Growth, Poverty and Inequality in ECA Preliminary findings- for discussion only Conference on Labor Markets, Growth and Poverty Reduction Strategies Thessaloniki,

Growth, Poverty and Inequality in ECA

Preliminary findings- for discussion only

Conference on Labor Markets, Growth and Poverty Reduction Strategies

Thessaloniki, May 27, 2005

Eastern Europe and Central Asia Region,

The World Bank

2

Outline

I. ECA : Growth, Poverty and Inequality during 1998-2005

Growth Poverty Labor market Safety nets Prospects II. Western Balkans and SEE Poverty profile Labor market Policy Challenges

3

ECA in the Global Context: Real GDP Growth(In percent change, %)

-15

-10

-5

0

5

10

15

1990

1991

199

2

199

3

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

p

World

East Asia

Latin America and Carribean

ECA

4

Growth worked to reduce poverty

-40%

-20%

+0%

+20%

+40%

-20% -10% +0% +10% +20% +30%Change in real consumption per capita (surveys)

Ch

ang

e in

po

vert

y

EU-8 SEE CIS Middle Income CIS Low Income

5

…but poverty and vulnerability remain a problem

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%1

99

8

20

02

19

98

20

03

19

98

20

02

19

99

20

02

20

01

20

04

19

98

20

02

19

99

20

02

20

01

20

03

19

98

20

02

20

00

/1

20

03

19

99

20

02

19

98

/9

20

03

20

00

20

03

19

99

20

03

Hungary Lithua-nia

Poland Romania Bosnia Belarus Russia Kazakh-stan

Georgia Uzbeki-stan

Moldova Armenia KyrgyzR.

Tajikistan


below $ 2.15 a day above $2.15 but below $4.30

6

40 mln. people moved out of poverty in ECA

Note: based on extrapolation using data covering about 80% of the population in ECA, Turkey is included.

Population of ECA by poverty status 1998/9-

2002/3 (mln.)

102.061.2

160.7

153.3

215.1

264.2

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Around 1998-99 Around 2002-3

Non-Poor: above $ 4.30(2000 PPP)

Vulnerable:above $ 2.15and below 4.30 a day(2000 PPP)

Poor below $ 2.15 a day(2000 PPP)

7

Growth Opportunities

Agricultural

Employment

Non - Agricultural

Employment

Public/Private

transfers

Income Earnings of the Poor

Country policies and


Employment

-

Employment

Public/Private

transfers

Income Earnings of the Poor


New

Employment- Public/Private

transfers

Outcomes for the Poor


Conditions:

Education

Infrastructure

Political economy

Redis`tribution of assetsProductivity and wages

Household and group characteristics:

Health, Education,

Gender, Dependency


Conditions:

Education

Social Policies

Labor Market Policies

Connecting the poor to growth

8

Factors contributing to poverty reduction

Three key channels: Growth in Wages Growth in Employment Increasing Adequacy and Better

Targeting of Social Transfers

These differed across countries, resulting in different pace of poverty reduction

9

EU-8

0.80

1.00

1.20

1.40

1.60

1997 1998 1999 2000 2001 2002 2003

employment index real wage index

SEE

0.80

1.00

1.20

1.40

1.60

1997 1998 1999 2000 2001 2002 2003


Middle Income CIS

0.80

1.00

1.20

1.40

1.60

1997 1998 1999 2000 2001 2002 2003


Low Income CIS

0.80

1.00

1.20

1.40

1.60

1997 1998 1999 2000 2001 2002 2003


10

Employed gained P

olan

d

Rom

ania

Bel

arus

Rus

sia

Kaz

akhs

tan

Mol

dova

Geo

rgia

Taj

ikis

tan

EU-8 SEE Middle Income CIS Low income CIS

Per

cen

t P

oo

r

Ch

ang

e in

Po

vert

y, %

~1998 Poverty of Unemployed ~2002 Poverty of Unemployed~1998 Poverty of Employed ~2002 Poverty of EmployedPoverty Change for Unemployed Poverty Change for Employed

11

Most poor are still the working poor

Note: * $ 4.30 at 2000 PPP as a poverty line, other 2.15 a day at 2000PPP

0%

25%

50%

75%

100%

Poland Hungary Romania Bulgaria Kazakh-stan

Russia Moldova Georgia Tajikistan

EU-8 SEE CIS MiddleIncome

CIS Low Income Turkey

Children (<16 y.o.) Working (Employed+self-e) Unemployed Inactive Elderly (66 y.o.+)

12

Wages and poverty reduction

-40%

-20%

+0%

+20%

+40%

-20% -10% +0% +10% +20% +30%Change in real wage

Ch

ang

e in

po

vert

y


13

Increased public expenditures …Changes in Real Public Expenditures by Groups of Countries,

1998=100

80

90

100

110

120

130

140

150

160

1998 1999 2000 2001 2002 2003

CEE

Middle Income CEE/SEE

CIS Middle income

CIS poor

14

… translated into the growth of transfers…

EU-8 SEE Middle Income CIS Low income CIS 1998 2002 1998 2002 1998 2002 1999 2002 Pension spending/GDP 9.72 9.47 7.80 8.45 6.85 6.90 4.50 3.34 Real Pension Index 1.00 1.05 1.00 1.30 1.00 1.40 1.00 1.04 Pension Spending, $* 871 917 434 565 241 339 59 61

Source: ECA Fiscal Database * Annual per capita in 2000 PPP Note: EU-8 is comprising Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovak Republic, SEE- Albania, Bulgaria and Croatia, Middle Income CIS – Belarus, Kazakhstan, Russia and Ukraine, and Low income CIS – Armenia, Azerbaijan, Georgia, Kyrgyz Republic and Moldova.

15

… and helped to reduce povertyCountry Year

Increase in poverty in the absence of all social transfers (percent)

EU-8 Poland 2001 141 SEE Bosnia & Herzegovina 2001 68 Bulgaria 2001 156 Romania 2002 49 Serbia 2003 41 Montenegro 2002 34 Middle-Income CIS Belarus 2002 143 Kazakhstan 2002 100 Russia 2002 68 Low-Income CIS Armenia 2001 12 Azerbaijan 2001 12 Kyrgyz Republic 2001 10

Note: Simulations use national poverty lines. Some behavioral response is assumed in the case of Romania (50 percent of transfer income is replaced) and Serbia (72 percent of transfer income is replaced in rural areas, 87 percent in urban areas).

Source: World Bank, various poverty assessments.

16

Other factors pushed poverty up (in most cases) or down

Relative prices Energy tariffs Agric. Prices Taxes Fees for

social services(Health,

Education)Depletion of

infrastructure networks

Depletion of social capital

Migration

Electricity tariffs in ECA countries remain well below the benchmark of 7.5 - 8.5 cents/kWh

0123456789

10

Czech

Republic

Esto

nia

Hungary

Latv

ia

Lithuania

Pola

nd

Slo

vak

Republic

Alb

ania

Bulg

aria

Cro

atia

FY

R

Macedonia

Monte

negro

Rom

ania

Serb

ia

Bela

rus

Kazakhsta

n

Ukra

ine

Arm

enia

Azerb

aija

n

Georg

ia

Kyrg

yz

Republic

Mold

ova

Tajik

ista

n

Uzbekis

tan

Turk

ey

EU SoutheastEurope

CIS Mid-income

countries

CIS Low -income countries T

US

Cen

ts /

kW

h

Residential tarif fs (US cents / kWh) ECA benchmark

17

Combined impact on the poor varied

20

30

40

50

60

Media

n s

pline/G

row

th r

ate

in m

ean

0 10 20 30 40 50 60 70 80 90 100Percentiles

Median spline Grow th rate in mean

Gro

wth

, %

Russia 1999-2002

20

40

60

80

100

Media

n s

pline/G

row

th r

ate

in m

ean

0 10 20 30 40 50 60 70 80 90 100Percentiles


Gro

wth

, %

Moldova 1999-2002

-10

-50

510

Media

n s

pline/G

row

th r

ate

in m

ean

0 10 20 30 40 50 60 70 80 90 100Percentiles


Gro

wth

, %

Poland 1999-2002

05

10

15

Media

n s

pline/G

row

th r

ate

in m

ean

0 10 20 30 40 50 60 70 80 90 100Percentiles


Gro

wth

, %

Romania 1999-2002

18

Prospects going forward

18.4

102.061.2

40.0

46.0

160.7

153.3

108.8

395.6

215.1

264.2

329.2

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Around1990

Around1998-99

Around2002-3

By 2007

Non-Poor: Above$ 4.30 a Day

Vulnerable: Above$ 2.15 and Below$ 4.30 a Day

Poor: Below $ 2.15a Day

19

Issue 1: Sustainable poverty reduction is not guaranteed

High growth rates are not guaranteed Poor CIS rising concerns over debt and dependence on a

few sectors Resource rich CIS –even more need for diversification CEE and SEE – fiscal vulnerabilities

Impact of growth in reducing poverty may fall Unique constellation of factors in CIS (rebound, clearance

of arrears)- inequality will not continue to decline Further increases in inequality in CEE and SEE due to

wage decompression Growing inter-sectoral differences in productivity (lagging

agriculture) Progress in non-income dimensions has been mixed

Quality deteriorated, affordability reduced and neglected maintenance toll raising

20

Issue 2: Many people remain vulnerable to economic downturns

Russia

20

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)

20

Issue 3: Jobless growth or low productivityEmployment and self-employment rates

Note: Employment and self-employment levels are derived from household survey data and may differ from official statistics in some respects.

0%

10%

20%

30%

40%

50%

60%

70%

80%

1998 2002 2001 2002 1995 2003 1998 2002 1998 2002 1999 2002 1999 2002 1998 2002 1999 2003

Poland Hungary Bulgaria Romania Belarus Russia Georgia Moldova Tajikistan

EU-8 SEE Middle-Income CIS Low-Income CIS

Wage employment Self-employment

21

How to achieve accelerated and shared growth?

By addressing causes of slow and unequal growth

Reduce vulnerability Foster productivity growth Improve public service delivery Address regional and spatial inequalities

and the needs of marginalized groups Call for increased reform effort

21

Key Messages: About 40 million people moved out of poverty, but

60 million remain in poverty Significant concerns on the non-income

dimensions Much more needs to be done to

consolidate the gains for the poor, and make public services work better, especially for the

poor This calls for

continued agenda of policy reforms, with varying emphasis by regional sub-group

22

II How different are the Western Balkans?

Poverty Growth Labor market Policy challenges

23

Poverty Very limited data compared to other regions

Albania -2002 LSMS (only recently repeat) BiH – 2001 LSMS and 2004 panel survey, HBS only in

2004 Serbia- 2002 and 2003 SLS, HBS 2003 onward Montenegro – 2002 and 2004 ISSP (topical) UNMIK – 2000 LSMS, HBS 2002 and 2003 are not

comparable FYROM – HBS1997-2000 not comparable to 2002-2003

Poverty profile: differs a lot Children or non-working adults are the largest group

(Alb,UNMIK, FYROM) Working poor are the largest group (SaM, BiH)

23

Western Balkans data at-a-glance

National poverty

Under US$ 2.15 in PPP

Under US$ 4.30 in PPP

Unemployment rate, LFS

Population, mln

Western BalkansAlbania 25 24 71 16.8 3.2BiH 17 6 30 16.4 4.2Macedonia 20 4 24 30.5 2.1SaM 11 5 40 14 8.3Kosovo 37 n.a. n.a. 44 2

Regional comparatorsRomania 30 12 58 6.6 21.7Bulgaria 22 4 33 19.4 7.8Croatia 8 0 4 15.8 4.4

Poverty and unemployment (most recent survey) %

Notes: Poverty rates with national poverty lines taken from most recent publications; 2.15 and 4.30 poverty rates

from regional report, World Bank 2005, Unemployment rates – most recent, quoted in CEMs and/or PAs

24

Growth performance

-25

-20

-15

-10

-5

0

5

10

15

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Gro

wth

ra

te %

Middle-Income CIS

Low-Income CIS

SEE

EU-8

25

Growth performance: Western Balkans vs SEE

GDP Growth in ECA by Groups of Countries, 1990-2003

-15

-10

-5

0

5

10

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

%

SEE

FYROMMiddle-Income CIS

SAM

26

Labor market Unemployment is the key concern: High open

unemployment (survey U rate above 15%, some countries in 30s; registered unemployment even higher, 30-40 percent); High duration of unemployment; High youth unemployment

Lack of employment response and increasing duality: Flat or decreasing employment in the formal sector; Slow job creation in the economy in general; but increasing informal sector employment; One-earner model prevails in large parts; Importance of agriculture and slow gains in productivity

Concerns about sustainability of recent wage increases: Rising labor costs and rapid increases in formal sector wages (in some countries outpacing productivity)

27

Challenge

Protective labor regulations (formal sector)

High taxes /rigidities

Protection of jobs/extended safety nets

Potential for large lay-offs

Unfinished restructuring

High unemployment

Little formal job creation Growing informal sector

Little progress in poverty reduction

Political resistance / fear/ lack of support to

Bad Business Environment/investment climate

Documents

Growth, Poverty and Inequality in ECA Preliminary findings- for discussion only Conference on Labor Markets, Growth and Poverty Reduction Strategies Thessaloniki,