1. Emil D TESLIUC The World Bank Washington, DC May 13, 2010 Sofia
Economic and Social Impacts of the Crisis in Eastern Europe and Central Asia
Emil D TESLIUC
The World Bank
Washington, DC
May 13, 2010
Sofia

2. The slowdown is sharpest in ECA
GDP growth (annual percent change)
IMF October 2009 data –

3. The impact of the crisis has varied across countries in ECA
GDP Growth Rates in ECA
In 2009, GDP is expected to decline by 5.72% (**) for ECA as a whole compared with 2008.
(**) Composites are weighted by GDP valued at purchasing power parities (PPPs) as a share of total group GDP. This follows the IMF approach (

4. Recession conditions (example: unemployment) will continue for several years

5. Households are affected by the crisis in multiple ways and at different times
Financial Market
Credit Market Shock
Product Market
Relative Price Shock
Labor Market
Income/Employment Shock
Government Services
Education, Health, SP Service Shocks

6. Unemployment
The recent surge in unemployment caused by an adverse demand shock hit the labor markets hard. Between June 2008 and June 2009, in 27 ECA countries to million, or around 34 percent.

7. But these unemployment rates don’t tell the whole story
Lags in impacts and data:
Crisis is moving in waves with some countries hit before others
Labor market effects often lag
Data do not keep up with what is happening
Shifts in work status
Administrative leave (in Russia, 1.1 million in QI 2009)
Reduced working hours (in Ukraine, 1.2 million in QI 2009)
Job sharing
Increasing informality
Wage arrears (at the end of Q1), accumulated wage arrears doubled and tripled in Ukraine and Russia respectively

8. Registered unemployment rates don’t tell the whole story
Unemployment, Part-time Work, Workers on Administrative Leave, and Workers
having Wage Arrears First and Second Quarter of 2009
Unemployment, and Part-time Work in Belarus and in Latvia
in the First and Second Quarter of 2009

9. Remittances as a share of GDP, 2007 (%)
A contraction in remittances will have both macro and household impacts
Remittances as a share of GDP, 2007 (%)

10. Forecasts of remittance flows for 2009 show a steep decline of 15% in ECA

11. Micro-simulations show an increase in poverty
Most recent poverty estimate
Forecasted poverty in 2009
Armenia
23.8
(2007)
29.7
Azerbaijan
10.8
(2008)
11.8
Bulgaria
9.7
11.3
Latvia
19.8
26.9
Romania
5.7
7.4
Russia
13.5
15.5
Tajikistan
53.1
57.9
Turkey
17.4
21.9
Note: Estimates are not comparable across countries

12. Fiscal constraints have to led strategic and not so strategic social sector responses
Not Strategic
Reduce spending across the board
Cut spending on critical inputs (operations and maintenance) to protect salaries
Postpone expansion of early childhood and preschool education and cut health prevention programs
Adjust second pillar contribution rates to raise revenue
Strategic
Achieve efficiency gains through structural reforms in social sectors (e.g. formula funding in general education – Latvia, Lithuania, Romania, Bulgaria; school consolidation – Serbia)
Prepare workers for economic revival (Latvia, Russia, Bulgaria)
Expand safety nets for those without social insurance (Latvia)
Change indexation/minimum and base pension (Hungary, Serbia, Bulgaria)

13. ECA countries have adjusted labor market policies and social protection programs to respond to the crisis
Bulgaria
Romania
Turkey
Latvia
Kazakhstan
Russia
Increased duration in unemployment benefits X
Increased amount of unemployment benefits
Wage subsidies
Training
Exemptions from paying contributions
Public works

14. Response to Crisis: Unemployment Insurance and Social Assistance Benefits
Unemployment insurance = first response
Ukraine, Turkey, Croatia, Serbia, Bulgaria
Safety net benefits protecting existing beneficiaries
Helping smooth consumption of those already receiving benefits
Some safety net benefits starting to respond only recently
In terms of increasing coverage (new beneficiaries: Croatia, Bulgaria))
And/or topping up benefits (e.g., Latvia, Ukraine, Serbia, Kyrgyz Republic)
Some design features constrain crisis response:
Extremely low eligibility thresholds – not reaching those hit by crisis (e.g., Bulgaria, Croatia, Ukraine)
Additional restrictions: time limits; requiring period of unemployment prior to registering (Bulgaria)
Examples of SSN responding:
Means-tested Child allowances in Ukraine
CCT in Turkey (expanding benefits for existing beneficiaries)
MOP and Caregivers’ Allowance in Serbia
GMI in Latvia

15. Public policies that protect households from poverty are important.
Reflections
The aggregate shocks fed through multiple channels: labor market; remittances; credit; supply of health and education services; social protection.
The policy responses to the crisis depend on:
depth and persistence of crisis
fiscal space today and magnitude of fiscal adjustment necessary in next years
transmission mechanism to households
availability of instruments that help households cope with the shock
adjustments at the household level (destructive for longer-term human development?)
Public policies that protect households from poverty are important.
Public policies that prepare households for post-crisis key for longer term human capital formation and development.
Public policies that protect jobs and create jobs to be handled with care if labor demand remains sluggish because fiscal costs are high
Public policies that protect jobs (subsidies, short-term working arrangements) and create jobs (start-up support, expansion of public employment) to be handled with care if labor demand remains sluggish because fiscal costs are high
Public policies that protect households from poverty are important. The chosen instrument should depend on country institutional capacities and fiscal constraints (unemployment insurance extensions, public works, income support, etc.).
Public policies that prepare households for post-crisis key for longer term human capital formation and development. Structural changes (moving from protection of jobs to protection of workers – including part-time work legislation, temporary agency work, etc.) and skill-building and other active labor market policies.