Transcript Investing in Human Capital:

Investing in Human Capital:
Reform Challenges after
Bulgaria’s Accession to the EU
World Bank – OSI Conference,
Sofia, October 19, 2009
Contents
 The importance of investing in human capital: summary
of main messages of policy notes
 The short-term challenge of crisis and recovery
 The medium term structural agenda
o Social assistance
o Labor market reform
o Pension reform
o Education reform
o Health sector reform
 The main message: GO DEEPER (capitalize on
achievements and continue reforming)
2
Human capital is instrumental for
country’s long-term prosperity
Dual objectives of investment in human capital
in the post-accession period
o Overarching objective
• accelerate and sustain growth,
• enhance competitiveness and
• advance convergence with the EU
o Short-term objective
• mitigate the adverse impact of the economic crisis on
human capital
Human dimensions and costs of the
crisis
The crisis has human dimensions and costs
o Losses of jobs and incomes create health and pension
insurance coverage gaps;
o Raise the likelihood of worsening nutrition…
o … and lower school attendance for the most vulnerable
segments of the population;
o Reduce remittances and other informal transfers while
the role of such transfers increase as a coping strategy.
The share of vulnerable households increases
The crisis: doing more ‘with less’ or
‘with the same’
The crisis increases the demand for government
immediate actions to preserve existing jobs;
strengthen the safety net; ensure access to
education and health services …
 … while at the same time recognizing the
increasing fiscal constraints and the need of
keeping social spending under control
Structural reforms for long-term
growth and convergence
Social assistance with capacity for social
risk mitigation throughout the life cycle
Bulgaria has a seasoned social safety net with a
comprehensive set of programs, but the system
needs a fresh look to improve its ability to
respond fast to the negative impact of the crisis
on the poorest, and to promote social inclusion
of the poor and vulnerable
Social assistance overall is well targeted to the
poorest 20% of the population and achieves
high coverage while spending less than the
average in ECA
Social assistance achieves high coverage of
the poor with limited resources
COVERAGE AND FISCAL EFFORT: Total Social Assistance
100%
4.5
90%
4.0
80%
3.5
70%
60%
3.0
2.5
COV Q1
2.0
%GDP**
50%
40%
30%
1.5
20%
1.0
10%
0.5
0%
-
The LRSA/GMI program is well
positioned for response to the crisis
Bulgaria has a well-targeted last-resort social
assistance program – the GMI, and also a well
targeted heating allowance
They can be scaled up in response to the crisis
The targeting accuracy of the GMI and the HA is
74% of Q1, and 73% of Q1 respectively (share
of program budget captured by the lowest
welfare quintile)
In terms of targeting, GMI performs well in
comparative (ECA) perspective
Comparative performance of lastresort social assistance
Targeting accuracyting
Accuracy
100
90
Coverage, Targeting and Generosity of to
Poorest Quintile
Ukraine XP
Kosovo SAB
Croatia SW Romania GMI
17.2
32.1
43.4
28.8
80
Estonia SB
Montenegro MOP
40.2
Turkey CCT
Turkey GC
44.9
70
Kazakhstan TSA
7.8
Lithuania SBP
Georgia TSA
13.2
60
Armenia FPB
20.4
48.0
31.8
Macedonia SFA
Poland SW
Hungary
Albania NE
50
Serbia
CA
26.9
9.2 Kyrgyz UMB
SA
9.7
12.5
26.9 SA
9.4
40 Uzbekistan
Russia CA
30
20
Bosnia CPA
11.9
10
0
0
Coverage
10
20
30
40
50
60
GMI’s coverage is small and declining
 However, in recent years eligibility for GMI has been
restricted and the program heavily linked to activation,
which reduced GMI spending and number of
beneficiaries
 As a result, the GMI is with small and declining coverage
– only 13.3% of the poorest 20% of the population
receive it
 …and relatively small generosity – 23.5% of the pretransfer consumption of the poorest 20% of the
population
Challenges to social assistance in the
short-term
With increased and prolonged unemployment,
the demand for GMI benefit will be increasing.
In September 2009, the number of beneficiaries
is 38,200 – the highest for 2009, and higher
compared to September 2008 (36,000)
The GMI starts behaving as an ‘automatic
stabilizer’ – to expand in crisis as more
households become vulnerable and therefore
eligible for social assistance
Social assistance structural agenda
The need for effective crisis response triggers
advancing a structural reform agenda
Last-resort income support / GMI
o Strengthening the linkages between cash benefits and
activation services, and at the same time …
o … trying to strike a balance between investing in
activation and providing cash benefit, for most effective
use of funding
o Shifting the focus of social workers: from exclusion to
inclusion of deserving poor in the GMI program
o Improving GMI beneficiary registry and record keeping
Labor market: improvements pre- and
shortly after EU accession
 The Bulgarian labor market has seen remarkable
improvements in recent years and has contributed to
strong economic growth
 Record low unemployment and big gains in
employment through 2008, edging close towards the
Lisbon target of an employment rate of 70%
 More than 400,000 new jobs were created 2003- 2007,
but with reported shortages of skilled workers
 In 2008, activity and employment rates for workers
aged 25 and above in Bulgaria reached parity with EU15
14
Labor market: challenges of unfavorable
demographics, low skills and employment
 Bulgaria has significant untapped domestic labor
reserves…
 … but skill mismatch and shortages are barriers to
employment
 With the demographic decline, growth requires
sustained increase in labor productivity and new skills
 However, the education system does not equip students
with skills and competencies to compete in an
innovation economy
 Skills gap might increase inequality (OECD)
Labor market: reforms for productivity
increase
During crisis make efforts to keep workers in
employment
Address skills shortages both to tackle
unemployment and to help the recovery
With low productivity in a European
comparison, intensify investments at all stages
of education - from early childhood to adult
education
Urgently look at promoting the transition of
young people from education to labor market
Pensions: sustain the pension reform
model and go deeper with the reform
The Bulgarian pension system has undergone
significant and well designed reform since 2000
o Multi-pillar system
o Fair benefit formula
o Retirement age adjustments
o Limits to early retirement…
…but still no fiscal sustainability, despite the
relatively high contribution rates
o The demographic crisis
o Certain departures from the initial model
Pensions: sustain the pension reform
model and go deeper with the reform
Have automatic sustainable pension indexation
Increase effective retirement age
Strengthen disability certification processes
Strengthen long-term financial planning,
including revision of contribution rates which
would be more compatible with long-term fiscal
sustainability
Consider exit strategy for formalized
Government contribution to the scheme
Education
Bulgaria has recently introduced reforms of
secondary education system to promote more
autonomy and accountability of schools for
better learning outcomes
Positive results are already showing but more
remains to be done to reap the full benefits of
the reforms
o per-student-financing and delegated budgets
o concerns remain as to the accountability of
schools to the local community
Education
Dramatic challenges in terms of
unsatisfactory learning outcomes, early
school leaving and considerable
inequities
Vocational education and training system
remains un-reformed
Issues with unreformed, low-participation
higher education
Education
Avoid cuts in the education budget
Promote accountability for learning
outcomes and results as the key policy
direction for both secondary and tertiary
education
Recognize teachers as the key
determinant of the quality of education
Health: current status
Bulgaria has undertaken several significant
health sector reforms during the past decade,
…but a large unfinished policy agenda remains
Compared to other EU countries, the share of
out-of-pocket spending is significantly higher,
while government spending is relatively low
Low public satisfaction with the health system:
various indicators of reported satisfaction in
Bulgaria are frequently the lowest in the EU
Health: current status
Rapid growth of the hospital system endangers
the sustainability of the sector
The primary health care system is well
established, but still to reach its full potential to
provide efficient, high-quality care
Some measures taken on the pharmaceutical
(spending) side, but many risks still remain
Health: policy directions
Protect health spending in the short term to
mitigate the impact on the poor; and stabilize
the drug budget;
Initiate hospital sector restructuring in line with
the master plan; and consider changing the
financial incentives for hospitals
Improve the quality of services provided by
strengthening the instruments of licensing and
accreditation, and the costing/payment
mechanisms for services
Health: policy directions
Consider introducing stronger pay-forperformance measures at the primary
care level and changing regulative
standards to re-define the responsibility
of primary care physicians
Fine-tune health insurance in line with
available lessons and initial strategy