The World Bank Board of Directors approved the Second Programmatic Public Expenditure Development Policy Loan of USD$100 million for Serbia.

This operation, among other things, helps Serbia: increase the number of low income households receiving cash transfers by 25 percent; triple the amount of cash benefits for the poor families with more than three members; contain the public sector wage bill while improving public administration; make pension system more sustainable; and introduce reforms in public expenditure and debt management.

One of the main features of this operation is the support for the adoption of the new Social Welfare Law, which enables increased coverage of the poor with a cash transfer known as Material Support for Low-Income Households (MOP).

The changes in the law will allow up to 6 members per single family to be eligible to receive the benefit, instead of up to 5 members, as it is now. The MOP will be scaled up in rural areas by relaxing the eligibility criterion related to land ownership which currently acts like an ‘exclusionary filter’. This will be lifted from 0.5 ha to 1 ha for MOP applicant families where none of the members is capable to work.

Certain vulnerable groups such as families where no members is able to work, and single-parent families with children will become entitled to higher MOP payments (by 20 percent). Through these changes 25 percent more vulnerable families will receive MOP benefits.

”The need to protect the poor and the vulnerable further exacerbated as a result of the economic crisis,” says Loup Brefort, the World Bank Country Manager in Serbia.

“The number of people living below the poverty line increased by 60,000 in 2009 and the risks of falling back to poverty remain high in Serbia. While the country entered the crisis with well a established social assistance system since it operates over twenty support schemes, only one – the Material Support for Low Income Households, or MOP – is an explicit poverty reduction program specifically targeted to the poorest”.

The reforms in the system of the public expenditure allocation are aimed at containing the public sector wage bill, bringing it down from about 10 to 8 percent of the GDP while improving public administration; making the pension system more sustainable; putting in place a more comprehensive, integrated medium-term planning and budgetary framework; and improving public expenditure monitoring and control.

Pension spending (the largest single spending category in Serbia) remains the second highest in Europe and Central Asia (ECA), a region where pension spending is typically high.

”The reforms in education and health sectors, including the steps taken towards the introduction of productivity-based pay will contribute to raise the productivity of the public sector,” says Marina Wes, the World Bank Lead Economist.

“The new pension law, which unifies the pension scheme for different categories of employees, is also a step in the right direction. Pension system reform is important not only to protect today's retirees, but to insure pension benefits for future retirees.”

In addition, this operation supports Serbia’s efforts to establish a comprehensive public debt database, medium-term public debt management strategy and to initiate a risk assessment of all outstanding government guarantees.