Overview of Poverty Reduction and Social Inclusion Policies

Overview of Poverty Reduction and Social Inclusion Policies in the Western Balkans Will Bartlett European Institute – LSEE London School of Economics 1

Outline • Pre-crisis growth and poverty reduction • Impact of economic crisis on poverty and social exclusion • Poverty reduction and social inclusion policies • Anti-crisis measures • What should be done in context of EU accession and regional cooperation? 2

Absolute poverty headcount at $5 per day 2% Croatia Bosnia 8% Serbia 17% 37% Macedonia Montenegro 49% Albania 60% Kosovo 82% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 3

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25 Poverty head count at national poverty line (% population) (2004 -2008) 20 -7% 15 -21% Macedonia -33% Albania Bosnia 10 Serbia -27% 5 0 Montenegro -39% 2004 -2007 2006 -2008 5

Poverty profiles • Rural poverty higher than urban – Bosnia LSMS 2007 rural 18%; urban 8% – Regional dimension within countries • Education and poverty – In Bi. H without degree 21%; with degree 1. 1% • Employment does not protect against poverty – In Albania >50% of poor are employed in low skilled jobs 6

Economic crisis • Global economic crisis struck in late 2008 as external drivers of growth collapsed – – Exports FDI Remittances Credit growth • Variable impact in 2009, – IMF support for Bosnia and Serbia, – Continued growth in Albania and Kosovo • Slow recovery in 2010, except for Croatia 7

10 Real GDP Growth 2008 -2010 (%) 8 6 Croatia Montenegro Serbia Bosnia Macedonia Kosovo Albania 4 2 0 -2 -4 -6 -8 2009 2010 8

20% Remittance Flows (% GDP) 18% 16% 14% 12% +11. 0% -13. 9% -4. 9% 2007 10% 2008 2009 8% 6% 4% +7. 0% 2% 0% Albania Bosnia Macedonia Serbia 9

Poverty and inequality in crisis • Poverty increased as growth, main driver of poverty reduction, collapsed • Increase in poverty 2008 -9 was higher in Macedonia (8. 4%) than in Croatia (3. 4%) – Possibly indicating lesser effectiveness of social safety net in mitigating poverty in Macedonia • Inequality increased – suggesting ability of elites to protect against income effects of crisis 10

35 At risk of poverty rate (%) 31. 1 30 29. 4 28. 7 Croatia 25 Macedonia 20 15 17. 4 2007 2008 18. 0 2009 11

10 Absolute poverty head count Serbia (%) 9. 2 9 8 7 6 5 6. 9 6. 1 2008 2009 2010 12

Macedonia: Urban equivalised income shares by quintile, 2008 -09 (%) 13

Social protection systems • Social insurance systems – Pensions (plus second private pillar in HR, MK, XK) – Health insurance (tax financed system in XK) – Unemployment benefits (limited coverage) • Social assistance programmes – Means tested social assistance (weak targeting) – Rights based social transfers (veterans benefits) – Family and child benefits 14

Pension systems • Pensions have a significant impact in reducing poverty • State-managed PAYG systems (AL, BA, SR, ME) – State managed pension schemes challenged by aging populations • Three pillar pension systems (HR, MK, XK) • Crisis impact on pension fund unit values – Despite vulnerability, three pillar reforms are proposed in BA, SR) 15

Population by age group (%) Kosovo Albania Macedonia Montenegro 65 + Under 15 Bosnia EU-27 Serbia Croatia 0 5 10 15 20 25 30 35 16

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Health insurance • Health system is based on social insurance principles – Kosovo is an exception – tax financed system – State system covers minimum health needs • Large gaps in coverage due to non-payment of contributions • Private sector fills gaps in provision ( in Albania and Kosovo especially) 18

70% Proportion of respondents who consider general conditions in hospitals to be good or poor 58% 60% 50% 45% 40% Good 30% Poor 26% 20% 15% 10% 0% State hospitals Private hositals 19

Social assistance programmes • Means tested social assistance – Subjective assessments by social workers – In Albania, Ndhime Ekonomike, approved by local councils • Poor targeting and low coverage limits their effectiveness in reducing poverty – In Bi. H only 30% of assistance expenditure reaches poorest quintile – Roma and IDPs fall through the net – Kosovo, better targeting but low coverage reduces effectiveness 20

Categorical benefits • Rights based social assistance – Veterans’ benefits – In FBi. H, the government extended the rights of war veterans in 2008 and cash transfer expenditure increased sharply, up to 4% of GDP – Benefits to veterans are highly regressive, covering a larger proportion of the upper quintile of households than the poorest quintile in FBi. H. • Family benefits including child allowance 21

Policy measures responding to crisis • Public expenditure restraint – – IMF SBAs in Bosnia, Serbia, Kosovo and PCL in Macedonia (under negotiation Serbia) • Anti-crisis programmes – Reform / cut social assistance (BA, SR, HR, MK) – Reduced wages in public sector (BA, SR, HR, ME) – Public sector hiring restricted (BA, SR) – Public sector employment cut (SR) – Pension freeze (SR, HR) – Three pillar pension reform announced (BA, SR) 22

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What should be done? • Modernisation of public sector to increase effectiveness – Social enterprises? Diverse providers? – Bring elites back as consumers of public services • Regularise informal sector to raise tax revenues – Also to close gaps in eligibility • Active inclusion involving targeted actions for deprived and vulnerable groups – Especially in line with EU Roma Strategy (2011) • Scope for regional cooperation – Learning from best practice – Use of IPA under Lisbon Treaty ‘horizontal’ social clause 24

Research at LSEE • Work on various aspects of social inclusion – Social impact of crisis – Health system reforms – Decentralisation and regional policy – Roma inclusion – Skills gaps and vocational education • LSEE research network on social cohesion – collaboration with local researchers and policy makers 25

Thank you for your attention! comments welcome at: w. j. bartlett@lse. ac. uk 04/12/2020 Will Bartlett LSE 26