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Protecting the Poor During the Global Crisis: 2009 Bosnia and Herzegovina Poverty Update

EXECUTIVE SUMMARY

The report highlights how the lack of a comprehensive social safety net inhibits the country’s capacity to shield effectively its most vulnerable citizens from the global economic crisis. Thus, the current system is socially inequitable, has negative impact on the labor market, and is also fiscally unsustainable. Bosnia and Herzegovina is spending large sums of money on various transfers-to-individuals programs (such as social and veteran benefits). Yet these programs are not reaching the poorest, nor are they providing the incentives for those who can work to find jobs.

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PROTECTING THE POOR DURING THE GLOBAL CRISIS: 2009 Bosnia and Herzegovina Poverty Update
Executive Sumary
Full Report
Kompletan izvještaj 
1. Macroeconomic Context and Poverty Trends

This section makes three main points. First, growth in BH between 2001 and 2008, butespecially in the latter half of the 2000s, remained robust on account of strong exportperformance, which was fueled by buoyant global demand and improved competitiveness. Second, this strong growth performance has led to substantial poverty reduction, as seen by a 20 percent poverty reduction from 2004 to 2007 – from 17.7 to 14 percent respectively. It notes that differences in the overall poverty rates in the entities remain indistinguishable. . Third, despite the overall positive performance in recent years, the current global economic crisis is likely to threaten recent gains. In particular, the section makes the point that by increasing levels of unemployment, limiting credit growth, and putting pressure on fiscal stability, the crisis is likely to amplify some existing structural weaknesses and increase household vulnerabilities.

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2. Characteristics of the Poor, 2007

This section provides a brief description of the profile and distribution of the poor. It reaches the following conclusions: First, the face of poverty is rural – 7 out of 10 poor people live in rural areas. Second, there is no statistically significant difference between the poverty rates in RS and FBH, either in 2007 or 2004. However, FBH experienced a faster pace of poverty reduction compared to RS and this decline (within FBH) is significant. Third, the risk of falling into poverty is highly correlated with low skills. Fourth, the majority of the poor are working poor – one in every three poor people is an employee. Yet public services are either inaccessible or of low quality. Secondary and tertiary education coverage, at 75 and 33 percent respectively, is rather low for the region and worse for vulnerable groups. Lastly, about 2 percent of the population is deprived on multiple dimensions – they are materially poor and in addition have no access to certain public services such as a phone or indoor sanitation.

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3. Uncertainty and Rising Vulnerability

This section documents the channels through which the global economic crisis is likely to affect the population of BH. It focuses on three channels – employment, remittances and credit – where the greatest stresses are likely to be felt in the context of BH. It shows that unemployment has began to rise in the early part of 2009, remittances are projected to decline by 4 to 5 percent in 2009 and debt levels had already reached worrying levels for some of the households. It then undertakes a series of simulations of the likely impact of the economic crisis on poverty and indebtedness. It shows that a projected GDP contraction of 3.5-4 percent is likely to lead to a rise in the poverty rate of 2 percentage points and nearly reverse half of the gains achieved before the crisis. Prediction scenarios which focus on simultaneous employment and remittance shocks show about 2 percentage point increase in poverty, similarly to the predicted welfare losses of GDP contraction. Lastly, further simulations show that an additional 3 to 15 percent of households with housing loans will face difficulty servicing their loans as a result of the crisis. This is doubly worse because were BH to stay on its pre-crisis trajectory, poverty levels would have declined, not risen.

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4. Improving Social Assistance to Protect the Poor During the Crisis

Effective social safety nets can be an efficient tool to protect households, especially during a generalized crisis. However, the BH programs as currently designed have several weaknesses, which make them less effective in protecting the poor and vulnerable. First, despite significant fiscal outlays (4 percent of GDP), coverage of noncontributory transfers is low. Second targeting accuracy is fairly weak, with a higher share of benefits going to those in richer quintiles. Third, the poverty impacts of noncontributory social benefits are negligible. Finally, non-targeted programs have reached the limits of the fiscal envelope and are crowding out the targeted ones. A new targeting mechanism is proposed, which when introduced to all non-contributory transfers, could reign in fiscal expenditures while better covering and targeting the poor. The Proxy- Means Targeting (PMT) mechanism suggested could boost targeting accuracy of the programs by up to 40 percent, from the current 17 percent. There are steps that BH could take to transition to a PMT mechanism and create a social safety net that does not impose unbearable burden on public resources and is more efficient at reaching the most vulnerable populations.

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5. Conclusions and Suggested Policy
 

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Launching Conference
VideoOpening remarks (full-size video)

 
VideoPresentation, part 1 (full-size video)

 
VideoPresentation, part 2 (full-size video)

 
VideoQ&A (full-size video)

 
SlidesSlide presentation

 
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