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
Croatia
2%
Bosnia
8%
Serbia
17%
Macedonia
37%
Montenegro
49%
Albania
60%
Kosovo
82%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
3
Poverty and Government Expenditure (% GDP)
50
Government Expenditure 2007
(% GDP)
y = 44.3 - 18.8x
R² = 0.5435
45
40
Serbia
Montenegro
Croatia
Bosnia
35
Macedonia
30
Albania
25
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Absolute poverty rate
4
Poverty head count at national poverty line
(% population) (2004-2008)
25
20
-7%
Macedonia
15
-21%
-33%
Albania
Bosnia
Serbia
10
Montenegro
-27%
5
-39%
0
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 BiH 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
Real GDP Growth 2008-2010 (%)
10
8
6
Croatia
Montenegro
Serbia
Bosnia
Macedonia
Kosovo
Albania
4
2
0
-2
-4
-6
-8
2008
2009
2010
8
Remittance Flows (% GDP)
20%
18%
16%
14%
12%
+11.0%
-13.9%
-4.9%
2007
10%
2008
8%
2009
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
At risk of poverty rate (%)
33
31.1
31
29
27
29.4
28.7
25
Croatia
23
Macedonia
21
19
17.4
17.4
2007
2008
18.0
17
15
2009
11
Absolute poverty head count Serbia (%)
10
9.2
9
8
7
6
6.9
6.1
5
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 +
Bosnia
Under 15
EU-27
Serbia
Croatia
0
5
10
15
20
25
30
35
16
17
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
Proportion of respondents who consider general conditions in
hospitals to be good or poor
70%
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 BiH 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 FBiH, 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 FBiH.
• 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
General government budget balance (% GDP)
0
-1
-2
-3
-4
2008
-5
2009
2010
-6
-7
-8
23
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
08/04/2015
Will Bartlett LSE
26