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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
BOX 5.6
BOX 5.6 Continued
Indonesia’s Fuel Subsidy Reform and SSN System
tunidades. The program targets poor households with children up to 15 years of age and pregnant women, again using PMT methods to determine household economic status. PKH is a long-term assistance program and is designed to provide considerable financial support while also encouraging changes in household health and education behaviors, which lead households out of poverty in the longer term. The PKH ini-
Increasing international prices in 2005 put increasing fiscal pressure on the Indonesian government’s subsidization of fuel. Combined with the regressive nature of the subsidy, this pressure led the government of Indonesia to sharply reduce subsidies. In March 2005, fuel prices increased by a weighted 29 percent, and by another 114 percent in October 2005, with kerosene prices tripling. To mitigate the impact of price increases on poor and near-poor households, the government introduced three SSN programs, also in 2005: a UCT program (Bantuan Langsung Tunai or BLT); a health insurance program (Asuransi Kesehatan Masyarakat Miskin or Askeskin); and an education subsidy program, Operational Aid to Schools. Later, in 2007, the poorest households were enrolled into a CCT pilot program (Programme Keluarga Harapan or PKH). The following is a brief description of the BLT and the PKH, which provided immediate and mediumterm responses to the effects of the fuel subsidy reform. The BLT, under the Ministry of Social Affairs, ran for 12 months, from late 2005 to 2006. This UCT program reached approximately 19 million poor and near-poor households, giving a flat rate benefit representing about 15 percent of the poverty line. The 2006 cost of the program was about 0.7 percent of GDP, or about 25 percent of the savings from the subsidy reductions. The poor and near-poor were the target populations, representing the bottom third of the national consumption dis-
tribution and defined as households with consumption below 1.5 times the poverty line. Targeting and selection of recipients was developed using PMT, with a set of household indicators that are highly correlated with poverty and easily verifiable, such as floor, wall, and roofing materials; source of drinking water; access to electricity; and asset ownership. Funds were disbursed directly to beneficiaries through the post office system. The BLT was always intended as a temporary one-off assistance during a time of inflationary pressures on the poverty basket, and it ended in late 2006 as fuel prices declined. The broadly targeted nature of the BLT made the program one of the key response options available to Indonesia when the food price crisis hit in 2007/08. In 2008, with food and fuel prices increasing sharply, the government responded by initiating a new round of BLT. As with the first BLT, poor and near-poor households, or the bottom 30 percent of the consumption distribution, were the intended recipients. Targeting was based on an updated list from the first round of the program, resulting in 18.5 million households receiving benefits at a cost of about 0.3 percent of GDP. The PKH started in 2007 as a CCT pilot program and transferred cash to about 1 million poor households in 2010. Households receive the equivalent of about US$150 annually for up to six years, conditional on children attending school and obtaining preventive basic health and nutrition services, similar to Mexico’s Opor-
tially suffered from poor MIS and operational difficulties, including supply-side readiness issues, but these have been overcome recently and, based on positive results from impact evaluation studies, expansion is planned to reach a target of 3 million households by 2014. The total cost of PKH in 2007 was less than 0.1 percent of GDP. However, this is expected to increase significantly as PKH is expanded.
spending is more than three times the spending on food subsidies, it appears that nonfood subsidy reform is the lower-hanging fruit. In MENA SPEAKS, citizens indicated that if they had to pick one subsidized product for reform, this product would be tobacco in Lebanon, gasoline in Egypt, and diesel in Jordan and Tunisia. Compensation packages tailored to citizens’ preferences combined with comprehensive information and communication campaigns can increase the tolerance for subsidy reform. Governments can use the findings from the MENA SPEAKS surveys to engage citizens early on in a dialogue on preferred compensation packages in their countries. The evidence so far shows that people in the Middle East and North Africa prefer to target cash-based compensation for subsidy reform to the poor alone (in Egypt, Jordan, and Tunisia) or to combine such targeted cash transfers with investment of the savings in education and health (in Lebanon). As pointed out in chapter 4 (the “What Works?” section), formulating the right communication strategy and promoting awareness through information campaigns are crucial to the success of such sensitive reform. Four key lessons (and steps) drawn from subsidy reforms around the world could be useful for the region’s countries when undertaking such reforms: • Identify potential winners and losers of reforms. By using household income and expenditure surveys (available in most Middle Eastern and North African countries), winners and losers can be identified by income, expenditure, or wealth index quintiles. Work has already been done in some countries with World Bank support, as illustrated in this
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