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Inclusion and Resilience: The Way Forward for Social Safety Nets in the Middle East and North Africa
FIGURE 3.15
Inequality Impact of Nonsubsidy SSNs, Selected Economies in the Middle East and North Africa Compared with World and Regional Averages, c. 2005–10
SSN impact on Gini coefficient, %
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The Current State of Social Safety Nets in the Middle East and North Africa
• To expand access to the subsidized goods (for example, to reduce energy poverty); • To spur the development of certain sectors (industry for fuel subsidies and agriculture for food subsidies); • To offset temporary commodity price fluctuations; • To avoid inflationary pressures; and, of course,
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• To maintain popular support (Fattouh and El-Katiri 2012). 4 2
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Source: Middle East and North Africa: Authors’ calculations based on data from national household surveys; data for world and other regions from World Bank 2012a. Note: SSN = social safety net.
As seen above, the coverage and generosity of nonsubsidy SSNs in the Middle East and North Africa leave much scope for improvement, and the expenditures absorbed by these programs are very small, especially in comparison with spending on subsidies. So, the negligible effects of the region’s SSNs on poverty rates and poverty gaps do not come as a big surprise. The impact on inequality measures the effect of SSNs on welfare distribution; as such, it is directly tied to targeting accuracy. Even excluding subsidies and ration cards, the region’s SSNs are not adequately targeted to the poor and vulnerable, which explains the negligible effect on the Gini coefficient. Notably, if subsidies were included, this barely positive effect on inequality might even turn negative in some countries, given the regressive nature of most subsidies. The next section assesses the extent to which subsidies achieve their intended safety net objectives.
Performance of Subsidies as SSNs Subsidies and ration cards are introduced by governments to achieve a variety of objectives, among them,
Yet the most frequently cited objective for reliance on subsidies is to protect the poor by guaranteeing access to food and other essential items at affordable prices (Grosh et al. 2008). Previously the chapter showed that Middle Eastern and North African countries rely extensively on subsidies to provide safety nets for their poor and vulnerable populations. How effective are these subsidy-based SSNs? This section takes a brief look at the coverage, targeting, and poverty impact of subsidies and ration cards in the region. Although subsidy programs are intended to benefit all poor and vulnerable people, such coverage depends on whether these groups consume the subsidized goods. Household survey evidence suggests that fuel subsidies in Egypt, Morocco, and the Republic of Yemen, as well as food subsidies and ration cards in Iraq and Morocco, cover almost everyone in the country. However, Egypt’s food ration cards, which require registration, miss about 20 percent of the bottom quintile. In terms of their benefit incidence, subsidies are at best neutral; up to 60 percent of fuel subsidies in the Middle East and North Africa are captured by the richest quintile. A review of fuel subsidies in 20 developing countries revealed that the top consumption quintile captures six times more in subsidy benefits than the bottom quintile, as shown in table 3.2 (Del Granado, Coady, and Gillingham 2010). Even subsidies for kerosene, a fuel used predominantly by the poor, while less regressive, cannot compare in targeting efficiency with a targeted cash transfer program. It comes as no surprise, then, that price subsidies and ration cards have the highest leakage rates of all types of SSN programs in the Middle East and North Africa. Figure 3.16 depicts the percentage of expenditures incurred by each quintile on food or fuel subsidies in selected countries. The benefits of food subsidies in Jordan and ration cards in Iraq are equally distributed across quintiles because the poor spend a large portion of their income on food. In contrast, the richest 20 percent of the population capture 40–60 percent of all fuel subsidy benefits because the rich consume more energy products. Thus, the benefit incidence curves of fuel subsidies in Egypt,
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