Information about Middle East Oriente Medio
Chapter

V Poverty and Social Safety Net Policies

Author(s):
Nada Choueiri, Klaus-Stefan Enders, Yuri Sobolev, Jan Walliser, and Sherwyn Williams
Published Date:
May 2002
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The Yemeni government traditionally offered few social insurance or welfare benefits, leaving the majority of the population to rely on informal safety nets within the family or within the tribal, religious, or other community. The pension system covers only civil servants, the military, security forces, and workers in the tiny formal private sector. Other social assistance is either indirect, through subsidization of food and petroleum products, or through cash transfers, or through transfers with work requirements such as the Social Fund for Development and the public works program. A formal cash transfer program, the Social Welfare Fund, was instituted in 1997. Other budgetary cash transfers include medical grants, benefits for veterans and their families, payments for tribal affairs, and discretionary compensations for emergencies.

Pensions

Yemen has four separate pension schemes. Employees in the public sector are covered by a general scheme for civil servants and public enterprise employees, a military pension plan, and a plan for the internal security forces. The fourth plan covers workers in the formal private sector.

Relatively little public information is available about the plans of the military and security forces; indications are that about 50,000 beneficiaries participate in the military plan and 4,500 in the plan of the security forces. Information for 1993–95 indicates that both funds were running large surpluses. However, the authorities have not undertaken long term actuarial studies, nor is the financial status of the funds’ investment portfolios known.

The public sector plan for civil servants resulted from the merger of the North Yemeni Public Social Security and Pension Agency, created in 1982, with the South Yemeni plan, established in 1967. The South Yemeni plan’s surpluses were mostly invested in real estate, which yielded low returns. As a result, the South Yemeni plan added considerable net liabilities to the joint pension system.

Law No. 25 of 1991, as amended by presidential decree in December 1999, governs the public employee pension plan. Participation is mandatary for all public sector employees. Until recently, contributions and benefits were based on the basic wage, which excludes allowances and bonuses and generally amounts to between 50 percent and 60 percent of the full wage. The decree of December 1999 provided that benefits and contributions be based on the full wage. Employees and employers each contribute 6 percent to the public pension plan. An additional contribution of 1 percent is collected for disability and work-related injury insurance. Full public sector pensions of 100 percent of the last wage (until 1999 the last basic wage) are paid after 35 years of service, and the minimum service requirement is 15 years. Standard retirement ages are 55 for women and 60 for men, but early retirement is possible after 20 (women) or 25 years of service (men). Survivor benefits are generous because the pension of the deceased is divided among the extended family, including parents, children, and children of deceased siblings. Benefits can thus continue for a very long time, because a number of survivors may survive the primary beneficiary by many years. A minimum pension, which was doubled to YRls 7,000 a month in December, is paid to those whose benefits would otherwise fall below that threshold.

Retirement of civil servants has not been enforced in part because many overage civil servants would qualify only for the minimum pension. Moreover, as the administrative capacity of the pension authority is weak, while it tries to reconcile individual records for each applicant for benefits, only about 2,000 to 3,000 new pensioners per year have been accepted by the authority. Therefore, as of the end of 1999, more than 20,000 overage civil servants were eligible for retirement. The government started to enforce retirement of these employees in early 2000.

In the near term the public pension plan is expected to remain in a favorable financial position. Between 1995 and 1999 the plan ran surpluses of between 0.5 and 0.8 percent of GDP, reflecting the small ratio of beneficiaries (about 40,000 in 1999) to contributors (more than 400,000). Assets, estimated at YR1s 30 billion at the end of 1999, are now mostly invested in treasury bills, with only minor holdings in low yielding real estate. Because contributions will henceforth be based on the full wage, surpluses are expected to rise in the near future. However, owing to the high replacement rates, the plan is projected to run deficits in the medium and long term, because more and more civil servants will retire and few new employees are expected to be hired. In light of these projections and the necessity to streamline the civil service, the government is committed to a reform of the public pension scheme that will provide for stronger links between benefits and contributions and support the long-run sustainability of the scheme.

The private sector pension plan is based on the North Yemeni institution established in 1987 and is governed by Law No. 26 of 1991. Eligibility and benefit rules are very similar to the public plan, with the exception that there is no minimum pension.63 Employees contribute 6 percent and employers 9 percent of wages, which, following a 1995 decree of the minister of social insurance, includes the basic salary and other allowances. Disability contributions are 4 percent of wages but are rarely paid or enforced. In 1999 the private fund had about 1,000 beneficiaries, many with small pensions, and 40,000 contributors. The plan ran surpluses between 1995–99 and is expected to continue to do so in the near and medium term. Currently, most assets are held in the form of treasury bills. Actuarial studies show that the private sector’s plan benefits are also likely to be unsustainable in the long run.

The Social Welfare Fund and Other Cash Transfers

The Social Welfare Fund (SWF) began operation in 1997. Previously, the Ministry of Social Affairs had paid cash transfers on a discretionary basis to families appealing for assistance. The SWF started with a caseload of 39,000 people. Since then their number has grown rapidly, to about 350,000 cases at the end of 1999. Cash benefits are set at YR1s 1,000 per month for a one-family household and rise by YR1s 200 for each family member up to YR1s 2,000 per family. Payments are made every three months.64 Beneficiaries must be without fixed income, without assets, and without support of a family member. Targeted groups are the disabled, orphans, women outside a family support network, and the poor. The law stipulates that each case should be reevaluated once a year, but with the rapidly growing caseload the SWF has not been able to keep up with this requirement. Most of the SWF’s full-time employees are located in the capital, and its employees who perform evaluations in the governorates are largely part-time. The budget of the SWF has grown with the caseload from YR1s 2.4 billion in 1998 to YR1s 5.2 billion in 1999 and an estimated YR1s 7.7 billion in 2000 (0.7 percent of GDP). Operating costs have remained small, at 4 to 5 percent of total expenditure. However, these low operating expenditures have also resulted in a number of deficiencies of coverage. Spending patterns do not match the geographical distribution of poverty or of the general population, indicating a deficiency in reaching the rural poor. Much of the administration is centralized in the capital, resulting in long delays between application and payment of beneficiaries and difficulties in verifying eligibility.

Other cash transfer programs include benefits for veterans and tribal organizations. These benefits are for fairly narrowly defined subsets of the population. The number of recipients of veteran benefits was estimated at 28,000 to 29,000 in 1999, and about 9,000 people received tribal benefits that year. In addition, the government provides medical grants and cash compensation for emergencies. Detailed breakdowns of transfers were not available before 1997, and the effectiveness of these benefits has not yet been evaluated. Most of these specific transfers have grown little over time and are declining in importance compared with the SWF.

The Social Fund for Development

The Social Fund for Development (SFD) was established by Law No. 10 of 1997 for the purpose of helping alleviate any negative effects of the 1995 economic reform program on the poor. It is headed by a board of directors chaired by the prime minister and with members representing key ministries, nongovernmental organizations, and the private sector. The board decides on the general policies and orientation of the SFD in its annual operation plan and monitors its performance.

Direct management of all aspects of the SFD’s operations is the responsibility of the managing director. However, this is undertaken according to a strict and detailed operations manual developed jointly with World Bank consultants.65 This institutional setup provides a large degree of autonomy within the SFD for quick and efficient decision making and program implementation.

By the end of 1999 the SFD had grown to include over 85 employees and 6 branches. At its inception, a sum exceeding $80 million was earmarked for the first five-year phase of operations, with various donors involved (including the International Development Association, the Arab Fund, and the European Union), The government contributes an annual sum of YRls 98 million. The capital made available to the SFD is deposited in private commercial banks; it is directly accessible to management, which provides for efficient disbursement of funds.

The SFD carries out three major types of programs. First, community development services are aimed at directly improving the living conditions of the poor and the marginalized, and involving, wherever possible, the implementation of labor-intensive subprojects to create employment in the targeted communities. Programs include the provision of basic education, primary health care, water and sewerage facilities, and rural road access. Second, the SFD’s small and microenterprise development programs work mainly through the delivery of credit to income-generating activities. Although small enterprise development has not yet taken place, the SFD has undertaken several projects aimed at microenterprise development, through loan packages generally accompanied by participation of beneficiaries in the design of the economic activity that will benefit from the credit. These programs are often implemented through nongovernmental organizations and community based associations. The third type of program engages in capacity building, to enable local community groups to initiate, operate, and maintain development projects,66 and to enhance capacity in various nongovernmental organizations, associations, and government institutions.67

Programs are usually implemented through committees of beneficiaries, specifically set up for that purpose with SFD support.68 Projects in education, health, and water and sewerage are also implemented through institutions, such as local councils or nongovernmental organizations, that can provide a legal umbrella (and hence accountability) to ensure the sustainability of operations. There is generally close coordination with the corresponding government institution to avoid duplication of projects and to ensure the supply of employees to work on the projects—in particular, the government supplies the necessary providers to run education and health care facilities.

The SFD follows a two pronged approach in program development: on one hand, it both responds to demand and targets specific needs; on the other hand, it attempts to cover fairly the Yemeni territory, including remote rural areas and all marginalized groups.69 Targeting is necessary because most needy communities are often hindered from submitting any demand for various reasons, ranging from helplessness, desperation, and frustration, to illiteracy and physical illness, to domineering by local sheiks. The Planning and Monitoring Unit of the SFD designed a separate measure of poverty based on nine indicators capturing basic sociodemographic and economic characteristics. This measure is regularly updated and refined, and the SFD relies on it in its targeting policy.

The SFD has succeeded in operating efficiently because of a large degree of autonomy and its use of simple decision making processes, and because of simplified procurement and disbursement procedures.70 It started operations early in its inception year, contracting 50 projects at a total cost of about 54 million; in 1998 it contracted 337 projects with total investments of $21.2 million and total disbursements of $6.2 million. By September 1999 the SFD had implemented a cumulative total of 785 projects and subprojects covering a large part of the country; total investments were about $47 million, of which about $20 million had been disbursed (Table 11).71

Table 11.Social Fund for Development—Accumulated Investment, Disbursement, Number of Expected Beneficiaries, and Job Opportunities, up to September 30, 1999, According to Sector
Job Creation
No. of

Projects
BeneficiariesTemporary

(Person-day)
Permanent

(Person)
SectorCommitted ($)Disbursed (4)DirectIndirect
Education49024,474,9812,407,008262,92740,009888,0573,506
Health1015,700,0932,003,775495,33538,006130,9511,066
Water857,148,6803,111,320337,5988,498190,217176
Environmental activities
and sewerage162,894,732338,676154,57560,000104,337126
Roads9855,46423,25564,83655,99660,7090
Social services82,859,37160,9291,900095,527138
Capacity building63885,498471,3967,80768513,096414
Micro enterprise132,220,0871,582,77610,99559,9422,864154
Total78547,038,91319,999,1351,335,973263,1361,485,7585,580
Source: Social Fund for Development Newsletter, Issue No.5 (October—December, 1999).
Source: Social Fund for Development Newsletter, Issue No.5 (October—December, 1999).

The success of the SFD’s operations is evident in both the high repayment rate on credits delivered and the numbers of beneficiaries served and jobs created by its programs. Although the effective rate of interest charged by the SFD is quite high, often exceeding 20 percent, the repayment rate is well above 90 percent.72 A cumulative total of 1,335,973 persons were direct beneficiaries of SFD programs by the end of September 1999, and the number of indirect beneficiaries stood at 263,136. During the same period, these projects have allowed the creation of permanent jobs for 5,580 people.

Informal Safety Nets and Development Support Organizations

Besides programs carried out at the central government level, several welfare initiatives were undertaken at the local government and community levels in the 1980s in both North and South Yemen, Local organizations raised contributions within their own communities to undertake development projects such as roads, clinics, schools, and parks. In the early 1980s, as reported in the World Bank’s 1996 Poverty Assessment Review (PAR), these organizations completed the construction of 852 kilometers of roads, 783 classrooms, 267 potable water projects, 71 clinic rooms, and 261 parks and mosques. They also undertook a greater number of maintenance projects. Whereas the organizations in North Yemen (known as Local Councils for Cooperative Development) were initially independent but worked with the collaboration of the central government, those in South Yemen were under direct central government control. However, the North Yemeni government increased its control of these units, which discouraged community involvement and commitment and led to a steep decline in financial, labor, and time contributions of local communities.73

Although the involvement of Yemeni local communities in welfare operations was on the decline in the first part of the 1990s, mostly for lack of institutional capacity and financing, the role of international and nongovernmental organizations increased. Some 15 reasonably active nongovernmental organizations provide health, education, and other social services to urban areas, and these seem to be relatively successful at targeting low income groups. However, these organizations have limited capacity and resources available to allow them to grow and improve the efficiency of their services.74

Three types of informal safety nets can be identified in Yemen: religious charity, traditional community-based assistance reinforced by a strong tribal system, and within family transfers. Religious charity can take the form of zakat, which represents the donation of 2 to 5 percent of one’s wealth to the poor, or satqa, which represents voluntary donations, pecuniary or in kind, to the poor. Community support is provided, for example, through voluntary work or neighbors’ labor pooling. In the early 1970s neighborhood groups often grew into organized cooperatives (the Local Councils for Cooperative Development mentioned above). Although hard to estimate, family support must be an important source of assistance, because Yemeni society is very traditional, its structure based more on family network and solidarity than on economic achievement. This is particularly striking in the rural areas, whereas larger cities are being slowly transformed by the transition to a market economy.

Sociologists believe that the informal support systems in Yemen work reasonably well and explain the apparently rare incidence of starvation. However, in the absence of systematic research on the issue, no quantitative assessment of the scope and effects of these safety nets is available.

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