Dear Tamar and Tamila,

We would be happy to further discuss and clarify the considerations made in the email below on the social protection response measures, including those to be financed through the WB loan.  We have also some questions on the verifiability of additional variables that could be used to identify “informal workers”.

The meeting with MOF is postponed to tomorrow. I will make myself available today any time as convenient to you.

Warm regards and looking forward to hearing from you,

Maddalena

Dear Tamila,

I hope this email finds you well.

I’d like to follow up on the questions in my Friday’s email and share few additional reactions below on the 2 measures we discussed to be supported by the WB project:

1. Electricity discount bills for households consuming less than a certain amount
1. Do you know how much the discount would be? All the bill will be subsidized or part of it? What is the threshold of electricity monthly expenditure considered? We see from data that almost all households have access to electricity, do they all have working meters?
2. Looking at the Household Budget Survey 2018 data from GEOSTAT we see that the correlation between electricity expenditures and poverty is weak, and it is even weaker in hh with only self-employed. There are about 395,647 households consuming less than 200 GEL per year, out of which 99,226 (25%) are in the poorest quintile of the welfare per capital distribution, 73,366 (18%) in the second quintile , 75,998 (19%) in the third quintile, 70,818 (18%) in the fourth quintile and 76,239 households (19%) are in the richest quintile. If the policy objective is to compensate poor households, there are large inclusion errors.  For instance, only 47% of households in the poorest quintile spend less than 200 GEL per year. 
3. Nonetheless we understand this is a quick and imperfect way to alleviate resident utility expenses during this difficult time. If you confirm the total envelope /budget available for this measure, we ‘d be happy to support you define the consumption threshold that would maximize the policy goal.
4. I have been initially informed that these expenditures would not be eligible under the Fast Track Loan, but I am double checking and waiting confirmation.
2. A temporary unemployment benefit for formal wage workers who lose jobs in the period starting March 15, 2020 to present (TBC). The target beneficiaries are low wage earners (with monthly wage income less than 800 GEL, TBC).
1. Based on the LFS 2018, we estimate about 486,876 formal wage workers (defined as those workers for whom payroll taxes are paid, with written contract and receiving annual leave and sick leave), out of which 126,084 earn less than 800 GEL per month (see table 2 below). Is this number consistent with the numbers you get from the tax payroll database and also based on the pension contribution database?
2. On implementation, there are additional questions in the email below that would be good to cover.

In addition to the above two measures, we would recommend considering the following two measures to be funded by the project. The goal is to ensure that those who are disadvantaged before the crisis are protected. Our concern is that the poor, those who will become poor because of the lockdown and the crisis and informal workers do not remain unprotected and are prioritized with respect to those who are better off before the crisis (formal workers).

3. Expansion of the TSA
1. The TSA will naturally expand as new applicants will be eligible in the current context (because the variable “cash flows the month before application” in the revenue index of the PMT scoring formula will be zero, hence lowering the score). If we assume a very conservative scenario that 10% of wage workers will lose their jobs and 20% of self-employed will lose jobs in the next three months, preliminary estimate show that about 48,000 new households will become eligible to the TSA, implying an additional cost of about 8.13 million GEL (we assume that all eligible households will apply). Alternative scenarios are being estimated and will share results tomorrow. We can of course model based on the assumptions that you think make more sense, please advise.
2. You mentioned there is budget to cover the TSA expansion, we could use the WB loan to fill financing gaps as needed.  In case electricity subsidies are not eligible under the Emergency Fast Track Facility, do you think it would be an option to use government money to reimburse the electricity company and WB funds to support the TSA expansion?
4. Introduction of a temporary emergency benefits (one off or for 3 months) for informal workers who lost their job or sought a temporary loss in their labor income during the lockdown. The amount could be 120 GEL or set up based on different cost of living by region/cities. The emergency benefit would be on-demand, through an online application portal. Alternative targeting options (all verifiable) could be:
1. Target households with no member in formal employment since March 15, 2020 (TBD), not receiving TSA, not receiving pensions and other form of social assistance. An audit will be conducted after. Based on preliminary estimate about 80, 000 households would be eligible.
2. Target households with children below 18, with no member in formal employment since March 15, 2020 (TBD), not receiving TSA, not receiving pensions and other form of social assistance. An audit will be conducted after. Based on preliminary estimate about 45,000 households would be eligible.

                                                               i.      If business registries, bank account and mobile phone contracts databases with same inter-operable IDs exist, they could be used for further verification for the above 2 options.

3. Target based on current PMT formula. About 8% of urban households (equivalent to XXX number of households) in the poorest two quintiles with no wage workers (with members in working age self-employed) would be eligible under the current PMT but had not applied.

In addition, we discussed the following for consideration:

5. Wage subsidies paid directly to the firm to retain workers and prevent their layoffs.
1. Targeted to firms that are strategic and at higher risk of firing their staff as they have less access to liquidity

Table 1. Simulated increase in TSA cost under a conservative scenario

Critical sectors

5510      "Hotels and similar accommodation"  ///

5520      "Holiday and other short-stay accommodation"  ///

5530      "Camping grounds, recreational vehicle parks and trailer parks"  ///

5590      "Other accommodation"  ///

5610      "Restaurants and mobile food service activities"  ///

5621      "Event catering activities"  ///

5629      "Other food service activities"  ///

5630      "Beverage serving activities"  ///

7711      "Rental and leasing of cars and light motor vehicles"  ///

7712      "Rental and leasing of trucks"  ///

4910      "Passenger rail transport, interurban"  ///

4920      "Freight rail transport"  ///

4931      "Urban and suburban passenger land transport"  ///

4932      "Taxi operation"  ///

4939      "Other passenger land transport n.e.c."  ///

4941      "Freight transport by road"  ///

4942      "Removal services"  ///

4950      "Transport via pipeline"  ///

Table 2. Number of wage workers by net earning intervals

Source LFS 2018.

Notes:

Net earnings is equal to basic wages and salaries, bonuses, premium and other incentives compensation.

Formal wage worker in the private sector is defined as having has a written contract, income tax from his remuneration is paid, receives sick and annual leave benefits.

Fig 1.  The correlation between residential electricity expenditure and welfare is positive but weak, it is even weaker for households where at least one member is self-employed

I am happy to discuss it further at your earliest convenience. If you have an opening tomorrow please let me know and I will adjust.

Thanks,

Maddalena

Dear Tamila,

A couple of questions when you have few minutes:

1.       Would some of the “individual entrepreneurs” in the business register (checking GEOSTAT website) include our target self-employed?  

2.       The micro and small enterprise database you mentioned yesterday is the same as the business register?

3.       Where would a taxi driver register or buy a license?

For the unemployment benefit for formal sector workers who lose a job:

1. Is the tax payer database that is used to cross verify?
2. Are you considering using the contribution to the pension system (pillar 2) also as a mean of verification? I saw that while it is mandatory for all employees, also self-employed can contribute (on a voluntary basis) . Self -employed who contributed could be considered eligible to the unemployment benefit?
3. Will the unemployed apply to the benefit or the firm will signal the layoff? Now firms have to pay a severance payment for a month, will this be in addition to the severance payment? Thanks for clarifying.

As mentioned on the phone this morning I am requesting whether electricity compensations are eligible under the Fast Track Facility .

Thanks

Maddalena