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Inclusion and Resilience: The Way Forward for Social Safety Nets in the Middle East and North Africa
The Way Forward: How to Make Safety Nets in the Middle East and North Africa More Effective and Innovative
preparation in Lebanon with World Bank support). In addition, reforming the labor code to waive or reduce temporarily or permanently some payroll contributions (as in Colombia’s 2002 labor reform law and later 2011 adjustment) would encourage firms to hire youth in apprenticeship programs.
• Ensure that the funding provided is commensurate with the needs of the number of people who meet the eligibility criteria;
3. Develop a strategy for implementation of the reform and set up a national database for targeting. A single registry system (as addressed in box 5.5) has effectively been the main instrument of coordination and convergence of programs because it allows administrators to quickly assess needs and to target and monitor poor and vulnerable households.
Rebalancing Financing and Priorities of SSN Systems Increasing Spending and Improving Coverage of Nonsubsidy SSNs to Protect against Destitution Successful reforms of subsidies around the world have shown the importance of gaining citizens’ trust in their government’s capacity to deliver fair and reliable compensation. Chapter 2 highlighted the multifaceted challenges faced by the region’s poor and socially excluded groups. Thus, the important gaps in coverage identified in chapter 3 call for urgent action on the part of the government. Also, in light of the evidence provided by the MENA SPEAKS survey and Jordan Gives experiment (covered in chapter 4), demonstrating readiness to deliver effective and inclusive SSN programs would be an essential step on the path toward comprehensive subsidy reform. This could be achieved without overloading the available fiscal space by creating new affordable programs or increasing the costeffectiveness of the existing SSN system. Expansion of nonsubsidy safety nets should be an integral part of subsidy reform. Targeted SSN programs can reach a large share of the poor and vulnerable at a low cost. The largest CCT programs in the world (Bolsa Familia in Brazil and Oportunidades in Mexico) reach about 30 percent of the population and cost about 0.5 percent of GDP (Fiszbein and Schady 2009). Similarly, the largest workfare programs in the world (the Productive Safety Net Program in Ethiopia and the Mahatma Gandhi National Rural Employment Guarantee Act [MNREGA] in India, reaching more than 7 and 20 million people, respectively) each cost about 0.5 percent of GDP (IEG 2011). Well-targeted UCT programs can also be affordable: Georgia’s targeted SSN program provides benefits to about 10 percent of the population at a cost of 0.6 percent of GDP. To achieve cost-effectiveness, funds can be allocated more efficiently among different SSN programs based on the number of beneficiaries and the coverage goals. In addition, developing effective payment methods is crucial. Four key steps drawn from global experience are to
• Allocate funds to jurisdictions based on explicit, transparent, and complete criteria to minimize arbitrariness at the local level; • Keep eligibility criteria and benefit formulas as simple as possible; and • Use payment mechanisms that operate through financial agencies and that pay beneficiaries directly.
Reforming Price Subsidies through Wholesale or Internal Reforms Reducing general subsidies in Middle Eastern and North African countries can result in large fiscal savings, some of which can be devoted to increasing SSN funding—as countries in other regions have also demonstrated. In Indonesia, for instance, fuel price subsidy reform in 2005 resulted in savings of about 2 percent of GDP, which allowed the government to spend about 0.7 percent of GDP on a compensatory cash transfer for 19 million poor households and to increase spending on education and health insurance (see box 5.6). Similarly, Mexico in 1995/96 instituted gradual elimination of general food price subsidies that had benefited urban dwellers at the expense of rural areas. This reform led to savings, part of which was redirected toward the introduction of the country’s well-known and successful targeted CCT program, Oportunidades.9 In Turkey, reforms to reduce untargeted agricultural support subsidies not only eliminated their distortionary effects on local prices but also resulted in large fiscal savings that allowed the government to finance a direct income support program for farmers in 2002/03. Sequencing of sensitive reforms, such as those to reduce or eliminate universal price subsidies, is crucial for their success. To gain credibility, a government could start with internal reforms, such as improving subsidy targeting. This could be achieved through differentiated marketing and packaging, which led to self-targeting in Tunisia (as discussed in chapter 3, box 3.4). It could also be accomplished by narrowing subsidy coverage—for example, by introducing lifeline electricity tariffs rather than providing a universal subsidy for electricity. Finally, better monitoring of the distribution chain for subsidized products can potentially reduce expensive leakages. Another way to initiate subsidy reform is by identifying the subsidies that people value the most and focusing reform instead on the most regressive ones. According to the MENA SPEAKS survey, the leastpreferred product for subsidy reform was cooking oil in Egypt, bread in Lebanon and Tunisia, and electricity in Jordan. These subsidies could be subject to reform only when governments have already demonstrated their success at reforming less-sensitive subsidies. Given that fuel subsidy
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