Croatia: Social Impact of Crisis and Building Resilience

1. Croatia: Social Impact of Crisis and Building Resilience World Bank and UNDP, Zagreb, June 30, 2010

2. Outline: ■ Overview of the policy context■ Responsiveness of the social policy system■ Support system continuum: cash assistance—social services—active inclusion into labour markets■ Impact of the crisis on human development■ Issues to ponder

3. Overview of the policy context • Efforts to reform social policy since 2001 • Adiministratively defined national poverty treshold; increase of means tested cash benefit; attempts to pilot welfare mix • Push and pull approach to reform efforts: Joint Inclusion Memorandum (JIM) and Joint Assessment on Employment Policy Priorities (JAP) within the context of unreformed public administration and marginalised social policy issues within the wider EU pre-accession agenda • New economic recovery pacakge

4. Responsiveness of social policy system • Why is resolving „structural problems“ important? • Several structural problems identified in the Croatian social protection system (flexibility, efficiency: welfare parallelism, uneven regional development) • Consequence: long term delivery problems and suboptimal outcomes for users (‘old poor’ and ‘new poor’) • Effects of the crisis: exacerbate long term issues, create new problems and • Diminishes flexibility of the system toeffectively deal with dynamic external challenges and respond to internal problems

5. ● Welfare reform requires for care services to be reformed at the same time as cash benefits → establishment of a basic package of services ● Contributory schemes: pensions, unemployment , health and accident insurance ● Non- contributory social support → cash transfers (unconditional)- means tested - income tested → conditional cash transfers → social services provided Support system continuum: cash assistance-social services-active inclusion into labour markets

6. The Human Development Impact of the Crisis in Central, Eastern and Southern Europe, & the CIS • Balázs Horváth, Andrey Ivanov, Mihail PeleahUNDP Bratislava Regional Centre, 2009 Key take-away points: • Global crisis  setback in progress toward HD goals—even if growth resumes, recovery in HD expected to be protracted (lags). • Unfolding cumulative impact over coming years: substantial; lasting; disproportionately hitting the poor • Policy response needs to address crisis impact as well as underlying structural problems that crisis exposed (~re-build better after flood).

7. Our region is hardest hit by the crisis

8. Methodology • Step 1. Compiling database (annual data,1989-2008; severe data gaps) • sample of comparable HD indicators for 29 ECIS countries • Step 2. Estimating income elasticities: full panel regressions with lags, plus • …for decline / growth episodes where possible • …by sub-regions where possible • …peak-to-bottom elasticities—for selected episodes; country specific • Step 3. Forecast of Human Development Indicators through 2014 • using IMF WEO growth forecast & UN WPP population projections • Approach assumes: future is like the past; strong transition commonalities • but policy response more Keynesian

9. Life expectancy at birth, total two weeks lost for each percent point Life expectancy at birth, male More sensitive to income change Model-based projections

10. Under-five mortality rate one per 1000 live for 5 percentage point drop STD in population aged 15-19 for the young age-group, the elasticity more than three times higher Model-based projections

11. Homicides per 100,000 a decade could be lost Poverty under $5/day long-term impact is particularly significant Model-based projections

12. Issues to ponder • Define role of the state: create enabling business and regulatory environment for private sector to drive growth • Optimize at the level of the social safety net; reduce costs, but retain portfolio of well-designed & managed programs to minimize inclusion & exclusion errors • In fact, since labor market and social policies are interrelated, they should be jointly optimized • Some anti-crisis interventions should occur at local government level (info advantage)

13. Issues to ponder (2) • Improve quality of data—critical to support evidence-based policymaking and monitoring • Issues don’t stop at borders: to cover citizens only or also migrants; portability of social entitlements within EU • Crisis forces reforms, but dilemmas abound: • Fiscal space compressed while social needs rise • Starting point: social protection system with elite capture • Politicians with short horizon decide while time profile of (huge) net benefits is strongly back-loaded • LT issues also demand attention and resources now (lags).

14. Thank you for your attention