Republic of Palau: Updating and Improving the Social Protection Index (Cofinanced by the Republic of Korea e-asia and Knowledge Partnership Fund)

Transcription

1 Technical Assistance Consultant s Report Project Number: Regional Capacity Development Technical Assistance (R CDTA) August 2012 Republic of Palau: Updating and Improving the Social Protection Index (Cofinanced by the Republic of Korea e-asia and Knowledge Partnership Fund) Prepared by Mario Katosang For Asian Development Bank This consultant s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project s design.)

2 ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank DMC developing member country GDP gross domestic product GED General Educational Development HIES Household Income and Expenditure Survey MOE Ministry of Education MOH Ministry of Health SPI Social Protection Index

3 CONTENTS Page I. INTRODUCTION 1 A. Background 1 B. Definition of Social Protection 1 C. Report Structure 3 II. COUNTRY OVERVIEW 3 A. Geography 3 B. Demographic Profile 3 C. Economy 4 D. Poverty and Inequality 5 E. Employment and Labor Force 5 F. Education 5 G. Health and Disability 6 III. CURRENT SOCIAL PROTECTION PROGRAMS AND ACTIVITIES 7 A. Data Collection 8 B. Social Assistance Programs 8 C. Social Insurance 10 D. Labor Market Programs 12 IV. THE SOCIAL PROTECTION INDEX AND ITS DISAGGREGATION 12 V. ANALYSIS OF COUNTRY RESULTS 14 A. Disaggregation by Social Protection Category 14 B. Disaggregation by Depth and Breadth 15 C. Disaggregation by Poverty Focus 15 D. Disaggregation by Gender 15 VI. CONCLUSION AND RECOMMENDATIONS 16

4 I. INTRODUCTION A. Background 1. Asian Development Bank s (ADB) development of the social protection index contributed to the strengthening of social protection programs in developing member countries (DMCs). ADB will continue its work on updating and improving the Social Protection Index (SPI). The SPI s update will address and incorporate lessons learned from two technical assistance projects 1 that developed the SPI for 35 countries in Asia and the Pacific and introduce new components and institutional arrangements to sustain the effective use of social protection indicators in policy analysis and formulation in the DMCs. 2. These initiatives will be implemented under the ADB commissioned regional technical assistance project 2 that seeks to (i) improve the methodology in defining social protection for each DMC in order to ensure comparability among DMCs; (ii) improve data gathering for statistical analysis on social protection; and (iii) develop capacity of DMCs in monitoring the SPI and allow comparisons between countries and over time on implementation performance. 3. This country study provides updated information and data on social protection arrangements, legislation, and institutions and calculates the SPI for Palau in view of the revised SPI methodology. The SPI can be updated periodically to assess progress in social protection arrangements in the country and analyse deeper aspects of targeting, coverage and expenditures on various social protection programs; for example, on the breadth (coverage) of social insurance versus social assistance or labour market programs, or on the depth (size of benefit) of various categories of social protection. The revised SPI methodology also provides scope to measure the gender responsiveness of programs, and poverty targeting of programs The primary objective of the Republic of Palau Country Report is to present the results of the research on social protection programs and policies in Palau from all related ministries; summarizing quantitative information on these activities to enable the formulation of a national Social Protection Index (SPI). B. Definition of Social Protection 5. Social protection is defined as the set of policies and programs designed to reduce poverty and vulnerability by promoting efficient labor markets, diminishing people s exposure to risks, and enhancing their capacity to protect themselves against hazards and interruption/loss of income. 6. This definition categorizes all programs under the traditional components of social protection as social insurance, social assistance, and labour market programs. Microfinance as a form of social protection is excluded from the calculation of SPI since it does not involve a transfer in cash or kind and beneficiaries incur loans or debt instead of transfers. Thus, by eliminating microfinance from the coverage of social protection programs, three major programs are left: (i) social insurance (i.e., the categories of old-age insurance, programs for the disabled, 1 ADB Technical Assistance for Social Protection Index for Committed Poverty Reduction. Manila (TA REG); ADB Technical Assistance for Scaling Up of the Social Protection Index for Committed Poverty Reduction. Manila (TA 6308-REG). 2 ADB Technical Assistance for Updating and Improving the Social Protection Index. Manila (TA 7601-REG). 3 To be able to calculate with relative accuracy the poverty-targeting rate of programs, household surveys need to contain a social protection data. However, the data of the survey was not available at the time of writing this report.

5 2 and health expenditure on insurance and pensions; (ii) social assistance (i.e., the categories of non-contributory health insurance, conditional cash transfers, child protection, and unconditional cash transfers; and (iii) labour market programs as shown in Table 1. Table 1: Social Protection Categories and Types of Programs Social Protection Category Type of Program Social Insurance Programs Pensions Unemployment Benefits Health Insurance - but not universal health insurance Other social insurance (maternity, disability benefits) Social Assistance Assistance for the elderly (e.g., non-contributory basic allowances for the elderly, old-age allowances) Health assistance (e.g., reduced medical fees for vulnerable groups) Child protection (school feeding, scholarships, fee waivers, allowances for orphans, street children initiatives) Family allowances (e.g., in-kind or cash transfers to assist families with young children to meet part of their basic needs) excluding any transfers through the tax system Welfare and social services targeted at the sick, the poor, the disabled, and other vulnerable groups Disaster relief and assistance Cash/in-kind transfer (e.g., food stamps, food aid) Temporary subsidies for utilities and staple foods - only if imposed in times of crisis and if targeted at particular vulnerable groups. General subsidies are excluded even if their rationale is to assist the poor Land tax exemptions Labor Market Programs Direct employment generation through public works programs including food for work programs Direct employment generation through loan-based programs included if loans are subsidized and/or job creation is an explicit objective of the program Labor exchanges and other employment services if distinct from social insurance and including retrenchment programs Unemployment benefits if distinct from social insurance and including retrenchment programs Skills development and training included if targeted at particular groups (e.g., the unemployed or disadvantaged children. General vocational training is excluded). Source: ADB The Revised Social Protection Index: Methodology and Handbook. Manila. 7. Palau has no formal definition of social protection. There is also no official definition of disability and each ministry administers its own programs, setting their own criteria for participation (e.g., for mental and physical disabilities). The Ministry of Health (MOH) is implementing its vision and mission statements by embracing a holistic definition of health, which states that the health of Palauans is defined by one s physical well-being, peace of mind, spirituality, social and familial relationships. 8. Despite the lack of an official definition of social protection in Palau, social protection programs have been developed and implemented to assist the most vulnerable segments of the population. These programs are currently established programs, although the level of funding depends on the established annual budgeting process for the country. Usually, the appropriation for these programs is not enough to meet the needs of potential beneficiaries. One of the many

6 3 reasons why there are only few programs in place is because many Palauans still believe that each family is responsible and accountable for their own family members. Perhaps when the challenges facing developed countries become more visible and recognizable in Palau, the Government will be more cognizant of vulnerable people s need for social protection and address the lack of family resources to adequately provide for these needs. C. Report Structure 9. The Palau Country Report is structured as follows: Chapter II contains a brief overview of the social and economic development in Palau. Chapter III describes current social protection activities and programs in the country using ADB s typology. Chapter IV provides an overview of the derivation of SPI and its disaggregation. Chapter V presents the analysis of the country results. Chapter VI discusses the conclusion and recommendations. II. COUNTRY OVERVIEW 10. This chapter provides a brief overview of the socio-economic characteristics of the Republic of Palau, main features of the country s current developmental situation and recent trends. A. Geography 11. The Republic of Palau is the westernmost group of the Micronesia Islands with the Republic of the Marshall Islands to the east and Federated States of Micronesia in the middle. It is equidistant between the Philippines and Guam. Palau is composed of over 340 islands and has a total landmass of 188 miles. Babeldaob, composed of about 129 square miles, is the largest island in the Palau archipelago. 12. Koror is the center for commerce and despite the capital relocated to Babeldaob, many Government offices and services is still based in Koror, including the National Hospital, Ministry of Education, and Ministry of Justice. Over 65% of the population still resides in Koror. It is the gateway to over 300 islands, collectively known as the Rock Islands. B. Demographic Profile 13. In 2009, the population was estimated to be 20,925, with 5,053 (24.1% of the population) aged 0-14 years and 2,787 (13.3%) aged 60 years and above. Male life expectancy is while life expectancy for females is According to the Ministry of Health 2009 Annual Report, the crude birth rate per 1,000 live births is 14.5 and crude death rate per 1,000 deaths is 8.4.

7 4 14. The population is characterized by minimal growth among the native Palauans. The average annual growth is 0.6% per year. This reflects the effect of working parents, migration to the United States, and the rising cost of living and raising children. The scarcity of trained Palauans and lack of suitable employment opportunities contribute to the high population growth rate of non-palauans. Palauans educated overseas in countries like the United States normally find good paying jobs and do not return home due to lack of suitable employment and comparatively lower wages. 15. Traditionally, kinship is the core of social relations and customs in Palau. Every Palauan has a defined role and behavioral pattern based on kinship. The basic social unit is comprised of a mother and her children, called ongalek, a family unit called telungalek, and several families or a clan called the kebliil. There are gender-defined roles as members of a family. 16. The Japanese colonized the Micronesian Islands, particularly Palau Islands. The Japanese influx strongly influenced the daily lives of Palauans. When the United States, under the League of Nations, took over the administration of Palau, the western lifestyle slowly began to weave its way and influence into the extended family, the clan and the social structure of Palauan society. Like the rest of the Pacific island countries, Palau is experiencing a rapid social, economic, and environmental transformation that will have a profound impact on the island and its culture. The fast rising cost of fuel, food, electricity, and medical bills, is compelling families to look out for themselves rather than share the wealth. 17. The Palauan families and clans, through the Palauan custom called, Ocheraol provide housing to a married male offspring. Ocheraol is an event wherein members of the clan and families come together to contribute money and help one of their relatives purchase a home. Today, the prevailing practice is to secure funding through the local banks to build a home. With the significant decline in household income resulting from the economic downturn and low wages, both in government and the private sector, financing a home will continue to be exclusively from locally-based lending institutions. 18. According to the 2005 Census, there are 4,707 households. In the 2009 Household Income Survey conducted by the Office of the President, there are 4,884 households; 3,528 (72.2%) are Palauan households and 1,356 (27.7%) are non-palauan households. C. Economy 19. The Gross Domestic Product (GDP) of Palau in 2009 is about 212 million USD. The Government, employing most of the labor force, directly generates most of the GDP. While the Government still dominates the Palauan economy, the tourism industry is gradually becoming the leading economic sector with fishing and agriculture providing economic support. The fishing industry was once the largest economic sector aside from the Government. 20. The National Master Plan identified several strategies for achieving economic independence. These strategies give priority to the establishment and maintenance of a supportive environment for private sector development. Tourism is identified as a lead economic sector and future development activities are needed to support this sector. 21. Palau s present economy is not as robust as the late 90 s when the Compact of Free Association with the United States provided funding for major infrastructure projects such as the construction of the 52-mile road around Babeldaob, the main island of Palau. This funding and similar overseas development assistance helped boost the local economy. After major

8 5 infrastructure projects were completed, the economy took a downward spiral, while Government spending continued to rise. Foreign aid and tourism help stabilize the country s economic growth. 22. Palau s economic growth is influenced by various factors such as persistent labor shortages, poor foreign investment regulations, lack of access to global markets, inadequate infrastructure to support business development, and land ownership issues. There has to be a balance between sustainability and development in order for Palau to develop a vibrant economy and prosper in the future. D. Poverty and Inequality 23. The analysis of the 2006 Household Income and Expenditure Index (HIES) reveals that there are over 4,700 (22.5% of the total population) people living under the Basic Needs Poverty Line. However, most Palauans believe that there is no poverty in Palau because the concept of poverty is tied to food and home. Palauans can still find shelter and food in their relatives homes and there is no shortage of food in these homes. Social structure is still very strong in Palau and family members find ways to assist other members when the need arises. 24. There are 4,939 (23.6%) living below the national poverty in Based on the HIES 2006, the annual per capita poverty line income or expenditure is 12,800 USD. E. Employment and Labor Force 25. The employed population in Palau in 2009 is about 9,836 (47.0%) with 2,459 (12.2%) employed or underemployed. The country continues to face unrelenting labor force shortages. While there is employment availability, most of these jobs require trained workers with knowledge and needed skills in the private sector. The lack of a trained or skilled local workforce compels the private sector to recruit outside laborers or guest workers. The tourism industry is mostly filled with these guest workers from countries such as Philippines and Taipei,China. Over 50% of employees in the service industry are guest workers. According to the Director of Labor in Palau, existing labor laws favor the needs of guest workers rather than Palauans (e.g., Palauans from outlying areas such as Koror are responsible for their own housing while guest workers are provided housing and transportation allowance). The development of the private sector to support a vibrant economy necessitates the need to continue inviting guest workers into the country. 26. The completion and opening of the Compact Road was expected to increase the demand for new housing and business development. However, with the downturn of the economy and rapidly rising fuel prices, few people will relocate to Babeldaob in the immediate future. Majority of the people and jobs are still based in Koror. Over 65% of the employed population still lives in Koror and Arai. The number of households in Airai will continue to increase due to its proximity to Koror where most government offices and private employers are still located. F. Education 27. Palauans place a high value on education. The importance of education for the Palauan people is reflected in a constitutional mandate for the National Government to provide free public education for all children in Grades There is a Public Law mandating school

9 6 attendance for children ages Parents are fined a $100 fee if their children are not attending school. Students leaving high school, have the opportunity to enroll in an adult high school or attend General Education Development (GED) programs, which provide a high school equivalent certificate or diploma after program completion. 28. Palau s educational system is patterned after the United States public school system. There are 17 pre-elementary schools, 19 elementary schools, 6 high schools, two adult high school programs, and a community college accredited by the U.S. Western Association of School and College (WASC). 29. The Education Master Plan focuses on (i) improving student learning outcomes; (ii) improving teacher training and certification; (iii) upgrading school facilities; (iv) improving school governance; (v) strengthening parental involvement; and, (vi) creating an internationally relevant curriculum for a global workforce Every child, whether a citizen or non-citizen, has access to 12 years of free public education. With the completion of the Compact Road providing access to many states, the goal is to consolidate schools with low enrollment to reduce costs; increase efficiency; improve the quality of instruction; and, reduce dropout and repetition rates. 31. Palau has made major investments in education and health. About 24% to 28% of the national budget is allocated to the education and the health sectors, respectively. Education receives about $6 million of federal grants from the United States, which brings the total education budget to more than $12 million annually. G. Health and Disability 32. The Ministry of Health provides comprehensive primary, secondary, and curative care services as well as primary and preventive health care. The Ministry s goal is to move beyond the traditional bio-medical model of healthcare that treats the body and mind, to providing a more balanced form of medical care, which includes the healing of one s community, family, and spirit The MOH is focusing its efforts in educating and addressing the burden of noncommunicable diseases. As a result of this effort, the President of the Republic of Palau has declared the month of September as Cancer Awareness Month. There are also medical facilities available in Babeldaob, with nurses and doctors available for visits once a week or by appointment. Immunization is almost universal and provided free for both citizens and noncitizens. The health service provision in Palau is based on a sliding fee, which is dependent on the patient s income level. Table 2 shows some health facts and figures in Table 2: Some Health Facts and Figures Women and Children s Health Infant Mortality Rate (per 1,000 live birth) 6.8 Family Planning (intended pregnancy) % % % Teen Pregnancy Rate 13.1% 4 Ministry of Education, Ministry of Health Annual Report.

10 7 Behavioral Health Admissions Total Inpatient Admissions 188 Mental Illness (MI) 135 Substance Abuse (SA) Disorders 45 Dually Diagnosed (SA/MI) 7 Mental Retardation 1 Average Length of Stay (days) 8.3 Top Causes of Death (2008) Cardiovascular Causes 38 Cancer 33 Septicemia 29 Injuries 22 Cerebravascular Accident (Stroke) 12 Respiratory Disease 11 Kidney Disease 8 Liver Disease 4 Other Causes The United States federal assistance in the form of a grant to the Ministry of Health is about $7 million annually, which brings Palau s total health budget to about $14 million. Not less than 12% of the National Budget is appropriated to the Ministry of Health each year. 35. The disabled population in Palau is about 1,105. The 428 people receiving disability assistance includes students with physical and mental disabilities. Based on the population estimate for 2009, only about 2% of the population has some form of disability. However, there are no professionally trained personnel in the Ministry of Education to properly identify and assess disabilities. Thus, students who are naturally slow learners have been classified as disabled and placed in special education programs for students with disabilities when they should not have been included in this category. There is a need to properly survey the disabled population in order to determine the extent of the problem and maximize limited government resources. 36. In 2003, the Government initiated a program to provide assistance to persons with disabilities due to public demand. The Palau Severely Disabled Assistance Fund was established with Congress initially appropriating $200,000 in International organizations have also helped create awareness for the need to establish programs for the vulnerable population (e.g., child and women s protection, crime victims, etc.). 37. Monthly financial assistance (i.e., $50 or $75) is provided to each person, depending on the severity of the disability. There is a lack of budget appropriation for the Disability Fund. Also, there is no agency in the Government responsible for the maintenance and update of records of people with disabilities. For instance, several ministries provide assistance to children with disabilities but there is no database for adults with disabilities. III. CURRENT SOCIAL PROTECTION PROGRAMS AND ACTIVITIES 38. This chapter presents an overview of the data collection process, objectives, and current social protection activities in Palau including challenges and difficulties encountered during the course of the study. The two-fold objective of this chapter is to present the main features of the social protection programs in the country and provide quantitative information that will serve as the basis for the formulation of the Social Protection Index (SPI).

11 8 A. Data Collection 39. Relevant information and data was collected through various government agencies such as the Office of Planning and Statistics and the Social Security Office. Interviews were conducted with Government employees and Ministers responsible for social protection program implementation. 40. The difficulties encountered during data collection include lack of a centralized data collection unit, inefficient data management system, and lack of capacity building skills in data personnel. Also, there is no leadership from the national congress to provide reliable data and there is lack of demand and accountability in data compilation and collection. Most of the data from the Office of Planning and Statistics are outdated and there is no complete data available on social protection programs. Furthermore, data reporting does not utilize technology and there is no regular data collection and update of social protection programs. B. Social Assistance Programs 41. Palau s social assistance programs consist of (i) Social Assistance for the Elderly; (ii) Palau Severely Disabled Fund; (iii) School Feeding Program; (iv) Special Education Program; and, (v) Belau Head Start Program. 1. Social Assistance for the Elderly 42. The assistance for people 60 years of age and above began in 1976 with funding from the United States Government. When the program was phased out in 1986, Palau s Government continued the program. The Office of Aging under the Ministry of the Community and Cultural Affairs administers the program. Eligibility requirements in program participation include being 60 years of age and above, with residence in Koror. 43. Senior citizens by law include people who are 55 years of age and above. However, many people who are 55 to 59 years of age are still employed. This poses a problem in data collection of senior citizens because in most countries, the cut-off age for senior citizens is The program activities are limited to daily transportation of the elderly to the Old Age Center, meals provision, minimal employment, and cultural workshops. The attendance at the Center is not mandatory. Transportation is provided but many senior citizens opt to visit the Center by themselves. 45. Free meals are provided at the Center. The Aging Office also transports lunches to homebound senior citizens on a daily basis. Senior citizens living in outlying areas do not receive this assistance. The meals and transportation services are limited due to lack of funding to those living within the boundaries of Koror. 46. The local Government built centers for the elderly but they are hardly utilized due to limited resources. The centers are used for meetings and other activities conducted by the Government. On Senior Citizens Day each year, the local Government conducts activities at the centers for senior citizens and offers free lunch. Majority of the senior citizens in outlying areas live with their children who provide care on a daily basis.

12 9 2. Palau Severely Disabled Fund 47. The Palau Severely Disabled Fund was established in The Ministry of Community and Cultural Affairs is responsible and accountable for the disbursement of the Fund and documentation of records. 48. In order to be eligible to receive Fund benefits, an individual has to complete an application and the Ministry of Health will review, assess and determine the severity of the disability. The Screening Committee is composed of individuals from various Government agencies that will provide the final decision for participation. 49. Eligible applicants include the blind, homebound, mentally ill, and wheelchair bound individuals. Persons with disabilities resulting from accidents are also eligible to apply for the Fund. However, if an individual is already receiving assistance from the Pension Plan, Social Security Program, or other programs, the application will not be funded. The monthly assistance is between $50-$75. According to the Fund administrator, the money is given directly to the person with disability (e.g., mental disability), which is sometimes spent on tobacco and other non-food items. 50. The Fund beneficiaries currently receiving assistance include people with mental and physical disabilities. Individuals with diseases such as schizophrenia are also eligible for the Fund, and after medication, should be available for employment. 3. School Feeding Program 51. The School Lunch Program started in 1966, with funding support from the United States Government. This program started as part of the U.S. effort to provide nutritious meals to all school children. The Palau Government continued the program when the program was phased out in The Food Service Unit of the Ministry of Education administers and manages the program, which is supported by local funds. 52. All public elementary schools have cafeterias and cooks with the exception of Palau High School. Lunch for high school students are catered on a daily basis. There are no specific criteria for participation in the program. Attendance in any public school qualifies a student to participate in the lunch program. 53. Non-resident children who attend public schools are eligible to eat lunch in school. Due to the rising cost of imported goods, it was mandated in 2007 that each child pay $0.25 to help defray the cost of the program. 4. Special Education Program 54. The Special Education Program in Palau started in 1973 with U.S. Government funding. The program is still fully funded by U.S. Federal grants, with the Ministry of Education administering the grant and its activities. MOE has to apply for the grant every four years. The grant is close to 1 million dollars, which is used to pay teacher salaries, administrative expenses, instructional materials, and land and sea vehicles. 55. The Special Education program provides services to school age children with disabilities. Students with physical, mental, and, learning disabilities are eligible to participate in the program. The teachers and school principal refer students to the Special Education Program for

13 10 physical, mental, and learning disability assessment before deciding to include them in the program. Parents can also refer their children for assessment to determine the nature of the disability before they are admitted into the program. 56. Every public school in Palau has a special education program component with a very small student population. Slow learners are often referred and usually accepted into the program. These students may be naturally slow learners but are not necessary disabled. However, they are often assessed and admitted into the program. Students with disabilities can remain in the program until their 21st birthday. 5. Belau Head Start Program 57. Belau Head Start Program operates under Palau Community Action Agency. The Director of the Head Start Program is responsible and accountable for the program. This preschool program began serving children ages 3 to 5 years old and their families in Funding comes from U.S. Federal Government and local appropriation. 58. To be eligible for the program, a child must be at least 3 years old by September 30 of the enrollment year. At least 65% of the children must be from low-income families, 10% are children with disabilities, and 35% are families with income above the U.S. Federal poverty guidelines. The U.S. Federal poverty guidelines are used to determine eligibility for the program. 59. Every state in the country has a head start school independent of the public school system. However, there is a transition activity between the head start school and elementary school to prepare children in making a successful transition into elementary school. A minimum of 10 children is a pre-requisite to operate a head start program. C. Social Insurance Programs 1. Social Security Program 60. The Social Security Program was established in 1968, patterned after the United States Social Security Program. It is a semi-autonomous agency of the Government and managed by an administrator identified and recruited by the Social Security Board, whose members are appointed by the President of the Republic. The members of the board usually serve a four-year term. 61. All beneficiaries contribute to the plan during their employment period and are eligible to receive benefits when they reach the retirement age of 60 years old. Dependents under the age of 18 years become eligible beneficiaries upon death of the parent contributor. Eligible disabled persons receive benefits each month although the program does not track disabled beneficiaries. 62. Beneficiaries working for the U.S. Government during the Palau administration and their dependents receive benefits. The prior years for Palauans working in Government before the establishment of the program are factored into their retirement years, even though they did not initially contribute to the plan. 63. The changes to the Social Security Law require guest workers to contribute to the plan. Upon reaching the age of 60 years old, they are eligible to receive benefits. Guest workers have to stay in Palau if they wish to continue receiving social security benefits each month. The law

14 11 amendment also prevents the surviving spouse from receiving benefits for the deceased spouse. 64. School age children receive benefits until the age of 18 years old. However, with continued school attendance, school children receive benefits until the age of 21 years old. The level of contribution determines the amount of benefits received, which is based on the contributor s employment salary. The National and State Governments pay an equal amount to the plan as the amount contributed by each employee. 65. These existing social protection programs in Palau serving the vulnerable sectors of the population are a result of the U.S. Federal programs available to Palau before the Compact of Free Association. These programs received initial funding support from the U.S. Federal Government. The Social Security program was inherited from the Trust Territory Government when Palau was part of Micronesia under the administration of the U.S. Department of Interior. 2. Pension Program 66. The Pension Plan was established in October 1987, almost 20 years after the social security program. Only national and state government employees are required by law to participate in the program. Semi-autonomous agencies of the Government are given the option to participate in the plan. The participants of the plan are eligible to receive benefits after 30 years of service. 67. The plan includes a life insurance. Upon the employee s death before retirement, his or her beneficiaries are entitled to receive lifetime benefits. The beneficiaries have three options to receive benefits: (i) beneficiaries can withdraw the benefits in lump sum; (ii) beneficiaries can elect to receive the benefits on a monthly basis; or (iii) beneficiaries can split the benefits with a part paid as lump sum and the other part paid on a monthly basis. 68. An employee retiring from Government before the 15th year of participation in the plan has the option to withdraw the benefits in lump sum. After the 15th year, that option is no longer available. All beneficiaries receive lifetime monthly benefits. 69. Private sector employees are exempt from participating in the pension plan. Employee contribution to the Fund is 6% of gross pay bi-weekly and the national and state government contribution to the fund is equal to the amount contributed by each employee. The retired people draw out more money from the Plan compared to those who contribute on a bi-weekly basis. This is result of the disparity between the salaries of the retirees and the recently hired government employees. 70. The amount of monthly benefit depends on the average salary of the employee during the last three years of employment. The three-year salary is averaged to determine the annual salary, which is divided by 12 months to determine the monthly annuity. The number of years of employment is also considered in determining the amount of monthly benefits. People who are 60 years of age and above continue to receive lifetime monthly annuity. 71. Social security and pension programs survived because of government employee contributions on a bi-weekly basis. The Government is in arrears of a couple of million dollars to these two programs. An actuarial study predicts that the resources of the pension program will be depleted if Congress does not continue appropriations of half a million dollars each year.

15 12 The payout to beneficiaries each month exceeds the monthly program contributions due to low government salaries. 3. Disability Benefits 72. Social Security Benefits for Persons with Disabilities, similar to the Pension program, is not originally designed to help poor people. If a person receiving monthly benefits became disabled, he or she will continue receiving monthly benefits. If a disabled person is listed as a beneficiary, that person will start receiving monthly benefits upon the sponsor s death and will continue receiving lifetime monthly benefits. The amount depends on the sponsor s contribution before retirement. 73. The Pension Benefits for Persons with Disabilities is very similar to the Social Security Benefits for Persons with Disabilities. The beneficiaries collect monthly lifetime benefits. 74. The U.S. Federal Government provides funding for persons with disabilities until the implementation of the Compact of Free Association when funding was phased out. Persons with disabilities did not receive any Government assistance until 2003 when Congress appropriated $200,000 for the Palau Severely Disabled Fund program. The Fund is distributed to about 260 persons, close to benefiting all persons with disabilities. Children with disabilities do not receive assistance from this program. D. Labor Market Programs 75. Palau has no labor market program. According to the Director of Labor Office, the existing law is designed to protect guest workers more than the local people. The only labor protection available to local people is the hiring policy. The first hiring consideration is given to local applicants, but if local applicants do not have the required credentials, the employer may hire applicants from outside the island. The non-palauan population will continue to increase each year because the Labor Law is not being enforced and the Government does not establish training programs to assist its citizens in acquiring jobs currently held by foreigners. IV. THE SOCIAL PROTECTION INDEX AND ITS DISAGGREGATION 76. The revised Social Protection Index (SPI) has a unitary indicator that can be disaggregated for analytical purposes. The revised SPI is calculated by Total Social Protection Expenditures per Total Potential Beneficiaries by 25% of the GDP per capita (representing average poverty line expenditures). In other words, the total social-protection expenditures spread across all potential beneficiaries are compared to poverty-line expenditures in each country. 77. The revised SPI is calculated by Total Social Protection Expenditures per Total Potential Beneficiaries by 25% of the GDP per capita (representing average poverty line expenditures). In other words, the total social-protection expenditures spread across all potential beneficiaries are compared to poverty-line expenditures in each country. 78. The revised SPI index can be disaggregated into two components, one for the depth of coverage and the other for the breadth of coverage of social protection programs. The first indicator is the Total Social Protection Expenditures divided by the Total Actual Beneficiaries (i.e., the average size of benefits actually received or depth ). The second

16 13 indicator is the Total Actual Beneficiaries divided by the Total Potential Beneficiaries (i.e., the proportion of potential beneficiaries actually reached or breadth ). 79. The revised SPI can also be disaggregated by the major categories of social protection programs: social insurance, social assistance and labor market programs. When the total expenditures per total potential beneficiaries for each major program are weighted in population terms, the program SPIs add up to the total SPI. 80. Furthermore, the revised SPI can also be disaggregated by expenditures per potential poor and non-poor beneficiaries. Finally, gender-wise data allows the disaggregation of expenditure by gender. 81. The derivation of SPI poor/non-poor and SPI women/men used poverty and gender targeting rates. The said rates are based on the results of household surveys, administrative reports of social protection implementing agencies and in some instances, on the professional judgment of the compilers. A. Basic Statistics Table 3: Basic Statistics for Palau, 2009 Statistic Unit 2009 Value Source of Data Notes GDP (current prices) Thousands 212,000 IMF/National Estimate Account GDP per capita Units 10,131 National Accounts Estimate (current prices) GNI (current prices) Not available Total Population Units 20,925.0 Planning & Statistics Office end of population estimate Number of unemployed/ underemployed Units 2,459.0 Palau 2006 HIES derived using the 2005 figures from Ministry of Finance (ADB SDBS) Population aged 60 Units 2,787.0 Social Security end of population years and over Office Employed Population Units 9,836.0 Social Security Office Population living below national poverty line Units 4,939.0 Poverty Assessment estimate derived using the 2005 figures from Ministry of Finance (ADB SDBS) 2006 HIES Analysis Disabled population Units 1,105.0 Omekesang, NCO Derived using the 2008 Medium Term Development Strategy of Palau Children aged 0 to 14 years Per capita poverty line income or expenditure (annual) Average household size Units 5,053.0 Palau 2006 HIES end of year population estimates Units 12,800 HIES 2006 Analysis HIES estimate persons 5 HIES 2006 Analysis HIES estimate Exchange rate US$1= US$1.00 fiscal year

17 14 Source: Country Sources, V. ANALYSIS OF COUNTRY RESULTS 82. Expenditures on social protection reached 9.8 million USD in This amount is about 4.6% of the total gross domestic production (GDP) of the country. Social insurance programs enjoy the biggest 74% share of total expenditures. This is largely due to the largest expenditure for pensions at 72%. Social assistance programs are about 26% while expenditures on labour market programs are negligible. SP Category Table 4: Expenditure by Social Protection Category 2009 Annual Expenditure (000) % Distribution of Social Protection Expenditures Pensions 7,129 72% Health Insurance 0 0% Unemployment Benefit 0 0% Other Social Insurance (e.g. maternity, disability 163 2% benefits) ALL Social Insurance 7,292 74% Assistance for Elderly 30 0% Health Assistance 0 0% Child Protection 2,319 24% Disaster Assistance and Relief 0 0% Other Social Assistance 200 2% ALL Social Assistance 2,549 26% Labor Market Programs 5 0% TOTAL SP EXPENDITURE 9, % GDP 212,000 SP Expenditure Indicator (SPEXP) 4.6% Source: Consultant s estimates, 2011 A. Disaggregation by Social Protection Category 83. Table 5 presents the 2009 SPI of Palau disaggregated by social protection categories. The total social protection expenditure, valued at about USD 9.85 million, is spent on 6,609 actual beneficiaries. The target population of the social protection programs is about 26,179. The per capita poverty line, which was set at 25% of the per capita GDP, is valued at 2, The overall SPI is estimated at This implies that in 2009, the average social protection expenditures spent on each actual beneficiary is about 14.8% of the per capita poverty line. The per capita social insurance expenditure is about 11% of the per capita poverty line; while it is about 3.8% for social assistance. On the other hand, per capita social protection expenditure on labour market programs is only about 0.01%. The overall SPI is the sum of the indices of each social protection category. Table 5: Calculation and Disaggregation of SPI by Category Labour Social Social Units Market Insurance Assistance Programs All SP Programs Total SP Expenditure Thousands 7,292 2, ,846 Beneficiaries Units 3,466 3, ,609

18 15 Reference Pop Units 12,623 11,097 2,459 26,179 25% of GDP per Units 2, , , , capita SPI Source: Consultant estimates, 2011 B. Disaggregation by Depth and Breadth 85. The overall SPI depth is relatively high at This means that the average amount of benefits from social protection programs is more than half (58.8%) of the per capita poverty line. Meanwhile, the coverage of social protection or the percent of the targeted beneficiaries reached by social protection programs is only about a quarter at 25.2%. The overall SPI is the product of the SPI depth and breadth. Table 6: Disaggregation by Depth and Breadth Social Insurance Social Assistance Labor Market Programs All SP Programs Depth Breadth SPI Source: Consultant estimates, 2011 C. Disaggregation by Poverty Focus 86. The SPI can also be disaggregated by poor and non-poor. Each social protection program was assigned Poverty Target Rates (PTR). The PTR represents the share of the poor beneficiaries or the share of expenditures for the poor and non-poor. Table 7: Disaggregation by Poverty Status Poor Non-Poor SP Expenditure (000s) 747 9,099 Reference Population (000s) 26,179 26,179 25% of GDP per capita 2,533 2,533 SPI Source: Consultant estimates, Table 7 presents the SPI disaggregation by poor and non-poor. The SPI for poor is estimated at while for non-poor, the SPI is This implies that social protection expenditures benefitted more non-poor, possibly due to the large share of pension expenditures. The beneficiaries of pension are mostly the employed who are considered nonpoor. D. Disaggregation by Gender 88. Another way to disaggregate SPI by gender is using the Gender Target Rate (GTR), which approximates the number of women or men beneficiaries in the share of social protection expenditure for men and women.

19 16 Table 8: Disaggregation by Gender Women Men SP Expenditure (000s) 3,687 6,159 Reference Pop (000s) 26,179 26,179 25% of GDP per capita 2,533 2,533 SPI Source: Consultant estimates, As shown in Table 8, the SPI for men (0.093) is higher than the SPI women (0.056). This implies that the average social protection expenditures for men is about 9.3% of the per capita poverty line, while for women, the average expenditures is only about 5.6%. VI. CONCLUSION AND RECOMMENDATIONS 90. Palau has not previously determined its Social Protection Index and this is the initial effort in establishing an SPI. However, not all social protection programs were considered for this current SPI calculation. For example, the Ministry of Health implements many programs that could qualify as social protection programs, but the data on the programs were either not included or unavailable. The MOH data could have helped provide a more realistic determination of the SPI. 91. The 2009 SPI results reveal that the Palau Government has very limited social protection programs, having identified only about 10 programs. The SPI for non-poor being greater than the SPI for poor is due to the social security and pension programs, which tend to inflate expenditures for the non-poor beneficiaries. These programs are contributory in nature and not originally targeted to the poor. Excluding these programs in the calculations would reveal that the poor sector of the population does not receive much Government assistance. 92. Policymakers need to officially define social protection and disability. There is also a need to survey the population to determine the severity of social protection issues. The survey needs to be designed and implemented to collect data on the vulnerable sector of the population and help policymakers formulate policies and regulations regarding disadvantaged and vulnerable people. 93. The assessment of the urban and rural areas of Palau reveal that many people are in poverty or near poverty. Recently, it is common to find people having two jobs in order to cope with the rapidly rising cost of living. With the increasing hardship created by rising living costs and low salaries or wages in both the Government and the private sector, more Palauans will be unable to provide for themselves. 94. There is also a need to craft a national policy that will address the issues of social protection programs and services. One of the Government s challenges is addressing people s needs when U.S. Federal support is phased out. This is imperative especially in a small island country like Palau that has limited resources and a poor tax base. 95. Another key issue of social protection in Palau is related to traditional safety nets and the necessary provisions to strengthen and sustain them. The strength of these traditional safety nets is probably the reason for having few Government-supported social protection programs. The Government needs to help these families and communities that provide for children and senior citizens.

20 96. The need for data collection and an efficient and effective reporting system are important for a small island country lacking in resources. Availability of reliable data provides the opportunity to prioritize limited resources and maximize their usefulness through efficient targeting. Establishing and managing an information system will also ensure that social protection data is collected. This will assist policy makers in developing programs and policies that better address the social protection issues of the country. 17

21 18 REFERENCES ADB Technical Assistance for Social Protection Index for Committed Poverty Reduction. Manila Technical Assistance for Scaling Up of the Social Protection Index for Committed Poverty Reduction. Manila Social Protection Index for Committed Poverty Reduction Volume 2: Asia. Manila Technical Assistance for Updating and Improving the Social Protection Index. Manila. Republic of Palau, Ministry of Education Education Master Plan Koror. Republic of Palau, Ministry of Health Ministry of Health Annual Report. Koror.

22 Appendix 1 19 FORMULATION OF THE SOCIAL PROTECTION INDEX AND ITS MAJOR DISAGGREGATION A. Structure of the SPI 1. Based from the 2011 SPI Handbook by Baulch and McKinley, the SPI is described as a simple and unitary indicator rather than a composite index. It is not an abstract index and should provide a normative reference such as the magnitude of the impact on people. 2. The formulation of the revised SPI, under the present study, refers to the total SP expenditures divided by the total potential beneficiaries, and relative to a quarter of GDP per capita. This is mathematically expressed in the following equation: where E represents the sum of all SP expenditures; PB represents the sum of all potential beneficiaries; and Z represents poverty-line expenditures which is 25% of GDP per capita. 3. The term Total Expenditures per Total Potential Beneficiaries has two parts: (i) (ii) Total expenditures per total actual beneficiaries this represents the Depth of the SPI; Total actual beneficiaries per total potential beneficiaries this represents the Breadth. 4. It is noted that 25% of GDP per capita is roughly the average national poverty line across ADB s sample of countries. B. SPI s Major Disaggregation 1. Disaggregation by Depth and Breadth 5. The SPI can be disaggregated into measuring the depth of coverage and also, the breadth of coverage. Depth represents the average expenditures that the government spends for every actual beneficiary as a percentage of poverty-line expenditures. a. Depth 6. The index is measured as (Total Expenditures divided by Total Actual Beneficiaries); Divide by Z or the poverty-line expenditure. 7. The index is represented by the following equation: