€500 Million “Results-Based” Loan Approved
WASHINGTON, May 26, 2011―The World Bank’s Board of Executive Directors today approved the €500 million Social Assistance System Modernization project. Through this project, the World Bank is partnering with Romania to support the implementation of Romania’s Social Assistance Reform Strategy, which was adopted by the Government in March 2010. The project’s development objective is to improve the overall performance of Romania’s social assistance system by strengthening performance management, improving equity and administrative efficiency, and reducing error and fraud.
The project will focus on the Government’s programs for low-income households and vulnerable groups, such as the disabled, needy families, single parents, Roma households, and the rural poor, who will benefit from improvements in targeting accuracy as they would receive a greater share of social assistance benefits. The share of overall social assistance funds going to the poorest quintile is projected to increase from 37.7 percent in 2009 to at least 45 percent in 2014.
“The Government of Romania has launched an ambitious and comprehensive social assistance reform program,” says Peter Harrold, Country Director for Romania at the World Bank. “The World Bank welcomes the opportunity to work with the Government in implementing this program. We have together designed an innovative approach to achieving these ends, through the provision of financial support as each of twenty well-specified results are achieved in the Government’s reform program for this key area.”
This partnership between Romania and the World Bank will contribute to Romania’s long-term goals to achieve growth and convergence with other EU countries, while protecting the poor and vulnerable. During 2005-2010, the fiscal cost of social assistance rose from 1.5 to 2.9 percent of GDP.
The implementation of the Social Assistance Reform Strategy, will bring the fiscal cost of social assistance programs in line with the level of the new EU member states, and will contribute to the fiscal sustainability of the social protection spending. The savings will support the growth and convergence goals, by freeing up resources from social assistance programs that were not meeting their stated goals, and shifting them for better targeting those in need. The administrative and private costs associated with the social assistance system will decline by 15 percent from baseline value.
The project is expected to also have a positive impact on the country’s labor market. Romania has a large number of work-able adults on social assistance that are not in employment, education, training, or are disabled, estimated at about 1.8 million. This is 22 percent of the working age beneficiaries of social assistance. The planned social assistance measures aim to provide stronger work incentives for some adults in this pool by: (i) reducing the marginal tax rate on earnings for the child raising benefit; (ii) reducing the duration of the child raising benefit to one year for high income earners, and increasing the back-to-work bonus; (iii) eliminating the “false” disabled who could work but were living on benefits; and (iv) introducing stronger work- and activation-requirements in the guaranteed minimum income program.
The approved project is a €500 million “results-based” specific investment loan over a three year period, supporting the Government of Romania’s Social Assistance Program estimated at €5.5 billion.