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2010 Bulgaria: Poverty during crisis. Evaluating the impact of the economic crisis on poverty and social exclusion in Bulgaria



Author: Boyan Zahariev, Dimitar Dimitrov

Executive summary

Background:
The current economic and financial crisis is truly unprecedented. There are a number of principal channels of transmission of the crisis: capital flows and bank credit (including capital outflows), drying stream of remittances, shrinking trade (and shrinking of external markets in particular), reduction of FDI levels.

The way public resources are used is a major determinant of achievement of policy objectives in the social policy arena and is key to implementation of child‟s rights. Strengthening capacities of national and local governments to plan adequate resources for achieving the strategic objective is a major task of the social policy agenda.

Purpose/Objective:
The overall objective is to support UNICEF office and the government of Bulgaria in generating policy responses to mitigate the human development impact of the financial crisis and prevent a slowdown in progress made so far towards economic and social developments in the country. The assignment will try to achieve the following:
a) Gain a better understanding of the poverty and social exclusion impact of the financial and economic crisis as a whole and on families and children as a special focus group;
b) Advice on broad based policy alternatives and
c) Generate policy recommendations or compensatory mechanisms to mitigate the social impact on the most vulnerable.

Findings and Conclusions:
The most apparent feature of the Bulgarian approach to the crisis is the lack of a public policy of fiscal and monetary incentives known as Keynesian by the name of the prominent British economist of the first half of the 20th century. The Keynesian policy to stimulate demand in times of crisis relies on strong fiscal incentives, mainly in the form of government expenditure. This counter-cyclical demand on behalf of the public sector should, in theory, provide an impetus for the revitalization of the economy. Without going into details relating to the theory and the approaches for the provision of public incentives for demand, when we consider things from the point of view of social integration, it is important to point out that one part of the Keynesian prescription for a counter-cyclical policy is linked to the increased funding of various social programs, including direct transfers to the poorest, because such transfers, as opposed to reducing taxes, are immediately transformed into demand. In fact, the in crease in the global budget of programs for the unemployed and of the social programs during a crisis happens automatically, because the number of their users goes up. Therefore, in theory they act as an automatic stabilizer. This effect can be further enhanced by increasing the amounts of the benefits - a measure that encourages consumption. Poor households are unable to postpone their consumption; therefore, their marginal propensity to consume tends to unity.

Recommendations:
Some of the measures proposed in the European Economic Recovery Plan that would have a very rapid and direct effect on the incomes of the vulnerable groups during the crisis:
● Temporarily increased transfers to the unemployed or low income households, or a temporary lengthening of the duration of unemployment benefit;
● Intensive retraining of the workforce on the labour market; targeting the support of employment programs at the most vulnerable groups;
● Ensure that public authorities pay invoices, including to SMEs, for supplies and services within one month.

In light of the new school education reform ideas related to the introduction of wholeday schooling, it is becoming clear now that the presently existing school network cannot cope with the burden of the reduced age for compulsory pre-school education and the transition to the whole-day mode of schooling for primary school pupils (let alone the older students). The crisis should not be used as an argument for delaying these very important reforms, which will make school education more accessible, will reduce educational disparities and will assist the integration of children from the vulnerable groups.

It is necessary to introduce a radical change of the overall philosophy of social policies in Bulgaria in terms of the size and the coverage of social benefits, paying particular attention to the extremely restrictive eligibility criteria for access to the social programs.

It is necessary to derive the maximum benefit from the EU Structural funds in order to successfully address the economic crisis.

 



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