Governing Social Protection in Bangladesh Addressing Critical Issues and New Challenges

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Structure of Presentation. Main Issues in Social Protection in BangladeshMacro and Human Development ContextsStrategy of Social Protection in Bangladesh: Program Allocation and Beneficiary CoverageWhat Explains Rapid Expansion of Social Protection in Bangladesh?New Challenges in Social Protecti

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Governing Social Protection in Bangladesh Addressing Critical Issues and New Challenges

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1. Governing Social Protection in Bangladesh Addressing Critical Issues and New Challenges Binayak Sen Research Director, Bangladesh Institute of Development Studies (BIDS) Contact:

2. Structure of Presentation Main Issues in Social Protection in Bangladesh Macro and Human Development Contexts Strategy of Social Protection in Bangladesh: Program Allocation and Beneficiary Coverage What Explains Rapid Expansion of Social Protection in Bangladesh? New Challenges in Social Protection in Bangladesh Any Lessons? 2

3. Main Issues in Social Protection (1) What is “social protection”? Protecting “society from the poor” or “protecting the poor”? Democracy: Contrasting experience of early Europe and late Developing Countries Social protection is an effective citizenship issue—should be treated as a matter of “right” Trap-centric view vs. linear view: Shaping social protection: Sachs vs. Easterly Social protection is concerned not just about “access” but also about distributive outcomes, and hence, the issue of tax-financing of social protection 3

4. Main Issues in Social Protection (2) Even though poverty declined fast in 2000s, rural “chronic poverty” declined extremely slowly (see, graph in the next slide) The main challenge is: how to tackle chronic poverty better, how to address the issue of rising asset inequality, and what role social protection can play in this process? Tokenism vs. Overdose of Social Protection (Sri Lanka, India and Bangladesh) Are current social protection programs adequately addressing these issues? 4

5. Divergent Trends in Average vs. Chronic Poverty 5

6. Macro Growth and Poverty Context Poverty declined—from 60% in 1991 to 50% in 2000, 41% in 2005 and 32% in 2010 Real wage rate in agriculture has increased from 3 kg of rice equivalent in 1991 to over 6 kg of rice equivalent in 2010 Growth accelerated—from 4% average in 1980s, 5% in 1990s, 5.5% in 2000-05, and over 6% in 2005-2010 Four main growth drivers—manufactured export, remittance, agriculture, and microfinance 6

7. Human Development Context The country has achieved (or is on-track in meeting) most of the MDGs—infant and child mortality, gender parity in primary (grade I-IV) and secondary education (grade VI-X), including poverty and maternal mortality Children underweight has dropped from 57% in 1997 to 46% in 2007 i.e. still very high and linked with high maternal undernutrition Implications for IGT-transmitted chronic poverty What role “social protection” played in poverty reduction and human development? 7

8. Strategy of Social Protection (SP): Fiscal Allocation (1) Taka 15,500 crore allocated for SP in 2011/12 out of a national budget of Taka 162,000 crore The SP share in total public expenditure has increased from 5% in late 1990s to over 15% in 2011/12 Multiple Routes of SP: 84 programs under SP. The main FIVE programs with explicit targeting to the poor are: Microfinance via PKSF—Taka 10,000 crore (mainly for the moderate poor, but specific MFI schemes for extreme poor are also undertaken) Other 4 main extreme poor targeted programs—Taka 2860 crore 100-day Employment Guarantee for Hardcore Poor (EG): Taka 1,000 crore (150 Taka/ month; implemented in two rural lean seasons--Sept-Nov and March-April) Old-age Pension: Taka 891 crore (300 Taka/ month; life-time) Vulnerable Group Development (VGD): Taka 638 crore (31kg of wheat/ month; 18-month cycle) Widow allowance—Taka 331 crore (350 Taka/ month; life-time) 8

9. Strategy of Social Protection (SP): Fiscal Allocation (2) The next 3 important programs, with “mixed targeting”—Taka 860 crore Social Development Foundation (SDF): Taka 363 crore Maternal and child nutrition (incl. extreme poor targeted maternity allowance of 74 crore): Taka 345 crore NGO Foundation: Taka 152 crore The rest generally targeted to poor—1780 crore (includes FFW, VGF, Relief such as TR and GR, housing schemes, acid-victim, street children, beggars, etc) 9

10. Strategy of Social Protection (SP): Coverage of Beneficiary Estimated 160 million population—about 32 million households As per 2010/11, at least about one-third of total households of Bangladesh are currently under SP PKSF-mediated microfinance: 2.7 million. 100-Day Employment Guarantee: 1.6 mln. Old-age Pension: 2.4 mln. VGD: 0.7 mln. Widow allowance: 0.9 mln. Sub-Total: 8.3 mln. SDF: 2.6 mln. NGO-Foundation: 0.1 mln. Disability: 0.03 mln. Maternity allowance: 0.016 mln. Sub-total: 2.75 mln. Total: 11.05 mln. Plus, FFW, GR, TR, and the rest: not estimated 10

11. What Explains Rapid Expansion of SP (1) Main poverty reductions came from higher economic growth However, higher SP allocation helped to reduce poverty of the extreme poor (assessments of microfinance, VGD and 100-day EG indicate that) What explains the “rapid expansion”? Increased budgetary allocations were made possible by higher growth dividends 11

12. What Explains Rapid Expansion of SP (2) Only higher fiscal allocations for SP do not ensure that the intended resources will reach the beneficiary. Institutions are needed to mediate these fiscal resources. But Bangladesh’s governance capacity is weak (the so-called “Bangladesh paradox”). Two main factors helped. First factor: Strong institutions with mandated decision making and execution capacity are created outside (central) government: PKSF wholesaling microfinance LGED implementing rural infrastructure SDF and NGO Foundations were created Partnership with local NGOs (the term PNGO is quite common) and civil society MFIs Local governments such as Union Parishad (though more could be done in raising their capacity) played a pivotal role in selecting beneficiaries under VGD, old-age pension, widow allowance, road maintenance programs, etc Second factor: Sustained and fiercely competitive electoral democracy led to increased budgetary allocations for SP. The political channels are: higher popular expectations about SP as well as intense political competition. Remarkable regime continuity in supporting SP. 12

13. New Challenges in SP (1) The SP-undernutrition interface needs to be strengthened. Issue of child and maternal undernutrition remains a challenge. Maternal health voucher scheme is being introduced in this year’s budget. Maternal undernutrition is not just the result of income-poverty, but also of low women’s agency, especially for adolescent girls. Social factors such as dowry leading to early marriage is a concern. While increased girls’ education through conditional cash transfer schemes can lead to higher female agency, but educated girls also need to get access to gainful employment for economic empowerment. Reducing population growth further is a challenge: Contraceptive prevalence rate has not increased in 2005-2010 (the reason for this stalling is not understood fully as yet) 13

14. New Challenges in SP (2) SP is not just about addressing acute deprivations of the extreme poor, but also about addressing shocks, especially health shocks, for the vulnerable non-poor as well. Universalizing social protection for the extreme poor is important. Introduction of universal health insurance schemes could start from the extreme poor with mandated coverage of major health shocks such as emergency and obstetric care, road accident is needed. The Indian experience needs to be studied in this regard. Bangladesh is also experimenting with micro-insurance in areas of health with MFIs, which also needs to be evaluated. Microfinance or micro savings—which way forward? For the ultrapoor (such as TUP of BRAC) is helping the extreme poor. Such programs however need to be weighed with alternatives such as RMP/ REOPA with strong emphasis on involuntary savings component (TUP requires Taka 120,000 for graduation; REOPA requires 100,000 for graduation over a period of two-year cycle). 14

15. New Challenges in SP (3) Tokenism in SP needs to be avoided. Old-age, VGD, widow allowance are well-targeted and their coverage is expanding. However, this is coming at the expense of low average benefits per beneficiary equivalent to only about 2 days of agricultural wage labor. This explains repeat participation in SP (as in case of VGD program, as many cannot graduate into “normal” microfinance stage). Additional funding for SP must come from reducing avoidable “bad subsidies” as well as increased redistributive taxation on the rich. These could include capital gain taxes on profits earned on the share market; additional 5-10% surcharges on income taxes for those holding properties exceeding Taka 2 crore. The first measure is absent currently, but the second measure is being introduced in this year’s budget. 15

16. New Challenges in SP (4) There is a need for analytical understanding of the interface between “social protection” and “moving out of poverty”. Thus, agricultural growth continues to be pro-poor, and SP can benefit from the on-going pattern of land tenurial changes under pressures of urbanization: Many extreme poor households who got microfinance moved out of poverty via agricultural route (rather than through conventional rural non-farm route) by leasing in land from those who cannot supervise their own farm operations due to income diversification and rapid urbanization. Land under tenancy/mortgage increased from 20% to 40% in 1987-2007 period due to relaxation of credit market constraint. Targeting error in SP is relatively low in Bangladesh—ranging from 5-15% depending on the specific program inclusion and exclusion criteria considered—but could be further improved with better area poverty targeting, local government monitoring, and by creating a national level data base on beneficiaries. 16

17. New Challenges in SP (5) Bangladesh’s past success is about rural SP, but the “urban sector” has been neglected in SP, though urbanization is now 35%. Study the chronicity of urban poverty in Dhaka and other large and medium towns in the face of rapid rural-urban migration Study the sustainability of urban poor organizations beyond the “life of the project intervention”. Maintain macro stability (low inflation) to protect the real income of the poor derived from SP. In years of rising food and oil prices in the international market, use targeted food delivery via OMS and other means for supporting the food security of the poorest, as they tend to be the net consumers of foodgrain However, farmers benefited from the relatively high food price regime; it is the fixed income groups which has been the most hard hit category; even the extreme poor benefited from the rising income as transport workers and unskilled agricultural workers due to rising agricultural wages 17

18. Why Dhaka Performs Poorly in Poverty Reduction: the Case of Rapid Rural-Urban Migration? 18

19. Any Broader Lessons? Sustain electoral democracy with vibrant civil society for raising voice for increased allocations for SP Target SP to the extreme poor under the MaxiMin principle with ultimate aim of universalizing the SP consistent with the principles of welfare state and transition to middle income Land reform for the poorest Create SP delivery institutions in the public sector with mandated execution capacity outside the central government Foster partnership with NGOs/ MFIs/ CBOs as well as local government at the rural union level and urban ward level. Politically motivated NGO/ civil society “bashing” needs to stop (as emerged from the recent Grameen experience). Support SP with multiple routes—self-employment (microfinance and VGD), wage-employment (100-day EG), income-transfer schemes (old-age; widow allowance), and not over-burden a single route with multiple claims Combine spatial poverty map with individual targeting (where applicable) such as means-tested programs and/ or self-targeting for greater equity 19

20. Any Broader Lessons? Support agriculture and urban informal economy’s growth, as it is also a very effective route for informal SP both from employment generation and informal income support points of view Just creating data base on extreme poor is not enough for reforming social protection, as indicated by the BISP experience in Pakistan Interface between LGSP and SP projects is the big challenge for the medium-term; here political commitment is necessary Many chronic poverty groups have been left out from the current SP coverage Greater tax financing of SP is necessary to influence greater ownership and greater coverage by SP; this poses even gerater challenge given the fiscal constraints faced by the GoB 20

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