By Marco Mantovanelli
World Bank Country Manager in Bosnia and Herzegovina
"Izazovi reforme socijalnog sektora", Nezavisne novine
Published on March 13, 2008 The regional conference on financing health, pensions, and unemployment benefits which was held on Thursday, 28 and Friday, 29 February in Sarajevo received considerable attention from the media and the authorities in all five participating countries – Albania, Bosnia and Herzegovina, Macedonia, Montenegro and Serbia. All Western Balkan countries are facing challenges sustaining their current social insurance models, and Bosnia and Herzegovina (BH) is no exception. When positive economic statistics about the country’s economic growth are trotted out, most people in BH feel a certain kind of frustration. Quite understandably. Despite solid economic growth in BH (and elsewhere in the region), there is a “jobs deficit”, especially in the formal sector. This means that there aren’t that many ‘good’ jobs which pay a regular salary and social insurance contributions and allow for paid holidays and sick leave. So though there may be overall growth in the economy, many are feeling left out of it. In addition to being a problem for ordinary citizens, this is a problem for the whole economy. Since health, pensions, and unemployment benefits programs are mostly financed by payroll taxes levied on registered employment, low jobs growth in the formal sector means that the authorities must rely on a narrow tax base to raise revenues for those programs. A consequence of that are relatively high tax/ contribution rates which, in turn, create further disincentives for formal sector employment. This is a particularly acute problem in BH, given the considerable budgetary outlays on a large range of benefits for specific categories of beneficiaries. Moreover, the country’s population aging will create additional pressures since pension and health expenditures can be expected to rise while dependency rates increase as well. This means that, even if the grey economy were to be eliminated overnight, the demographic situation is such that more and more people are going to rely on an ever-shrinking base of those who pay social insurance contributions. This is potentially dangerous for both the citizens and the authorities. On the one hand, the citizens can only expect a reduction in the range/ value of benefits they receive; while, on the other hand, the authorities are facing a potentially huge burden of financial obligations – unless they reduce the benefits or raise taxes dramatically. Though daunting, these problems are not insoluble. The intention of the regional conference was to bring together key officials from the region as well as various international experts, and staff from the World Bank and other International Organizations to share the latest research on country experiences with social insurance and related financing issues and to attempt to arrive at a broad consensus on needed reforms to finance health, pensions, and unemployment benefits, especially in the context of aging populations. The symbol used in Chinese alphabet to denote ‘danger’ is composed of two parts – each one of which has a separate meaning on its own – these being ‘threat’ and ‘opportunity’. This was exactly the flavour of the presentations and discussions that took place at the conference. While most of us are aware of the threats, what are the opportunities, especially those for BH? BH has had and continues to receive high levels of international assistance in this area. At this point neither the knowledge nor the hardware is a serious constraint. While the threats and dangers are real, they need to be seen in the right perspective. Rushed, patch up reforms consisting of hasty legislative amendments can only make the problems worse, rather than better. Given all of these factors, there is a need for BH to carefully consider the financing and provision of health, pension, and unemployment benefits and to assess potential reform options. In BH some possible reform options could aim to harmonize parameters across the two entities and remove the most obvious disincentives in the current systems. In employment this could mean the progressive removal of administrative and economic barriers to job creation (including disincentives that allow for ‘free riding’ via Employment Bureaux) while in health sector, rationalization and better resource management would probably be some of the key factors. Effectively financing these critical services and benefits in ways that lead to favourable employment outcomes will be important for generating growth and reducing poverty and vulnerability. This will be important for continuing on the convergence path with the EU – the membership of which is the top priority for all countries in the region. The crucial factor required is sufficient will to tackle the threats head on. The World Bank cannot do this – we can provide resources and know how but the crucial political economy decisions must be made in BH by the people of BH. |
