PROJECT INFORMATION DOCUMENT (PID)



PROJECT INFORMATION DOCUMENT (PID)

CONCEPT STAGE

Report No.: AB4773

|Project Name |Social Safety Nets & Employment Support Project |

|Region |EUROPE AND CENTRAL ASIA |

|Sector |Other social services (100%) |

|Project ID |P116774 |

|Borrower(s) |GOVERNMENT OF BOSNIA AND HERZEGOVINA |

|Implementing Agency |Ministry of Labor and War Veterans |

|Environment Category |[ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) |

|Date PID Prepared |May 6, 2009 |

|Estimated Date of Appraisal Authorization |September 15, 2009 |

|Estimated Date of Board Approval |November 17, 2009 |

1. Key development issues and rationale for Bank involvement

Bosnia and Herzegovina (BH) spends 4% of its GDP on non-insurance social protection cash transfers.[1] With such significant share of the country’s GDP going on these transfers, BH is one of the highest spenders in the Europe and Central Asia (ECA) region – its expenditures being far higher than the regional countries’ average of 1.6% or the OECD nations’ average of 2.5%. This level of spending on non-insurance social protection cash transfers is fiscally unsustainable, particularly given the impending impacts of the global financial and economic crisis on public revenues.

For historical reasons, social benefits in BH have been heavily dominated by “rights-based” programs designed to protect war veterans or their surviving dependents (‘veteran-related benefits’). Veteran-related benefits absorb about three-quarters of total spending on non-insurance social protection cash transfers. The share is slightly lower in Federation of Bosnia and Herzegovina (FBH) than in Republika Srpska (RS) – the two Entities that make up Bosnia and Herzegovina.

Both Entities also operate a number of civilian benefits which account for about a quarter of total spending on non-insurance social protection cash transfers. These include means-tested programs such as Social Assistance Benefits and Child Protection Allowance. In addition, FBH has a couple of rights-based disability benefit programs which have increased significantly over time.

Despite significant fiscal outlays on non-insurance social protection cash transfers, their coverage of the poor is low. Moreover, when viewed in aggregate, non-insurance social protection cash transfers are regressive in nature – this means that a higher share of overall expenditure on these benefits is going to people in the richer quintiles of BH’s population. In contrast, those in the poorest quintile receive only 18% of overall non-insurance social protection cash transfers – a smaller proportion than their share in the total population of BH (each quintile represents 20% of the population ranked by consumption).

Within the sphere of non-insurance social protection cash transfers, veteran-related benefits are the most regressive, with 27% of veteran-related benefits going to people in the richest quintile of the population, while those in the poorest quintile receive less than 15% of veteran-related benefits. Civilian benefits are somewhat better targeted. Thus, 26% of expenditure on Child Protection Allowance (which is means-tested) and 30% of expenditure on Social Assistance Benefit (also means-tested), Non-War Invalids’ Benefit and Civilian Victims’ of War Benefit reach the poorest quintiles of BH population. Nevertheless, these outcomes are not stellar in comparison with outcomes observed in other countries.

Means-tested benefits are better targeted in RS where those in the poorest quintile receive 48% of Social Assistance benefits and 35% of Child Protection Allowances. This performance is reasonable by international standards for poverty-focused programs, though there is certainly room for improvement since some programs in new EU Member States in ECA attain targeting accuracy outcomes of 70-80% (on par with means-tested programs in the United States and Brazil).

The poverty-reduction impact of non-insurance social protection cash transfers is quite limited and falls short of the regional and international norms. As discussed above, BH spends, on average, about 4% of GDP on these benefits. However, coverage of the poor is low (about 15% of those in the bottom quintile report receiving veterans or civilian benefits) and benefits are generally regressive (those in the poorest quintile receive 18% of total non-insurance social protection cash transfers in BH). Given those patterns, it is not surprising to find that poverty-reduction impact is negligible. Indeed, the poverty headcount rate is estimated in the 2007 HBS at about 18% of the population with the transfers counted in total consumption (incomes). Without the transfers, the poverty headcount would increase only slightly to 19.2% of the population (so transfers reduced poverty by only 1.2 of a percentage point or 6%). By way of contrast, the poverty impact of social insurance benefits (pensions) is much higher – without these transfers poverty would increase to 25.8% of the population.

The opportunity costs of public spending on generally regressive transfers are also high. Public expenditures on non-insurance social protection cash transfers absorb a huge share of the Entities’ respective budgets. This level of spending requires buoyant public revenues. However, the public revenues will be under continuing pressure in view of the impending economic crisis. Moreover, devoting a large proportion of public funds on social transfers has the effect of crowding out resources that could be devoted to public investments – which will be increasingly needed to stimulate growth as the economy begins to sag under the impact of the world economic crisis. In addition, there is evidence that some rights-based programs create disincentives for employment.

This situation is fiscally unsustainable, economically inefficient, and socially inequitable. BH needs a complete overhaul of its non-insurance social protection cash transfer programs. There are many ways in which BH could reform these programs and put into place measures aimed at developing a social safety net that is: (i) less of a burden on public resources; (ii) more efficient; and (iii) better targeted to the poor. Specifically, it is recommended that the Governments in BH consider a three-pronged approach with measures to:

• Improve and introduce targeting mechanisms to better channel resources to the poor;

• Strengthen benefits administration and beneficiary registry systems; and,

• Rationalize disability-related benefit schemes.

Both entity governments have expressed interest for Bank’s support. In particular, the FBH recently demonstrated clearer political will to rationalize social assistance expenditures and to introduce targeting mechanisms based on needs rather than rights. There is a clear counterpart in the FBH Ministry of Labor and Social Welfare, which has requested Bank support for the project and which is responsible for dispensing the bulk of the civilian non war benefits including the disabilities benefits. The Ministry of Labor and Social Welfare has assigned a working group whose work formed the bulk of the preparatory activities completed to date towards a project. In the RS, the line ministries expressed interest to pursue the project objectives through implementing all of the proposed components except component 1. The reason for this at the time of drafting this outline is that the RS has already established a targeting mechanism for social protection and the RS authorities did not express explicit interest for requiring support in the area of improving targeting. However, this may change as the team moves forward with preparation.

Since 1996 the Bank has, with different degrees of success; lead the work among the international community on social assistance, social insurance and employment through several investments, adjustment and technical assistance operations. As a result, policy makers in BH are increasingly coming to the Bank to request for help to address the consequences of exponential growth of social assistance spending on both the Entities’ budget and the distortions introduced in the labor market.

Given the accumulated experience in means, proxy means and hybrid targeting in other countries of Europe (e.g., in Armenia, Georgia, Turkey, Ukraine, Kyrgyz Republic) and elsewhere, the knowledge of and access to household survey data in BH and the productive policy dialogue that the Bank team has had with the Entity Governments in this area, the Bank is in a privileged position to provide advice on a strategy to rationalize spending on social assistance and, possibly, finance its implementation.

Moreover, the Bank would be able to bring the operational and analytical skills and policy dialogue experience that are necessary to address such a complex and sensitive topic by engaging a multisectoral team composed of HD specialists and poverty and macro economists with a strong presence in the country.

2. Proposed objective(s)

The proposed project development objectives would be to help the Entities of BH strengthen the sustainability, efficiency and equity of social protection programs. These objectives would be achieved by supporting policy, technical and systems reforms and investments in the areas of (a) targeting; (b) registry and benefits administration improvements; (c) capacity building; (d) income support and job creation; and (e) monitoring and evaluation. Ultimately, these investments would contribute to protecting and improving the living standards of the poor and vulnerable in times of crisis and beyond. Support would focus on the overall safety net, as well as specific segments of the safety net, such as disability benefits, child protection allowances, war veterans’ benefits, and income and employment support programs.

3. Preliminary description

The proposed Social Protection Project would provide support in the following areas:

1) Component 1: Enhancing Safety Net Design (Eligibility Processes). This component would support technical assistance to develop, pilot and introduce improved eligibility processes for social benefits. These eligibility processes would cover needs-based targeting (via some form of means-testing or hybrid/proxy means testing) as well as disability certification.

2) Component 2: Strengthening Benefits Administration and Oversight. This component would support technical assistance, institutional capacity-building activities (e.g., training), and IT investments (software, hardware) to improve the system for administering benefits administration in the following areas:

a. Development and implementation of unified automated registries (management information systems) for managing applications, approvals, rejections, and payments processes across multiple benefit schemes. Such registries should have the capacity to link local offices (social welfare centers), municipalities, and central governments within each Entity (depending on each Entity’s particular institutional structure) with real time and historical data warehousing capabilities. It would also incorporate automated internal and external cross-checking capabilities designed to verify consistency of information. This would allow for improved policy monitoring, stronger efficiency and management of benefits, and reduction of unintended duplications, fraud and errors. It would also support the introduction of streamlined and better targeted eligibility processes supported under Component 1.

b. Capacity building for central and local level offices, in the areas of (i) reformed eligibility processes; (ii) improved benefits administration and registry management; and (iii) improved “service delivery” (applicant and beneficiary interface). Minor works may be involved for refurbishment of social work offices which will be determined during project preparation.

c. Oversight and controls. The component would also support a number of activities designed to improve transparency and credibility and reduce fraud and errors across the safety net programs. These would include development and application of a range of oversight and controls mechanisms (O&C) such as: operational audits, random-sample spot checks (quality controls), case investigations and follow-ups, hotlines (with trained operators), system for handling grievances, etc.

3) Component 3: Income Support and Job Creation. Employment linkages including vocational training for social assistance beneficiaries could also be incorporated (building on lessons learned from the employment project). This component would support provision of job brokerage services to 15,000 vulnerable unemployed persons (disabled; hard-to-employ categories; demobilized soldiers, etc. conditional upon their being registered or re-registering as employed). The project would also facilitate further improvements of efficiency, effectiveness, and targeting of job brokerage services by the public employment agencies; while at the same time promote the role of private job brokerage agencies.

4) Component 4: Monitoring and Evaluation. Measuring improvements and impacts of the proposed reforms and systems enhancements above is important for policy feedback and on-going political support. The project would support a number of activities to monitor and evaluate improvements in the safety net, including: (a) cost efficiency studies (administrative cost assessments); (b) development and tracking of efficiency target indicators; (c) beneficiary (client) satisfaction surveys for service delivery; and (d) household surveys to measure impact and targeting accuracy.

5) Component 5: Project Management. Ministry of Labor and Social Welfare (FBH) through its unit for project implementation (PIU SESER); Ministry of Labor and Ministry of Health and Social Welfare (RS) through (tbd).

4. Safeguard policies that might apply

The project may include financing of refurbishment of existing social work center which would involve minor works. There may be a need to make social work centers accessible for persons with disabilities. However, this will be determined during preparation.

5. Tentative financing

| |($m.) |

|Source: | |

|Borrower: | |

|International Bank for Reconstruction and Development: |20.00 |

|Total: |20.00 |

6. Contact point

Contact: Maniza B. Naqvi

Title: Sr. Social Protection Specialist

Tel: (202) 458-1938

Fax: (202) 477-0574

Email: Mnaqvi@

7. For more information contact:

The InfoShop

The World Bank

1818 H Street, NW

Washington, D.C. 20433

Telephone: (202) 458-5454

Fax: (202) 522-1500

Web:

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[1] Health, pension and unemployment insurance programs are examples of insurance-based schemes. A significant proportion of the ostensibly insurance-based benefits (e.g. special pensions) are also financed through the general government budget.

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