Reforms can save $4b a year in safety net spending: ADB
Bangladesh can save $19.32 billion over the next five years, or about $4 billion annually, if it can eliminate errors and leakages in the social safety net programmes and cut administrative and transaction costs, according to Asian Development Bank.
Under the financial assistance of the ADB, the government is going to initiate massive policy reforms in its safety net programmes. It will set up an integrated registry for all beneficiaries by June 2023 to avert mistargeting and duplication.
Last month, the Manila-based lender approved a $250 million policy-based loan as budget support and fixed timeframes to implement the reforms in the next five fiscal years.
The development lender has already shared a report with the government, giving details about the policy reforms under its social resilience programme, said an official at the Economic Relations Division.
The ADB-funded social protection reforms will enable the government to generate savings and revenue, said the report.
Evidence suggests that strong national identification systems linked to electronic payment systems can generate savings and revenue for the public sector by reducing duplication and leakages, and fraud in government-to-person transfers and cutting administrative and transaction costs, it said.
In Bangladesh, the estimated savings from eliminating inclusion errors would be $15.95 billion in the next five years to 2025.
The adoption of a single registry of beneficiaries, consolidation of programmes and digitalisation of payments might allow making administrative cost savings of around $1.75 billion.
It estimated that the country could annually save $330.2 million as potential transaction cost, while the total savings in terms of transaction cost would be $1.7 billion from 2021 to 2025.
The government has allocated Tk 107,614 crore for the safety net programmes for the current fiscal year of 2021-22.
The ADB highlighted the examples of the estimated savings from eliminating duplicate and ghost beneficiaries through the adoption of the Aadhaar system by India and the National Database and Registration Authority by Pakistan.
As of early 2018, India reported estimated fiscal gains of more than $12.7 billion since 2013 from Aadhaar-enabled G2P transfers and related reforms.
Similarly, Pakistan's National Database and Registration Authority programme identified 40 per cent of claimants for flood grants to be ineligible, duplicates or fraudulent.
Despite a significant reduction in poverty incidence, Bangladesh's social protection systems remain significantly underfunded and face several efficiency and effectiveness challenges.
These include inadequate coverage and benefits, high duplication and leakages, and fragmentation with too many small programmes.
"The average transfer amount to beneficiaries is inadequate compared to national poverty lines, while many eligible poor and vulnerable receive no assistance. Furthermore, there is no scheme to help mitigate the impact of losing jobs or falling sick for informal sector workers."
"Targeting errors are critically high in beneficiary selections," the ADB said.
The 2016 Household Income and Expenditure Survey indicated that the exclusion error was 71 per cent, and the inclusion error was about 46.5 per cent.
Limited resources are allocated across too many programmes with no scale efficiencies in administration and management.
Of 125 programmes operating in 2019–2020, the largest 20 social safety net programmes (SSPs) comprised more than 70 per cent of the SSP budget, while the smallest 42 programmes accounted for just 4 per cent.
The shortcomings of the social protection and health systems have been exacerbated by the Covid-19 pandemic, where estimates suggest nearly 42 million people have fallen back into poverty.
Those people are mostly sustaining their lives by day work and highly vulnerable to shocks such as major illnesses and external events, the report said.
Under the ADB reform programme, the government will select a social insurance such as an unemployment insurance scheme or pension scheme for the private sector on a pilot basis. This will be developed as an initial step of the national social insurance scheme.
One of the reform measures will focus on reducing fragmentation of various SSPs to cut the duplication of programmes and harmonise the social protection system.
The integrated registry system will manage various programmes with an integrated entry point of social protection beneficiaries so that targeting or selection of beneficiaries are not affected.
At least 80 per cent of the SSPs involving cash-based benefits could be managed under the integrated management system by June 2023.
In 2015, the government formulated the National Social Security Strategy (NSSS) to build an inclusive social protection system, but the initiative is yet to see much progress.
The ADB said the social protection initiatives were developed on an ad hoc basis, leading to the creation of too many programmes and a fragmented system.
A recent study by the Bangladesh Institute of Development Studies showed that a large part of monetary transfers under SSPs ends up in "non-deserving'' non-poor groups.
In a letter to ADB President Masatsugu Asakawa on April 11, Finance Minister AHM Mustafa Kamal committed to implementing the policy reforms, giving details on the steps taken and the future measures to be implemented.
The finance ministry has already formulated the National Financial Inclusion Strategy- Bangladesh (NFIS-B) for the financial inclusion of disadvantaged people and submitted it to the cabinet for approval.
A ministry official said the strategy would focus on introducing social insurance and pension schemes, ensuring digital payment for all social safety benefits by promoting the use of mobile financial services, simplifying documentation required for opening a bank account, and reducing the cost of digital payments.
The government will set up a national council of the NFIS-B at the ministerial level to ensure effective coordination.
A steering committee has already been set up to strengthen the cross-ministerial coordination for implementing the ADB-funded reform measures.
The government has issued a directive on the cross-ministerial coordination action to select a social insurance and its scheme, Kamal wrote.
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