Don’t waste the money of the poor

Don’t waste the money of the poor Her Serbian pension is very low because she spent most of her working life in England, accompanying her husband. With a limited work history in Serbia she was only entitled to a minimum pension. Whilst the intention of the “top-up” was sincere as it was a cash transfer aimed at helping the poor, this lady and her husband didn’t really need it. The couple had made a small fortune working abroad. Don’t you think there is something wrong with this story? Wouldn’t you agree that it would have been better if 4000 dinars had gone to a really poor person? I do not doubt the good will of the authorities to help the poor. But my point is that in order to help people in need you have to know who they are and target your assistance wisely, otherwise you might end up wasting money on people who are well off. How do we find out who the poor are? There are many ways, but the Living Standard Measurement Survey (LSMS) is considered to be one of the most comprehensive ways to analyze poverty. It takes into account the whole consumption of a household: from what you buy in the shops, to what you have picked from your garden, to what relatives have sent you from abroad… Well, the British Department for International Development (DFID) and the World Bank have helped Serbia learn more about its own poverty through the financing of LSMS’s . The last LSMS was done in 2007 and it was published in 2008. The good news was that poverty in Serbia halved between 2002 and 2007. In 2002, 14 percent of the population, or approximately one million people were poor. In 2007 some half a million people were poor, or 6.6 percent of the population. Unfortunately, the trend is now expected to have reversed itself due to the international economic crisis, but it is still better than it was at the turn of the century. Moreover, economic theory recognizes that people have their own perceptions as to whether they are poor or not. Even according to this so called “subjective poverty” measure the trend between 2002 – 2007 was positive: 18 percent of the population saw themselves as poor in 2002, 13.4 percent in 2007. So, who are the people behind these numbers? They live in rural areas, far away from big cities and the main infrastructure corridors, they are part of a household where the head of the family is unemployed, they have limited education, they are either old or children, and they don’t have a lot of land. This sums up what experts call the “poverty profile” in Serbia. Of course it is not that simple. Let us take a quick look into some more details which surfaced in the LSMS. You may be quite taken aback, especially by the regional distribution of poverty in Serbia. As in many countries in transition, poverty in Serbia is predominantly a rural phenomenon. In 2007 there were 9.8 percent poor people living in countryside, compared to 4.3 percent in urban areas, while in 2002 17.7 percent of the poor lived in rural areas and 11.2 percent in urban areas. Fortunately, between 2002 – 2007 poverty was declining faster in countryside than in cities: it dropped eight percent in rural areas, compared to 6.8 percent in urban ones. But disparities between different regions within Serbia are deep, lasting and growing. Data shows that the poorest are people living in rural parts of South-East Serbia: the poverty rate in 2002 among them was 27.2 percent and – at 18.7 percent – it remained the highest poverty rate in 2007. It may be surprising for many, but Central Serbia comes next, with 19.1 percent poor in 2002 and 10.7 percent in 2007. The suburbs of Belgrade and Sumadija were also high up on the list. As one could have expected, the least number of poverty incidents were registered in urban parts of Belgrade (9.3 percent in 2002 and three percent in 2009). The rural parts of Belgrade gained the most from the economic development in the course of these five years (the poverty rate dropped 13.9 percent). Rural Sumadija and urban parts of Western Serbia followed suite (poverty rates dropped 12.2 percent and 11.9 percent, respectively). Perhaps not unexpectedly, people with a college or university degree have almost no exposure to poverty. In 2007 only 0.7 percent of persons with college education and 0.6 percent of those with a university degree were poor. But the share of the poor significantly rises as the education level drops: the household whose head is uneducated or has not completed primary school recorded the highest poverty rate of 18.7 percent in 2007. While poverty rates among senior citizens (65+) was lowered from 19.9 percent in 2002 to 9.6 percent in 2007, a fourth of the poor are older people. Children between 6 and 14 and children up to 5 also had above average poverty index, they represented a fifth of all the poor. Finally, it is important to know that the poorest among the poor are Roma, refugees and IDPs. The situation among Roma is particularly dire: the number living in extreme poverty is six times higher than in overall population, half of the Roma community live below the poverty line (this figure could well be higher due to the extra efforts that need to be taken to accurately capture the Roma profile). Some of you might have found the numbers boring and cold, but let us keep in mind there is a sad human story behind each digit. All this data helped successive Serbian governments develop and update their Poverty Reduction Strategy (PRS) with positive results. Nevertheless, government still spends I.4 billion dollars in subsidies to all sorts of enterprises compared to just above 211 million dollars on programs to help the poor. In the light of the international economic crisis we at the World Bank believe that now is the time to rethink priorities in public spending and redirect reduced resources to programs directed at the poor. Making sure that ever more scarce public resources actually get to those most in need, and are not wasted on frivolous public expenditures. In other words we have to do more with less, do it more productively and make sure the vulnerable get a bigger share of the pie. What needs to be done? Serbian authorities should focus on programs that are most effective in targeting the poor. The existing MOP (family allowance) and child allowance are well crafted policy tools to do just that. The MOP, as an anti-poverty program, is well targeted, in the sense that most benefits do go to poor households. Eligibility for the MOP is determined by a means test taking into consideration all earnings of the household except those from other social benefits. There is a strong case for scaling up the MOP and expanding the number of households entitled to receive it. Serbia spends less on this program than the new EU member countries. Even those among them which spend very little – like Poland, Latvia and Estonia – spend more than Serbia. A second good tool is the child allowance. It supports children from low and low-middle income families. The level of this benefit is, however, low and there is a need to make it administratively easier to access by poor families. Don’t waste the money of the poor on those who can afford to ski in Austria! Simon Gray is World Bank Country Manager in Serbia The poorest among the poor: Roma in Belgrade (Beta) While skiing in Austria, this past winter, a lady from Belgrade was boasting about 4000 dinars she received as a one-off “top-up”, as she was on a minimum pension. She paid for a few coffees on the slopes with this money. Simon Gray "In the light of the international economic crisis we at the World Bank believe that now is the time to rethink priorities in public spending and redirect reduced resources to programs directed at the poor."

Don’t waste the money of the poor

Her Serbian pension is very low because she spent most of her working life in England, accompanying her husband. With a limited work history in Serbia she was only entitled to a minimum pension. Whilst the intention of the “top-up” was sincere as it was a cash transfer aimed at helping the poor, this lady and her husband didn’t really need it. The couple had made a small fortune working abroad.

Don’t you think there is something wrong with this story? Wouldn’t you agree that it would have been better if 4000 dinars had gone to a really poor person? I do not doubt the good will of the authorities to help the poor. But my point is that in order to help people in need you have to know who they are and target your assistance wisely, otherwise you might end up wasting money on people who are well off.

How do we find out who the poor are? There are many ways, but the Living Standard Measurement Survey (LSMS) is considered to be one of the most comprehensive ways to analyze poverty. It takes into account the whole consumption of a household: from what you buy in the shops, to what you have picked from your garden, to what relatives have sent you from abroad… Well, the British Department for International Development (DFID) and the World Bank have helped Serbia learn more about its own poverty through the financing of LSMS’s . The last LSMS was done in 2007 and it was published in 2008.

The good news was that poverty in Serbia halved between 2002 and 2007. In 2002, 14 percent of the population, or approximately one million people were poor. In 2007 some half a million people were poor, or 6.6 percent of the population. Unfortunately, the trend is now expected to have reversed itself due to the international economic crisis, but it is still better than it was at the turn of the century. Moreover, economic theory recognizes that people have their own perceptions as to whether they are poor or not. Even according to this so called “subjective poverty” measure the trend between 2002 – 2007 was positive: 18 percent of the population saw themselves as poor in 2002, 13.4 percent in 2007.

So, who are the people behind these numbers? They live in rural areas, far away from big cities and the main infrastructure corridors, they are part of a household where the head of the family is unemployed, they have limited education, they are either old or children, and they don’t have a lot of land. This sums up what experts call the “poverty profile” in Serbia. Of course it is not that simple. Let us take a quick look into some more details which surfaced in the LSMS. You may be quite taken aback, especially by the regional distribution of poverty in Serbia.

As in many countries in transition, poverty in Serbia is predominantly a rural phenomenon. In 2007 there were 9.8 percent poor people living in countryside, compared to 4.3 percent in urban areas, while in 2002 17.7 percent of the poor lived in rural areas and 11.2 percent in urban areas. Fortunately, between 2002 – 2007 poverty was declining faster in countryside than in cities: it dropped eight percent in rural areas, compared to 6.8 percent in urban ones. But disparities between different regions within Serbia are deep, lasting and growing.

Data shows that the poorest are people living in rural parts of South-East Serbia: the poverty rate in 2002 among them was 27.2 percent and – at 18.7 percent – it remained the highest poverty rate in 2007. It may be surprising for many, but Central Serbia comes next, with 19.1 percent poor in 2002 and 10.7 percent in 2007. The suburbs of Belgrade and Šumadija were also high up on the list. As one could have expected, the least number of poverty incidents were registered in urban parts of Belgrade (9.3 percent in 2002 and three percent in 2009). The rural parts of Belgrade gained the most from the economic development in the course of these five years (the poverty rate dropped 13.9 percent). Rural Šumadija and urban parts of Western Serbia followed suite (poverty rates dropped 12.2 percent and 11.9 percent, respectively).

Perhaps not unexpectedly, people with a college or university degree have almost no exposure to poverty. In 2007 only 0.7 percent of persons with college education and 0.6 percent of those with a university degree were poor. But the share of the poor significantly rises as the education level drops: the household whose head is uneducated or has not completed primary school recorded the highest poverty rate of 18.7 percent in 2007. While poverty rates among senior citizens (65+) was lowered from 19.9 percent in 2002 to 9.6 percent in 2007, a fourth of the poor are older people. Children between 6 and 14 and children up to 5 also had above average poverty index, they represented a fifth of all the poor.

Finally, it is important to know that the poorest among the poor are Roma, refugees and IDPs. The situation among Roma is particularly dire: the number living in extreme poverty is six times higher than in overall population, half of the Roma community live below the poverty line (this figure could well be higher due to the extra efforts that need to be taken to accurately capture the Roma profile).

Some of you might have found the numbers boring and cold, but let us keep in mind there is a sad human story behind each digit. All this data helped successive Serbian governments develop and update their Poverty Reduction Strategy (PRS) with positive results. Nevertheless, government still spends I.4 billion dollars in subsidies to all sorts of enterprises compared to just above 211 million dollars on programs to help the poor.

In the light of the international economic crisis we at the World Bank believe that now is the time to rethink priorities in public spending and redirect reduced resources to programs directed at the poor. Making sure that ever more scarce public resources actually get to those most in need, and are not wasted on frivolous public expenditures. In other words we have to do more with less, do it more productively and make sure the vulnerable get a bigger share of the pie.

What needs to be done? Serbian authorities should focus on programs that are most effective in targeting the poor. The existing MOP (family allowance) and child allowance are well crafted policy tools to do just that.

The MOP, as an anti-poverty program, is well targeted, in the sense that most benefits do go to poor households. Eligibility for the MOP is determined by a means test taking into consideration all earnings of the household except those from other social benefits. There is a strong case for scaling up the MOP and expanding the number of households entitled to receive it. Serbia spends less on this program than the new EU member countries. Even those among them which spend very little – like Poland, Latvia and Estonia – spend more than Serbia.

A second good tool is the child allowance. It supports children from low and low-middle income families. The level of this benefit is, however, low and there is a need to make it administratively easier to access by poor families.

Don’t waste the money of the poor on those who can afford to ski in Austria!

Simon Gray is World Bank Country Manager in Serbia