2 Social Safety Nets: Experiences of Some Arab Countries
Language:
English
Print Publication Date:
11 Apr 1997
Keywords:
BOOK; government; country; economic reform; The Fund; minimum wage; NAF cash; poverty line; absolute poverty; government sector employee; Tax allowances
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Abstract

This paper discusses the experiences of Jordan, Algeria, and Tunisia with social safety nets. Since the beginning of their developmental efforts, these countries have accorded special attention to social development, adopting strategies that were designed to ameliorate the living standards of the population, particularly low-income groups, and improve the distribution of income. Toward this end, they established elaborate and extensive schemes to provide targeted social services and transfers in cash and kind to these groups and in untargeted services to society at large.

Faris Bingaradi and Adda Guieciour

This paper discusses the experiences of Jordan, Algeria, and Tunisia with social safety nets. Since the beginning of their developmental efforts, these countries have accorded special attention to social development, adopting strategies that were designed to ameliorate the living standards of the population, particularly low-income groups, and improve the distribution of income. Toward this end, they established elaborate and extensive schemes to provide targeted social services and transfers in cash and kind to these groups and in untargeted services to society at large.

Along with these efforts, two other factors have further contributed to the improvement of the living standards of these groups, namely, transfers of workers’ remittances from abroad and parallel activities in the informal sector of the economy. The growing number of immigrants working abroad has led to an increase in the number of families benefiting from these transfers. Furthermore, activities in the informal sector, which owe their expansion to distortions and imbalances in the economy, provide employment opportunities and sources of income to those unable to join the formal sector. At the beginning of the 1980s, these countries were facing a number of economic difficulties as a result of both exogenous factors and the economic policies they pursued. This has led to the appearance of economic imbalances and, with the persistence of the difficulties, to the exacerbation of the imbalances and a slowdown of economic growth. The authorities consequently implemented adjustment programs to restore economic balance and lay the grounds for sustainable economic growth.

Despite differences among the three countries as to the timing and scope of the adjustment programs they implemented owing to the nature of each economy and the surrounding environment, their basic components were largely similar. Economic reform efforts were anchored on two main themes: (1) stabilization policies to reduce financial imbalances and contain inflation; and (2) structural adjustment to improve the efficiency of resource allocation and use, lay the groundwork for sustainable economic growth, increase productive employment opportunities, and raise the standard of living of the population.

In this respect, the features that distinguish these programs from economic policies pursued previously are the liberalization of the economy, the move toward market mechanisms, the encouragement of the private sector to play a leading role in production and export, and a shift from an inward-oriented economy dominated by the public sector to an outward-oriented economy.

Although the outcome of structural adjustment programs does not fall within the purview of this paper, it is worth mentioning that these programs have resulted in noticeable successes in achieving internal and external financial stability and in removing a number of distortions in the various sectors of the economy.

However, the experiences of countries adopting adjustment programs have shown that during the transitional period, which may elapse before economic growth materializes, adjustment measures often entail social costs that cannot be ignored. Macroeconomic restabilization policies may have a recessionary impact and lead to a reduction in real incomes and consumption levels in the short run. In this respect, efforts to curb the government budget deficit usually include, on the expenditure side, measures to reduce consumer subsidies and reduce the general level of expenditures, including reductions in expenditures in some social sectors—such as health and education—as well as increases in the fees for some government services. On the revenue side, reducing budgetary deficits usually entails increasing taxes. Moreover, macroeconomic restabilization policies are generally accompanied by exchange rate alignments designed to rationalize imports and direct resources toward exports, which may lead to increases in domestic prices.

In addition, measures to reform and privatize public enterprises may result in some shedding of labor in these enterprises. The closure of some enterprises, as a result of a reduction in transfers, subsidies, and government protection owing to import liberalization policies, may increase the number of unemployed.

Thus, adjustment programs may lead not only to the deterioration of the standards of living of low-income groups, but also to the emergence of other vulnerable groups that are affected by measures taken in the framework of these programs. Because structural adjustment programs that aim to improve allocation and utilization policies require time to yield positive results, a need arises during the transition period for measures to protect these groups from the impact of those programs and to ensure them a minimum acceptable standard of living.

Although elaborate schemes for social protection exist, they must be restructured and new ones designed. Restructuring the schemes that existed before adjustment programs were implemented involves improving their efficiency, their ability to target vulnerable groups, and their sustainability in light of the need to reduce government expenditures. In fact, alleviating the social costs of adjustment programs in the short term reflects the concern of the authorities not only to maintain minimum acceptable living standards for the poor and the vulnerable, but also to ensure popular acceptance of these programs, a matter deemed essential for their success.

The Experience of Jordan

Social Safety Net Prior to Reform

The social safety net before the country embarked on reform included a number of components.

Social Security

The social security system was established to provide pensions and insurance for salaried individuals against work-related injuries, disability, old age, and death. Participation in this system is mandatory for all companies with five employees or more who are at least 16 years old. Employees in the public sector who are not covered by the government pension system are entitled to participate. The system does not cover workers in agriculture, fishing, and household services. Participating companies contribute 10 percent of their pretax returns, while employees contribute 5 percent of their gross salaries. Government sector employees benefit from subsidized health services provided by the government and a pension system administered by the civil service commission.

Food Subsidies

Through this program, the government sought to stabilize price fluctuations of basic food items, which included sugar, rice, and meat. Toward this end, the Ministry of Supply would purchase and store enough quantities of these products to meet demand regularly. As for wheat and flour, the authorities subsidized their prices to ensure the stability of the price of bread.

Cash Transfers

To provide support to the neediest families, the government started, at the beginning of the 1980s, to implement a program of limited cash transfers. The program was administered by the Ministry of Labor and Social Affairs, which distributed the transfers to eligible families.

Social Safety Net During Reform

Since the implementation of adjustment, the Jordanian government has started expanding and imposing its social protection schemes. This involved establishing new schemes, the first of which involves providing food coupons to low-income groups. This scheme was initiated after it became clear that increases in general subsidies for food commodities were unsustainable. The second scheme is the National Aid Fund (NAF), which provides cash assistance to those individuals who are not capable of entering the labor market. Under the third scheme, the authorities aim to provide subsidized health services to low-income groups through the use of health cards. Components of the social safety net also include activities of nongovernmental organizations (NGOs).

Food Subsidies

To support low-income groups and enable them to cope with the impact of the devaluation of the dinar, the government started to provide direct and indirect subsidies for basic food items at the end of the 1980s, including subsidizing prices of foodstuff provided by the Ministry of Supply as well as producer prices. Experience has shown this scheme to be inefficient for two reasons. First, as an unlimited commitment with regard to the government budget, the general subsidy constitutes an unsustainable burden in light of the need to reduce budgetary deficits as necessitated by the reform programs. Allocations for subsidies rose from 0.3 percent of GDP in 1988 to 3.9 percent in 1990, or equivalent to 10 percent of government revenues. Second, the general subsidy allowed all consumers to purchase unlimited quantities of subsidized commodities. The most well-to-do segments of society benefited the most because of their ability to purchase larger quantities, particularly of wheat, which absorbs the largest amount of the subsidy. It became clear that it was necessary to reform the scheme to improve the efficiency of food subsidies and reduce the amounts of resources that had to be subsidized in light of the high rate of population increase and Jordan’s heavy reliance on imported food items.

Consequently, the food coupon scheme was introduced at the end 1990 to contain the cost of food subsidies and ensure the just distribution of specific quantities of food items to all consumers. Through the scheme, rations of sugar, rice, and powdered milk are distributed to virtually all consumers at subsidized prices, with additional quantities made available at higher prices. The Ministry of Supply distributes the coupons to all families through its offices. The introduction of the food coupons reduced the cost of subsidizing the three commodities from JD 44 million in 1990 to JD 8 million in 1994, although part of the reduction is attributed to the decline in the prices of these commodities during those years. To improve the lot of low-income groups, the government in 1994 excluded individuals with monthly incomes exceeding JD 500 from eligibility for food coupons. As a result of this scheme, the government successfully reduced the cost of subsidies from 3.9 percent of GDP in 1990 to about 1.0 percent in 1994 (Table 1).

Table 1.

Jordan: Expenditure on Foodstuff

(In percent of GDP)

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Source: World Bank (1994b).

Cash Transfers

The NAF was established in 1987 with the objective of protecting low-income groups by providing direct cash assistance to those who cannot enter the labor market and, to a lesser degree, by offering loans to individuals planning to establish their own businesses. The NAF provides monthly cash assistance of JD 15 to eligible heads of families, in addition to JD 5 to the spouse and each child, with a maximum of JD 50 a family. Families with an income exceeding JD 50 are not eligible for NAF benefits. The maximum limit of benefits for each family was raised by JD 10 in 1993.

The eligibility criteria for NAF benefits include the following: head of the family is unable to work, the family does not have any income or assets, and it does not receive assistance from other sources. Thus, the NAF’s coverage does not include the working poor, the unemployed who can work when the opportunity is available, or poor families who own assets or have relatively rich relatives. It is worth noting that the NAF’s coverage rose from 1.4 percent of the population in 1988 to 3.5 percent in 1994. This is mainly attributed to the rise in the poverty level (Table 2).

Table 2.

Jordan: NAF Cash Transfers

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Source: World Bank (1994b).

Loans are extended without interest and are strictly limited to persons who cannot enter the labor market, but who have the ability to establish their own businesses. The ratio of loans extended by the NAF to its overall volume of work dropped from 27.6 percent in 1990 to 8.0 percent in 1994.

Health Subsidies

To provide subsidized health services to low-income groups, the government distributes health cards to individuals whose income is less than JD 200 a month and to the handicapped regardless of their income level. Holders of these cards have access to subsidized health services offered by the government to its employees and to the army at low fees. In some cases, the fees are waived. The private sector and foreign relief agencies, such as the UN Relief and Works Agency (UNRWA), also extend health services, but the government is the main provider of services, particularly for low-income groups.

Other Components

The other components of social safety nets include the Zakat Fund, NGOs, and UNRWA. The Zakat Fund is financed through private contributions and is administered by the ministry charged with religious charities and institutions (Al Aw’qaf). Benefits extended by NGOs are concentrated on aid, relief, and development of human resources. The activities of these organizations involve establishing infrastructure and social projects to create labor opportunities for the poorest groups and improve their living standards and provide training and aid for children. These organizations depend largely on external aid to finance their projects; such financing constituted 60 percent of their revenues in 1991. UNRWA offers in-kind aid to large families.

Social Safety Nets: An Overview

Table 3 lists the various components of social safety nets in Jordan. With regard to transfers, it is apparent that the three related schemes, namely, the NAF, food coupons, and health cards, vary in cost, coverage, and average benefits. In 1992, food coupons absorbed 70 percent of the cost of transfers and covered almost two-thirds of the population. In comparison, the cost of the NAF amounted to one-fourth of total transfers and covered less than 3 percent of the population, while the cost of health cards accounted for 5 percent of total cost transfers and covered about 9 percent of the population. However, although the coverage of the NAF is modest, an individual’s average monthly transfers are more than 8 times what is provided by food coupons and 15 times the benefits of health cards.

Table 3.

Jordan: Social Protection Programs

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Sources: World Bank (1994b); and national sources. Note: Figures may not add to totals because of rounding.

With the exception of health cards. Data for 1994 are not available.

The NAF’s cost increased in 1994 to more than two and a half times its previous level, and the average amount of transfers rose by approximately 40 percent; the coverage of the programs also rose by about 40 percent. The increase in coverage from 105,000 persons in 1992 to 147,000 persons in 1994 is attributed to the increase in the poverty level. In comparison, the cost of food coupons remained at the same level, but its coverage rose by 58 percent, thus covering 91 percent of the population, resulting in a 44 percent reduction in the amount of transfers. As a result, the average amount of transfers from the NAF increased to 20 times the amount of transfers through food coupons. In contrast, the cost of the general subsidy for bread amounted to barely twice the cost of overall transfers in 1992. It dropped owing to the government’s endeavors to reform the subsidy system and to the introduction of food coupons.

Social Conditions of Low-Income Groups

The data available on household income and expenditures are based on a 1992 survey, and those on family expenditures are based on a basket of selected basic food and other commodities at 1987 prices. These data show that developments in economic performance had a direct effect on the absolute poor and low-income groups. During the first half of the 1980s, the living conditions of the low-income groups improved noticeably as a result of the economic boom witnessed since the mid-1970s. The proportion of the population below the poverty line dropped from 24.5 percent in 1980 to 3 percent in 1986, according to data on family expenditures on a basket of selected consumer goods, while data on household expenditure indicate that the whole population was above the poverty line in 1986. On the other hand, the gap between the poverty line and average per capita expenditure of the low-income groups (poverty gap) declined to 0.3 percent from 7.5 percent during the same period.

In the second half of the 1980s, the real incomes of families declined as a result of the deterioration of the economy together with the adjustment measures taken—particularly the reductions of real wages in the public sector, which employs 50 percent of the labor force; reductions in other current expenditures; the devaluation of the dinar exchange rate; and the liberalization of prices. Moreover, the population growth rate (including laborers returning from abroad) increased by 34 percent during 1987–91. As a result, the proportion of the population below the poverty line increased from 3 percent in 1986 to 15 percent in 1992 (Table 4). The poverty gap rose from 0.3 percent in 1986 to 3.7 percent in 1992. The Jordanian authorities estimated that, in 1992, 21.3 percent of families lay below the absolute poverty line.

Table 4.

Jordan: Developments in the Conditions of the Poor

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Sources: World Bank (1994b); and national sources.

Developments in the living conditions of low-income groups during the two periods were accompanied by changes in income distribution, represented by the Gini coefficient. In the first half of the 1980s, the increase in the average general income compensated for the impact on beneficiaries of decreases in transfers and led to an improvement in income distribution. From the second half of the 1980s until 1992, the deterioration of the economy affected virtually all social groups, however, worsening the standard of living of the rural and urban populations. Income distribution worsened as the standard of living of the rural population deteriorated more than that of the urban population. Low-income groups in Jordan are not confined to a specific geographic area, but are equally distributed between urban and rural areas. Moreover, they are not concentrated in one sex or among the unemployed.

Unemployment Rate and Structure

Unemployment is one of the difficult problems Jordan is facing, with the rate increasing from 5.4 percent in 1984 to 19 percent in 1991 (Table 5). This high rate is attributed to a number of factors, including the reduction in investments, the relative weakness of the productive sector, the negative impact of price and wage policies, and the inability of the economy to create work opportunities for new entrants to the labor market. The return of a large number of expatriates from neighboring countries has aggravated the problem and exerted further pressures on labor conditions, despite the efforts of the public sector—which now employs about 50 percent of the labor force—to absorb the new entrants.

Table 5.

Jordan: Unemployment Rate

(In percent)

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Source: World Bank (1994b).

Unemployment is mainly concentrated among the young and rises as their educational level increases. Three-fourths of unemployed males and all unemployed females are under 30 years (Table 6); 44 percent of unemployed males and about 87 percent of unemployed females have obtained secondary and higher education. These percentages increase to 68 percent and 95 percent, respectively, when those with intermediate education are taken into consideration. Thus, unemployment in Jordan is considered to be largely a problem of the educated. The roots of the problem lie in the government’s education strategy, which achieved rates of adult education that are among the highest in the Arab countries: 80 percent for men, 70 percent for women, and 97 percent for 15- to 19-year-olds. The high unemployment rates among educated youth have led to strong competition for manual jobs that do not require high skills or training, with the result that uneducated labor is crowded out.

Table 6.

Jordan: Unemployment Rate by Age and Gender

(In percent)

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Source: World Bank (1994b).

Concluding Observations

It is clear from Jordan’s experience that the authorities have endeavored to reinforce their social safety nets to mitigate the adverse effects of adjustment programs on low-income groups. Toward this end, they have established new schemes designed to reach these groups more effectively. In this context, the NAF was established to extend cash assistance to those who are not capable of working, do not have other sources of income, and do not own assets. Food coupons were introduced to ensure the provision of specific quantities of subsidized food commodities to individuals whose income fell below a defined level. Finally, health cards were distributed to low-income groups to enable them to obtain subsidized health services.

Notwithstanding these efforts, the following observations can be made about Jordan’s experience:

  • (1) NAF benefits do not cover the working poor, the unemployed who can work when employment opportunity is available, and poor families who either own assets or have rich relatives. Beneficiaries of NAF benefits accounted for about 3.5 percent of the population in 1994, which is much lower than the estimate that low-income groups comprise 6.6 percent of the population.

  • (2) The coverage of food coupons, which were introduced as an optional targeting mechanism, rose from 65 percent of the population in 1992 to more than 91 percent in 1994, suggesting that almost the whole population that year received these benefits. Although individuals with monthly incomes exceeding JD 500 were excluded, this level of income is still considered higher than average for these groups and should be lowered to better target the poorest segments of the population.

  • (3) In light of the increasing unemployment rates, there is a growing need for programs to train unemployed workers and to assist them in seeking employment and starting their own businesses. However, the unemployment rate among the educated may warrant a revision of educational programs to make them more in tune with labor market requirements. The unemployment situation may worsen with the implementation of privatization programs and the retrenchment of the civil service envisaged by the adjustment programs, because either case may result in labor shedding.

  • (4) Expenditures on the various social safety net programs according to some estimates accounted for 6.6 percent of GDP during 1990–94 (Table 7). In light of the need to strengthen the social safety nets and to initiate programs that address unemployment, the sustainability of such expenditures becomes questionable. This calls for further efforts to improve the more efficient schemes that better target the low-income groups and to reduce their reliance, in the long run, on the services provided by the net.

Table 7.

Jordan: Public Expenditures on Social Transfers

(In millions of Jordan dinars)

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Source: World Bank (1994b).

The Experience of Algeria

Social Safety Net Prior to Reform

The social safety net in Algeria comprised the social insurance system, consumer subsidies, and social assistance programs.

Social Insurance System

This system is administered by three funds that constitute the source of all social insurance benefits. The National Fund for Social Insurance for Tunisia insures employees in agricultural and non-agricultural activities in the private and public sectors, as well as students and civil servants. It provides insurance against old age and work-related injuries, as well as medical leave and family assistance. It receives and collects the proceeds from social insurance contributions and supervises the health service system. The second is the Pension Fund, which provides pensions to members of the National Fund for Social Insurance in addition to other social and family benefits for pensioners. It does not receive contributions, but gets a portion of the contributions received by the National Fund for Social Insurance. The third fund caters to independent and unemployed workers and provides all services extended by the first two funds except family assistance.

The number of participants in the system (workers, pensioners, and the handicapped) reached 4.9 million persons in 1991, about 3.5 million of whom represent 58 percent of the labor force in the nonagricultural sectors (Table 8).

Table 8.

Algeria: Coverage of Social Insurance System, 1991

(In thousands)

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Source: World Bank (1994a).

With regard to health care, there is no differentiation in the services provided to contributors and noncontributors. Free health care is provided equally to everyone.

Consumer Subsidies

Consumer subsidies, which cover foodstuff, energy products, and basic public services, are one of the tools the government uses to protect low-income groups and to ensure them acceptable living standards. They are extended either explicitly or implicitly through producer price subsidies.

Subsidies are extended through the compensation fund to 18 food commodities, including wheat, maize, barley, rice, semolina, flour, powdered milk, and sugar. It is estimated that food subsidies extended through this fund in 1991 amounted to 20 percent of the total average per capita expenditure of the poorest 10 percent of the population. However, because these subsidies were extended in a general way, with no criteria for eligible beneficiaries and no limits on the quantities that could be purchased, it is estimated that 60 percent of the expenditures on subsidies benefited the richer half of the population. Subsidies of energy products are extended mainly through Sonatrach, the Algerian national oil and gas company.

Social Assistance Programs

Social assistance is provided through two programs: the family assistance program, implemented in the context of the social insurance system; the second is administered directly by the government.

The first program assists the families of all active workers and pensioners who contribute to the social insurance system. For employees in the nongovernmental sectors, these benefits are financed by employers through their contributions to the National Fund for Social Insurance. As for civil servants, these benefits are financed by the treasury, while benefits for children are financed by the pension fund. These benefits include a cash allowance of DA 40 a month for every child up to the age of 17, and a school allowance of DA 25 a month for every child in school between the ages of 6 and 21. These allowances are provided regardless of the family’s income or number of children.

Through the second program, the government provides direct financial assistance to the handicapped and the elderly as well as pensions for the mujahideen and their families (separate from the pension benefits provided by the social insurance system). In addition, the government provides through this program scholarships for the children of poor families and food assistance to all school children in remote areas. To be eligible for assistance, the head of the family must be incapable of working and have no large financial resources (Table 9).

Table 9.

Algeria: Contribution Rates of Employers and Wage Workers in the Productive Sectors

(In percent of total wages)

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Source: World Bank (1994a).

Employment and Minimum Wage Level

Policies on employment and wages have been an important aspect of the government’s strategy to ensure adequate living standards for the population. To secure almost full employment, labor codes have greatly restricted the ability of employers to fire their employees. In addition, these codes were designed to ensure that employees received a number of benefits from their employers, including transportation, accommodation, and leave. The minimum wage level has been continuously raised to provide employees with a minimum acceptable income.

Social Safety Net During Reform

With the implementation of the structural adjustment programs, the authorities embarked on a review of the social safety net, with the objective of providing targeted services to low-income groups, tackling the unemployment problem, and ensuring the sustainability of the various schemes, particularly in light of the new strategy envisaged in the context of reform programs that seeks to orient the economy toward market mechanisms.

As a result, subsidies for consumer prices were reduced, and at the same time new schemes were established to compensate low-income groups for the effect of this reduction. In addition, the value of family benefits was increased, new labor legislation was enacted with more flexibility, new labor training programs were initiated, and a fund was established to provide unemployment insurance.

Consumer Subsidies

In 1992 the authorities undertook to address the unsustainability of the subsidy system and to reduce the budget deficit and reform the price system to make it reflect real costs. To this end, they removed the subsidy on most food items, with the exception of semolina, flour, and powdered milk. They also raised the prices of energy products and reduced subsidies on them. As a result, subsidies on food commodities dropped as a percentage of GDP from 4.7 percent in 1991 (the highest level reached) to 2.7 percent in 1992, and further to 2.1 percent in 1993. This percentage is expected to continue in its downward trend in view of the reforms currently under implementation (Table 10).

Table 10.

Algeria: Cost of Subsidized Food

(In percent of GDP)

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Source: World Bank (1994a).

Social Assistance Programs

In their efforts to improve and strengthen the social assistance provided, the authorities raised the level of benefits extended through the traditional program implemented through the social insurance system and introduced a new program. Under the traditional program, family allowances were raised to DA 140 from DA 40, and school allowances to DA 250 from DA 25 by the end of 1991.

The new program became effective in 1992, with the objective of compensating the poor and vulnerable for the reduction in food subsidies. Thus, the level of benefits extended was initially determined such that it would compensate for the loss of income resulting from the increase in the price of subsidized commodities. These benefits are provided mainly through the social insurance and pension funds and are financed by the treasury. This program is better targeted to eligible beneficiaries and is characterized by low management costs. It consists of four schemes designed to help three categories of families: (1) low-income families with one working member, (2) low-income pensioners, and (3) families who do not have any source of income.

The first category of families benefits from the first two schemes. The first scheme provides each employee contributing to the social insurance system with DA 60 a month for every child in addition to the previously mentioned allowance. It is administered by the social insurance fund and is financed by the treasury. The second scheme provides each employee whose monthly income is less than DA 7,000 and whose spouse does not work with an allowance of DA 500 a month. This assistance is paid by the employer, who is later reimbursed by the compensation fund.

The second category of families benefits from the third scheme. Each pensioner who is a head of household and is handicapped as a result of work-related injuries or who is a military pensioner with an income of less than DA 7,000 and whose wife does not have a source of income receives DA 120 a month for himself and for each member of his family. This assistance is paid by the social insurance or pension fund and is reimbursed later by the compensation fund.

Finally, the third category of families benefits from the fourth scheme, under which each family head who does not have, or whose wife does not have, any source of income receives DA 120 a month for himself and for each member of the family. This assistance is considered to be closely targeted to the poor; it is administered by the ministry of social affairs in cooperation with the postal system and is directly financed by the treasury.

The total number of beneficiaries from the different schemes is estimated to have reached 15 million by 1992, the equivalent of 60 percent of the population. A comparison of the four schemes reveals that the first and fourth schemes have the most extensive coverage, benefiting 38 percent and 34 percent of the total population, respectively (Table 11).

Table 11.

Algeria: Coverage and Cost of Cash Transfer Benefits

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Source: World Bank (1994a).

Programs Related to Labor Force

To tackle the unemployment problem, the authorities enacted a new labor code in 1990, established a program to help Algerian youths find employment, and created an unemployment insurance fund in 1994. The new labor code seeks to introduce flexibility into the labor market as required by the orientation of the economy toward market mechanisms. According to this code, the government, other than setting the minimum wage, ceased to play a formal role in determining the wages or level of employment of any enterprise.

Labor contracts under the new code are reached through collective bargaining between the employer on the one hand and labor unions and employees on the other. In addition, the code provides flexibility to these contracts, allowing excess workers to be laid off for economic reasons, provided that all other alternatives have been explored, that collective bargaining has taken place, and that no new employees will be recruited to replace those laid off. The code requires the employer to extend severance pay to laid-off workers and provide training for its employees.

The youth employment program represents the government’s central concern—to reduce unemployment among this segment of the population. Its objective is to assist young people who are seeking employment for the first time and to help those who have been laid off to establish their own businesses. The program encourages the establishment of cooperatives, small businesses, and community-based public works as well as training programs for innovative activities, particularly in business administration. All cooperatives and small businesses established are financed up to 30 percent through the fund for youth employment assistance, which is a special account in the treasury. The remainder is financed by credit extended by one of the banks associated with the program. To encourage banks to extend the required credit, a joint fund administered by the local development bank was created to provide guarantees to cover up to a maximum of 70 percent of such credit. Moreover, the community-based public works provide employment opportunities for young job seekers for short periods of six to nine months. These works are financed by the social assistance fund. Training programs are mainly directed to uneducated youth, to assist them in acquiring the skills necessary to join the labor force or establish their own businesses.

Finally, an unemployment insurance fund was established in 1994 to provide lump-sum payments for laid-off workers. These payments are extended for a maximum of three months, and beneficiaries are not eligible for other benefits. Eligibility for these payments was restricted so as to give the beneficiaries an incentive to seek new employment.

Social Conditions of Low-Income Groups

There are no official measurement criteria for the poor in Algeria that can be used to assess developments in their living conditions. The minimum wage level is a basic instrument through which the authorities ensure a minimum acceptable living standard. It has been continuously adjusted and was raised from DA 1,500 at the end of 1989 to DA 3,500 by mid-1992, and DA 4,000 at the beginning of 1994 (Table 12).

Table 12.

Algeria: Minimum Wage Level

(In Algerian dinars; quarterly average 1985 = 100)

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Source: World Bank (1994a).

Based on the 1989 survey of household income and expenditure, average per capita consumption amounted to DA 9,000 (Table 13). The distribution of per capita expenditure of various segments of the population during 1989 indicates that the majority of the population had low levels of consumption. The proportion of the population falling between the minimum wage level of DA 1,500 and average per capita expenditure of DA 9,000 reached 70 percent in that year.1

Table 13:

Algeria: Annual Consumption, 1989

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Sources: Algeria, Office national des statistiques (1991); and other national sources. Note: The first decile is the poorest of the population, and last decile is the richest of the population.

In spite of the large concentration around low levels of expenditure, distribution has been characterized by wide disparities compared with countries of similar status, owing to the existence of a small group (the richest decile) whose level of expenditure exceeded the average level by threefold.

The United Nations Development Program (UNDP) (1994) estimates that 5.9 million people were living in absolute poverty in 1992, 3.1 million of whom lived in the rural areas. Based on these data, 27.4 percent of the total population (26.5 percent of the rural population and 19 percent of the urban population) lived in a state of absolute poverty in that year. However, it is not clear what criteria were used to measure absolute poverty or the number of people that fell in this group.

Unemployment Rate and Structure

Until the end of the 1980s, the development strategy Algeria pursued was designed to ensure adequate standards of living by providing work opportunities, particularly in public sector institutions, as well as by creating a comprehensive social insurance system. Public sector institutions absorbed increasing numbers of workers until the state became the largest employer by 1987. In contrast, the private sector employed 70 percent of all workers in its industries in 1968; this percentage dropped continuously to 19 percent by 1987. However, as economic conditions deteriorated, the capacity of the productive public institutions to absorb new labor dropped, and the government sector replaced them in absorbing the increase in the labor force (Camdessus, 1990).

Unemployment has increased steadily since the beginning of the 1980s, more than doubling between 1985 and 1993, from 9.7 percent to 24.3 percent (Table 14). This unabated increase has been the result of high population growth rate on the one hand and a declining demand for labor on the other.

Table 14.

Algeria: Unemployment Rates

(In percent)

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Source: World Bank (1994a).

The rehabilitation of the public institutions that is under way is expected to have a negative effect on employment levels. It may well lead to an increase in the unemployment rate among the oldest members of the population, particularly in light of the new amendments in the labor code.

Unemployment in Algeria is highest among youth. About 65 percent of the population is under 25 years of age. The unemployed in this age group constituted 66 percent of the total unemployed population in 1989 and 1991. The unemployment rate in this age group is also much higher than that of the older groups (Table 15). In contrast, the rate of unemployment decreased during 1985–91 among the uneducated and increased among the educated (Table 16). Among the latter, the proportion of the unemployed with intermediate, secondary, and university education has increased steadily.

Table 15.

Algeria: Unemployment Distribution

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Source: World Bank (1994a).
Table 16.

Algeria: Unemployment Rate by Education

(In percent)

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Source: World Bank (1994a).

Final Observations

It is apparent from Algeria’s experience that the authorities have endeavored to reinforce their social safety net to protect low-income groups from the adverse impact of adjustment programs. To this end, they introduced new schemes that would respond to the needs of these groups more effectively, including a new social assistance program—which raised the level of benefits extended through the traditional program—new labor legislation, training programs for unemployed youth, and an unemployment insurance fund.

Against this background, the following points should be noted:

  • (1) There is a shortage of data and information on low-income groups, which restricts the authorities’ ability to design programs that can target these groups or improve the current programs for this purpose.

  • (2) Social assistance programs fall within the scope of the social insurance system, whose services are restricted to contributors. Thus, family assistance that is a cash transfer is treated as an insurable risk and is financed by the social insurance fund for employees in the nongovernment sectors and is not covered by the treasury. The restriction of benefits to contributors also applies to the first scheme of the new social assistance program, which was established during the reform period to compensate low-income groups for the reduction in food subsidies. It is administered by the social insurance system, and thus only the contributors to the system benefit.

  • (3) There seems to be a great deal of overlap between the various programs, which could result in some groups receiving double benefits while others are deprived of some benefits. In light of the growing level of expenditures allocated to these programs, which rose from 8.6 percent of GDP in 1984 to 12.5 percent in 1993 (Table 17), there seems to be a need to reform and rationalize the system in a comprehensive way.

  • (4) Finally, the unemployment problem may be further aggravated in the short run with the move toward a market economy, as envisioned by the strategy Algeria is now pursuing. Among the measures the strategy calls for are the rehabilitation and eventual privatization of public enterprises. Because this could result in a shedding of labor at these enterprises, training efforts must be intensified to assist the unemployed seeking jobs in the private sector and to encourage them to establish their own businesses. Moreover, the rise in the unemployment rate among educated youths may be a clear indication of the need to review educational programs, especially in light of the move toward a market-oriented economy.

Table 17.

Algeria: Public Expenditures on Social Transfers

(In millions of dinars, unless otherwise indicated)

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Source: Algerian authorities.

The Experience of Tunisia

Social Safety Net Prior to Reform

The components of the social safety net in Tunisia are the social insurance system, food subsidies, social assistance, and rural development and recruitment programs.

Social Insurance System

This system is administered by four funds, which are the source of most of the benefits. Two funds administer all schemes and programs related to the private sector, and the other two relate to the public sector. The private sector funds are the National Fund for Social Insurance and the Pension Fund. The first fund provides benefits to individuals running their own business, employees in the private sector, Tunisian nationals working abroad, and employees in some government-owned institutions. It provides family allowances, health insurance, social security, and temporary allowances for the unemployed. It registers new applicants, collects contributions, and supervises medical services. The Pension Fund provides benefits to the private sector employees who contribute to the National Fund for Social Insurance. It also provides pensions and social and family allowances to the pensioners. This fund does not receive any contributions, but it receives a part of the revenues from contributions to the National Fund for Social Insurance.

The two funds that relate to the public sector are the National Pension Fund and the pension fund for employees working in electricity, gas, and transportation. These two funds provide services to civil servants working in local governmental sectors and some public institutions. They provide health insurance, insurance against old age and incapacitating injuries, and pension insurance. They do not provide family allowances, which are extended by the government.

Food Subsidies

Subsidies are administered by the compensation fund. Subsidized food commodities include cereals (wheat and barley), oil, milk, and sugar and are available with no limitation on quantity purchased or on eligibility on the basis of income. It is estimated that the rich are benefiting from the subsidies more than the poor. In 1990, the poorest 13 percent of the population received 9 percent of total food subsidies, while the richest 13 percent of the population received 18 percent of total subsidies. The poorer half of the population received only one-third of the total (World Bank, 1993).

Social Assistance Programs

Social assistance is provided through two programs, the first run by the social insurance fund, and the second by the government. The first program, which is the family assistance program, provides allowances for families on the basis of the number of children and the job status of the husband or wife. To be eligible, the head of the family must be insured and have children. Students may also benefit from this allowance without having to be insured. This assistance, although modest, constitutes a large contribution to the income of poor families. It includes family allowances, extended to families with one of the spouses employed, modest allowances to owners of small businesses, and maternity assistance.

The coverage and nature of financing vary between the private and public sectors. In the private sector, this assistance is extended to wage-earning employees, pensioners, and students who are associates of the national insurance and pension funds. The poor and the unemployed with children are not covered. Child allowances are provided for each child up to the age of 14 years and to those between the ages of 14 and 21 years if they are students in secondary or vocational schools. In the public sector, coverage is comprehensive. Child allowances are extended for each child up to the age of 21 years. In all cases, the amount of the allowance increases with the number of children up to a maximum of three.

For private sector employees, these allowances are financed through their contributions to the National Insurance Fund. During 1985–91, these contributions doubled and exceeded noticeably the benefits obtained (World Bank, 1993). Allowances for public sector employees are financed through the government budget. The amount of these allowances (for both public and private sector employees) decreased in 1989 in comparison with 1985 and remained stagnant during the following two years (Table 18). The decline is attributed to the reduction in the number of eligible children from four to three for each family. In the face of increases in the consumer price index, this has led to a decline of the real value of these allowances.

Table 18.

Tunisia: Family Assistance

(Index 100 = 1986)

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Source: World Bank (1993).

The second program, which is the social solidarity program, administers and distributes the temporary and permanent assistance extended to low-income groups. It includes cash transfers to needy families and the elderly, monthly food aid to children in nurseries, and direct and indirect assistance to the handicapped. It is financed directly from the budget, foreign assistance, and local contributions (Table 19).

Table 19.

Tunisia: Financing the Social Solidarity System

(In percent)

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Source: World Bank (1993).

Rural Development Programs

To alleviate rural poverty and reduce the difference in living standards between rural and urban areas, the authorities have established a number of programs, whose objectives include extending assistance to low-income rural groups, financing infrastructure projects and industrial and touristic zones, and creating work opportunities.

Labor-Related Programs

To tackle unemployment, the authorities initiated a program to help holders of secondary vocational diplomas find jobs. Measures include providing part of their wages and exempting employers from paying the obligatory insurance premium on behalf of employees on condition that the candidate is fully hired by the end of the year.

Social Safety Net During Reform

The authorities developed their social safety net by creating new programs and reinforcing existing schemes to ensure better targeting of the poor and vulnerable groups. Measures included improving the system of subsidies and initiating new programs for social assistance, health, and employment.

Food Subsidies

In light of the high cost of subsidies and the need to reduce expenditures and implement financial reforms, the authorities embarked on reforming the system. In this context, they gradually increased the prices of subsidized goods and took steps to decrease local production costs. Moreover, subsidies were shifted to “inferior” commodities, which are mainly consumed by low-income groups, while commodities of “superior” quality are made available at higher prices. As a result, expenditures on subsidies as a percentage of GDP declined almost by half, from 4.3 percent in 1984 to 2.4 percent in 1991 (Table 20).

Table 20.

Tunisia: Cost of Food Subsidies

(In percent of GDP)

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Source: World Bank (1993).

Social Assistance Program

The national program for deprived families was established in 1986. Its objective is mainly to cushion the negative transitory impact of economic adjustment programs on low-income families resulting from trade liberalization and reduced consumer subsidies. To be eligible, the head of the household must be either unemployed or an invalid, must not have any income or source of financial assistance or family support, and must not be covered by the social insurance system. The number of eligible families benefiting from this assistance rose from 60,000 in 1986 to 100,000 in 1991 (Table 21). Total benefits extended increased threefold during that period, and benefits provided to each needy family increased fivefold. The real value of these benefits increased threefold during the same period.

Table 21.

Tunisia: National Program for Deprived Families

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Source: World Bank (1993).

Health Services

To provide free or subsidized health services to low-income groups, the authorities introduced two schemes. Under the first scheme, 100,000 families receive free health services. Under the second scheme, however, eligible families receive health cards that entitle them to free and subsidized services. The number of families benefiting under the second scheme reached 660,000, or 40 percent of the population. This wide coverage is attributed mainly to the low fees of the health cards, which encourage cardholders to avoid membership in the costlier health insurance provided in the context of the National Fund for Social Insurance.

Labor-Related Programs

In their efforts to address unemployment, the authorities established three programs, the first of which provides financing for public works in order to create jobs for youth. Such works include road maintenance and restoration of public buildings. The second program, which is two tiered, aims at creating employment opportunities. In its first tier, the program reinforces small and medium-sized industries by providing the necessary financing. The second provides technical and financial support to craftsmen interested in establishing their own enterprises under an arrangement whereby the employer provides 4 percent of the necessary financing and receives government subsidies equivalent to 36 percent, while the remainder is financed at a subsidized interest rate by a commercial bank.

The third program relates to training and recruiting young people and comprises two components. The first component, cofinanced by the World Bank, provides training for young job seekers and assistance to enable them to work in the productive enterprises of the private sector. The second component prepares holders of a high school certificate or diploma to join the private sector. The program bears the salary for one year with the understanding that the worker will be recruited on a full-time basis after that.

Social Conditions of Low-Income Groups

The criteria for poverty measurement in Tunisia are based on the economic plan of 1961, which set the minimum acceptable living standard—or that expenditure level that would provide the necessary minimum level of consumption of foodstuff and other commodities—at D 50 a person a year. It has begun to be considered the poverty line and was adjusted later in light of changes in prices. In view of the differences in consumption patterns and cost of living between the rural and urban areas, the authorities distinguish two lines of absolute poverty, one for the urban area and the other for the rural area (Table 22). Two points are worth noting in this regard. First, the poverty line accepted officially by the Tunisian authorities is considered low compared with that in countries of similar economic levels and with World Bank estimates. The rural poverty line for 1991 was set at D 139, whereas the World Bank estimates D 326 and D 241 for the absolute and severe poverty lines, respectively (United Nations Development Program, 1994). The poverty line for the urban areas is merely the double of the level for rural areas.

Table 22.

Tunisia: Poverty Line for Rural and Urban Areas

(In dinars a person a year; current prices)

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Source: World Bank (1993).

Official data on household consumption show that the Tunisian authorities achieved great success in reducing the number of people below the level of absolute poverty during 1967–90 (Table 23). The number of poor people dropped continuously during that period from 1.5 million in 1967 to 0.5 million in 1990. As a result, the proportion of the poor to the total population dropped steadily from 33 percent to 6.7 percent during the same period. The decline was slower during the latter half of the 1980s. The proportion of the poor to the total population declined by 61 percent during 1967–80 and by 40 percent during 1980–85. But during the reform period of 1985–90, it dropped by about 13 percent.

Table 23.

Tunisia: Distribution of the Poor Between Rural and Urban Areas

(In thousands of persons)

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Source: World Bank (1993).

The improvement in the living standards of the poor is also evidenced in the household index, which, during 1975–90, declined by one-fourth in urban areas (Table 24). The poverty gap index declined noticeably during 1975–85, although it increased slightly during the reform period. This outcome could indicate that, in spite of the decrease in the number of poor people, poverty deepened during the reform.

Table 24.

Tunisia: Development of Poverty Index

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Source: World Bank (1993).

UNDP sources, in contrast, indicate that the number of people suffering from absolute poverty was 1.4 million in 1992, of whom 0.5 million lived in the urban areas, and 0.9 million in the rural areas. In comparison, Tunisian officials estimated the number of poor in rural and urban areas in 1990 to be 0.5 million. UNDP data could be taken as an indication of deterioration in the level of poverty in Tunisia in the latter part of the 1980s and early 1990s. Although a lack of information about the measurement criteria used renders the data less definitive, the methodology of computing the state of absolute poverty is not revealed (United Nations Development Program, 1994).

Unemployment Rate and Structure

Data available on unemployment in Tunisia indicate that the unemployment rate increased with the deterioration in the economic situation before the implementation of adjustment programs and continued to rise noticeably afterward. The unemployment rate increased from 12.9 percent in 1984 to 13.4 percent in 1989 and 15 percent in 1991. Official data on the labor force do not include those between the ages of 15 and 17 years and those over 59 years. It is estimated that the unemployment rate for 1989 will reach 16.2 percent if these two categories are taken into consideration.2 However, 1989 data indicate that more than 47 percent of the unemployed are under 24 years of age and 69 percent are illiterate or have only an elementary school education, 66 percent of whom were unemployed for one year or more (World Bank, 1993).

Concluding Observations

There is clearly a great similarity between the experiences of Tunisia and Algeria. Therefore, the observation that a dearth of information plagues Algeria is also true for Tunisia. The modalities of social assistance programs in the context of the social insurance system, the possible overlap among the various programs, and the unemployment problem apply equally to Tunisia. What mainly characterizes the Tunisian experience is the shift of food subsidies to a class of commodities consumed mainly by low-income groups. This may be considered an appropriate approach to follow in improving the efficiency of a social safety net and increasing its ability to meet the needs of low-income groups more effectively.

Summary

The three countries under study have adopted economic strategies that aim to improve the living standards of the population as a whole and that accord special attention to improving the living conditions of low-income groups. To this end, these countries created social safety nets to provide basic social services to the population at large and cash and in-kind assistance to low-income groups to ensure a minimum acceptable standard of living. These services included education, health, housing, social insurance, food subsidies, minimum wage legislation, and cash transfers to the poorest families.

In face of the economic difficulties and the resultant financial and structural imbalances, these countries adopted stabilization and structural adjustment programs to redress the imbalances. To mitigate the adverse effects of these programs on the most vulnerable groups of society, they have taken steps to establish new social programs to assist these groups and to restructure and reinforce the existing programs and make them better targeted, as well as sustainable in light of the need for expenditure reduction. Moreover, Algeria and Tunisia expanded the programs designed to tackle the unemployment problem, especially among the young.

The social safety nets in Algeria and Tunisia are more extensive than that in Jordan. In 1991, the ratio of expenditure on the social safety net to GDP in Jordan (6.3 percent) was half as much as in Algeria (12.3 percent) and Tunisia (13.1 percent) (see Tables 7, 17, and 25).

Table 25.

Tunisia: Public Expenditures on Social Transfers

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Data available show that the standard of living of low-income groups in Jordan improved during the first half of the 1980s and deteriorated during the second half as the economy experienced increasing imbalances. The data also show that Tunisia achieved notable results, while for Algeria it is difficult to assess the situation owing to the absence of data.

The lack of complete and up-to-date information on the conditions of low-income groups in these countries makes it difficult to assess the efficiency of their social safety nets. However, it can be said that the nature of the services provided and the huge resources allocated for these purposes are a fair indication of the importance of the social safety nets. It can thus be said that these instruments have played an important role in alleviating poverty and that the conditions of the poor would have worsened without them.

The experiences of these countries clearly indicate their continuing efforts to develop their social safety nets. However, there is room for further improvement, particularly in targeting low-income groups, expanding services to cover workers in the informal sector, and maintaining accurate data for these groups—especially in Algeria, where there are no criteria for measuring poverty.

Finally, it is worth noting that, despite the importance of the social safety nets and their contribution to improving the living standards of low-income groups, these countries cannot, in the final analysis, tackle the problem of poverty in an acceptable manner unless they achieve balanced and sustainable economic growth so that human resources can be better employed and developed. What makes the achievement of this goal possible is that these three countries have decided in a determined way to continue with the reforms and consolidate the gains they have achieved to date by deepening and expanding the reform measures being implemented.

Comment

Abdul-Shakour El-Rayes

It is difficult to say for certain whether services provided through social security—particularly those related to salaries and retirement compensation—should be considered part of what we call the safety net. I believe that these services should be classified as social protection mechanisms, since they are basically concerned with former employees and workers in the public and private sectors, who are relatively fortunate in comparison with marginalized groups (unemployed and disabled persons and orphans). The same comment applies to social assistance programs (for example, in Algeria), where the allowance granted is usually tied to the wage system or special tax concessions for families and children. One argument against tying this type of assistance to the safety net is the large number of beneficiaries, which can be as high as 60 percent of the population.

In Jordan in 1994, persons with incomes of more than JD 500 became ineligible to receive food assistance cards. Yet the percentage of the population using the cards rose to 91 percent from 46.6 percent in 1992, when they were distributed to all sectors of society without regard to level of income. It is difficult to find an explanation for this situation, other than the fact that earlier use of the cards may have been limited by unofficial selective procedures.

In Tunisia during the period of economic adjustment, price subsidies for food items as a percentage of domestic production were reduced to one-half of earlier levels by allocating subsidies to lower-quality items. As this measure was restricted to dairy products, it is difficult to attribute the reduction in cost to this factor alone, since the largest part of the subsidies is allotted to grains, oil, and sugar.

The usefulness of policies favoring food and financial assistance is debatable, because such policies are characterized by their high cost and the difficulty of determining which groups are eligible for assistance. They also tend to promote dependency and a lack of initiative, as demonstrated by the increasing rate of growth in the number of recipients. The policy of subsidizing the cost of food and services is considered a transitional solution, but it is often difficult to phase out, because attempts to remove subsidies are perceived as attacks on the people. Thus, the implementation of real solutions is delayed, for the best safety net is actually to be found in sustainable economic and social development, improved standards of living, and a more just distribution of wealth.

If we consider the safety net to be a transitional solution, we must identify the measures that can provide permanent solutions to the problems of poverty in all its various manifestations. These include budget allocations for the various sectors of society, in accordance with a strategy aimed at determining the causes of poverty and creating effective mechanisms to combat it. Also of critical importance is the need to establish data gathering and monitoring centers to ensure that the policies being implemented are beneficial and are meeting the pressing needs of the people concerned.

Adjustment programs cannot be considered the principal cause of the social problems faced by many countries. Studies have confirmed that despite the negative effects of these programs on certain segments of society—which may be overcome in the medium term—they have actually improved the prospects of the weakest elements of society, compared with the situation they would be facing had such programs not been undertaken. Christian Morrisson, in the study he conducted on the experience of Morocco for the Development Centre of the Organization for Economic Cooperation and Development, confirms that the economic adjustment policy implemented in that country helped raise individual incomes by 1 percent each year during 1982–86.1 The study also claims that if Morocco had not implemented its adjustment policy, poverty levels would have increased sharply: by 18 percent during 1985–86 and by 76 percent during 1986, with an increase in income disparity of up to 90 percent in 1986.

Methods used to determine poverty and minimum standard of living levels must be based on objective standards, so that we may fully understand the problems society is facing, in order to find the appropriate solutions to be implemented at the appropriate time. The problems associated with poverty are not limited to food, health, and unemployment. Most important among the many other issues are education, housing, access to safe drinking water, and elimination of pollution and illiteracy. All of these issues must be incorporated into any policy designed to provide social support, promote economic development, and raise standards of living.

We should not forget that Arab and Islamic societies, unlike some other societies, provide a sort of natural safety net based on principles taught by Islam and deep-rooted traditions of Arab culture. Members of families, both large and small, help and support each other, especially in difficult times. This is a heritage that must be preserved and protected from being destroyed by the forces of modernism, including the breakdown of the family unit.

The Experience of Morocco

Poverty

To understand the causes of poverty and identify ways to reduce it, a number of measures have been taken and many studies have been conducted, several of which are discussed below:

  • (1) A national agency was created to conduct surveys on the standards of living of families with reference to 1983, the year in which the economic adjustment program was first implemented. This agency, in cooperation with the World Bank and the United Nations Development Program, surveyed the standards of living of families during 1990–91. The objective was to collect comprehensive data on living conditions to enable the authorities to develop appropriate economic and social programs and to evaluate the effects of these programs on low-income elements of society. The study revealed that most economic indicators (housing, education, and health) showed improvement during the economic adjustment period, except for employment, particularly in the cities. Unemployment was the greatest problem facing the country; studies based on the 1994 general census showed that unemployment had reached 16 percent throughout Morocco and 20.3 percent in the cities, with 70 percent of the unemployed consisting of persons under the age of 24.

  • (2) A 1993 World Bank report indicated some progress in poverty reduction, as the number of persons living in poverty fell from 4.6 million (21 percent of the population) in 1985 to 3.3 million (13 percent) in 1991.2 However, this improvement is somewhat distorted by the uneven distribution of benefits among certain elements of society, including women, rural areas, and certain other areas of the country.

  • (3) A study was conducted on the effects of public expenditures for social programs on low-income groups. Its goal was to assess the effectiveness of public expenditures on social programs and to prepare a plan for providing basic social services, taking into consideration the difficult current situation of the public treasury. The most important findings of the study centered on the following points:

    • Eighty percent of low-income families live in rural areas.

    • Eighty percent of public expenditures for social programs are for education, 13 percent for health, and 7 percent for potable water, environmental cleanup, and housing.

    • The poorest 40 percent of the population benefits from only 23 percent of these public expenditures.

  • (4) A study on the causes of poverty and safety nets revealed some unexpected causes of poverty for certain elements of society, listed in the order of their importance: drought (60 percent of families), sudden price fluctuations (24 percent), and livestock diseases (12.5 percent). Other important causes of poverty were death of a family member, serious illness of the breadwinner, and divorce.

Elements of the Social Safety Net

Apart from the social security system and health coverage, which, as mentioned above, can be considered mechanisms of social protection, the social safety net for the poor consists of the following elements:

  • (1) Compensation Fund. The purpose of this fund is to subsidize cooking gas, oil, sugar, and flour. During the economic adjustment period, subsidies were discontinued on premium-quality milk, butter, and flour, and the quantity of ordinary flour to be subsidized was fixed at 10 million qintars (1 qintar = 53.9 kilograms). The policy of price subsidies places a great burden on the state budget, which is constantly growing heavier owing to increases in quantities consumed, world market prices, the exchange rate, and production costs. The total cost of Compensation Fund expenditures rose from DH 1.4 billion in 1983 to approximately DH 5 billion in 1996. Studies conducted on this subject show that 47 percent of the relatively affluent benefit from these subsidies, compared with only 16 percent of the poor. To ensure a fair distribution of resources, the most pressing requirement is to revise the policy of price subsidies, which must effectively focus its efforts on the neediest elements of society.

  • (2) National Cooperative Foundation. This foundation provides support and assistance to the poor, orphans, and disabled persons in the form of food, training, and educational services for children. It coordinates the provision of food and housing to orphans and assistance to the handicapped through the efforts of 1,360 institutions serving 520,000 beneficiaries.

  • (3) National Foundation for Economic Recovery. This foundation endeavors to improve employment opportunities for the disadvantaged by developing communal work projects, reduce unemployment and rural migration, and involve ordinary people in the process of development. This foundation provides employment to approximately 70,000 persons a year, of whom 70 percent live in rural areas.

  • (4) School Lunch Program. This program provides meals to children from poor families, especially in rural and marginal urban areas. The number of children benefiting from the program grew from 570,000 in 1984 to 663,000 in 1986 and to 875,000 in 1995. This represents about one-third of all children enrolled in primary schools (first through fifth grades).

  • (5) Milk Distribution Program. Milk is distributed in health centers to improve the nutrition of needy children. Approximately 272,000 children participated in this program in 1991.

  • (6) Employment Development Program. In addition to approving a new charter to encourage investment and simplify administrative regulations, two new mechanisms were created. The first, established in 1987, is a fund to assist holders of graduate degrees who want to start businesses. The second, a fund to assist young people without graduate degrees, was founded in 1994. These two mechanisms have so far helped to create 5,850 businesses, stimulate investments of DH 3 billion, and create 24,000 new jobs. Half of the resources of the second fund are allocated to village areas. To encourage the incorporation of technical school graduates into the labor market, tax exemptions and other incentives have been approved for a trial period of 18 months.

  • (7) Natural Disaster Fund. This fund provides debt relief to small farmers adversely affected by drought. Assistance has been provided to 500,000 farmers, for a total amount of DH 1.65 million.

  • (8) Drought Relief Fund. This fund carries out activities within the scope of a wide-ranging program aimed at reducing the effects of drought and compensating victims for its effects. The activities focus on rescuing livestock, providing villages with potable water, and setting up workshops for productive farming activities. The total cost of this project is estimated at DH 3.7 billion.

  • (9) Program to provide insurance with facilitated conditions and protect the country against the effects of drought. The purpose of this program is to provide compensation to farmers for crops lost as a result of nondisastrous natural causes.

  • (10) Village and Social Sector Development. The relevant authorities are aware of the need to give high priority to developing rural areas that are far behind urban areas in terms of basic facilities and public services and where most of the poor live.

Priority is given to social programs within the scope of the national budget, where these sectors account for 44 percent of total expenditures excluding debt and for 30 percent of total expenditures including debt. An ambitious program has been developed to this end, including the following goals:

  • Connecting 100,000 residences to the public electricity network over ten years.

  • Improving the health care infrastructure, in particular the network of clinics and village health centers, which accounts for one-half of the budget of the Ministry of Health.

  • Providing 31,000 villages with potable water over ten years.

  • Dedicating the greater part of research efforts to rural areas (250 preparatory schools and 4,000 learning centers).

(11) Finally, mention should be made of the important role played by nongovernmental organizations, especially in the area of social programs. They provide services through assistance granted by individuals, governments, and international agencies in the fields of health care, education and vocational training, incorporating the disabled into society, assistance to disadvantaged children and orphans, and women’s issues.

Conclusions

As mentioned above, the structural program implemented by Morocco over the ten years 1983–93, in addition to producing a number of negative social effects along with significant positive developments as reflected by the economic indicators, helped create more favorable conditions for achieving significant improvements in the social indicators, as summarized in Table 1. These indicators do not provide sufficient evidence that the needs of the poor are being adequately met. Henceforth, the responsible authorities will place particular emphasis on social development in rural areas.

Table 1.

Morocco: Selected Social Indicators

(In percent, unless otherwise indicated)

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Source: Ministère de la Population, Direction de la Statistique.

Additional Comments—Jordan

Taher H. Kanaan

Jordan does not provide a particularly good example of successful implementation of policies to reduce the social costs of economic adjustment. The most that Jordan has accomplished has been to prevent the requirements of adjustment, particularly the need to reduce government expenditures, from forcing it to change the high priority given to education, health, and social development. Government policy has been sensitive to the social effects of economic reform both before and after the implementation of adjustment measures. The National Assistance Fund had already been in place for quite some time before these measures were implemented.

It is surprising that the most important step taken by the government with the specific purpose of addressing the social effects of economic adjustment was not mentioned in any of the seminar’s papers that discussed Jordan. I am referring to the Development and Employment Fund, which was established in 1992 with funding from the World Bank and other international development institutions. Its structure and objectives are similar to those of the Social Development Fund in Egypt, which was the focus of an entire paper presented at the seminar.

It is also surprising that none of the papers mentioned an important aspect of Jordan’s policies that focuses on the vulnerable elements of society and has been in effect for over 25 years, that is, credit facilities for these vulnerable elements. For more than a quarter of a century, the Agricultural Development Association has been granting concessional agricultural loans, especially to small farmers. There is also the Housing Bank, which grants concessional housing loans to the poor, and the Industrial Development Bank, which grants concessional loans to owners of small industrial projects. And, finally, there is a policy that has been in force for decades, related to interest rate differentials associated with concessionality (grant element) of development loans. In accordance with this policy, part of the difference between the concessional interest rate on these loans and the market interest rate is set aside and deposited in special accounts, which are earmarked for social development purposes.

Additional Comments—Algeria

Abdoulatif Benachenhou

I would like to discuss a number of points with respect to the situation in Algeria. First, the Algerian authorities have not been accustomed to addressing the problems of poverty; nor have they been prepared to deal with them. This is a completely new item on the agenda of these authorities, who have only slowly begun to develop a plan for building a social safety net. It was not until 1992 that importance was given to targeting certain sectors of society and allocating financial resources to specific areas of the country.

Second, the paper gives the impression that the assistance provided to unemployed workers covers all the unemployed, which is not the case. The unemployment assistance program was designed specifically to assist public sector workers who lose their jobs. As the restructuring of public sector industries has not yet begun, this assistance fund is not yet operative and it is therefore impossible to evaluate it. The situation is somewhat similar to that of Egypt, with unemployment resulting from privatization efforts.

Third, it is not possible to distinguish between government and private sector transfers in Algeria. The paper focuses on the public sector, or rather the safety net provided by this sector, but an appropriate evaluation should cover a more comprehensive safety net that includes private sector transfers. There are two sources of private sector transfers in Algeria: one is remittances from workers abroad, which have played an important role, perhaps more important than the social safety net provided by the public sector. One of the reasons they have been so important is the steady decline in the value of the Algerian currency over the past four years, which has increased the value of workers’ remittances with respect to the Algerian dinar. The total value of remittances over the past four years is estimated at DA 30 billion, compared with an estimated value of DA 24 million for the public sector’s social safety net. Voluntary nongovernmental organizations in Algeria are the other source of private sector transfers. Although some of these organizations have political objectives, the value of their transfers should not be underestimated.

My fourth point concerns the reliability of the safety net provided by the public sector. I would like to make a connection between this reliability and inflation. We have discussed the failure of policies to establish or restore stability in a number of countries. In my opinion, this failure owes to the inability to control inflation. Because social safety nets depend on cash transfers, the recipients of these transfers and their families incur significant losses whenever inflation rates increase. This is exactly what has happened in Algeria, where recipients of public sector transfers have suffered from annual inflation rates that have reached 20–30 percent. The question remains: how beneficial can social safety nets be if inflation is not kept under control?

My fifth and final point is related to policies designed to promote stability and their effect on informal economic activities. These policies have limited the scope of activities in the informal sector and eliminated many employment opportunities once offered by this sector. We might therefore conclude that policies aimed at promoting stability have increased the demand for social safety nets without at the same time providing the resources required to meet this increased demand.

Additional Comments—Egypt

Ismail Sabri Abdullah

Everyone agrees that implementing adjustment policies is difficult and painful, rather like surgery. Before discussing the international agencies and the adjustment programs they recommend, we should ask the governments concerned how things got to the point where “surgery” was required.

Egypt’s economic problems began under conditions of war, defeat, occupation of a portion of its territory, and interruption of revenues from the Suez Canal and petroleum revenues from the Sinai, in addition to the requirements of preparing for the war of liberation. Yet, despite the conditions of those difficult years, Egypt was transformed from a society whose expenditures depended on income derived from the domestic economy to one whose expenditures depended, to a large extent, on incomes earned abroad and on foreign borrowing. By 1973, the country’s foreign debt had reached about $2.8 million while the balance of trade showed a surplus, which was used to purchase weapons. Annual inflation was at about 4 percent in 1973 and economic growth remained positive, although it did fall to 2 percent from 3 percent. Under these circumstances, the people’s willingness to sacrifice and desire to erase the dishonor of defeat led them to accept an increase in direct taxes.

During the period that followed, a postwar economy with increased production capabilities was expected to evolve. However, the prevailing understanding among economic decision makers at the time was that development was simply a question of money, and the concept of financial growth became confused with the accumulation of capital. Egypt began to receive financial assistance from the oil-exporting countries and, after the Camp David agreement, from the United States. Revenues from the Suez Canal were restored, and Egypt once again began exporting oil, especially after the discovery of new reserves. The flow of remittances from workers in the member states of the Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) and Iraq also increased significantly.

But all these flows of money did not produce sufficient capital accumulation, while current and consumer expenditures increased and imbalances grew worse, especially when the government began to borrow money. It continued to take out large loans until its indebtedness reached $55 billion in the 1990s, most of it spent on consumer goods. A large portion of remittances from workers abroad, which amounted to $60 billion in the 1990s, was also devoted to consumer goods. There is no point in defending the hardships of adjustment by saying that there is no alternative other than to continue with the unacceptable status quo. This state of affairs has nothing to do with fate, but rather with decision makers whose policies caused the current situation and who must now accept their responsibilities instead of running from them and hiding behind the recommendations of international organizations.

References

  • Algeria, Office national des statistiques, 1991, “Situation de 1’emploi,” Collections Statistiques, Vol. 23.

  • Camdessus, Michel, 1990, “Aiming for ‘High-Quality Growth,’“ Finance & Development, Vol. 27 (September), pp. 10–11.

  • United Nations Development Program, 1994, Human Development Report 1994 (New York: Oxford University Press for the UNDP).

  • World Bank, 1993, Tunisia: The Social Protection System, Economic Report No. 11376 (Washington).

  • World Bank, 1994a, Algeria: Country Economic Memorandum: The Transition to a Market Economy, Economic Report No. 12048 (Washington).

  • World Bank, 1994b, Jordan: Poverty Assessment, Sector Report No. 12675 (Washington).

1

Within the framework of the social aid program initiated in 1992 (to be dealt with later), eligibility requirements for benefits specify that the income of the concerned beneficiary should be less than DA 7,000.

2

The increase in unemployment rates in these countries is partly attributed to the high growth rate of the population, which reached an annual average of 3 percent in Jordan and Algeria and 2.6 percent in Tunisia during 1975–90. Estimates indicate that the absorption of new entrants to the labor market during that period required the creation of 180,000–200,000 new jobs in Algeria and about 60,000–70,000 in Tunisia; in fact, only about 100,000 new jobs were created in Algeria and 45,000 in Tunisia.

1

Christian Morrisson, Adjustment mid Equity in Morocco (Paris: Organization for Economic Cooperation and Development, Development Centre, 1991).

2

World Bank, World Development Report (Washington, 1993).

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Cover The Social Effects of Economic Adjustment on Arab Countries
The Social Effects of Economic Adjustment on Arab Countries
ISBN:
9781557756053
Publication Date:
11 Apr 1997
Publisher:
International Monetary Fund
DOI:
https://doi.org/10.5089/9781557756053.071
Pages:
271