Social ProtectionSocial Protection

The World Bank

Public Expenditure Public Expenditure Analysis and Manage Analysis and Manage Core CourseCore Course

Presented by:Presented by:

Margaret Ellen GroshMargaret Ellen GroshHDNSPHDNSP

March 21-24, 2005March 21-24, 2005Presented to:Presented to:

Social Protection

PEAM course

March 2005, Washington DC

Margaret Grosh

What is Social Protection?

• New definition in Bank’s SP strategy paper“SP as public interventions (i) to assist individuals,

households, and communities better manage risk, and (ii) to provide support to the critically vulnerable”

• Contrasts with traditional definition, as a group of public programs:pensions, labor market interventions, safety nets,

and social care

Boundary Issues

• Traditional SP vs other sectors: SP chapters sticks to traditional boundaries, social risk management framework can be used throughout report and other sectoral analysis viewed through that lens.

• Public/private. A PER cannot cover all private spending in detail, but must have a notion of it to draw appropriate conclusions about the public part.

• What programs specifically? Fuzzy conceptual boundaries, fragmentation in institutional responsibility and budgets

• PER vs fuller sector work: PER is selective and summary; fiscal issues predominate, institutional and service delivery systems usually the least treated

Selected key issues:What level of spending is appropriate?

• Significant ideological controversy– Traditional view: redistribution justified by

moral philosophy; social protection as a cost, a luxury

– New view as typified in social risk management framework: social protection as an investment in income generation, human capital formation and growth

SP/SRM as investment

• Half or more of poverty is transient, SP can help reduce that substantially.

• SP helps people avoid coping strategies that perpetuate poverty. • Families that can't afford a bad year can't use the most effective

earnings strategies.• Societies with good SP programs may be able to take more efficient

policy choices for trade, industry, labor, etc. • Societies can use good SP programs to replace inefficient

redistributive elements in other programs. • SP can help temper inequality and reduce its costs. • Many safety net programs contribute to human or physical capital

formation in addition to providing for current consumption.

0

2

4

6

8

10

12

14

Africa-Sub-Saharan

Middle East andNorth Africa

Europe andCentral Asia

East Asia andthe Pacific

South Asia Latin Americaand Caribbean

OECD

SI spending SA spending

Social Assistance and Social Insurance as percent of GDP

Source: Blank, Grosh, Hakim and Weigand 2004, OECD SOCX

What is right assignment of resources within sector?

• No single right answer• Diagnostic process as defined in PRSP

sourcebook:– Step 1: diagnostics on risk and vulnerability

– Step 2: look at overall balance among programs (including outside SP sector)

– Step 3: review individual programs’ performance

– Step 4: conclusions/reform plan

Step 1: diagnostic process

• Some very summary information from poverty and risk and vulnerability assessments

Step 2: balance among programs: Example Bulgaria

Benefit Program Rank Expenditures

Share in Total Social Protection

Expenditures(million lev) (%)

Old Age Pensions 1 2,205 55Unemployment Benefits 2 212 5Disability Pensions 3 220 5Child Allowances, insured parents 4 106 3Sickness Benefits 5 102 3Occassional and monthly means tested benefits 6 90 2Energy Subsidy 7 75 2Social Pensions, means tested 8 73 2Farmers pensions 9 60 1Maternity and child benefits, uninsured paraents 10 47 1Child Care benefits, insued parents 11 45 1Social Care Services and Institutions 12 39 1Other programs 13-34 148 4Andministrative Costs 607 15Total, including administrative costs 4,026 100

Table 4. Federal Social Protection Programs in Mexico

Type of Program Number of Programs

Budget 2000 (million pesos)

Percent of total

Budget

Major Beneficiaries

1. Social Insurance —Social Security —Negative Income Tax

4 3 1

170,539.0 158,687.0 11,760.0

76.1 70.8% 5.2%

- Formal sector employees - Formal sector employees

2. Sectoral Social Assistance —Education —Health —Housing credit —Other

29 18 5 2 4

15,861.9 6,622.8 4,740.7 3,779.6 718.8

7.1% 3.0% 2.1% 1.7% 0.3%

- Poor, low educated - Rural poor - Public sector employees - Various vulnerable groups

3. Income Transfers and Subsidies —Progresa (conditioned income T) —Food Programs

7 1 6

14,765.2 9,635.0 5,130.2

6.6% 4.3% 2.3%

- Rural poor - Poor

4. Income Generation —Temporary Employment —Labor Training —Rural Development

54 1 2 51

15,531.8 3,997.7 1,683.9 9,850.2

6.9% 1.8% 0.7% 4.4%

- Poor unemployed - Low income - Rural communities

5. Social Infrastructure 5 2,250.1 1.0% -- Communities with low access to basic infrastructure

6. Natural Disaster Protection 1 4,839.9 2.2% -- Communities hit by natural disasters

7. Other 5 202.8 .09% -- Poor communities TOTAL 105 223,990.7 100% Source: SHCP. Category “Other” includes institutional strengthening, community development, etc.

Step 3: program analysis

• Will cover only selected issues in this presentation, more covered in guidance note

Efficiency example 1 – unit cost analysis

Ethiopia PER: average cost per ton of food delivered in various safety net programs (excluding administration and program implementation costs):

International Price $130 /mt.International Shipping : $ 50Transport Djibouti-Regional center $ 65Local distribution & transport: $ 40 Total cost: $285

Add in administration and even “free food” cost 3 birr/kg

Benchmark: open market price of 1.5-2 birr/kg

? But would equivalent cash be made available? Is food available on these markets?

Efficiency example 2 – inference from basic design features

• Ethiopia PER compares public works there with “best practice” and finds shortcomings:

• Value of works likely to be sub-optimal because:– Non wage costs at most 20%, much lower than international experience for well

done, diverse portfolio of works– Planning process on-off; separate from investment process– Food typically arrives during rainy season when works can’t be done;

• Transfer gains likely to be sub-optimal because:– Can’t enforce work requirement (due to rainy season issue) so self-targeting

element weak (though this does reduce issue of foregone earnings)– Transfer too low to affect material welfare, too irregular to affect risk planning

• Solutions are institutional

Equity analysis

• At first blush seems easy, but some real technical issues, to be discussed in Schwarz’s and van de Walle’s complementary presentation within this session

• NB:.– Equity is important in all sectors– Judgments about SP sector are based on more than equity. – Methodology of equity analysis is within SP session because as

this course is designed, each sectoral session includes a “public good” of methodology

Equity is still an issue – social assistance

• Coady, Grosh, Hoddinott 2004 review 122 targeted transfer programs in 48 countries and find:

– Moderate results on average: Mean outcome delivers one quarter more benefits to poor than would universal transfer

– Very much better results in best programs: top ten deliver two to four times more benefits to poor than would universal transfer

– Significant targeting failures: one quarter of “targeted” programs are regressive.

Equity is still an issue – pensions

Source: De Ferranti et al. 2004, Figure 9.9

Equity is still an issue – pensions

• Mexico results not unusual

• But is the comparison fair? – If payments are deferred compensation

(earnings) then poverty targeted expenditures the wrong benchmark.

– Still issues of equity across generations, genders, income levels, work histories

Pension System Equity in MENA

• In countries like Iran, Egypt, and Yemen, low income workers earn more in retirement than while working

• Higher income workers in Egypt earn much lower pensions relative to their income level than low income workers even though their contributions were much higher

• Few incentives to contribute in these countries – evasion is high

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Individual earnings, proportion of average

Egypt

Djibouti

Iran

Algeria

Bahrain

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0 .5 1 1.5 2 2.5 3Individual earnings, proportion of average

Jordan

Libya

MoroccoTunisia

Yemen

Comparison of Benefit Rates Across Different Income Groups

Pension System Equity in MENA

• In countries like Iran, Egypt, and Yemen, low income workers earn more in retirement than while working

• Higher income workers in Egypt earn much lower pensions relative to their income level than low income workers even though their contributions were much higher

• Few incentives to contribute in these countries – evasion is high

0

.25

.5

.75

1

1.25

Net r

epla

cem

ent r

ates

0 .5 1 1.5 2 2.5 3

Individual earnings, proportion of average

Egypt

Djibouti

Iran

Algeria

Bahrain

0

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1.25

Net

rep

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0 .5 1 1.5 2 2.5 3Individual earnings, proportion of average

Jordan

Libya

MoroccoTunisia

Yemen

Comparison of Benefit Rates Across Different Income Groups

Managing risk – a tension

• PERs very concerned with fiscal risk

• Adequate SRM and SSN implies programs with “entitlement” access– Argentina’s Trabajar program vs Maharasthra’s Employment

Guarantee Scheme– very rare in practice because of fiscal issue (and sometimes

administrative constraints) – Even counter-cyclicity rare: in LAC for each 1% loss of

GDP, the amount of targeted spending per poor person declined by 2% (de Ferranti, et al 2000)

Fiscal Sustainability in Pensions

Brazil: Critical Social Security Issues, June 2000.

Summary of SP in PER Guidance Note:

• Sector wide view – Very brief synopsis of poverty, risk and vulnerability– Overview of budget allocation, trends, processes*

• Individual program analysis– Adequacy– Equity*– Efficiency*– Contribution to risk management*– Delivery mechanisms– Sustainability– Impact

Hallmarks of good analysis

• Numbers clearly defined and sources given.• Uses benchmarks extensively (not just on expenditures but on

inputs, prices, outputs, ratios among these)

• Chooses benchmarks wisely (e.g. neighboring countries, countries of similar income, others the country wants to emulate; or adjusts for differences in demographics or poverty profile)

• Contrasts trends and point in time as applicable• Conveys enough of the storyline and details to

persuade reader of recommendations• Crafts together story from available sources and

literature outside of PER.