09 0.15 0.43 0.19 0.46 0.70 1.93

Kosovo 09 0.73 0.30 0.50 1.54

Albania 09 0.36 0.88 0.05 0.08 1.37

Montenegro 09 0.40 0.10 0.17 0.40 0.07 1.13

FYR Macedonia 09 0.38 0.16 0.40 0.12 0.04 1.10

Other ECA

Croatia 09 0.33 0.87 0.17 1.83 0.59 3.80

Romania 09 0.08 1.37 0.64 0.73 0.06 0.50 3.37

Russia 08 0.01 0.08 0.22 2.40 2.70

Ukraine 09 0.08 1.50 0.25 0.13 0.69 2.66

Belarus 09 0.03 0.95 0.81 0.09 1.87

Lithuania 08 0.07 0.53 0.74 0.13 1.46

Armenia 09 1.02 0.20 0.19 0.05 1.46

Moldova 08 0.24 0.17 0.08 0.17 0.70 1.36

Azerbaijan 09 0.57 0.17 0.13 0.11 0.19 0.06 1.22

Bulgaria 08 0.06 0.47 0.22 0.43 1.18

Georgia 08 0.43 0.06 0.68 1.17

Kyrgyz Republic 09 0.28 0.74 1.02

Latvia 09 0.05 0.51 0.18 0.09 0.11 0.95

Tajikistan 09 0.09 0.04 0.00 0.28 0.13 0.55


Table 6.3: Trends in Spending on War Veterans’ Benefits, percent of GDP

Country Initial year Final year

Western Balkans

Albania (00-09) 0.13% 0.05% Bosnia and Herzegovina (05-08) 2.44% 2.02% FYR Macedonia (00-09) 0.21% 0.12% Kosovo (04-09) 0.16% 0.50% Montenegro (00-09) 0.22% 0.40% Serbia (00-09) 0.12% 0.46%

ECA Comparators Croatia (04-09) 1.40% 1.83% Romania (05-09) 0.42% 0.73%


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Table 6.4: Trends in Spending on Disability Benefits, percent of GDP

Country Initial year Final year

Western Balkans


ECA Comparators

Bulgaria (03-09) 0.14% 0.25% Croatia (04-09) 0.26% 0.17% Latvia (00-09) 0.10% 0.18% Romania (05-09) 0.20% 0.64%


Table 6.5: Trends in Spending on Last-Resort Social Assistance, percent of GDP Country Initial year Final year

Western Balkans


ECA Comparators

Armenia (00-09) 1.86% 1.02% Bulgaria (03-09) 0.29% 0.05% Croatia (04-09) 0.31% 0.33% Latvia (00-09) 0.02% 0.05%


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Table 6.6: Performance of Overall Social Assistance, Western Balkans and Comparator Countries

Country/Year Coverage Targeting Accuracy Generosity Q1 Q1 Q5 Q1

Albania 2008 28.3 78.1 3.0 45.0 Armenia 2008 44.3 53.6 5.8 28.9 BiH 2007 21.0 36.8 16.6 33.6 Bulgaria 2007 67.9 45.2 7.9 30.2 Croatia 2008 53.0 53.6 6.8 22.6 Georgia 2007 31.0 53.0 8.0 52.0 Hungary 2004 94.4 43.7 9.2 45.8 Kosovo 2006/07 39.2 72.9 2.6 43.4 Latvia 2008 72.7 42.8 7.3 26.3 FYR Macedonia 2006 31.7 45.0 10.2 24.3 Moldova 2009 48.7 39.6 13.7 27.8 Montenegro 2009 20.0 72.9 6.7 38.4 Poland 2008 66.6 45.8 7.0 10.1 Romania 2009 89.2 49.1 6.8 33.6 Serbia 2007 36.9 63.6 1.7 36.1 Ukraine 2008 62.9 47.4 11.3 24.3


Table 6.7: Performance of Last-Resort Social Assistance, Western Balkans and Comparator Countries

Country/Program Year Coverage Targeting Accuracy Generosity

Q1 Q1 Q1 Albania NE 2008 22.3 57.4 15.2 Armenia FB Prog 2008 41.7 56.3 28.6 BiH CSW 2007 4.5 46.1 27.7 Bulgaria GMI 2007 14.6 77.2 21.2 Croatia S. Allowance 2008 12.1 68.6 34.0 Georgia TSA 2007 21.5 61.0 48.0 Hungary Regular SA 2004 7.2 63.1 26.9 Kosovo SA 2006/07 39.2 72.9 43.4 Latvia GMI + dwelling 2008 5.2 30.4 6.9 FYR Macedonia SFA 2006 29.2 51.3 24.4 Montenegro FMS/MOP 2009 15.9 84.4 30.0 Poland SA benefits 2008 13.5 56.0 10.0 Romania GMI 2009 13.6 83.4 24.1 Serbia MOP 2007 6.4 76.6 30.0 Ukraine XP program 2008 5.6 64.9 16.6


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Annex 7: Poverty Gap Estimates

Poverty line set at x percentile of consumption

Country Year 5th percentile 10th percentile 20th percentile

Headcount (Percentage)

Poverty gap (percent of GDP)


Poverty gap (percent of GDP)


Poverty gap

(percent of GDP)

Albania 2005 5% 0.12% 10% 0.35% 20% 0.97% Albania 2008 5% 0.11% 10% 0.27% 20% 0.88% Armenia 2007 5% 0.11% 10% 0.25% 20% 0.67% Armenia 2008 5% 0.11% 10% 0.28% 20% 0.69% Armenia 2009 5% 0.11% 10% 0.29% 20% 0.80% Azerbaijan 2008 5% 0.11% 10% 0.25% 20% 0.65% Bulgaria 2007 5% 0.15% 10% 0.45% 20% 1.09% Bosnia and Herzegovina 2007 5% 0.25% 10% 0.66% 20% 1.97% Belarus 2002 5% 0.13% 10% 0.33% 20% 0.87% Belarus 2008 5% 0.11% 10% 0.29% 20% 0.77% Estonia 2004 5% 0.08% 10% 0.24% 20% 0.70% Georgia 2006 5% 0.12% 10% 0.34% 20% 0.97% Georgia 2009 5% 0.08% 10% 0.24% 20% 0.72% Croatia 2004 5% 0.18% 10% 0.43% 20% 1.09% Croatia 2008 5% 0.13% 10% 0.32% 20% 0.88% Hungary 2004 5% 0.10% 10% 0.25% 20% 0.70% Hungary 2007 5% 0.11% 10% 0.26% 20% 0.68% Kazakhstan 2006 5% 0.07% 10% 0.19% 20% 0.48% Kyrgyz 2005 5% 0.14% 10% 0.44% 20% 1.29% Kyrgyz 2007 5% 0.13% 10% 0.45% 20% 1.21% Kosovo 2006 5% 0.13% 10% 0.32% 20% 1.00% Kosovo 2009 5% 0.12% 10% 0.31% 20% 0.85% Latvia 2004 5% 0.11% 10% 0.32% 20% 1.02% Latvia 2009 5% 0.13% 10% 0.35% 20% 0.90% Lithuania 2004 5% 0.10% 10% 0.26% 20% 0.81% Lithuania 2008 5% 0.10% 10% 0.26% 20% 0.71% Moldova 2007 5% 0.20% 10% 0.53% 20% 1.61% Moldova 2009 5% 0.20% 10% 0.50% 20% 1.49% Macedonia 2006 5% 0.15% 10% 0.48% 20% 1.57% Montenegro 2006 5% 0.11% 10% 0.29% 20% 0.88% Montenegro 2009 5% 0.17% 10% 0.54% 20% 1.26%

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Poland 2004 5% 0.09% 10% 0.26% 20% 0.75% Poland 2008 5% 0.08% 10% 0.22% 20% 0.65% Romania 2007 5% 0.06% 10% 0.19% 20% 0.59% Romania 2009 5% 0.07% 10% 0.23% 20% 0.66% Serbia 2004 5% 0.21% 10% 0.50% 20% 1.31% Serbia 2009 5% 0.20% 10% 0.48% 20% 1.17% Slovenia 2004 5% 0.05% 10% 0.15% 20% 0.36% Turkey 2005 5% 0.06% 10% 0.21% 20% 0.70% Turkey 2009 5% 0.07% 10% 0.25% 20% 0.75% Ukraine 2004 5% 0.18% 10% 0.46% 20% 1.31% Ukraine 2008 5% 0.16% 10% 0.40% 20% 1.09%

Source: Staff calculations.