UNIVERSITY OF YORK
Department of Social Policy and Social Work
ECONOMIC AID (Ndihme Ekonomike – NE) IN ALBANIA: REPORT FOR UNICEF
Jonathan Bradshaw and Petra Hoelscher
SUMMARY
Albania is not making enough effort on behalf of her children.
Ndihme Ekonomike (NE) is the only help that parents get with the costs of child
rearing.
Albania spends 0.4 per cent of GDP on NE.
A very small proportion of children in poverty benefit from NE.
NE is too low to lift any child out of poverty by itself.
NE is very complicated.
It cannot be reformed successfully.
Albania needs to introduce a child benefit and spend more of its national income on
children.
BACKGROUND
The UNICEF office in Albania was asked by the government of Albania to contribute to a
review of the Economic Aid (NE) programme in Albania from a children’s perspective. This
note is based on the outcomes of a mission of Professor Jonathan Bradshaw, University of
York, UK and Dr Petra Hoelscher, UNICEF Regional Office for CEE/CIS to UNICEF
Albania 8-11 February 2010.
During our visit we met with the Deputy Minister of Labour and Social Affairs and other
senior officials in the MoLSA, local experts, UNDP, UNIFEM, the European Commission
and the World Bank. The UNICEF country office has already produced a report on The
Impact of Social Assistance Mechanisms on Reducing Child Poverty in Albania, which
included a survey of 400 recipients of NE. We also draw on information coming from
government strategy papers, reviews of the current economic aid system, World Bank
assessments of poverty and public expenditure as well as the EU progress report and an EU
assessment of poverty and social inclusion in Albania.
This paper also contributes to work the UNICEF Regional Office for CEE/CIS is doing on
child poverty and social protection in the context of the financial crisis. So far this work
includes a questionnaire sent to UNICEF local offices about the impact of the crisis and
policy responses to it; a comparative analysis of minimum income schemes in each country; a
comparative analysis of child poverty in six countries; some think pieces; and two case
studies of strategies to reduce child poverty (Russia and Slovenia). All this work is being
brought together for a conference in September 2010.
The social protection system in Albania covers employment-related contributory social
security and non-contributory social assistance. Within social assistance there is a mix of cash
transfers (economic aid, disability benefits and electricity subsidy) and social services
(mainly psychosocial support in day care and residential care). Economic Aid (NE) is the
only cash transfer targeted to poor people and mainly reaching families with children. NE
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was first developed in 1993 in a hurried response to the collapse of the state system. It was
basically a device to protect the country against famine. It was unusual in a number of
respects. On the advice of a Norwegian consultant (Professor Jon Ivan Kolberg) resources
were distributed to local areas – communes and municipalities were given the responsibility
to administer the scheme. This is basically a Nordic solution where social assistance is a
residual benefit for the small number of people not entitled to the universal and contributory
social insurance schemes. In Albania it served the purpose of providing quickly a protection
against extreme poverty and social disruption. Social insurance for pensioners, maternity and
unemployment was reformed around the same time but only reaches those in the formal
economy. Since then NE has been incrementally changed but no broader reforms have been
undertaken to provide effective social protection to families with children.
OUTLINE OF REPORT
We were advised by the Deputy Minister that at this stage our most useful contribution would
be to produce a vision paper with some options for reform. We agree. The NE scheme has
been the subject of extensive study over the years by the World Bank (2006, 2007) and
including their latest poverty assessments (2009), a European Commission Report on Social
Protection and Social Inclusion in Albania (2008), a detailed study by Kolpeja et al. (2006)
and the recent Public Policy Institute study report for UNICEF (2009). Although there is no
doubt that reform could be helped by a better evidence base (and we refer to some of the
missing evidence below), we believe that there is enough to initiate an argument about
reform.
Albania is a potential candidate country for EU entry. In its European Partnership agreement
there was a commitment to “Improve social protection systems and combat social exclusion”
and in its social inclusion and social protection report in 2008 report on Albania in 2008 it
concluded
"The extension of the social protection system with family and child benefits, as part
of the social assistance or social insurance system is put forward as a
recommendation. Further research should present the government with number of
alternatives, taking into account the effects on family poverty, the effects on income
inequalities, on gender issues and on access of children in education." p179.
This report is a contribution to that end.
The focus of our interest is in child poverty. NE is certainly not the most important
determinant of the living standards of children in Albania – as ever what parents receive in
the labour market is much more critical. But NE is the only part of the Albanian welfare state
that directly contributes to child poverty reduction. So in the next section we set out the
arguments about why it is failing. We then set out the advantages and disadvantages of a set
of alternative models that Albania might pursue.
WHAT IS WRONG
First and fundamentally Albania is not making enough effort on behalf of its children.
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Child outcomes in Albania continue to be poor. In a review of child well-being across the
CEE/CIS region only Moldova and Tajikistan performed worse than Albania. Albania ranked
in the bottom third of the index in health, housing, personal and social well-being and risk
and safety, placing it well below other countries in the Western Balkans (UNICEF 2009). A
UNICEF Albania study of 400 households receiving NE highlighted inadequate housing
conditions of families with children, a high level of health problems among children with
many parents having to borrow money for medical care for their children, financial barriers to
school attendance (textbooks, transport) and lack of access to kindergartens.
Child poverty rates are very high. The World Bank employs two poverty thresholds in
Albania. Extreme poverty is about $1 a day per capita and absolute poverty - $ 50 a month or
about $1.50 per capita. Based on LSMS analysis absolute poverty fell from 25.4 per cent in
2002 to 11.4 percent in 2008 and extreme poverty from 4.7 per cent in 2002 to 1.2 per cent in
in 2008 (World Bank April 2009). The World Bank does not produce child poverty rates in
their LSMS assessment (an analysis of the same data with the child as the unit of analysis).
Such an analysis would be possible if the LSMS data was made available and has been
undertaken by UNICEF for six countries in the region (see Bradshaw and Chzhen 2009).
There is an estimate in the PPI/UNICEF study (2009) that 185,000 children were living in
households with consumption less than $1.5 per day in 2008. But this absolute poverty
threshold is far too low and frankly misleading for a country that has experience such rapid
economic growth and where the minimum wage is now more than $5 per day. At the regional
level the World Bank has adopted thresholds of extreme poverty at $ 2.50 PPP a day and
poverty at $ 5 PPP a day, the logic being that in countries with cold climates poverty lines
have to reflect both basic food and non-food needs. The international extreme poverty line
therefore is roughly set as twice the food poverty line. We recommend that a child poverty
analysis of LSMS should be undertaken using a variety of poverty thresholds and deprivation
indicators. Administrative data suggests that 149,000 families (24 per cent of the population)
received some social assistance in 2008 and 15 per cent received full social assistance. 92 per
cent of recipients of social assistance have children under 19 and 280,000 children are
estimated to be living in families whose main source of income is social assistance. As we
shall see social assistance payments are well below the absolute poverty threshold of $1.50
per day per capita.
Level of social expenditure on social protection for families with children is far too low. In
2009 the budget allocation to social protection was 7.7 per cent of GDP (according to the EU
2009 progress report). But NE is only a small part of that expenditure. The European
Commission (2008) estimated social protection expenditure in 2005 at 6.7 per cent of GDP,
down from 7.1 per cent of GDP in 2000, with 4.8 per cent of GDP going to pensioners, while
spending on NE (the only spending on children) amounts to only 0.4 per cent of GDP. Latest
data on the 2010 budget from the Ministry of Finance suggests that social assistance spending
has remained at this level1. As a comparison, average spending on families with children in
the OECD is 2.3 per cent of GDP (OECD Family Data Base 2009). Absolute levels of
spending have fluctuated over time –5.0 billion Lek in 2002, 3.97 billion in 2004 and 5
billion Lek in 2008. Meanwhile expenditure on benefits for the disabled has increased to 11
billion Lek in 2008 (information from MoLSA). Children have been losing ground during a
period of very rapid economic growth (40 per cent in the last four years) they have not been
sharing in the benefits and the Albanian state has been reducing its commitment to them. The
number of NE recipients have declined from 155,000 in 1993 and 120,000 in 2005 to 93,000
1
http://www.minfin.gov.al/index.php?option=content&task=view&id=902&Itemid=65
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in 2008. The maximum benefit is currently 7000 Lek, only 500 Lek more than it was in 1998
– benefit levels have neither kept pace with price inflation nor with earnings.
Albania’s economy is highly informal with a wide cash economy and a very low tax base.
In the non-agricultural sector, according to LSMS data, more than half of the workforce is
informally employed, while most family farms are subsistence-oriented. Remittances have
played a great role in improving living standards of families over the past decade with
remittances reaching a share of 12% of GDP. More recently though a decline in remittances
is observed, reflecting long-term migrants reducing or no longer sending money to their
families. Some migrants start new families abroad and abandon their wives and children in
Albania. The global economic crisis affects many of the receiving countries of Albanian
migrants and is reducing job opportunities and incomes of migrant labourers. The poverty
reduction gains from remittances may not be sustainable. Informality and migration are
closely linked to non-functional formal labour markets and social protection systems. It is
nearly impossible adequately to assess families’ eligibility for economic aid based on
incomes, consumption or documentation provided by families. Support to families with
children then becomes dependent on discretionary assessments by local politicians and
administrators rather than an enforceable right of citizens. While this may contribute to high
levels of social cohesion in communities, it also leaves the system open to political interests,
corruption and discrimination against individuals.
Second as a result the level of NE payments are inadequate.
The average NE payment was 2805 Lek per month in 2008. The average full payment was
3315 Lek per month. The maximum payment was 7000 Lek per month and if a couple with
two children received the approved scales they would get 4600 Lek per month. The World
Bank extreme poverty threshold for that family would be 12,400 Lek per month. Any family
with children receiving only NE would starve. Yet families with children are surviving, so
they cannot just be dependent on economic aid. However, there are very elaborate regulations
designed to exclude from entitlement those with incomes from other sources. There are no
disregards of income and very small disregards of land and other assets. The NE still merely
makes a difference between survival and subsistence.
No one with income from full-time work will be entitled to help from the state. Those
employed on the minimum wage are excluded from income tax but after paying 7.9 per cent
social security contributions would have a net income of 15,657 Lek which is less than $1.50
per day per capita for a family with two children. The replacement rate for this family on NE
is only 29 per cent. Even if for some reason the family received the maximum payment of
7000 Lek it would only be 45 per cent (Kolpeja says that it was 69 per cent of the minimum
wage in 2004). This is extraordinarily low in comparative terms. In EU countries replacement
rates vary but hover around 70 per cent for the net incomes of families with children on the
minimum wage.
Compared with pensions the NE benefit levels are very low. In 2008 the minimum pension
for a single pensioner in urban areas was 9515 Lek per month and in rural areas 5200 Lek per
month. This compares with a maximum NE of 7000 Lek or 4600 Lek for a couple with two
children if they receive the standard amount.
The only evidence we have on families with children receiving NE is the survey of 400
families interviewed for the PPI/UNICEF study (2009). 80 per cent said they were entirely
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dependent on NE (though for reasons given above we doubt this can be the case). Some
indications of hardship were
 None of the sample could spend anything on leisure for children
 85 per cent could not spend anything on children’s clothes
 74 per cent could not spend on children’s books
 8.5 per cent of children were not registered
 Housing conditions were very poor – 26 per cent lacked access to drinking water
and 58 per cent lacked access to sewage facilities
 26 per cent of families lacked eight or more assets
 8 per cent of children (2.5 times the average) did not attend compulsory education.
 26 per cent of children had health problems and most had difficulties paying for
health charges.
 66 per cent of children at school could not participate fully in school activities
 31 per cent of children had to work according to report of recipients.
NE payments are inadequate to live on. They are not an effective minimum income
guarantee for families with no other resources. There is an unspoken expectation that families
in receipt will have other resources – other resources that according to the rules they are not
allowed. But the rules cannot be applied honestly because if they were then no one would
receive NE –they would not survive. Who can blame recipients supplementing their NE with
other hidden resources? Accepting these implicit contradictions allows policy makers to
demonstrate they have a cash transfer system in place while keeping expenditure low. From
time to time anxiety breaks out that some families in real need are being excluded. So the
rules are altered to include them. There is a general belief that there is no more money and
that the only way the system can be improved is by better targeting. How? Narrower targeting
becomes impossible if it is inevitable and expected that families will and must have other
hidden resources.
Third the NE scheme has problems in practice.
The scheme is almost completely funded by a block grant from central government. It is not
exactly clear what determines the overall allocation or its distribution between communes.
Communes make bids on the basis of their eligible rolls. There is a poverty sensitive local
needs formula which influences the distribution. There are also some suggestions that
political consideration enter into it – the strength of the case made by local to central
politicians. Suffice it to say that the amount allocated to communes has declined and Kolpeja
report that 15-20 per cent of applicants nationally do not get NE due to insufficient funds.
Many other families may not receive the full scales of benefit recommended because of
shortage of funds. The budget is limited, demand exceeds supply and NE is not an
enforceable right. Most social assistance schemes in the EU do provide a right to minimum
protection.
There are serious problems with targeting. The World Bank estimates this using an analysis
of the consumption quintile distribution of the benefit. In 2002 only 41 per cent of benefits
were received by the lowest quintile and only 26 per cent of the lowest quintile received any
benefit. Ethnic minorities such as RAE may not be able to receive benefits because they lack
civil registration or cannot provide the necessary documentation. The amount of benefit
represented only 13 per cent of the consumption of the lowest quintile (illustrating again how
much more they are receiving from other sources). Kolpeja (2006) says that the proportion of
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social assistance going to the lowest quintile in Albania is low compared with for example 85
per cent in Romania and 83 per cent in Bulgaria. This suggests that not much of child poverty
can be reduced by NE (such estimates could be made using secondary analysis of LSMS).
Typical child poverty reduction achieved by transfers to families in the EU is over 50 per
cent.
While the resources for NE are provided by central government the distribution is in the
hands of local and commune government. Given the eligibility criteria and the guideline
scales there is considerable local discretion in who receives benefit and how much they
receive. Indeed this discretion is operationalised by local communes and councils themselves.
Social administrators draw up lists of eligible households and submit these to the council who
can and do change the decisions. In comparative perspective this is a most unusual degree of
lay discretion. Even in the Nordic countries where social assistance is administered by
commune based social workers with considerable degrees of discretion, it is officer discretion
(within strict guidelines) rather than commune discretion. Some commentators argue that this
is a real asset of the Albanian system. The arguments go: that ‘local knows best’; this is local
democracy at work – a contribution to a democratic mentality; real devolved government.
Indeed central government is reluctant to interfere because it would look like an assault on
the principles of devolved administration. However it is unusual (probably unique) for
decisions about entitlement for social assistance to be made by local politicians (though they
can and do act as an appeal tribunal in some countries). There are obvious dangers of
prejudice, arbitrariness, clientelism and corruption, especially in a system where it is possible
to appeal to the Prefect only once, and that judgement can be overruled without an appeals
mechanism. Also the practice of publishing lists of recipients is concerning as in many other
countries this would constitute a breach of privacy and data protection laws. It increases the
risk of stigmatisation of beneficiaries and therefore becomes a deterrent to claiming benefits.
NE is administered by 1300 staff costing 7.9% of the overall costs of the scheme. Social
administrators come from a variety of backgrounds. With the process of decentralisation of
social services responsibilities of NE administrators may include the identification of
vulnerable families in need of psychosocial support. However, administration of benefits and
provision of social work demand different kind of qualifications. In most countries in Europe
with appreciable numbers of social assistance recipients, child protection is a social work
service independent of the administration of social assistance. Also, social work and cash
transfers target different groups of the population: while a majority of people in need of
social work are poor, the vast majority of poor people are not in need of social work. Much of
the need for social work (through child abuse and neglect, family violence, non participation
in school, behavioural problems) could be addressed with effective anti poverty policies. A
simplification of eligibility criteria for NE could reduce the number of administrators and free
up staff for genuine social work. The current development of Child Protection Units is an
excellent opportunity to build up and strengthen capacities in social work.
OPTIONS FOR REFORM
1. Further iterative reform of NE.
No doubt in the short term this will take place and the aspiration that drives it will be that the
scheme can improve in adequacy without spending more money by targeting better.
UNIFEM have a number of sensible proposals for changes in the definition of the head of the
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household that need to be implemented. The scheme probably overestimates the value of
home production in rural areas and there are therefore too many partial aid decisions there.
There is an aspiration among some people to introduce conditionalities to NE – in order to
pursue health, educational and employment objectives. The World Bank is advocating
conditional cash transfers (CCTs) and has a mission coming to Albania with this as a brief.
We have argued elsewhere (Hoelscher 2009) that imposing additional conditions in social
assistance schemes is likely to damage the interests of children. In countries with generally
high access to basic services, problems are usually on the supply side of services rather than
on the demand side – inaccessibility of services, low quality, informal payments and
discrimination are barriers for poor people to take up services. The costs of monitoring
conditions usually falls on those that are already poor. Finally, there is no evidence
internationally that Conditional Cash Transfers are more effective than non-conditional
transfers in improving take up of services. In fact being an additional threshold to the receipt
of benefits, they are likely to exclude more people who need them.
In thinking about reform it needs to be recognised that the NE scheme is basically a support
for children – 92 percent of households receiving NE have children. If as we believe the
primary objective of the scheme is to reduce child poverty and support families with children
in the important national task of child rearing, then it does not take a very elaborate meanstest and highly discretionary system to provide financial support for children. No EU country
uses this mechanism. All of them employ a child benefit package - a combination of cash
benefits, tax benefits, housing benefits, and free or heavily subsidised services. All of them
spend a great deal more as a proportion of GDP than Albania does at the moment – on
average about five times more.
2. An adequate social assistance scheme
The key problem with NE is that it is too low. Because it is too low a blind eye is turned to
“abuses”. There is no other way for families to survive. So, one option would be to pay
adequate benefits that lifted families with children out of poverty and then to enforce
sanctions on abuses. In most European social assistance schemes abuses would be
prosecuted. Such a scheme would probably need to include a range of disregards that do not
exist at the moment. To encourage family solidarity gifts from relatives could be disregarded
in whole or part as well as some part-time earnings, agricultural production and some level of
assets.
Such a scheme would need to become less discretionary than the present one. It would cost
more and we are not confident that it will be feasible with the present level of informality in
the economy.
3. Child benefits
Most advanced countries contribute to the financial costs of families raising children with a
cash benefit paid in respect of children. In almost all the EU countries this includes a non
means-tested cash benefit. In some countries this takes the form of a tax allowance or credit which has the same effect. In developing countries there are few examples but in South
Africa there is a Child Support Grant paid for all children under 18 and though it is income
tested, in that context it only excludes the rich. Argentina has recently extended its child
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benefit scheme to include people outside the formal labour market. Some of the advantages
of child benefits of this type are that they are
 Easy to administer – paid on the basis of birth registration.
 They are generally payments to the primary care giver, usually mothers, and are spent
on children.
 They are a secure source of income on which it is possible to build - by employment,
home production, activity in the informal economy.
 There is no disincentive to work, family support and remittances.
 They support children regardless of family crises, disruptions, desertion, and divorce.
 They can (and do) vary by birth order, family type, the number and ages of children
and by geography and in other ways that increase their impact on poverty
The obvious question is can Albania afford such a scheme?
Ironically one of the advantages of the low level of NE is that it is not impossible to match its
benefits even with a universal benefit at reasonable cost.
We have made estimate for six options. These need a good deal more work and it would be
extremely useful to be able to get access to the LSMS and model their impact on child
poverty.
Option 1 is a universal child benefit paid at 10 per cent of the minimum wage. This would
match the standard full NE payment for a three child family and above. It would exceed the
average NE payment for a two child family. It is still less than $1 per day per person and in
our view not adequate but it would be a start – something to build on. It would increase
expenditure on children three fold.
Option 2 is a universal child benefit paid at 20 per cent of the minimum wage. This would
match the standard NE payment for a two child family and match the average payment for a
one child family. This is still not a generous benefit - still less than $1 per day per capita. It
would involve a six fold increase in expenditure over NE but only to about the average
expenditure on social protection for families with children in the EU countries. Again it
would be something to build on.
There are a range of more selective strategies that might be considered.
Option 3 pays 20 per cent of minimum income to the first child and 10 per cent for the
second and subsequent child.
Option 4 pays 20 per cent for the second and subsequent child on the grounds that large
families have a greater risk of poverty
Option 5 uses geographical targeting to pay 20 per cent of the minimum wage per child to
children living in the areas with the largest concentration of children in poverty (38 per cent).
Children outside those areas receive 10 per cent.
Option 6 pays 20 percent for a child 0-5 on the grounds that mothers in families with a
preschool child are less likely to be able to work.
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Child benefit options
% minimum
Family with
wage per child one child per
Lek per
month
Full HE
Option 1
Option 2
Option 3*
Option 4*
Family
Family with
with two
three children
children
Lek per
Lek per
month
month
4600
5300
3400
5100
6800
10200
5100
6800
3400
6800
72% children living in
other communes
3900
1700
3400
3400
38% children
living in
poorest
communes
Option 5
3400
1700
Child aged<5
Child 6-18
Option 6**
3400
1700
*assumes 40% of families are one child families
**assumes 250,000 children under 5
Cost per year
Billion Lek
assuming
800,000
children
5.0
16.3
32.6
23.8
19.5
% GDP
24.1
1.9
22.4
1.8
0.4
1.2
2.4
1.9
1.6
If we had access to the LSMS we could estimate the cost of these options with greater
accuracy and also model the extent to which they would reduce poverty rates, poverty gaps as
well as what impact they would have on replacement rates. We would expect the payments to
have a positive impact on incentives to work and to work more. There would be
administrative savings compared to NE.
Recommendations
A comprehensive reform of cash transfer systems takes time. A two-thronged approach
should in the short term address some of the problems with NE that are obvious and fairly
easy to change, including administering payments to the main caregiver rather than the head
of household and introducing disregards of certain incomes, while at the same time move
towards the introduction of child benefits.
Any reform of NE should be based on an open analysis of barriers in the existing system and
potential impacts of reform options. To this end LSMS data should be made accessible to
allow more detailed modelling and costing of different reform options and their impacts on
child poverty.
Preference should be given to non-conditional over conditional cash transfers, taking into
account that there is no evidence that the introduction of CCTs in countries with high uptake
of services is effective in building human capital. On the contrary they may divert attention
from problems in quality and accessibility of health, education and employment services and
shift responsibility solely to beneficiaries.
The reform of NE should be integral part of the broader set of policies needed to support poor
families with children, including access to decent jobs, access to childcare and quality social
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work as well as improving the accessibility of health care and education, including through
addressing informal payments.
References
Bradshaw J. and Y. Chzhen (2009): Child poverty in six CEE/CIS countries. UNICEF
CEE/CIS Working Paper.
European Commission (2008): Social inclusion and social protection in Albania. Brussels:
European Commission.
European Commission (2009): Albania 2009 Progress Report. Brussels: European
Commission.
Hoelscher, P. (2009): Conditional Cash Transfers – What‘s at stake for CEE/CIS? UNICEF
CEE/CIS Discussion Note.
Kolpeja, V., M. Ekonomi, F. Mema, S. Kusi. (2006) Measuring Child Poverty and Social
Exclusion. Tirana.
Public Policy Institute (2009): The impact of social assistance mechanisms on reducing child
poverty in Albania. Tirana: UNICEF
Republic of Albania (2007): Strategy for Social Inclusion.
World Bank (2006): Albania: Restructuring public expenditure to sustain growth. A public
expenditure and institutional review. Washington: World Bank.
World Bank (2007): Albania: Urban growth, migration and poverty. A poverty assessment.
Washington: World Bank.
World Bank, Instat and UNDP (2009): Albania: Trends in poverty. 2002 – 2005 - 2008
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