"Siromaštvo kuca na vrata"

An Op Ed by Marco Mantovanelli,

World Bank Country Manager in Bosnia and Herzegovina

Published in Dnevni Avaz daily, January 3, 2009

 

 

The present system of social benefits in BiH can be compared to watering plants with a hose that has many holes

 

The economic recession is swallowing more and more economies and this, unfortunately, means that the citizens of Bosnia and Herzegovina (BiH), too, will suffer from its effects, in one way or the other.  One of the expected consequences is that most of the socially endangered people will be – or already are – in danger of being pushed into extreme poverty.

Having in mind these quite gloomy economic and social prognoses, my best New Year’s wish for BiH and its population would be for this country to get a better system for social protection in 2009. When speaking about global recession, whose effects are only starting to be felt and whose full impact is expected in the next few months, a better channeled system of social protection can help tens of thousands of citizens.

 

Important element

 

The worsening of the economic situation and in the living standard as well as the loss of work places, can, just like in any other country, lead to increased pressure of the public on the Governments in BiH to establish and/or improve mechanisms that would help the citizens to overcome the current and future economic difficulties.

 

However, even if the Governments were willing to respond to such demands of the public, BiH at this moment does not have the necessary mechanisms – that is, a solid system for social protection – to meet that demand. Many believe that it is all about the amount of money that is pumped into the system – or that should be pumped into the system. However, an element that is just as important, if not even more important, in that equation is a good channeling of benefits in any system for social protection. The example from 2006 can teach us a lesson about the targeting of social benefits. At that time, the former Government of the Federation of Bosnia and Herzegovina (FBiH) allocated 25 million KM to alleviate the impact of the widely spread growth of the consumer prices due to the imposing of the value added tax (VAT).

 

Although the Government was ready and interested in helping its citizens, it had at its disposal no system – with any level of precision - for detecting which citizens need most the assets for alleviating the impact of the imposed VAT the most. The creators of policies assumed as a fact that the assets were needed for most of the retired people, and no other group of potential receivers was identified.

Unfortunately, it is a general opinion that this allegedly generous attempt was a failure. The basic reason for that is the fact that the assets were badly channeled. Instead of all the poorest citizens receiving the biggest help, all of the retired people – those with the guaranteed lowest pension of 200 KM, as well as those receiving the highest pensions, of 1000 KM and more – received 10 KM each. The money, allocated in this way, meant little to all of them.

 

This situation revealed the inefficiency characteristic of similar methods of social aid. It can be compared to watering of plants with a hose full of holes. Although one part of water may reach the plants which really need to be watered, this happens only after a lot of the water is spilled in the process. Although 25 million KM was a small sum to start with, it is considered that the individual users of those benefits could have received amounts that would be of essential difference for their purchasing power, had only the money been allocated to the citizens who need it the most. The same problem of the expensive hose that leaks where it is not supposed to is also present with most other social benefits. Many of those who are now receiving help do not need it, and many of those who need it do not receive proper amounts.

 

We witness every day that more and more people are digging through garbage looking for food because they can not meet ends. Also, there are examples of those who have a job, drive cars and live in good apartments and houses, and have a right to receive some kind of social aid, which they do not really need. The issue of better targeting is something the Governments should take into consideration if they want to get the best out of all current and future social programs. The channeling is based on a simple concept. Based on different information, the amounts of money that represent a social minimum for households of different categories are defined. The households then have the right for benefits based on the difference between the social minimum and their actual income, which is determined by specific and transparent criteria. This means that those who need it the most receive the biggest part of the available assets for social help.

 

Global recession

 

This method of distribution of benefits is neither new nor untested. Actually, there are many countries in Eastern and Central Europe that have implemented social programs based on some form of this concept. So, if the BiH authorities want to ensure that all the future attempts of giving help to citizens are really effective, than it is high time – five minutes to twelve – for them to seriously consider the issue of targeting of social aid. The authorities maybe need additional time to consider the evidence and adopt the experiences of other countries, but I am absolutely sure that they do not need to be persuaded anymore that the methods used till now are not effective. Also, fast approaching of the global economic recession reminds us how important it is to urgently solve this problem.

 

The example of Romania and Bulgaria

 

The Bulgarian social system manages to channel its financing to 83 percent of those identified as poor. In Romania the rate of successfully channeled assets was 85 percent, and in Lithuania it was 80 percent. In contrast to that, a less successful program in Poland reaches only 64 percent of those identified as poor. Although there are no comparable data for BiH, it is considered that barely 30 percent of the social benefits reach those who need help the most.