Following the Forum for Prosperity and Jobs in BiH: Necessary Social Welfare Reforms

The social welfare system in Bosnia and Herzegovina needs urgent and thorough reform if it is to be revived. This was the conclusion of participants at the workshop on Targeting and Reform of Social Welfare, organized during the two-day Forum for Prosperity and Jobs. The Forum was held in Sarajevo on 26 and 27 May 2014, under the slogan “Gledaj od čega ćeš živjeti” (“Mind of what you will live on”). Bosnia and Herzegovina must improve the targeting of social assistance through a set of measures that would make social welfare policies more effective, efficient and fair.

BiH and international technical experts and representatives from civil society, the World Bank and the EU Delegation defined problems in the social welfare sector and recommended solutions during the workshop.
Across the country, the pension system has been seriously compromised over a period of years and is now unsustainable because there are too few contributors (one worker to one pensioner), as well as a growing number of early retirees and an aging population. As a result, pension funding now accounts for a disproportionate amount of public spending.

Social assistance is high and fiscally unsustainable and subject to poor targeting. Assistance is based on status instead of needs and does not reach those who need it the most. Statistics show that half of the BiH population live on or below the poverty line: this figure includes most pensioners, who are socially excluded and live on the margins of society.

“The post-floods humanitarian crisis represents a direct challenge to the social welfare system considering the increase in the number of users,” said Žarko Papić, Director of the NGO, Initiative for Better and Humane Inclusion, and a moderator at the workshop. “This Forum is happening at the right time since we have defined in which direction we should move. Of course, it is clear that the reform of the social system cannot be implemented without the other reforms necessary for Bosnia and Herzegovina,” he said.

Mr. Papić stressed the urgent need for reform of the pension system, which has already reached the critical and dangerous ratio of one pensioner to one worker, as well as reform of social welfare in terms of elimination of discrimination and transitioning from the informal to the formal economy.

Among other things, workshop participants recommended raising the regular and early retirement age; linking benefits more closely to contributions; ensuring higher participation in the system and stronger contribution collection; and widening sources of future pension funding by developing voluntary pension systems.

Recommendations for reforming the system of social transfers included developing effective targeting mechanisms and harmonizing criteria for benefit categories; adjusting social assistance programmes in order to eliminate work disincentives, linking assistance programmes to employment arrangements; and establishing a central registry system for all social benefits (to eliminate overlapping claims).

The World Bank expressed its continuing willingness to work with the authorities in moving forward with these reforms.

Ellen Goldstein, World Bank Country Director for South East Europe, noted that Bosnia and Herzegovina is in a vicious circle where the social welfare system does not follow the dynamics of the private sector and job creation and that this deficiency has resulted in unsustainable pension and social welfare systems.

“We talked about how to get out of this vicious circle and enter a circle of fiscal sustainability with the social system where all social categories would be protected while at the same time a setting for job creation and long-term prosperity is being created,” said Ms. Goldstein.

“Is it possible to do that? The answer is definitely yes,” she continued. “We have indeed seen both Entities beginning to move in the direction of reforms in order to create sustainable social welfare systems with more social solidarity. In my opinion that is what BiH citizens want. Therefore, it is possible to do so. Is it possible to do it quickly? Well, this is medium-term planning. I think the current situation of terrible destruction caused by floods is a challenge for the country and, in a way, allows the creation of conditions for a faster move towards reform. The social welfare system is likely to receive higher demands soon and therefore it is necessary to create a sustainable system.”