Revamping the Social Protection System in Bangladesh

Social Safety Net Programs play an integral part in a country that is pushing to reduce poverty, the key principle for implementing Social Safety Net programs in any developing country. Dr. Sadiq Ahmed, the Vice Chairman of the Policy Research Institute (PRI), highlights how the social safety net programs in Bangladesh need to improve to achieve their desired vision.

Bangladesh has a strong tradition of caring for the poor and the vulnerable population. The need for strengthening this tradition with formal publicly funded support programs was reinforced by the hard lessons of the 1974 Famine and the floods in the 1980s. The fight against hunger and a strong commitment to poverty reduction are now core elements of economic and social policy-making in Bangladesh. Yet, a coherent and systematic approach to social protection did not happen until very recently. Over the years since the 1974 Famine, a multitude of small safety net programs have emerged, mostly concentrated in the rural areas, to fight hunger and poverty. Many of these programs were developed through donor assistance. Resource commitments were also made from the national budget, partly as a continuation of these donor-funded schemes. 

In FY2015, there were a total of 145 safety net programs involving Taka 308 billion (2% of GDP) and administered by some 23 Line Ministries/Divisions with almost no coordination. The programs were a mix of cash transfers and in-kind benefits involving some 80.4 million beneficiaries, which is a gross number because it does not net out beneficiaries who receive multiple program benefits. The largest share of spending accrued to the civil service pension (25%) accounting for only 0.5% of the total beneficiaries. The remaining 75% safety net scheme resources were distributed to 99.5% of the beneficiaries spread over 144 other programs. As a result, the average benefit per program and the average total benefit per family were very low. 

A key objective of the social security program is to focus these expenditures on the poor. Yet, the Household Income and Expenditure Survey (HIES) 2010 showed that only 35% of the poor families reported receiving any government-funded social security benefits. On the other hand, some 40% of the beneficiaries were non-poor. Program administrative costs were high and there were reports of considerable leakages. The combination of large exclusion and inclusion errors, leakages, and high administrative costs sharply lowered the poverty impact of social security spending. Furthermore, there was no centralized database of beneficiaries and no systematic monitoring and evaluation of program implementation either at the individual program basis or for the entire social security program.

Faced with these tough concerns, in 2015 the government decided to adopt a major reform program that sought to overhaul the entire social safety net program into a modern social protection system. This was done through the formulation of the National Social Security Strategy (NSSS) that was adopted on 01 June 2015.

 The main features of the NSSS are:

• Took a strategic approach to social security by advocating the consolidation of the multitude of small and often overlapping schemes into 7 core Lifecycle based schemes.
• Advocated the modernization of the social protection system by the introduction of employment-based social security programs including social pensions and unemployment insurance. 
• Called for substantial reform in the beneficiary selection and program administration that uses modern ICT-based solutions, to reduce transaction costs and eliminate leakages. 
• Advocated the expansion of coverage to the urban poor and the national non-poor vulnerable population. 
• Called for conversion of all programs to cash-based.
• Recommended the phasing away of many small schemes that did not fit into the core Life Cycle-based consolidate programs and did not serve a useful purpose in terms of benefiting the poor and the vulnerable.
• Advocated the establishment of an online grievance redressal system.
• Called for a strong M&E effort at both the individual program and at the full NSSS level.

The adoption of the NSSS was a breakthrough in social policy making in Bangladesh. It was intended that the first phase of the implementation of the NSSS will happen over FY2016-FY2020, to roughly coincide with the implementation of the Seventh Five Year Plan (7FYP). Accordingly, the 7FYP integrated the NSSS as a critical policy for reducing poverty and lowering income inequality. 

Available evidence suggests the implementation of the NSSS during the 7FYP has been weak. The Government had assigned the NSSS coordination and implementation monitoring role to the Cabinet Division. There was a long delay with the startup of this implementation and monitoring role. Subsequently, with donor assistance, a formal NSSS Implementation Action Plan was adopted in 2018. 

A comprehensive review of the implementation of the NSSS Implementation was done by the Policy Research Institute of Bangladesh (PRI) in 2019. The performance assessment distinguishes between (i) progress with program consolidation; and (ii) progress with institutional reforms. The ratings are summarized in Table 1. The program consolidation monitoring involves 86 indicators, of which 20 were on-track, 12 were almost on-track, 11 were moderately off-track and 37 were seriously off-track. Institutional reforms monitoring involves 50 indicators, of which 14 were on track, 3 were almost on track, 12 were moderately off-track and 23 were seriously off-track. The overall conclusion is that only modest progress was made with the implementation of the NSSS after 4 years of adoption. There are substantial gaps that will require major efforts. 

Table 1: Progress with NSSS Implementation, 2019

Program Area	Performance Ratings
A. Program Consolidation
1. Child Benefits Program	Moderately off-track
2. Vulnerable Woman’s Program	Moderately off-track
3. Working-age Program	Moderately off-track
4. Program for the Disabled
5. Program for Old Age	Moderately off-track
6. Strengthen Programs for Urban Poor	Seriously off-track
7. Consolidate all Food Programs and Conversion to Cash	On-track
8. Consolidate All Small Programs	Moderately off-track
B. Institutional Reforms
9. CMC-led Cluster Coordination of Implementing Ministries	Almost on -track
10. Single Registry Management Information System (MIS)	Moderately off-track
11. Strengthen Government to People (G2P) Payments	Almost on Track
12. Strengthen Beneficiary Selection Process	Moderately off-track
13. Establish a Grievance Redressal System	Almost on track
14. Establish a Monitoring and Evaluation System	Moderately off-track

Source: PRI 2019

From a pragmatic point of view the fact that there are still 114 specific active social security programs and not one single consolidated life cycle program has emerged yet is rather disappointing. The absence of a consolidated online list of beneficiaries and the lack of a well-thought-out beneficiary selection process are also major disappointments. Evaluation results of individual programs continue to show high exclusion and inclusion errors and continued leakages. 

The area where the NSSS is facing the most difficulty is the availability of resources. The financing of social security programs has become a major challenge owing to substantial revenue shortfalls in recent years. Contrary to expectations at the time the NSSS was formulated, budget resources have increasingly become constrained, which has reduced the ability to provide higher allocations to most government programs including social protection. While the government budgets show large, planned allocations, actual financing is substantially smaller. Also, much of the actual increase in social protection spending since FY2016 has happened for civil service pensions (Table 2). The large wage increases awarded to civil service employees in the FY2015-16 Budget have translated into commensurate increases in civil service pensions. Excluding civil service pension, which accrues to only 0.6 million retirees and has very little poverty focus, total actual spending on social protection is around 1.2% of GDP. Also, it is falling as a percent of GDP. 

Furthermore, there are questions regarding the inclusion of many programs funded from the development budget in the Ministry of Finance definition of social protection. These programs are a part of spending in health, education, water supply, and infrastructure, but it is not obvious that this spending is for social protection targeted to the poor. These programs amount to about 0.2% of GDP. Even so and taking a liberal approach to the definition of social protection spending as defined by the Ministry of Finance, total spending on social protection, excluding civil service pension that has little or no poverty relevance, is very small for a country with an estimated 35 million poor and 52 million poor and vulnerable population. In per capita terms, this amounts to annual spending of a mere 8607 taka (102 dollars) per year when only the poor are included and taka 5738 (68 dollars) when the poor and vulnerable are included. Given the targeting errors, the actual benefits per person are considerably lower. 

Table 2: Actual Spending on Social Protection (Taka billion)

Items	FY2015	FY2016	FY2017	FY2018	FY2019
Total social protection spending	338.4	372.1	424.8	461.2	522.0
Civil service pensions	129.2	141.2	161.5	187.8	224.2
Social protection spending excluding civil service pension	209.2	230.9	263.3	273.4	297.8
As % of GDP (total)	1.9	2.0	2.2	2.2	2.1
As % of GDP (excluding civil service pensions)	1.4	1.3	1.3	1.2	1.2
Number of poor (million)	40.0	39.4	37.6	35.9	34.6
Number of poor and near-poor (million	60.4	59.5	56.4	52.5	51.9
Per capita SP spending for the poor (Taka)	5230	5860	7003	7616	8607
Per capita SP for the poor (USD)	67.3	74.74	88.5	91.5	102.5
Per capita SP spending for the poor and vulnerable (Taka)	3470	3880	4668	5218	5738
Per capita SP spending for the poor and vulnerable (USD)	44.7	49.9	59.0	62.7	68.3

Source: Estimated from Ministry of Finance and HIES Data

The Government adopted a comprehensive stimulus and relief package to tackle the adverse effects of COVID-19. The package sought to provide a combination of measures to provide food and income support to the poor, improve health care, protect employment, and revive economic activities. Research on what might constitute adequate income transfers to the poor and vulnerable to fight the COVID disruptions to livelihood suggests the need for some Taka 960 billion (3.4% of GDP) equivalent in FY2020. As compared to this, the first-round income transfer in the government’s stimulus package amounted to a mere Taka 50 billion (0.1% of GDP) in FY2020. Additionally, newspaper reports suggest that the problem of targeting remains a major constraint to the effectiveness of the transfer programs. 

Even before COVID-19 happened, Bangladesh was going through a major revenue constraint owing to the weakness in the revenue mobilization effort. Tax revenue as a share of GDP is one of the lowest in the world and fell further during FY2017-FY2020. There has been some recovery since FY2021, yet it is merely 8.5% of GDP. The main consequence of this revenue constraint is the inability to allocate adequate resources to the core development programs including social security. Another notable aspect of this revenue constraint is the expanding gap between budgeted tax revenues and actual tax collections. Most current expenditure items like civil service salaries and pensions, supplies and materials, defense, and interest payments are fixed obligations that cannot be cut. So, the main adjustment burden has been shared by the annual development program and the spending items like transfers (subsidies, grants to local government institutions, and social security spending). The cuts have often been as large as 30% of the budget allocation.

The Government is concerned about this falling tax to GDP ratio and the constraint it imposes on its development spending. To address the revenue constraint the Government prepared a medium-term fiscal framework (MTFF) as a part of the Perspective Plan 2041 (PP2041). The first phase of implementation of the MTFF was incorporated in the Eighth Five Year Plan (8FYP). 

The implications of this fiscal policy framework for resource availability for the social protection programs have been worked out in the context of the 8FYP strategy for poverty reduction and social protection. The 8FYP is also the first 5-year program for the implementation of the PP2041 target for eliminating extreme poverty by FY2030. Among other policies, the ability to secure this target will depend upon the implementation of a well-thought-out strategy for social protection. The 8FYP advocates stronger efforts to implement the NSSS, with emphasis on converting a large number of programs into the Life Cycle Framework provided in the NSSS, strong effort to develop and put online a list of beneficiaries based on the income eligibility of 1.25 times the 2016-17 poverty line (NSSS definition of poor and near-poor), converting all programs to cash basis, make all transfers online using G2P approach, and sharply increasing the actual spending on social protection. The planned target is to increase spending on non-civil service social protection from 1.2% of GDP in FY2019 to 2.5% of GDP by FY2025 (Table 4). The largest increase is projected for FY2021 owing to COVID-19.

Table 3: 8FYP Projected Spending on Social Protection

Social Protection spending excluding civil service pension	FY2019	FY2020	FY2021	FY2022	FY2023	FY2024	FY2025
Taka billion current prices	298	415	695	828	943	1119	1325
Percent of GDP	1.2	1.5	2.2	2.3	2.3	2.4	2.5

Sadiq Ahmed is Vice Chairman of the Policy Research Institute of Bangladesh. He can be reached at [email protected].