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Growth, Poverty and Inequality in Eastern Europe and the Former Soviet Union

Europe and Central Asia Region

Poverty Reduction and Economic Management Unit

April 11, 2006

Thematic Group on Poverty Impact Analysis, Monitoring and Evaluation

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Outline Factoid: ECA comprises 28 countries and one

territory, population 473 mln.; 6 IDA countries, 4 IDA/IBRD

Report launched in October, 2005; over 25 presentations: Part I, client countries and videoconferencing

Today: Regional report series Poverty and inequality data

Demand for comparable data WDI, country (PA) figures, ECAPOV

Policy recommendations Overview of ECAPOV Living document: consultations

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ECAPOV I and ECAPOV II

Updates 2000 Report Reports on period since end of the

financial crisis in Russia What has been happening to

poverty during 1998-03?Why do we see the different

outcomes/impacts?What can be done to sustain

poverty reduction in the future?

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What did 2000 report tell us? Collapse in living standards Dramatic rise in inequality in CIS Absolute poverty widespread in CIS Highest risk of poverty faced by:

children rural households excluded groups (e.g. Roma, IDPs,

refugees) Working households: largest share of

poor Non-income poverty growing Growing gap between CIS and CEE,

SEE holding middle ground

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What 2005 report tells us? Over 40 million people in ECA moved out of poverty

during 1998-2003 Poverty down from 20 to 12 percent, driven by

rebound growth in CIS Poverty reduction helped by moderation of

inequality in CIS Access to and quality of public services continue to

be unequal Progress on health status mixed Quality of education is falling and disparities

(rich/poor, rural/urban) persisting Access to infrastructure services – water,

electricity, clean fuels - mixed Strong spatial dimension to poverty and access

To end poverty by 2015 (sub-region specific definitions): growth rates will need to be higher than currently forecast

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Regional reports series : repositioning efforts

+

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Data

Policies: On-going regional

studies Fiscal database

PERs, IMF… Sectoral

Strategies, PAs, PSIAs…

Country studies

Poverty: Source: ECA Archive

22 countries ECA over 1998-2003

3 benchmark countries 1998-2003 (11 countries

comparable for entire period)

Method: basic needs Consumption Same definitions Same poverty line

Main source- primary records from household surveys (HBS, LSMS, IHS) between 1997/8 and 2002/3

•Regular, official, representative •Compliant to international standards•Allows benchmarking to other countries

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9

10

A poverty line of $ 2.15 a day is used

ECA Countries Hungary

Latvia Ukraine

Tajikistan

Bulgaria

Non-ECA Countries

Nigeria Burkina Faso

Greece

Portugal

0

1

2

3

4

5

6

7

8

9

1 10 100

Level of consumption per capita, $ a day/person

Nat

iona

l pov

erty

line

s, $

a d

ay/ p

erso

n

4

PPP changes poverty counts in ECA

0%

20%

40%

60%

80%

Perc

ent P

oor (

belo

w $

2.15

a d

ay p

er c

apita

)

PPP 1993 PPP 1996 PPP 2000

Note: Latest available year (2002 or 2003), all values in 1993 US$

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WDI and ECAPOV poverty counts

0%

20%

40%

60%

80%

100%

Perc

ent P

oor (

belo

w $

2.15

a d

ay p

er c

apita

)

PPP 1993, ECAPOV PPP 1993, WDI

Note: Latest available year for ECAPOV II and WDI

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Current consumption per capita used as welfare indicator Uniform approach to correct for inflation and regional price

differences Excludes rental payments (issues of imputation), health care

(issues of elasticity/catastrophic spending), and all durables purchases

Uniform cleaning/correction for outliers Uses standard classification by items (COICOP)

Household and individual characteristics (education, health, employment) as well as non-income indicators (water) are uniformly defined and linked to consumption poverty

ECAPOV II : Comparable data on poverty and inequality

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WDI/ECAPOV I : Comparable data on poverty and inequality

Take pre-existing aggregate: from PAs, publications, direct data estimates (selecting one that is closer to the “consumption”)

Issues: what is available Issues: correction for price differences Illustrations:

• Country X: Imputations for consumption from stock/bulk purchases

• Country Y: Does not collect consumption data, only income data are available

• Country Z: Has high inflation, round-year data collection, but no correction for price changes within the year

When unit records data not available – POVCAL on grouped data

Apply uniform poverty line

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Issue: data source for poverty

LSMS

LSMS? L.S. Surveys (Q of life etc)

CPI, SNA

Low Income

Middle Income Upper Middle

HBS? HBS HBS

Poverty

CPI, SNAPoverty?

CPI, SNA

PovertyPoverty?

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Poverty monitoring: DataFrequency Coverage Consistency Access

Albania LSMS LSMS LSMS LSMS

Armenia IHS IHS IHS HIS

Azerbaijan HBS HBS HBS HBS

Belarus HBS HBS HBS HBS

Bosnia and Herzegovina LSMS/HBS LSMS/HBS LSMS/HBS LSMS/HBS

Bulgaria IHS IHS IHS IHS

Croatia HBS HBS HBS HBS

Czech Republic HBS HBS HBS HBS

Estonia HBS HBS HBS HBS

FYR Macedonia HBS HBS HBS HBS

Georgia IHS IHS IHS IHS

Hungary HBS HBS HBS HBS

Kazakhstan HBS HBS HBS HBS

UNMIKosovo LSMS/HBS LSMS/HBS LSMS/HBS LSMS/HBS

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Poverty monitoring: DataFrequency Coverage Consistency Access

Latvia HBS HBS HBS HBS

Lithuania HBS HBS HBS HBS

Moldova IHS IHS IHS IHS

Poland HBS HBS HBS HBS

Romania IHS IHS IHS HIS

Russian Federation HBS HBS HBS HBS

Serbia and Montenegro LSMS/HBS LSMS/HBS LSMS/HBS LSMS/HBS

Slovak Republic HBS HBS HBS HBS

Slovenia HBS HBS HBS HBS

Tajikistan LSMS LSMS LSMS LSMS

Turkey HBS HBS HBS HBS

Turkmenistan LSMS/HBS LSMS/HBS LSMS/HBS LSMS/HBS

Ukraine HBS HBS HBS HBS

Uzbekistan HBS HBS HBS HBS

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OutlineToday:

Poverty and inequality data Demand for comparable data WDI, country (PA) figures, ECAPOV

Policy recommendations Overview of ECAPOV Living document: consultations

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Baseline: ECAPOV I Recommendations for Public Action to Reduce Poverty

Large variation in policy, performance, income and vulnerabilities across countries

Forward-looking policy agenda has to be country and region-specific

But common themes exist; and less advanced reformers have much to gain from experience of those further on the transition path.

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Key Building Blocks Build effective and inclusive

institutions Provide conditions for shared

growth

Protect the poor and vulnerable

Reduce inequality and enhance opportunities for the poorest

Tackle state capture; build communities; give voice

Stimulate labor demand and private sector environment; build capabilities of the poor

Help the destitute; ensure long-run equality of opportunity for poor children; balance protection, efficiency

Reduce rents;measure to aid those at bottom, lagging regions; anti-discrimination

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Advanced Reformer; High Income (e.g. Poland, Hungary, Czech Rep.)

Shared growth Improve competitionpolicies

Privatize infrastructuremonopolies/utilities

Reduce contingentliabilities

Enhance labor mobility Deepen financial sector

Capabilities Rationalize personneland facilities

Improve incentives forcost containment

Upgrade quality ofhealth and education

Legitimize privatefinancing & protectaccess of poor

Protection Pension reform (multi-pillar w/ minimum)

Reform disabilitypensions (e.g. Poland)

Means-tested cashbenefits.. Priorities:poor children; rural.

De-institutionalization

Institutions/Equality

Support environmentfor NGOs, communities

“Raise” the bottom: skillupgrading; min. wages

Anti-discrimination Decentralization, but

address regionaldisparities

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Less Advanced Reformer; Middle Income (e.g Russia, Romania)

Shared growth Introduce hard budgetconstraints

Remove barriersentry/exit (SMEs)

Agriculture/land reform

Achieve sustainablefiscal deficits

Reorient public exp. tosocial sectors andinfrastructure

Capabilities Rationalize personneland facilities

Improve incentives forcost containment

Upgrade quality ofhealth and education

Legitimize privatefinancing & protectaccess of poor

Protection Reformed PAYG withbenefit/contribution linkminimum pov. benefit

Replace UE Insurancewith flat/severancebenefit

Categorical benefits(means-tested?)

Eliminate privileges/replace utility subsidies(cash benefit/lifeline)

De-institutionalization

Institutions/Equality

Reduce corruption Strengthen institutional

checks and balances;political accountability

Build civil society Support communities Anti-discrimination Improve tax collection

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Less Advanced Reformer; Lower Income (e.g. Caucasus, Tajikistan)

Shared growth Introduce hard budgetconstraints

Remove barriersentry/exit (SMEs)

Agriculture/land reform

Increase revenues Reorient public exp. to

social sectors andinfrastructure

Capabilities Rationalize personneland facilities

Increase spending &improve incentives forcost containment

Upgrade quality ofhealth and education

Legitimize privatefinancing & protectaccess of poor

Protection Flat pension (preparefor intro funded pillar)

Replace UE Insurancewith UE Assistance

Limited cash benefit Self-targeting Eliminate privileges Introduce lifeline .

Institutions/Equality

Reduce corruption Strengthen political

accountability;institutional checks andbalances

Build civil society Support communities Anti-discrimination Improve tax collection/

compliance

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ECAPOV II: strategic shift

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Poverty will be around for some time to come.. Using GEP consumption

growth rates and assuming no inequality change…

…by 2007: 21 million less poor but…40 million still poor and100 million economically vulnerable

Prospects of meeting MDGs (especially health) difficult – except for EU-8

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Sustained poverty reduction not guaranteed

To end poverty by 2015 (sub-region specific definitions): growth rates will need to be higher than currently forecast…

…but high growth rates are not guaranteed…..

Poor CIS: debt and dependence on a few sectors

Resource rich CIS: need for diversification CEE and SEE: fiscal vulnerabilities

..and many vulnerable to economic downturns

Russia

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40

60

80

100

120

140

1997 1998 1999 2000 2001 2002 2003

Poverty head-count (1999=100) Real GDP (1999=100)

Romania

20

40

60

80

100

120

140

1997 1998 1999 2000 2001 2002 2003

Poverty head-count (1999=100) Real GDP (1999=100)

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Impact of growth in reducing poverty may fall Unique constellation of factors in CIS- inequality may not

continue to decline Regional disparities are wide

Capital cities major beneficiaries of growth- in many countries poverty in capitals virtually eliminated

Over time, increasing relative risk of poverty in rural areas and a concentration of poor in rural areas.

Secondary cities often closer to rural areas than to capital Disparities in non-income dimensions are also very large

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So, what more needs to be done? Accelerate shared growth

Promote enterprise reform Boost growth and productivity in agriculture Promoting opportunities for those in lagging towns and

regions

Strengthen public service delivery Increase quality and equity of education services Increase access and quality of health care Manage reform of utilities

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So, what more needs to be done? Enhance social protection

Continue to strengthen social safety by increasing efficiency while staying within available public resources

Targeted interventions for marginalized groups and minorities

Ensure adequate minimum wages sensitive to labor market constraints

Monitor progress Maintain efforts to improve quality and coverage, and

address non-response Provide open access

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www.worldbank.org/eca/ecapovertyreport