Impact of a remittance voucher policy on household welfare in Macedonia
This analysis shows that remittances currently serve as an informal source of social protection in Macedonia but a Remittance-Voucher Policy can not only help formalize remittances but also reduce poverty. Find out more below, or through the PEP Working Paper 2016-15 and Policy Brief 129
The findings and policy recommendations of this particular PEP study have already informed a change to the rulebook on formal social protection eligibility and are being considered during the drafting of the next National Strategy for Poverty Reduction. The findings were also presented during a national event and reported in the national media. Find out more below, or in the PEP Impact Brief.
Context, issues and objectives
The Macedonian economy currently faces critical challenges in terms of socioeconomic development, sustainability and welfare, including an unemployment rate of 29% in 2014. Despite this figure, only 9% of households receive formal government social assistance, and this in turn has only reduced poverty by 3%. A recent study (Mojsoska et al., 2013) suggests that this kind of social assistance may even trigger inactivity in recipient households.
Macedonia receives at least 4% - and potentially up to 10% - of its annual GDP in private cash remittances sent from family members abroad to help poor households. However, there is currently no government policy to channel this potential into productive use and the poverty rate remains high at 27%. Unfortunately, remittances are not taken into account in the standard national surveys and policies, particularly because at least half of these remittances are sent through unofficial and/or unregistered channels (Petreski and Jovnanovic, 2013).
Considering the uncharted potential for these contributions to support living conditions, the team of PEP researchers set out to investigate the extent to which remittances may serve as informal social protection for left-behind households and to simulate the effects of a specific policy instrument, the Remittance Voucher (RV) Policy, that would convert remittances into a formal mechanism for social protection.
Research questions, method, and key findings
The team used data from the (2008) DotM Remittance Survey of over 4000 individuals across 1,211 households and fully representing the country’s regions, as well as gender and ethnicity to investigate if and to what extent remittances improve individual social indicators. Using a conditional mixed process estimator to analyse the data, the team was able to determine the consumption and health of an individual in relation to remittances received. An ex-ante simulator allowed the team to assess the effects of the Remittance Voucher Policy.
Results of the analysis indeed confirm the team’s initial assumption that remittances serve as an informal source of social protection in Macedonia:
- For each denar (Macedonian currency) received in remittances, individual health consumption increases by 20%, and general consumption (excluding health) increases by 60%.
- Furthermore, each additional denar spent on health reduces the probability of “bad health” by 0.17%. This means than an increase in remittances of 2,000 denari increases health spending by 370 denari, in turn reducing the probability of bad health by a sizeable 63%.
The findings also indicate that the RV Policy has social effects on the remittance recipients in terms of improving health by and reducing poverty, particularly amongst the most vulnerable population groups. However, there is no significant impact on housing conditions or material deprivation.
This study’s findings demonstrate that the RV Policy can, and should, be used as a means of formalising remittances as a source or mechanism for social protection. For the recipients, formalised social protection, particularly in terms of health and pensions, can improve their social inclusion and, potentially, their life expectancy. The policy also provides a means to support the most vulnerable population groups and may therefore reduce pressure on other social items in the national budget. Furthermore, increased social inclusion and savings allow for increased investments, entrepreneurship and self-sufficiency.
Find out more about the research methods and findings, as well as subsequent policy implications, through the PEP publications posted below - in particular, the Working Paper 2016-15 and Policy Brief 129.
Project links and documents
|Find out more about this project - its analytical approach and outcomes - through the following links/documents:|
|PEP Project PMMA-12579||Working Paper 2016-15 (PDF)|
|Project proposal (Word)||Policy Brief 129 (PDF)|
|Final report (PDF)||Impact Brief (PDF)
Infographic (in Macedonian)
From the outset, the research team consulted with key policy actors and stakeholders, particularly representatives of the Ministries of Labour and Social Policy, and of Finance. This allowed the team to ensure high-level interest in the project and to solicit advice regarding policy influence. However, the most significant meetings took place from the fall of 2014 when the team members began advocating for a specific change in policy based on their findings.
Team leader, Blagica Petreski, and researcher Despina Tumanoska, met with both the Deputy and the Head of the Department for Social Protection (Ministry of Labour and Social Policy) to discuss the importance of remittances as a source of social protection for vulnerable populations, and to advocate that remittance recipients be eligible for formal social protection. The proposals were positively received by the Ministry of Labour and Social Policy and, in line with the team’s findings, the rulebook on the procedures that determine household revenues, property rights, and set out the eligibility requirements for social assistance was changed in January 2016. Remittances are no longer considered as revenue meaning that vulnerable remittance recipients are now eligible for formal social assistance (an average of €60 per month, per household) and can benefit from improved social stability.
Furthermore, in February 2015, Blagica Petreski met with a senior advisor in charge of active labour market policies at the Ministry of Labour and Social Policy where she introduced the idea of a voucher system for the vulnerable remittance recipients and presented the team’s findings. The Ministry advisor confirmed that the voucher system would be considered during the drafting of the next National Strategy for Poverty Reduction, and the associated action plans.
In February 2016, the team organized their PEP national policy conference in Skopje. The event attracted high-profile participants from the Ministry of Labor and Social Policy, the Ministry of Health, the Health Insurance Fund of Macedonia (FZOM), several embassies, the United Nations Development Programme (UNDP), agencies for insurance supervision, as well as members of the academia, the private sector and national experts.
The findings presented at the national conference benefited from wide media coverage, with an impressive fifteen news reports published and broadcast in the days following the conference. Furthermore, on March 17th, the team leader was invited as a guest speaker on the national “Economic Magazine” television programme broadcast by Alsat-M (watch video).
Soon after the conference, the Minister of Labour and Social Policy personally invited the team leader, Blagica Petreski, to discuss more specifically the recommendations regarding the implementation of the Remittance Voucher policy.
Find out more in the PEP Impact Brief.
The project described above is one of the several projects selected for support under the PEP research and capacity building initiative for Policy Analysis on Growth and Employment (PAGE) in developing countries. The PAGE program is co-funded by UK's Department for International Development (DFID) and Canada's International Development Research Center (IDRC).
This particular project was selected in May 2014, following the first of three competitive calls for proposals of the PAGE initiative. A total of 65 projects have been selected for support under the three PAGE funding rounds. Find out more