SOCIAL PROTECTION AND SOCIAL INCLUSION IN THE REPUBLIC OF SERBIA. Executive summary

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1 SOCIAL PROTECTION AND SOCIAL INCLUSION IN THE REPUBLIC OF SERBIA Executive summary European Commission Directorate General for Employment, Social Affairs and Equal Opportunities Unit E2 Manuscript completed in May 2008 European Commission

2 This report was financed by and prepared for the use of the European Commission, Directorate General for Employment, Social Affairs and Equal Opportunities. It does not necessarily represent the Commission's official position. Contractor: Economics Institute, Belgrade, Republic of Serbia Kralja Milana 16, Belgrade, R. Serbia Tel. ( ) , ; Fax ( ) E mail: ecinst@ecinst.org.yu Internet site: Authors: Jurij Bajec Gorana Krstić Ljiljana Pejin-Stokić with Goran Penev If you are interested in receiving the electronic newsletter "ESmail" from the European Commission's Directorate General for Employment, Social Affairs and Equal Opportunities, please send an e mail to empl esmail@ec.europa.eu The newsletter is published on a regular basis in English, French and German. European Communities, 2008 Reproduction is authorised provided the source is acknowledged. ii

3 THE STUDY... 4 ECONOMIC, FINANCIAL AND DEMOGRAPHIC BACKGROUND... 4 SOCIAL PROTECTION... 9 POVERTY AND SOCIAL EXCLUSION THE PENSION SYSTEM HEALTH CARE SECTOR AND LONG TERM CARE CONCLUSIONS AND KEY CHALLENGES

4 THE STUDY 1. The study addresses the structure and perspective of modernization of the social protection system in republic of Serbia, based on the current economic, demographic and social trends. Focus is on three main pillars covered by the EU Open Method of Coordination social inclusion, pensions, health and long-term care. It provides up-to-date analysis with a reference to crosscutting horizontal themes such as gender inequalities, regional disparities, and discrimination affecting the particular groups such as ethnic minorities. The study consists of six parts. Part one presents an overview of the economic and social situation. Parts 2-5 consists of the following thematic areas: Social protection, poverty reduction, pensions, health and long term care. The final part outlines conclusions and recommendations for the modernization of social protection system and the fighting of poverty and social exclusion. ECONOMIC, FINANCIAL AND DEMOGRAPHIC BACKGROUND 2. After the political changes in October 2000 the reform-oriented Government adopted Program of reforms of Republic of Serbia with three basic aims: 1. Restoration of economy, introducing market reforms; 2. Constitution of modern State founded on the governance of the law and fight against the corruption and organized crime; 3. Fight against poverty and improvement of social protection of vulnerable groups. The realization of these aims was the best way for Serbia to accelerate transitional and reform processes, foster a modern market oriented economy, reach human development goals and build institutions necessary for integration in European Union. The signature of the Stabilization and Association Agreement (April, 2008.) presents a very important step in this direction. The basic macro economic indicators for the period of show that considerable economic progress and improvement in living standard has been made. The average annual GDP growth was 5.5% (in period the growth rate was near 7%). Such results were possible due to the macro economic stabilization, internal and external liberalization and successful privatization. International donations, soft loans and support by international institutions and organizations (EU, World Bank, IMF and others) to proceed with market and social reforms also had an important effect. 4

5 Nonetheless, in comparison to other SEE countries Serbia did not succeed to decrease the gap in the level of development, or to reach the GDP level from 1989 that was the last 'normal year' before the well known political, economic and social crisis in the nineties. Increase of GDP per capita was linked with the structural changes of economy. In period the share of industrial sector in GDP decreased from 24.5% to 20.3%, while contribution of agriculture decreased from 15.5% to 10.7%. Still, agriculture and food processing industry are an important comparative advantage of the Serbian economy and the leading export sectors. Of the great importance for a new employment is increase of share of services sector in GDP from 56.3% to 65.3%. 3. Beside unemployment, the largest structural problem is a low competitiveness of the Serbian economy. In comparison to 131 countries Serbia is ranked rather low, at the 91st place, worse than its main competitors Croatia, Romania and Bulgaria. The main reasons for low competitiveness are inefficiency of market institutions, underdeveloped infrastructure and macroeconomic instability. The major shortcomings regarding the business environment are political instability, lack of working ethic, inefficiency of bureaucracy and corruption. Equally important structural problem is a low volume of international trade, primarily insufficient level of export (about 28% GDP in 2007) which is less than in the other countries in the region and its unfavourable structure, dominated by crude material semi processed goods and agricultural products. Serbia is characterized by high disparities in regional development. Disparity between the most developed region, City of Belgrade, and the least developed in South Serbia in 2005, measured by per capita income, was 6.8: 1. Underdevelopment is evidenced by demographic depletion of number of regions, high unemployment rates and agricultural production of small scale, outdated technology and rural poverty. 4. In the period there was an evident improvement of living standard. Net wages have increased for approximately two million employees, from 100 Euros in 2001 to 350 Euros in Citizens savings were increased from 328 millions Euros in 2001 to 4.8 billion Euros in Pensions for about 1.6 million pensioners, increased in a real terms by 12.7% per year. Participation of social protection expenditures was also increasing steadily and in 2005 it remained at 4% of GDP. After adoption of Poverty Reduction Strategy (2003) conditions for a better coverage of vulnerable groups were generated (youth, Roma, refuges, IDP s, the elderly in rural areas, disabled persons). Along with an increase in wages, rise of the living standard was partly financed by the privatization revenues (as they were to less extent directed to the new development projects, but more to the various consumption areas). Remittances have also increased from 1 billion US$ in 2001 to about 3 billion 5

6 US$ in A large increase of the consumer loans for purchasing of apartments and durable goods occurred after Still, the average citizen s indebtedness is below the levels in the neighbouring countries. Increase in a purchasing power could be assessed by comparing the average net wages and consumer basket : at the end of 2007 the average wage could purchase one average 'consumer basket' for four family members household, or 1.5 minimal consumer baskets. In the period the number of average wages for buying durable goods (furniture, electric appliance, cars, etc.) has been substantially decreased. In 2006/07 the living costs have increased considerably. In 2007 the average available monthly resources per household amounted to 490 Euros. At the same time household consumption came to 443 Euros, out of which 40% was spent on food. One of the reasons for this increase is a low level of a competition on the domestic market due to powerful oligopoly in a food retail business, as well as in some other sectors. 5. When observing the disparities in wage distribution by sector, one should note the considerable differences. The average monthly net wage in 2007 in financial intermediation sector was 737 Euros, in comparison with 276 Euros in manufacturing industry which is one of the reasons why the largest adjustments of employment were in the processing industry, real estate business, financial sector and public administration. There is a modest increase in personal income disparities. Value of Gini coefficient has increased from (2002) to (2004). A more appropriate insight about the real disparities is possible by comparison of the income and consumption patterns of different income groups. In 2005 ten percent of the richest were spending 7.5 times more than 10% of the poorest. A broader perspective of the living standard can be explained by the Human Development Index (HDI), which includes not only real purchasing power of households, but also other important indicators related to the quality of life: long healthy life and educational level. In the period of the value of HDI has increased from to The major factor influencing this increase was growth of GDP per capita (PPP), although improvements were also achieved in the areas of life expectancy and education. International comparisons notify that Serbia is still in the transition phase from the medium to the higher levels of human development (HDI values above 0.8) and is at the bottom of the list of European countries. In the period , Gender Related Development Index (GDI) was increased from to It is of great importance that improvements are evident in the area of income earnings, as the relation of male average earning versus female in 2005 was 1:0.891 while gender contribution to GDP (PPP) was 0.766: Similar trends are recorded for Gender Empowerment Index (GEM) with significant improvements from in 2004 to in This 6

7 improvement was achieved by the increase of number of women representatives in Parliament and by the reduction of disparities of average wages among genders. Regarding international comparisons Serbia still occupies the bottom place on the list of European countries, only in front of Ukraine, FYR Macedonia and Romania 6. The complete reform in the area of public finance was implemented in the period of A new legislative framework was created with modernization of the existing and establishment of new institutions. New fiscal system, that operates under the international standards, together with the current fiscal policy, has contributed significantly to the macroeconomic stability, a moderate inflation rate and rather low level of public debt (28.3% of GDP in 2007). The volume of public expenditures (about 41%GDP), although high, is comparable to other transition countries. About two thirds of all expenditures are spent for the social protection, health care and education. What is a really important is to increase the quality and efficiency of these services, not only to increase wages of the employees in public sector, which was the case during the continuous elections processes from the second half of Expansive fiscal policy induced growth of the total consumption, which in turn resulted in the increase of internal and external macroeconomic unbalances. It is not realistic to expect high realization of plans to reduce public expenditures within the politically instable environment. Major objectives should be: (i) decrease of existing subsidies for public and state loss making enterprises; (ii) to speed up restructuring and privatization of the public enterprises; (iii) to enforce control of earnings in public sector; (iv) reduction of over employment in public sector (v) increase of expenditures for the social inclusion of vulnerable groups. The Government is also faced with rather sensitive reforms that have to be implemented in pension and health sectors, while it has to finalize capacity building in public administration in order to rationally and efficiently performs its duties. 7. Jobs creation in Serbia remains a challenge despite strong economic growth. The negative 1990s trends of declining employment and increasing unemployment continued in the period Overall employment dropped by more than 3 per cent and unemployment increased from 13.2 per cent to 21.5 per cent. Some positive trends in the labour market were observed in Employment started to increase for the first time, although negligible (0.3%), while unemployment declined by 15.6%. The expansion of the private sector however, failed to absorb the labour shed by the restructuring and privatisation processes and to generate enough jobs in the labour market. Employment in the informal economy remains pervasive, accounting for over a third of total employment and increasingly 7

8 absorbing unqualified and unskilled labour. The overall employment rate in Serbia is low and has declined in recent years, amounting to 51.5 percent in 2007 according to the LFS data. This rate is considerably below the EU27, but also below the rates for neighbouring countries (Croatia, Bulgaria, and Romania). Women and young people are less likely to be employed, as well as poorly educated and residents in urban areas. The unemployment rate of 18.8% in 2007 is among the highest in the region and considerably higher than the unemployment rate for the entire EU27 (6.8%). Only three countries (ex Yugoslav republics) FR Macedonia, Bosnia and Herzegovina and Montenegro have higher unemployment rates than Serbia. Some groups face high risk of being excluded from the labour market. Women, particularly young are much more likely to be unemployed than their male counterparts, despite their better educational achievement, as well as poorly educated, residents in Central Serbia and in rural areas. Many workers, once they become unemployed remain without work for very long periods which may lead to permanent labour market exclusion and high poverty risk. The incidence of long term unemployment is extremely high reaching some 81.2% in A long term character of unemployment in Serbia could have negative implications on wasting of human resources, but also might have social repercussions for the unemployed. Poorly educated unemployed people, particularly those long term unemployed, are faced with scarcity of low skill jobs and, thus, low probability of escaping unemployment. Despite a decreasing share of youth population young people experience problems in transition from school to employment. Compared to adults young people are two and a half times more likely to be unemployed and more likely to be employed with part time or temporary jobs, often in the informal economy. Youth unemployment has a long term nature, as 68% of unemployed youth had been looking for a job for one year or more. 8. Education system is comprised of the network of public and private schools and universities. Education is compulsory and free for pre school and elementary school level, free but not compulsory for the secondary level, while high education is free in the state schools upon the qualification. There is also a network of private schools and universities, mainly in the larger cities. Elementary school coverage is high with 98%, while for the secondary schools is lower with 78%. Of the major concern is decrease of the quality of elementary and secondary education, evidenced by the results of international tests. Share of expenditures for education of GDP is constantly low in the range of %. 9. Demographic trends reveal a constant decrease of the population size. There are 96% municipalities with a negative natural increase. The mean age of 8

9 population is 40.6 years, with 45% share of the active population. Illiteracy rate is rather high 5.7% while dependency rate was 34.3% (61.8% female population) in The projection of future developments shows a constant depopulation and ageing trends. Projections for 2052 estimate 27%participation of persons aged 65 years and older and 12% participation of the persons 15 years and younger. SOCIAL PROTECTION 10. Social protection sector operates on the foundations established in the nineties with only minor normative changes. In the beginning of nineties Central Government imposed high centralization of its power with little authority of the local governments. This induced a decrease of the capacities at the local level and development of the highly bureaucratic operational structure at the central level. New Government (2001) is still trying to create a balanced integration of all stakeholders. Social protection system in Serbia has a broad structure related to the coverage of the needs of the vulnerable population groups. System includes: (1) social insurance-contributory based benefits (pensions, unemployment s benefits) (2) social assistance and child protection benefits and (3) a range of social services. Social protection expenditures share of GDP in 2006 was 14%, with 11.4% share for pension s expenditures. MoLSP budget share of GDP in 2007 was 2.9%, while share of social assistance non contributory benefits was 0.81% of GDP, while their share of the MoLSP budget was 28%. 11. Ministry of Labour and Social Policy (MoLSP) is the highest authority and at the same time the major perpetrator of the social protection affairs. Ministry is responsible for the funding and delivery of almost all services defined under the normative acts. Ministry administers some services by de concentration route to its subordinating entities and other services by delegation of executive power to the lower authorities. Centres of Social Work (CSW) are principal entities for delivery of defined rights to social assistance. There are 137 Centres and they are functioning as de concentrated branches of MoLSP. Their main mandate is implementation of the Law on Social Care. This law defines set of financial benefits and social services for persons and families in need of social care. Local Governments have responsibility for delivery of day care services, administration of the child protection benefits (delegated from the MoLSP level) and supplementary social assistance related to the needs of their residents, which include single payments and additional funding of the priority needs. 12. The most important means of financial non contributory assistance are: (1) Basic financial support to lower income household (MOP), (2) Child allowances and (3) Caretaker s allowances. The first two are means tested benefits, while the support for the third one is based on the beneficiary s health/invalidity status. Child allowance has two roles, improvement of 9

10 family income status and incentives for increase of birth rate. Coverage rates related to beneficiaries differ and were the lowest for MOP beneficiaries (1%) and the highest for recipients of child allowance (14% of households). Impact of these allowances is estimated indirectly with the conclusion of a low relevance of a received assistance. There are no cost benefit analyzes regarding the administrative costs as a vast bureaucratic apparatus is included in administration of assistance. 13. Study assesses the achievements of the several innovative MoLSP programs with the special reference to the institutional care, care for disabled persons and development of foster care for children without parental care. These issues have been neglected for a long time and at present MoLSP is focusing on resolving the most urgent issues regarding child protection and care. Social inclusion of vulnerable groups is analyzed in relation to gender, age, disability status and ethnicity. Special attention in the last several years has been devoted to Roma population as Serbia has joined a Decade for Roma Initiative. Consequently these years were marked with the numerous Projects and Programs aimed at improvement of socio economic status of Roma population. 14. Decentralization of the social care and reforms for improving efficiency and active participation of the beneficiaries are main key challenges for the near future. Prerequisite for any reform process is establishment of the relevant data base and simplification of administrative processes. At present this public sector has similar image as other public sectors which overpower beneficiaries by its formal and restrictive behaviour. POVERTY AND SOCIAL EXCLUSION 15. Poverty measurement in the Republic of Serbia is defined using the national definition of poverty, which is not in line with EUROSTAT definition of poverty. In contrast, there is no nationally accepted or adopted definition of social exclusion, according to which this concept can be analysed. The concept of social exclusion is relatively new in Serbian public, and its greater use is recently connected with the process of the convergence to the EU. This concept has not been used yet in various official government documents. Instead, economic situation of different vulnerable groups such as Roma, refugees and IDPs etc. are analyzed, without specific reference to the problem of their possible exclusion from the society and their social inclusion as a policy goal. As a national standard for calculation of poverty rates, the Republic of Serbia adopted absolute poverty line. The main welfare aggregate adopted was consumption rather than income, as it is assumed that consumption is better declared due to large informal sector and remittances and less sensitive to short term fluctuations than income. The consumption is adjusted for 10

11 household size and composition of household using the OECD equivalent scale (1.0/0.7/0.5). 16. According to latest results based on 2002 and 2007 LSMS data (Krstić, 2008), poverty declined by around 50%, from 14% in 2002 to 6.6% in Thus, the main goal set out in the PRSP, which was to reduce poverty by half by 2010, was already achieved in The figure of poverty in both years considered was certainly worse than presented here, as survey data do not fully cover refugees, internally displaced persons and Roma (not even 8,200 persons in collective centers), which are population groups undoubtedly more vulnerable than the rest of population in Serbia. However, decline in poverty observed for the general population over the period was also observed among these categories of population (partly covered by the survey). Poverty decreased more among refugees than among internally displaced persons, so that poverty rate of the refugees approximated the poverty rate of the rest of the population (7.4% and 6.5%). A poverty rate for IDPs in 2007 remained much higher than that of the rest of the population (14.5% and 6.5%) compared to For Roma population the overall and extreme poverty was much higher than for a general population. Nearly half of the Roma population (49.2%) was poor and 6.4% of them were extremely poor. The main factors which contributed to a considerable poverty reduction, between 2002 and 2007, were a significant and continuous economic growth since 2000, along with a growth of real earnings and other income sources, particularly of remittances from the abroad. However, overall unemployment rates in Serbia remained quite high over this period and have diminished the impact that robust growth may have on the poverty reduction. Although absolute poverty is accepted as a national standard, a relative poverty measure is also used in some studies. According to the latest 2007 LSMS data a relative poverty is measured as 60% of the median consumption and it is estimated at 14.6% (RSO, 2007b). 17. Serbia is still in the initial stage of preparation of data for Laeken indicators on social exclusion. The RSO currently calculates only two Laeken indicators: Gini coefficient of income distribution and the life expectancy at birth, while some other Laeken indicators are calculated irregularly by independent researchers. During the transition process to EU SILC methodology some of the Laeken indicators can be also calculated regularly by the RSO using the HBS data, such as at risk of poverty rate (by age and gender, household type, tenure status), relative median poverty risk gap and dispersion around the at risk of poverty rate. The currently available Laeken indicators for Serbia are the following: (1) The share of persons living in jobless households was 12.8% in (2) The rate of long term unemployed remained around 15% both in 2004 and in (3) The long term unemployment was 81.2% in (4) Very long term 11

12 unemployment rate was 12.4% in (5) In 2007, income inequality measured by the Gini coefficient is estimated at 37. (6) Life expectancy at birth in Serbia in 2006 was 70.7 and 76.0 years for the male and female population respectively. (7) Early school leavers indicator for Serbia was 11.4% in Proposals for the open co ordination of social protection and inclusion in the area of eradication of poverty and social exclusion set three main objectives: access for all to the resources, rights and services, which ensures the participation in the society and prevents social exclusion, the active social inclusion of all and well-coordinated social inclusion policy involving all levels of government and relevant actors. The presented analysis of poverty and social inclusion reveals that limited progress is observed in the area of social inclusion. A number of strategies have been developed and their implementation is underway. There has been some progress in enforcing legislation on the prevention of discrimination of disabled persons. Analysis of social inclusion remains weak, while policy oriented research is lacking. Concerning at risk groups, despite significant decrease in poverty, the poverty profile remained almost unchanged between 2002 and 2007 (Krstić, 2008). The most vulnerable groups are still: the population in rural areas of South East Serbia, less educated and the unemployed, the elderly (65 years of age and over), as well as the households with two or more children up to 6 years of age, multi member households (6 and more members). A new category, vulnerable more than the average population in 2007, was children up to 14 years of age even though their poverty rate was below the national average five years ago. Although the LSMS data do not fully cover refugees and IDPs and Roma population, it can be concluded that IDPs and Roma population (particularly Roma IDPs and Roma children) integrated into the general population and covered by the survey, were much more exposed to poverty and social exclusion than the rest of population. THE PENSION SYSTEM 19. Proposals for the open co ordination of social protection and inclusion policies in the area of pensions sets three main objectives: adequate retirement incomes for all, financial sustainability of public and private pension schemes and a transparent pension system. 12

13 Insofar as Serbia is concerned, the major challenges of pension reform are following: The coverage is about 70%. More than 60% of pensioners receive pensions below average. Minimum pension is very low. There are still many disadvantaged groups with small or no pensions. The present pension law is decreasing the replacement rate. The budget is transferring per year over one billion EUR to the pension funds (about 4% GDP). There are big controversies about introducing mandatory funded systems. There is little information which might help citizens in planning of their retirement. 20. In 2007, the share of consolidated public expenditures in GDP accounted for 41%, of which 10.5% of GDP accrued to net pensions. According to Government s projections up to 2010, the share of pensions in GDP will remain approximately the same. Until 2005, the pension system in Serbia relied solely on the pay as you go (PAYG) system. Voluntary private pension funds began formally to operate as late as 1 January 2006, while the introduction of mandatory private pension funds is not planned at the moment. The PAYG system has broad coverage: it covers employees, employers, self employed persons (including liberal professions) and farmers. At the end of 2007, the total number of contributors in all three funds amounted to nearly 2.5 million and the number of pensioners to nearly 1.6 million. Mandatory public pension funds are financed by contributions and transfers from the budget. The current contribution rate is 22%. Considering a very unfavourable employee per pensioner ratio, (1.5 :1) only about 60% of the expenditures of these funds is covered by contributions, while the remainder is financed from the budget( about 4 5% of GDP over the past years). A full old age pension is received after 40 years of service for men and after 35 years of service for women. The retirement age will be gradually increased from 63 years for men and 58 years for women to 65 and 60 years respectively until From 2002 the first pension received and its increase was adjusted according to the Swiss formula whereby the first pension to be received and its increase is 13

14 indexed in the same proportion with an increase in wages and in the cost of living. Since 2006, under the pressure by IMF, the Swiss is gradually abandoned, so as of 1 January 2009, pensions will be adjusted solely to an increase in the cost of living. As a special concession to pensioners, until 2009, the Government guarantees the average net pension to average net wage ratio of 60%. 21. Voluntary private pension funds (VPFs) began formally to operate as late as January 1 st, The operation of VPFs is similar to that in other countries. There are seven VPFs with members of which only are paying contributions (about 34 EUR per month). The net asset value of VPFs is only 34 million government encourages investments in VPFs by granting tax concessions: each monthly payment in a VPF up to 3,000 Dinars (about 40) is exempted from tax and contributions payments. In Serbia presently, there are no necessary preconditions for a mandatory funded system considering a very high transition cost and it s financing, high operational costs, a shallow capital market in Serbia and inadequately trained administrative staff. 22. It is clear that with the new pension adjustment method solely relying on the price increase of (as of 2009) the average pensions will be significantly lagging behind a wage increase; second, a deficit in the pension fund will be reduced and eliminated by 2018, with an average pension to average wage ratio of 36.8% which is not sufficient. One must bear in mind that the additional pensions schemes (capital funded) can generate the full effect only for the generations which are at the first phase of their working life. In Serbia about 1.6 million pensioners receive an old age, survivors or disability pension of about 190 on the average (2007) compared to the average net wage of 350 EUR. In the largest Employee Fund the average old age pension amounted to 202 Euros (218 Euros for men and 182 Euros for women). About 60% of pensioners receive the below average pension. The overall coverage with PAYG is about 70%, i.e. about citizens over 65 years of age were without any pension. There are about pensioners who receive minimum pensions (out of which from the Farmers fund) of around 100 EUR and only around 70 EUR from the Farmers fund. At the same time the poverty line is about 110 EUR. Minimum pensions are guaranteed and could not go below 25% of a net monthly salary from the previous year. According to the estimates about 130,000 farmers, older than 65, are not covered by the Farmers Pension Fund. Another 190,000 elderly persons in the rural regions are supported by 230,000 farmers who receive otherwise very modest pensions. Those are, first of all, two member elderly households for which it is necessary to find more favourable pension related solutions. 14

15 According to the official data (based on the 2002 census), there are 114,000 Roma in Serbia however, according to the estimates there are about Only 11% of Roma households receive social insurance benefits and only 5.6% old age pensions. All analyses and surveys show that the Roma employment rate is unfortunately very low and their life expectancy is very short by the European standards due to the very difficult living conditions. At present, there are 206,504 displaced persons from Kosovo and Metohija who live in Serbia. Out of this number 17.2% is older than 60. In Kosovo and Metohija there are still about 130,000 non Albanians, primarily Serbs. About 74% receive the pensions below the average, while more than 20% receive less than 110. According to the latest data (September 2007) the total number of refugees is 97,672 of which 28.5% are older than 60 years. The total number of pensioners with the refugee status is 27,351. Bearing in mind the refugee age structure it can be concluded that their coverage is satisfactory, unfortunately there are no data on the amount of pensions. The great number of recipients of disability pensions (339,620, or about 27% of all pensioners in the Employee Fund (at the end of 2006) is the result of the practice from the previous period (especially during the 1990s) where the employees could acquire the status of a disabled person very easily. Men account for 61% and women for 39% of the recipients of disability pension. The average disability pension was 160 Euros (176 Euros for men and 150 Euros for women). More than 45% of the recipients of disability pension is younger than 60. In October 2007, there were 16,703 disabled persons older than 60 who did not receive disability pension, but received social care benefits. As for elderly persons who need special care and assistance, there is a special allowance (in October 2007, it amounted to 120). This assistance has been received by 67,000 pensioners. Survivor s pensions are calculated as percentage of old age or disability pension of the beneficiary at the time of death. This percentage for one family member is 70%, for two members 80%, for three members 90% and for four or more members 100%. Children without both parents have right to receive pensions from both parents. In 2007 there were about beneficiaries of survivors pensions or about 20% of the overall number of pensioners. Here are some suggestions how to overcome these problems having in mind the EU objectives: 23. Reform of the PAYG System over a short term, the continuation of the parametric reforms of the PAYG system is needed, so that the replacement rate can be kept at 50 60% over the next years. Second, it is necessary to guarantee the minimum pension that is above the poverty line (e.g. about 30% 15

16 of the average wage). This is possible by accepting the PAYG deficit of 3% 4% of GDP which can be reduced by cutting the administrative costs, better governance and better collection of contributions. Over a longer term the present employees can also count on an additional pension by acquiring a voluntary private pension and through other forms of long term saving. The introduction of mandatory private pension schemes is not realistic over a short term, primarily due to a high transition cost and an already high deficit of the PAYG. Recommendations for specific vulnerable groups with the respect to adequate pensions: Farmers One should give serious thought to the introduction of social old age pensions for about 250,000 farmers older than 65, who are not included in the PAYG system, since the state already covers over 90% of the deficit in the Farmers Fund. Roma The settlement of the existential problem of Roma will begin once the vicious circle is broken: the low educational level a very high unemployment rate and/or low paid jobs a very low standard of living in terms of nutrition, housing, basic hygienic conditions and health care a low life expectancy. The pension problem of Roma can be dealt more specifically only within the overall improvement of their living conditions. Internally Displaced Persons IDPs enjoy all rights under the system of social protection and insurance like all other Serbian citizens. An additional challenge will probably be posed by the arrival of more refugees from Kosovo and Metohija, although this depends on the way in which the final status of this province will be solved. This will incur additional costs of their care (housing, employment) and the inclusion in the overall system of social protection. Disabled Persons The main request of disabled persons is to enable them to have more equal social status in the society: greater assistance in facilitating their daily lives and, in particular, special employment requirements. There is a common opinion that the current requirements for disability pensions are too stringent and that they have to be relaxed, but far from the situation prior to 2003, so that the downward trend of the share of the recipients of disability pension in the total number of pensioners will continue (from over 31% in 2001 to below 27% at the end of 2007), albeit slower than before. 16

17 HEALTH CARE SECTOR AND LONG TERM CARE 24. Chapter five explores health care sector 1 from the points of: accessibility of care; sector responsiveness to the needs of vulnerable groups; analyzes efficiency and effectiveness of the state health care institutions and addresses the issues of health inequity and inequalities. This chapter also presents current situation related to Long Term Care both in the area of the formal and in formal care. Conclusions and recommendations given are assessed regarding the OMC objectives for accessible, high quality and sustainable healthcare and Long Term Care. 25. Serbian health care is based on the principles of a social health insurance. Health care for the majority of population (85%) is covered by the compulsory health care insurance, while health care for the rest of population is secured from the central budget. Private sector provides health services mainly in the area of primary care; this sector is not included into HIF coverage scheme. 26. State health care network delivers services through 275 health care institutions at three levels of health care. The structure of employed staff shows a high concentration of the administrative staff; an average ratio of a medical staff to a non medical is high at There are 265 physicians per population, while at the PHC level there are 85 GP s per population, which is above the EU (2004.) average of 65 GP s. Regional disparities exist in favour of the less developed regions which have higher population coverage, due the unadjusted capacities to the demographic changes. There are 578 hospital beds per population; this indicator is close to the EU average of 590 beds (2005). The average bed occupancy rate is 72%; this rate is much lower at the secondary level of care, ranging from 30% 50%. The average length of a hospital stay (ALOHS) is high, with 10.3 days. Analysis of the capacity structure reveals a pattern established at the times when communicable diseases were dominant threat and demographic picture was composed of a much younger population. 27. Health care is financed by: HIF, budget transfers, donations and private payments. HIF covers expenditures of the state health care institutions and the maternity and sick leave payments. In the past eight years HIF has attained a high increase of revenues; the collected revenues in 2007 were three times higher than in 2001; a projected revenues for 2008 amount to 254 per capita. The structure of HIF expenditures has been constant in the last ten years: with 3% for a preventive care; 33% for a primary health care; and 63% for the secondary and tertiary care. The highest share of expenditures (66%) is allocated for the salaries of health care employees, followed by the share for pharmaceutical costs of 31% (2007). Budget transfers to HIF are irregular and only partially cover the actual obligations. Donations have accumulated to 221 million Euros since Official data show that share of public health care 1 Sector s performance and development have been observed from the data on state health care institutions, since there are no official data on private health care and health care for military personnel. 17

18 expenditures, attained from the above outlined sources, was 6.7% of GDP in Private payments are: a) payments for the private health care, b) payments for a self medication, c) payments for the non standard services at state health care institutions and d) under the table payments. Estimates are that these payments accumulated to around 230 per capita in Cumulatively total health care expenditures 2 could be estimated at above 10% of GDP in 2007, which is among the highest levels of share of GDP in the region, however there are are no exact data on total health expenditures. 28. Social determinants of health play an important role in the health of the population. About 10% of the population live in the inadequate housing conditions. One of the major threats to health is a risk behavior. Smoking prevalence is high and so is alcohol abuse, while the inadequate diet is becoming a serious threat, as 55% of the adult population fall in the overweight category. Youth population behaviour reflects a risk behavior of the adults, related to the smoking and alcohol abuse, while drug abuse is a growing problem. The other acute threat to health is environmental pollution which poses a constant danger. Poor quality of a drinking water in Province of Vojvodina has detrimental effects on the population health for decades. Regrettably, there are no comprehensive research studies on the causal effects of these factors on the population health. 29. Health status of the population has been rapidly deteriorating in the last decade as the total mortality has increased by 60%. Cardiovascular diseases and neoplasm are the major causes of deaths. Mortality rates caused by neoplasm are among the highest in Europe and of a special concern is the increase of mortality among age groups. Consequently Life expectancy rate is among the lowest in region (75.5 for females and 70.1 for males in 2005) and has remained almost constant in the last ten years. Phenomenon of affluence diseases is observed, although it has not been researched and analyzed accordingly. Health inequity is apparent in the relation to the regional socio economic characteristics. Population from the more developed regions have a higher mortality and morbidity rates and the lower life expectancy, while population from the underdeveloped regions experience the highest life expectancy and the better health status. 30. Children and youth population are the most vulnerable regarding the effects of the contemporary living conditions. Among this population especially affected are children from the poor families and from Roma families living in the poor conditions. Mental health is a marked issue related to the youth population as antisocial and aggressive behaviors are on a rise. The transition process has placed the burden on the economic survival of the majority of population and mental health diseases are apparent, but not adequately addressed subject. 2 Including health care expenditures of military personnel and their family members. 18

19 31. Health care reforms have been long overdue, since this sector operates on the principles established in the early seventies. Lack of a true commitment to a reform is evident, along with the strong opposition from the medical workers to the substantial changes. In the last eight years the government and MoH concentrated on more visible changes of the sector performances. Majority of resources were employed in the modernization of the medical equipment and the reconstruction of buildings. Apparently focus of all government bodies, in the past eight years, were at the increase of the living standard of the population, measured by the financial and material terms. It is evident that government does not recognize its role and responsibility for the protection and improvement of population health. Health culture has to be raised across all segments of the economic and social life and to become a key factor in decision making process at all levels of managements. Health status of the population is not exclusively protected and improved in the hospitals, but in the places where people live, work, study and play. 32. Appraisal of the country s accomplishments in adoption of objectives of the OMC in the area of health care is summarized under the following conclusions: (a) Access for all to adequate health care: Normative practice provides for extensive coverage of vulnerable groups: unemployed persons, poor, children and youth, Roma, disabled and others. All these groups are exempted from any payments/participation in health care costs. Comprehensive network of state health care institutions assumes accessibility for all on the whole territory. Inequities in access to health care are primarily related to the quality of care, as evidence data suggest uneven distribution of infrastructural capacities and notable differences in the level of knowledge and skills of medical personnel. (b) Increase of the quality of health care has been achieved only partially, through reconstruction of institutions and modernization of equipment, mainly in secondary and tertiary care. Preventive care remained underdeveloped, even though negative influences of socio economic factors are threat to population health. Health economics, health management and measurements of sector efficiency are almost nonexistent at micro and macro levels of organization of health care. Improvements in knowledge and skills of medical workers and adoption of best medical practice have been selectively applied only to the very specialized levels of care. (c) Issues related to sustainability of the system have to be observed from the points of efficiency and effectiveness of the current system. Available efficiency indicators and epidemiology trends reveal weakness of the health care sector in protection of population health Although HIF revenues are stabile and expected to grow, it is not officially evidenced how much of health care expenditures are borne by patients and how this 19

20 deters their accessibility to health care. In order to initiate a long needed reform of the sector, authorities need to recognize and acknowledge its shortcomings and use transparency, regarding proposed changes, to achieve broad public support. In the end, it can be concluded that frequent changes of Government with ongoing political instabilities were not in the favour of the reform processes. The most important issues should be addressed in the cooperation with the EU Agencies, international partner organizations and experts: 1. Establishment of the system of National health accounts (NHA). 2. Research on the selection of the most cost effective preventive actions. 3. Introduction of performance measurement indicators. 4. Introduction of a reliable information system. 5. Protection of the mental health of youth population. 6. Empowerment of a civil sector in the area of patient s right protection and introduction of an appropriate legislative. 33. Long Term Care does not have a specific attention in overall country s social policy. Care of elderly and infirm people at the state level is organized as institutional care and day care. Coverage for both types of care is low and services are delivered only in the larger cities. Majority of population depends on the assistance from family members or friends. Projections of population ageing strongly point to the need for defining a policy measures for proper care and protection of this population group. 20

21 CONCLUSIONS AND KEY CHALLENGES 34. The basic preconditions for the efficient and effective social policy are the existence of the stable political and socio-economic environment. After a decade of economic, political and social destruction in the 90s stability has not been entirely achieved in Serbia. With the reform oriented Government after 2000, Serbia has entered a period marked by the transition of the economy and the creation of new market institutions in order to secure dynamic economic growth and improvement of the living standard. Although these priority goals have been generally achieved, unemployment is still high, particularly among youth, the participation of grey economy is immense and corruption is present at all levels. Little attention is being paid to the reforms in the social sector and to the social inclusion of vulnerable groups: elderly in rural areas, children, Roma, refugees, IDPs, and disabled persons. The development of social protection and the improvement of its effectiveness and efficiency require an important transformation of its principal pillars. Reforms of the three main pillars of social inclusion: social sector, pension system and health care sector are long overdue. The reform process requires a dedicated commitment of the Government on the agreed objectives, and a constant effort of all stakeholders in implementing the planned targets and in achieving the selected milestones. 21