1 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

2 Outline n Factoid: ECA comprises 28 countries and one territory, population 473 mln.; 6 IDA countries, 4 IDA/IBRD n Report launched in October, 2005; over 25 presentations: Part I, client countries and videoconferencing Today: n Regional report series n Poverty and inequality data u Demand for comparable data u WDI, country (PA) figures, ECAPOV n Policy recommendations u Overview of ECAPOV u Living document: consultations

3 ECAPOV I and ECAPOV II n Updates 2000 Report n Reports on period since end of the financial crisis in Russia F What has been happening to poverty during ? F Why do we see the different outcomes/impacts? F What can be done to sustain poverty reduction in the future?

4 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

5 What 2005 report tells us? n Over 40 million people in ECA moved out of poverty during F Poverty down from 20 to 12 percent, driven by rebound growth in CIS F Poverty reduction helped by moderation of inequality in CIS n Access to and quality of public services continue to be unequal F Progress on health status mixed F Quality of education is falling and disparities (rich/poor, rural/urban) persisting F Access to infrastructure services – water, electricity, clean fuels - mixed F Strong spatial dimension to poverty and access n To end poverty by 2015 (sub-region specific definitions): growth rates will need to be higher than currently forecast

6 Regional reports series : repositioning efforts +

2 Data n Policies: u On-going regional studies u Fiscal database F PERs, IMF… u Sectoral F Strategies, PAs, PSIAs… F Country studies n Poverty: u Source: ECA Archive F 22 countries ECA over F 3 benchmark countries F (11 countries comparable for entire period) u Method: basic needs F Consumption F Same definitions F 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

8

9

10 A poverty line of $ 2.15 a day is used

4 PPP changes poverty counts in ECA Note: Latest available year (2002 or 2003), all values in 1993 US$

4 WDI and ECAPOV poverty counts Note: Latest available year for ECAPOV II and WDI

13 n Current consumption per capita used as welfare indicator u Uniform approach to correct for inflation and regional price differences u Excludes rental payments (issues of imputation), health care (issues of elasticity/catastrophic spending), and all durables purchases u Uniform cleaning/correction for outliers u Uses standard classification by items (COICOP) n 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

14 WDI/ECAPOV I : Comparable data on poverty and inequality n Take pre-existing aggregate: from PAs, publications, direct data estimates (selecting one that is closer to the “consumption”) F Issues: what is available F Issues: correction for price differences F 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 n When unit records data not available – POVCAL on grouped data n Apply uniform poverty line

15 Issue: data source for poverty LSMS LSMS? L.S. Surveys (Q of life etc) CPI, SNA Low IncomeMiddle IncomeUpper Middle HBS? HBS Poverty CPI, SNA Poverty? CPI, SNA PovertyPoverty?

16 Poverty monitoring: Data FrequencyCoverageConsistencyAccess AlbaniaLSMS ArmeniaIHS HIS AzerbaijanHBS BelarusHBS Bosnia and HerzegovinaLSMS/HBS BulgariaIHS CroatiaHBS Czech RepublicHBS EstoniaHBS FYR MacedoniaHBS GeorgiaIHS HungaryHBS KazakhstanHBS UNMIKosovoLSMS/HBS

17 Poverty monitoring: Data FrequencyCoverageConsistencyAccess LatviaHBS LithuaniaHBS MoldovaIHS PolandHBS RomaniaIHS HIS Russian FederationHBS Serbia and MontenegroLSMS/HBS Slovak RepublicHBS SloveniaHBS TajikistanLSMS TurkeyHBS TurkmenistanLSMS/HBS UkraineHBS UzbekistanHBS

18 n Global relationship between survey and NA means holds for ECA; quality problems may be on both sides n Data show a consistent relationship between macro and survey data at the country level Source: Angus Deaton Measuring poverty in a growing world 2004 Note: ECAPOV definition of consumption (no health, durables and rental) Survey and macro data (1) WORLDECA

19 n Growth rates as measured by survey data in ECA (and globally) are robust to the measurement problems n Tight correlation between changes in household consumption from SNA and survey mean consumption (0.75) Survey and macro data (2) GSM= GPC R 2 =0.228 WORLD WITHOUT ECA (43 countries, 115 spells)ECA (15 countries, 43 spells) Source: M. Ravallion Measuring Aggregate Welfare In Developing Countries: How Well Do National Accounts And Surveys Agree? Note: $ 2.15 at 2000 PPP as a poverty line GSM= GPC R 2 = 0.354

20 Outline Today: n Poverty and inequality data u Demand for comparable data u WDI, country (PA) figures, ECAPOV n Policy recommendations u Overview of ECAPOV u Living document: consultations

21 Baseline: ECAPOV I Recommendations for Public Action to Reduce Poverty n Large variation in policy, performance, income and vulnerabilities across countries n Forward-looking policy agenda has to be country and region-specific n But common themes exist; and less advanced reformers have much to gain from experience of those further on the transition path.

22 Key Building Blocks n Build effective and inclusive institutions n Provide conditions for shared growth n Protect the poor and vulnerable n 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

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

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

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

26 ECAPOV II: strategic shift

27 Poverty will be around for some time to come.. n Using GEP consumption growth rates and assuming no inequality change… n …by 2007: 21 million less poor but…40 million still poor and100 million economically vulnerable n Prospects of meeting MDGs (especially health) difficult – except for EU-8

28 Sustained poverty reduction not guaranteed u To end poverty by 2015 (sub-region specific definitions): growth rates will need to be higher than currently forecast… u …but high growth rates are not guaranteed….. F Poor CIS: debt and dependence on a few sectors F Resource rich CIS: need for diversification F CEE and SEE: fiscal vulnerabilities u..and many vulnerable to economic downturns

29 u Impact of growth in reducing poverty may fall F Unique constellation of factors in CIS- inequality may not continue to decline u Regional disparities are wide F Capital cities major beneficiaries of growth- in many countries poverty in capitals virtually eliminated F Over time, increasing relative risk of poverty in rural areas and a concentration of poor in rural areas. F Secondary cities often closer to rural areas than to capital F Disparities in non-income dimensions are also very large

30 So, what more needs to be done? n Accelerate shared growth u Promote enterprise reform u Boost growth and productivity in agriculture u Promoting opportunities for those in lagging towns and regions n Strengthen public service delivery u Increase quality and equity of education services u Increase access and quality of health care u Manage reform of utilities

31 So, what more needs to be done? n Enhance social protection u Continue to strengthen social safety by increasing efficiency while staying within available public resources u Targeted interventions for marginalized groups and minorities u Ensure adequate minimum wages sensitive to labor market constraints n Monitor progress u Maintain efforts to improve quality and coverage, and address non-response u Provide open access

32