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Tuesday, April 5, 2016

Reforming the Social Security System

Bazlul H. Khondker, Selim Raihan and Abu Eusuf

The commitment of the Government of Bangladesh to eliminate extreme poverty and to reduce incidence of poverty by 10 percent by 2021 is a laudable goal. Economic growth rate of over 6 percent during the last decade, along with social policies, may have contributed to the reduction of poverty by about 18 percentage-points between 2000 (i.e. 49 percent) and 2010 (i.e. 31.5 percent) and extreme poverty by about 17 percentage-points between 2000 (i.e. 34.3 percent) and 2010 (i.e. 17.6 percent). The experience of the last decade may have encouraged the government to set up the goal to eliminate extreme poverty. Although, economic growth will continue to play an important role to help eradicate poverty, other supporting instruments would be needed. One such instrument is an effective and efficient social security system. This month the government has taken a commendable step by approving a document outlining the strategies to reform the social security system.     
On average, Bangladesh has been spending 2.2 percent of the GDP for Social Security Programmes (SSP), i.e. FY12 to FY14. Analysis with Household Income and Expenditure Survey (HIES) 2010 data suggests that the impacts of SSPs on poverty reduction are less than satisfactory. For instance, if there were no SSPs, the head count poverty rate would have been 33 percent instead of 31.5 percent. If the programmes were targeted effectively to the poor, the head count rate would drop to 29 percent – a 2.5 percentage point reduction in poverty rate. Analogously, if the programmes were targeted effectively to the extreme poor, the poverty rate would drop to 13.5 percent from 17.6 percent (please see National Social Security Strategy). The above analyses suggest that Bangladesh may be missing out large as far as poverty reduction is concerned using social security instrument. More specifically, with effective application of social security programmes more than 3.5 million poor people and almost 6 million extreme or hard core poor people could have been graduated to their respective next stages in 2010. 
Reasons for missing out are predominantly inefficiency and incoherence in the social security system. Moreover according to the latest available data, performances have been deteriorating. According to the World Bank (Bangladesh Poverty Assessment: Assessing a Decade of Progress in Reducing Poverty, 2000-2010, Bangladesh Development Series Paper No. 31, The World Bank Dhaka Office, June 2013), system's capacity to target beneficiaries efficiently has worsened in 2010 compared to 2005 with 64 percent of the poor did not have access to any social safety nets in 2010 and leakages of SSN funds increased from 44 percent in 2005 to 60 percent in 2010. According to the Ministry of Finance, between 2005 and 2010, Bangladesh spent about $9 billion for SSPs. Assuming 50 percent leakages (i.e. average of two point estimates of 44 percent in 2005 and 60 percent in 2010), it can be argued that $4.5 billion of social security programmes has been wasted between 2005 to 2010. This is a large estimate. What could have been achieved with $4.5 billion? To put it into context – 4/5 mega infrastructure projects for which Bangladesh has sought assistance.
Against the backdrop of the current state of Social Security System, the Bangladesh government has approved the national social security strategy to redress some of the above mentioned problems. More specifically, the strategy proposed short, medium and long term solutions. The strategy focuses on following key issues such as ensuring more efficient and effective use of resources; strengthening the delivery systems; and adopting a more inclusive form of Social Security that effectively tackles lifecycle risks, prioritising the poorest and most vulnerable members of society. 
Although, reforms usually face resistance, some initiatives already adopted by the government suggest strong commitment to push forward the reform agenda. These include preparing a beneficiary data base and enhancing transfer amounts.  
 (i) The Bangladesh Bureau of Statistics (BBS) with technical support from the World Bank has been working to establish a comprehensive and error free beneficiary data base using the proxy means test (PMT) approach. Initial analysis by BBS and World Bank found that the introduction of PMT would reduce incidence of miss-targeting by about half from around 60 percent to 30 percent. If we include implementation level error it may even be higher than 30 percent to about 35-40 percent. However, the errors are still high and hence innovative approaches involving local communities may be attempted to further lessen the incidence of miss-targeting.
 (ii)The government has announced the enhancement of transfer amounts, which is a welcome step. However, this needs further attention. Current average transfer amount (estimated at around BDT 480) has been found inadequate for a meaningful impact on the livelihood of a poor person. It is thus recommended that the transfer amount should be increased to between BDT 800 and BDT 1,600 from the current level. This change can be implemented mainly by consolidating a large number of SSPs (i.e. more than 95) into six/seven core programmes, focusing on life-course approach without needing substantial additional funds from the government exchequer.  
The other two areas for immediate attention includes: (a) expanding coverage to the residents of urban areas. Since poverty was a rural phenomenon, the SSPs have been targeted to the rural poor. Current reality is that due to migration, the incidence of poverty has increasingly been urbanised. However, due to programme design, the poor in urban locations are virtually excluded from SSPs. Therefore, from equity perspective, SSPs must be expanded to urban residents; and (b) strengthening Government to Person (G2P) payment systems that promote financial inclusivity and prevent leakages. The current delivery system is prone to leakages and corrupt practices. Along with establishing a beneficiary database, the government should strengthen the payment system through the introduction of the G2P system, taking advantage of mobile banking facilities to further reduce the incidence of leakages. 
We believe an efficient social security system would be critical to realise the goal of reaching middle income status with minimum level of extreme poverty. 

The writers are professors of Economics, and Development Studies at Dhaka University. They were involved in the preparation of the National Social Security Strategy along with a group of eminent national and international experts.

Source:  The Daily Star, 24 June 2015

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