Economic Growth, Government Pro-Poor Policies and Poverty Reduction in Armenia

Poverty and Extreme Poverty Rates in Armenia Poverty56%34.6% Extreme Poverty 21%6.4% Source: National Statistical Service of RA, 2006

Distribution of Income Gini Coefficient Zero represents perfect equality and 1.0 perfect inequality --Source: The IMF Book, p. 19

Explanations for gap between poverty rates and public perception 1) Certain segments of the population arent benefiting from positive economic results 2) There are regional disparities: –Lowest poverty rates: Yerevan, Vayots Dzor –Poorest: Shirak, Aragatsotn, Gegharkunik, Kotayk and Armavir 3) Official poverty line underestimates the true amount of poverty.

Poverty and Extreme poverty lines in 2004 Extreme poverty line: AMD12,467 or $28 per month Poverty line: AMD 19,373 or $43/month

STEPS TO CALCULATE THE EXTREME POVERTY LINE 1) Estimate per person per day calories needed: 2,232 2) Estimate the amount of money required to purchase 2,232 calories per day for one month: AMD 12,467 or $28.

STEPS TO CALCULATE THE POVERTY LINE 1) Estimate the amount of money required to purchase food: AMD 12,467 or $28 2) Estimate the non-food share of the budget of a person earning an income equal to the poverty line. This number is 36%. 3) Based on these estimated numbers, calculate the total budget or the poverty line: AMD 19,373 or $43 --The non-food part of this budget is just AMD 6,906 or $15 per month.

Pro-poor Government economic policies 1) Build public infrastructure in agriculture: roads and water resources 2) Improve education, health care & housing 3) Provide easy access to credit by the poor 4) Improve pensions and safety nets for the poor 5) Reduce of corruption 6) Redistribute assets

Government Expenditures From 2000 to 2004 Government expenditures/GDP declined from 26.7% to 20.4% In 2003 Government social expenditures, (pension, social assistance, health and education) were low: 8.7% of the GDP. Poverty Reduction Strategy Paper expects that number to be 12% of the GDP in 2015

Feasible ways of increasing government expenditures on pro- poor economic policies 1) Increasing government budget deficits 2) Increasing tax revenues

1) Government budget deficits During 2003, 04, 05, budget deficits/GDP were 1.4%, 1.5% and 2.5% For 2010, 2015, and 2020 the deficits/GDP are estimated to be, 1.9%, 1.6% and 3.3%

Government Debt In 2005 government debt/GDP was 31%. For years 2010, 2015, and 2020 the government debt/GDP are estimated to be, 29.1%, 29,8% and 37.9%.

2) Tax revenues and rates In 2004 government tax revenue/GDP was 17.4%. After year 2000, annual taxable income of less than about $2,500 is taxed at 10% and above that amount is taxed at 20%. After year 2000, income tax collection fell by 28%.

Armenia: Poverty measures by age Groups, 1998/99 and 2004 (in %) Poor Extremely poor 1998/ / Aged Total Population Source: National Statistical Service of RA, 2006

The effect of elimination of pension system on poverty rates If in 2004 pensions were eliminated: –Poverty rate would have jumped from 34.6% to 42.7%. –Extreme poverty rate would have jumped from 6.4% to 12.3% Source: National Statistical Service of RA, 2006