Module 11: Costing policy options using the Rapid Assessment Protocol

ILO, 2013

Key questions

• What are the different cost projection tools used by the ILO?• What is the role of the RAP model?• What is the structure of the RAP model?• What are the different steps in using the RAP model?• What are the possible sources of data?• What are the advantages and limitations of the RAP model?

ILO’s costing toolsILO/FACTS: ILO’s Financial, Actuarial and Statistical branch• Actuarial valuations of social security schemes• In-house actuarial expertise and model developmentILO Social Budget Model (1990’s)• Comprehensive modelling of social expenditure• Several modules for projecting data• Tedious to use and requires experienced userRapid Assessment Protocol (RAP)• Built on the Social Budget Model• Compact (1 Excel file), flexible and easy-to-use• Allows for ‘rapid’ costing of SPF benefits

ABND FACTSHEETStep 1 – Building the assessment matrix including the identification of priority recommendations

Step 2 – Rapid Assessment Protocol to estimate the cost of implementing the social protection provisions

Step 3 – Finalisation of the assessment report for endorsement and further action by the higher levels of government

Steps of ABND

ABND FACTSHEETStep 1 – Building the assessment matrix including the identification of priority recommendations

Step 2 – Rapid Assessment Protocol to estimate the cost of implementing the social protection provisions

Step 3 – Finalisation of the assessment report for endorsement and further action by the higher levels of government

Second step of ABND

Labour market (EAP)

Demographic data (POP)

Macroeconomic data (ECO)

General government operations (GGO)

Costing of benefits

Summary and results

1. Input data

2. Estimated cost of benefits in absolute terms, as % of GDP, and as % of government expenditure

3. Projected cost of combined benefit packages

Structure of RAP

POP

AR

EAP ECO GGO(SQ)

BS 1 BS 2 BS 3 BS 4 BS 5

3. Summary of benefit costs

SUM

1. Input worksheets

2. Benefit worksheets to estimate the cost of scenarios

Structure of RAP

Coresia RAP: ‘Population’

Coresia RAP: ‘Economically Active Population’

Coresia RAP: ‘Economic’

Coresia RAP: ‘General Government Operations’

Number of people in the target groupx(Cost of benefits per head+Administrative cost per head)

Cost of implementing benefits

=

Using the RAP

Parameter What we have What we need to knowBenefit amount Current benefit level

according to the programme design

Future benefit level based on inflation, wage increase, etc.

Target population

Current number of people in the target group

Future number of people in the target group based on general population growth, growth projections for specific groups

Coverage of the target group

Current coverage of potential beneficiaries

Extension of beneficiary coverage depending on take-up rate

Cost of extending benefits

Current cost calculated using the parameters above

Estimated future cost in absolute numbers, as % of GDP, as % of government expenditure based on GDP growth rate, forecasted government expenditure

Using the RAP

• Affordability of the proposed scenarios and their impact on the fiscal space can be assessed

• The additional expenditures may be financed by workers’ and employers’ contributions, government budget

• Preliminary fiscal space analysis is conducted by comparing the cost of the scenarios with GDP and adding the cost to government expenditures - in the GGO(Benefits) worksheet

• Fiscal space can be created by raising or introducing taxes, borrowing from international institutions or markets, cutting down on low-priority expenses

Using the RAP

Scenario 1: Non-contributory pension for disabled in Indonesia

2012

Benefit cost= (30 x 12) x 200,000 x 20%= US$14,400,000

Admin cost = 15% x 14,400,000 = US$2,160,000

Total cost = US$16,560,000

Benefits

Target group

Coverage

Admin cost

US$30/month

200,000

20%

15%

2013US$31.5/month

202,400

30%

15%

Inflation: 5%

Pop growth: 1.2%

Take-up rate: 10%

Admin cost same

Benefit cost= (31.5x12) x 202,400 x 30%= US$22,952,160

Admin cost = 15% x 22,952,160 = US$3,442,824

Total cost = US$26,394,984

Using the RAP

Scenario 1: Non-contributory pension for disabled in Indonesia

Total cost as % of GDP= US$16,560,000/641 billion= 0.003%

Total cost as % of govt. exp.= US$16,560,000/113 billion= 0.015%

Total cost

GDP

Governmentexpenditure

US$16,560,000

US$641 billion

US$113 billion

US$26,394,984

US$721 billion

US$138 billion

RAP calculation

Projection

Projection

Total cost as % of GDP= US$26,394,984/721 billion= 0.004%

Total cost as % of govt. exp.= US$26,394,984/138 billion= 0.019%

Using the RAP

20132012

Presenting the results of RAPCost (as a percentage of GDP) of low and high scenarios in Cambodia

Presenting the results of RAPCost (as a percentage of GDP) of low and high scenarios in Indonesia

Presenting the results of RAPCost (as a percentage of GDP) of low and high scenarios in Thailand

Presenting the results of RAPCost (as a percentage of GDP) of low and high scenarios in Viet Nam

• national statistical offices• census and surveys• social security institutions and line ministries

ministry of planning: GDP and population projectionsministry of interior: registration for social benefitsministry of commerce: inflationministry of finance: budget, economic indicators

• central banks• research institutes, universities• UN/ILO population models, IMF’s World Economic Outlook

(alternative data sources)

Sources of data

• RAP can illustrate different policy options and provide a tangible basis to initiate and facilitate national dialogue

• Long-term sustainability of the programme can be checked by comparing the cost of implementation with economic indicators like GDP and government expenditure

• Results are simplistic and indicative

• Further detailed and actuarial studies are needed before designing a scheme

Advantages and limitations of RAP