Social safety nets in ECA transition countries are, in many respects, the most complicated and least easily defined area of social protection. Across the region, countries have inherited a broad range of public programs, policies and services for addressing a wide variety of social needs. By and large, these mechanisms have proven ill-suited to the needs of a market economy and incapable of addressing the types of social risks which have emerged during the transition period. This paper reviews the role of safety nets in transition economies within the context of a social risk management framework. The risk management framework builds upon this traditional view and considers poverty and vulnerability within a dynamic framework. The paper discusses the objectives of safety nets, the legacy of pre-transition programs, developments during the transition period, strategic choices facing countries, and the operational experience and strategy of the Bank.

The development of safety nets during the transition has varied widely by country, in part due to divergent pre-transition starting points, as well as differing socioeconomic conditions and political and cultural factors. Despite these differences, a number of similarities can be drawn. By and large, countries in the Formner Soviet Union (FSU) have retained a greater emphasis on subsidies for housing and utilities, while countries in Central and Eastern Europe (CEE) have relied more on cash benefits. Means-tested social assistance schemes based on a minimum income guarantee have been more prevalent in CEE, although many FSU countries have introduced, or are in the process of introducing, such programs. There is also limited evidence that the Central Asian countries rely more upon informal safety nets, such as extended family networks, than other countries. The pace of reforms varies greatly across the region, as well. While some countries have adopted ambitious safety net reforms, other countries have changed little.

ECA countries face significant challenges to transform inherited safety nets to the needs of a market economy. While many countries have preferences for benefit structures similar to those of OECD countries, these may not necessarily be the most appropriate models. The social risks in transition economies are significantly different from those of developed market economies and of many other developing countries, as well. Further, cultural and economic differences between transition economies and OECD countries, and between transition economies themselves, militate against a one-size-fits-all solution. Yet, in designing social safety nets for transition economies, three fundamental issues must be addressed: (i) transition shock; (ii) the movement to a market economy; and (iii) popular perceptions about safety net programs. The paper discusses reform options and program design options as they relate to the context of the transition.

The paper reviews country developments and Bank involvement in safety net operations to date and finds that across the region, further dialogue and analysis is needed. Effective safety net programs that meet the changing needs of vulnerable groups are critical for the success of the transition in ECA. While important changes have taken place, there is a need to raise the profile of safety net policies both within ECA countries and at the World Bank.