Social Protection Social Protection and the and the

Poor in BangladeshPoor in Bangladesh

Qaiser Khan, Kalanidhi Subbarao, Josh Al-Zayed Qaiser Khan, Kalanidhi Subbarao, Josh Al-Zayed and Shaikh S. Ahmed, World Bankand Shaikh S. Ahmed, World Bank

Presented at Conference on What Works for the Presented at Conference on What Works for the Poorest: Knowledge, Policies and Practices Poorest: Knowledge, Policies and Practices

Dec 3-5, 2006, BRAC Center, Dhaka, BangladeshDec 3-5, 2006, BRAC Center, Dhaka, Bangladesh

Social Protection Goes Beyond Social Protection Goes Beyond Poverty alleviationPoverty alleviation

Social Protection includes poverty Social Protection includes poverty alleviation and safety net programs but it alleviation and safety net programs but it goes beyond to address risks and goes beyond to address risks and vulnerabilitiesvulnerabilities

Social protection is increasingly important Social protection is increasingly important for countries like Bangladesh which are for countries like Bangladesh which are transiting from a rural economy where transiting from a rural economy where traditional safety nets work well to an traditional safety nets work well to an industrial economy where new safety net industrial economy where new safety net tools are neededtools are needed

Risk, poverty and vulnerabilityRisk, poverty and vulnerability

Risk:Risk:– uncertain event that may damage people’s well-uncertain event that may damage people’s well-beingbeing

PovertyPoverty::– not having enough now of something valuablenot having enough now of something valuable

VulnerabilityVulnerability::– probability now of not having enough of probability now of not having enough of something valuable in the futuresomething valuable in the future

Why do we care about vulnerability?Why do we care about vulnerability?

Percentage of Households who are: Always

poor Sometimes

poor Never poor

China 1985-1990 6.2 47.8 46.0 Côte d’Ivoire 1987-1988 25.0 22.0 53.0 Ethiopia 1994-1997 24.8 30.1 45.1 India 1976/76-83/84 21.9 65.9 12.4 Indonesia 1997-98 8.6 19.8 71.6 Pakistan 1986-1991 3.0 55.3 41.7 Russia 1992-1993 12.6 30.2 57.2 South Africa 1993-1998 22.7 31.5 45.8 Vietnam 1992/93-97/98 28.7 32.1 39.2 Zimbabwe 1992/93-1995/96 10.6 59.6 29.8

Chronic poor could be seen as the very vulnerable, temporary poor as the vulnerable, and the non-poor as non-vulnerable to poverty but vulnerable to income fluctuations nonetheless.

1. Poverty vulnerability in theory nor in practice

Social risk management matrixSocial risk management matrix

Arrangements and strategies

Informal Market-based Public

Risk mitigation-portfolio *drought resistant

varieties; multiple activities*micro-finance *research and

extension regarding drought resistant varieties

-insurance *marriage/family *rainfall and com-modity price based insurance

*mandating insurance, including old age pensions payments

*sale of assets*sending children to work

Risk coping *consumption credits *public works

Risk reduction *migration to less drought prone areas

*food market integration

*disaster prevention infrastructure

Type of Shocks – useful classificationsType of Shocks – useful classificationsExamples of risky events by categories, classified by their degree of correlation Idiosyncratic

events Regional covariant events

Nation-wide and international covariant events

Natural Risks Rainfall Earthquakes Landslides Floods Volcanic eruptions Droughts Strong Winds Health Risks Illness Epidemic Injury / Accident Famines Disability Life-cycle Risks Birth / Maternity Family break-up Old-age Death Social Risks Crime Terrorism Civil strife Domestic violence Gangs War Social upheaval Economic Risks Unemployment Output collapse Harvest failure Balance of payments shocks Business Failure Resettlement Financial crisis Currency crisis Technology- or trade-induced

terms of trade shocks Political Risks Ethnic discrimination

Gender discrimination Religious discrimination

Political default on social programs

Riots Coup d’état Environmental Risks Pollution Deforestation

Need for Social ProtectionNeed for Social ProtectionSome recent poverty thinking:Some recent poverty thinking: Income distribution matters for Income distribution matters for

growth….growth…. Distribution of Distribution of assets assets matters more.matters more. Growth helps the poor, but level of Growth helps the poor, but level of

investment is most important - investment is most important - implication?: transfers, but not at cost implication?: transfers, but not at cost of investment.of investment.

Transfers themselves as an investment, Transfers themselves as an investment, in human capital – e.g. nutrition, in human capital – e.g. nutrition, educationeducation

Three Constraints to Safety Nets in Three Constraints to Safety Nets in Very-Low-Income CountriesVery-Low-Income Countries

The Information ConstraintThe Information Constraint The Administrative ConstraintThe Administrative Constraint The Fiscal ConstraintThe Fiscal Constraint

What is Possible? (I)What is Possible? (I) The Information ConstraintThe Information Constraint

Information - not known, expensive Information - not known, expensive (e.g. pensions elsewhere)(e.g. pensions elsewhere)

Proxy indicators e.g. demographic, Proxy indicators e.g. demographic, dwellingdwelling

Link to another program (e.g. PWP, Link to another program (e.g. PWP, nutrition)nutrition)

3 Ways around the Information 3 Ways around the Information constraint:constraint:Self-targetingSelf-targetingCommunity targetingCommunity targetingUniversal programsUniversal programs

Self-targetingSelf-targeting Two examples – Two examples – Public workfare programs with a Public workfare programs with a

wage rate slightly below the market wage rate slightly below the market wage – enables participants to self-wage – enables participants to self-select themselves into the programselect themselves into the program

Food subsidies – if restricted to types Food subsidies – if restricted to types of food consumed only by the poor, of food consumed only by the poor, self-targeting is possibleself-targeting is possible

What is Possible? (II)What is Possible? (II)

Community TargetingCommunity Targeting Communities, or representatives identify Communities, or representatives identify

beneficiaries (subject to criteria), deliver beneficiaries (subject to criteria), deliver benefitsbenefits

Information may be better, lower costInformation may be better, lower cost Risks: favoritism, difficulties of Risks: favoritism, difficulties of

inclusion/exclusion; divisive. inclusion/exclusion; divisive. Administrative support. Administrative support.

Remarkably little experience - Rajasthan, Remarkably little experience - Rajasthan, Malawi, UzbekistanMalawi, Uzbekistan

Generally limited (e.g. Armenia) , jury Generally limited (e.g. Armenia) , jury still out.still out.

What is Possible? (III)What is Possible? (III)

The Administrative ConstraintThe Administrative Constraint Weak capacity, labor-intensive, supervisory Weak capacity, labor-intensive, supervisory

staffstaff Policy implications?Policy implications?

– Choose simple program designsChoose simple program designs– Simple, repetitive steps, sustain over a Simple, repetitive steps, sustain over a

long periodlong period– Choose a few simple, nationwide programsChoose a few simple, nationwide programs– Explore possibility of using existing Explore possibility of using existing

administrative systems.administrative systems.

What is Possible? (IV)What is Possible? (IV)

The Fiscal ConstraintThe Fiscal Constraint - Typically VLIC total public expenditure - Typically VLIC total public expenditure

spending $50-75 p.c. p.a.spending $50-75 p.c. p.a. - Illustratively:- Illustratively: $20 per annum $20 per annum

($1.67/month) to 40% below poverty line = ($1.67/month) to 40% below poverty line = 21% of public spending; not affordable.21% of public spending; not affordable.

- No way of defining ‘right’ mix, but some - No way of defining ‘right’ mix, but some programs can reach the poorest groups if programs can reach the poorest groups if carefully designedcarefully designed

Program ChoicesProgram Choices Cash TransfersCash Transfers - - Selected, UniversalSelected, Universal

(e.g. pensions, unemployment)(e.g. pensions, unemployment) Public WorksPublic Works: self-targeting, create : self-targeting, create

assets, counter-cyclical but Expensive assets, counter-cyclical but Expensive ($2/$1 transferred); critical get wage ($2/$1 transferred); critical get wage rate right; create ‘good’ assets; costs can rate right; create ‘good’ assets; costs can be reduced if quality assets createdbe reduced if quality assets created

Food ProgramsFood Programs - Free Dist’n, Food- - Free Dist’n, Food-for-Work, Food Stamps, School Feeding.for-Work, Food Stamps, School Feeding.

Food Subsidies/FreeFood Subsidies/Free food/Conditional transfersfood/Conditional transfers

Agricultural InputsAgricultural Inputs - Subsidies, Free - Subsidies, Free PacksPacks

Nutrition ProgramsNutrition Programs - Child nutrition, - Child nutrition, micro-nutrient supplementationmicro-nutrient supplementation

Problems with Food distribution Problems with Food distribution programsprograms

Seasonal Price/Supply SmoothingSeasonal Price/Supply SmoothingPotentially attractive in VLICs. Options: NFR, buy Potentially attractive in VLICs. Options: NFR, buy

surplus, release stocks; controlled food grain surplus, release stocks; controlled food grain priceprice

Risks:Risks: captured by non-poor (urban consumers, captured by non-poor (urban consumers, middle-men for re-sale)middle-men for re-sale)

Gov’t cannot afford to intervene on sufficient Gov’t cannot afford to intervene on sufficient scale (high cost, ultimately ineffective)scale (high cost, ultimately ineffective)

discourages dev’t of private marketsdiscourages dev’t of private marketsPreferPrefer: Arms length interventions, make use of : Arms length interventions, make use of

trade option as did Bangladesh; buy-sell at trade option as did Bangladesh; buy-sell at commercial prices, influence aggregate commercial prices, influence aggregate supply, check if market failure existssupply, check if market failure exists

Conditional food/cash transfersConditional food/cash transfers Where possible, useful to link free Where possible, useful to link free

transfers (either food or cash) to transfers (either food or cash) to behavioral change from recipients: for behavioral change from recipients: for example, transfers could be conditional example, transfers could be conditional upon children in the family attending upon children in the family attending the school, or getting vaccinated etc. the school, or getting vaccinated etc. Known as “conditional cash transfers”, Known as “conditional cash transfers”, highly successful in Bangladesh, highly successful in Bangladesh, Mexico, Nicaragua, Turkey and now Mexico, Nicaragua, Turkey and now being implemented in several countriesbeing implemented in several countries

Effectiveness of Safety Net Effectiveness of Safety Net Programs in BangladeshPrograms in Bangladesh

Targeting Effectiveness Measured as Ratio of Recipients to group size by Income Group (2005-06)Targeting Effectiveness Measured as Ratio of Recipients to group size by Income Group (2005-06)

  Lowest Lowest

10%10%Lowest Lowest QuintileQuintile

2nd 2nd QuintileQuintile

3rd 3rd QuintileQuintile

4th 4th QuintileQuintile

Top Top QuintileQuintile TotalTotal

VGDVGD 1.611.61 1.591.59 1.461.46 0.960.96 0.730.73 0.270.27 100100

Test ReliefTest Relief 1.801.80 1.891.89 1.101.10 0.910.91 0.740.74 0.360.36 100100

VGFVGF 1.801.80 1.891.89 1.101.10 0.910.91 0.740.74 0.360.36 100100

Other TargetedOther Targeted 1.961.96 1.811.81 1.241.24 1.041.04 0.660.66 0.260.26 100100

Total TargetedTotal Targeted 1.791.79 1.731.73 1.291.29 0.980.98 0.720.72 0.290.29 100100

Selection Criteria viewed by Selection Criteria viewed by Recipients in Bangladesh 2005-06Recipients in Bangladesh 2005-06

Reason of inclusion in targeted programs in percent 2005-06Reason of inclusion in targeted programs in percent 2005-06

   Poor/ LandlessPoor/ LandlessDivorced/ Divorced/

WidowsWidows Disabled/ OtherDisabled/ Other OthersOthers TotalTotal

Non-TargetedNon-Targeted 50.4 50.4 12.7 12.7 15.7 15.7 21.2 21.2 100.0 100.0

TargetedTargeted 82.3 82.3 6.3 6.3 2.8 2.8 8.6 8.6 100.0 100.0

TotalTotal 70.2 70.2 8.7 8.7 7.7 7.7 13.4 13.4 100.0 100.0

Recipient’s Perceptions of Recipient’s Perceptions of Bangladesh Programs 2005-2006Bangladesh Programs 2005-2006

Participants Perception about assistance from targeted programs in percentParticipants Perception about assistance from targeted programs in percent

  

Lowest Lowest 1010%%

Lowest Lowest QuintileQuintile

2nd 2nd QuintileQuintile

3rd 3rd QuintileQuintile

4th 4th QuintileQuintile

Top Top QuintileQuintile TotalTotal

Very HelpfulVery Helpful 60.560.5 56.156.1 56.756.7 59.259.2 63.663.6 50.450.4 57.657.6

Moderately HelpfulModerately Helpful 33.833.8 37.337.3 34.134.1 30.930.9 26.526.5 31.531.5 33.333.3

Slightly HelpfulSlightly Helpful 5.85.8 6.66.6 8.38.3 9.19.1 8.98.9 18.118.1 8.58.5

Not HelpfulNot Helpful 0.00.0 0.00.0 0.90.9 0.90.9 1.11.1 0.00.0 0.50.5

Estimates of Leakage from the VGD, VGF and FFE

Program 2000 HIES-basedsurvey

estimates(metric tons)

95% Confidence Interval for

estimate

Program Off-take

for FY 1999-2000

(metric tons)

Survey estimate as

% of total program allocation

(confidence intervals)

VGD 99,978 [72,894, 127,061] 216,675 [34%–59%]

VGF 70,760 [44,251, 97,267] 149,138 [30%–65%]

FFE 49,951 [27,192, 72,710] 285,973 [10%–25%]

Comparative Losses from Different Programs

Leakage VGD PESP RMP

A. Losses due to delivery of amount less than stipulated and other unauthorized expenses (per taka)

0.17 0.23 0.02

B. Losses due to beneficiaries not meeting…

B(i)…at least one targeting criteria 0.00 0.11 0.00

B(ii)…at least three targeting criteria 0.61 0.98 0.00

Total Losses….

…A+B(i) 0.17 0.34 0.02

…A+B(ii) 0.78 1.22 0.02

What the data showsWhat the data shows Bangladesh targeting criteria is good Bangladesh targeting criteria is good

at targeting the poorestat targeting the poorest Bangladesh programs are perceived Bangladesh programs are perceived

by the beneficiaries as helpful by the beneficiaries as helpful specially the poorestspecially the poorest

Relatively high leakage from food Relatively high leakage from food based programs and despite popular based programs and despite popular assumptions they are not better assumptions they are not better targeted targeted

What the data does not showWhat the data does not show Programs are very rural focused but the Programs are very rural focused but the

country is getting rapidly urbanized with country is getting rapidly urbanized with increasing proportion of the poor living in increasing proportion of the poor living in urban areasurban areas

Programs have significant administrative Programs have significant administrative leakagesleakages

Too many programs run by too many Too many programs run by too many Government departments and thus a large Government departments and thus a large administrative overhead which can be administrative overhead which can be reduced and used to provide benefitsreduced and used to provide benefits

Too many layers of decision making in Too many layers of decision making in selection of beneficiariesselection of beneficiaries

Allowance Per Beneficiary (Tk.)

0

50

100

150

200

250

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

Number of Beneficiary

0200,000400,000600,000800,000

1,000,0001,200,0001,400,0001,600,0001,800,000

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

Old Age Income support in Old Age Income support in Bangladesh- a rapid evolutionBangladesh- a rapid evolution

Grameen Bank’s Pension Saving Grameen Bank’s Pension Saving Scheme Growing rapidlyScheme Growing rapidly

Way to the futureWay to the future Rationalize programs by using the one player that Rationalize programs by using the one player that

gets involved in all programs i.e. union parishads.gets involved in all programs i.e. union parishads. Expand the better safety net programs such as Expand the better safety net programs such as

old age pensions, Public works and widow/ old age pensions, Public works and widow/ disability payments using UPs to select disability payments using UPs to select beneficiaries and distribute benefitsbeneficiaries and distribute benefits

Build on Bangladesh’s massive micro-finance Build on Bangladesh’s massive micro-finance network to provide social protection for those just network to provide social protection for those just above the poorest – e.g. Grameen Bank already above the poorest – e.g. Grameen Bank already provides pensions and insurance (life and health provides pensions and insurance (life and health to over 6.5 million members.to over 6.5 million members.

Illustration of new urban poverty Illustration of new urban poverty and vulnerability challengeand vulnerability challenge

Bangladesh 2005 - Percent enrolled by quintile and region

40.0

45.0

50.0

55.0

60.0

65.0

70.0

75.0

80.0

85.0

90.0

rural

urban

metropolitan

rural 57.1 67.0 77.4

urban 60.6 71.9 85.5

metropolitan 42.9 57.8 80.5

Low est 40% Middle 20% Highest 40%

Addressing the Urban Poverty Addressing the Urban Poverty ChallengeChallenge

In an ironic reversal of history, In an ironic reversal of history, enrollment rates in metro areas for enrollment rates in metro areas for the poorest quintiles are worse than the poorest quintiles are worse than rural areas – this represents both rural areas – this represents both past successes in rural areas and past successes in rural areas and new challenges in urban areas.new challenges in urban areas.

New approaches to urban safety nets New approaches to urban safety nets and safety ladders are neededand safety ladders are needed

Move to ex-ante risk management Move to ex-ante risk management from ex-poste risk copingfrom ex-poste risk coping

Bangladesh current programs are Bangladesh current programs are characterized by ex-poste risk coping characterized by ex-poste risk coping programs with the possible exception of programs with the possible exception of Grameen’s pension schemeGrameen’s pension scheme

New programs need to address ex-ante New programs need to address ex-ante risk management. They could include risk management. They could include expanded pensions, health insurance, expanded pensions, health insurance, unemployment insurance, catastrophic unemployment insurance, catastrophic risk insurance i.e. floods.risk insurance i.e. floods.