CHILD POVERTY AND WELLBEING DURING THE
FINANCIAL CRISIS: ONE YEAR LATER
1
INTRODUCTION ................................................................................................................ 5
Note on methods ............................................................................................................................................................... 6
PART 1: THE IMPACT OF THE CRISIS DURING 2009-2010 .................................................... 7
1.1 Background: major events, crises and emergencies ..................................................... 7
1.1.1 Natural Disasters ................................................................................................................................................... 7
1.1.2 Conflicts ..................................................................................................................................................................... 9
1.1.3 Political change.................................................................................................................................................... 11
1.2 A brief update on the evolution of the crisis since August 2009 and its impact on the
macro economy.............................................................................................................. 15
1.2.1 Earnings.................................................................................................................................................................. 15
Real reductions in earnings ........................................................................................................................................... 15
Public sector earnings ...................................................................................................................................................... 17
Increasing earnings ........................................................................................................................................................... 17
1.2.2 Changing prices over the survey period ................................................................................................... 22
1.2.3 Public finances (public expenditure, tax revenue, budget deficit, government borrowing)32
Countries with growing GDP and decreasing borrowing ................................................................................ 35
Countries with growing GDP and increasing borrowing................................................................................. 39
Countries with stagnant or declining GDP and increasing government borrowing .......................... 44
1.3 Impact of the crisis on the labour market .................................................................. 51
1.3.1 Trends in formal and informal employment and unemployment ................................................. 51
Trends in countries with growing employment rates ....................................................................................... 52
Trends in countries where employment rates continue to fall ..................................................................... 54
1.3.2.Labour market change for specific groups............................................................................................... 62
1.3.3 Regional differences in impacts of the crisis on employment ......................................................... 68
1.3.4 Migration and remittances ............................................................................................................................. 74
Background patterns........................................................................................................................................................ 74
Countries highly dependent on remittances .......................................................................................................... 78
Countries with immigration concerns ...................................................................................................................... 80
Countries less affected by change ............................................................................................................................... 84
Countries with little or no data on migration ....................................................................................................... 86
1.4 Impact of the crisis on poverty .................................................................................. 87
1.4.1 Changes in poverty rates ................................................................................................................................. 87
Countries where poverty rates are decreasing ..................................................................................................... 89
Countries where poverty rates are increasing...................................................................................................... 92
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1.4.2 Rural and urban poverty ................................................................................................................................. 94
Countries with overall decreases in poverty .......................................................................................................... 95
Countries with overall increases in poverty ........................................................................................................... 98
Other countries .................................................................................................................................................................... 99
Rural and urban poverty and changing sectoral employment ...................................................................101
1.4.3 Groups at high risk of poverty..................................................................................................................... 102
Child poverty.......................................................................................................................................................................102
Poverty among the elderly (65+) ..............................................................................................................................110
Poverty among minority groups ...............................................................................................................................111
Poverty in households with people with disabilities ........................................................................................112
Education and employment ........................................................................................................................................112
1.5 Impact of the crisis on inequality............................................................................. 113
1.5.1 Gini measures..................................................................................................................................................... 113
1.5.2 Responses of individual countries on inequality ................................................................................ 115
1.6 Impact of the crisis on health .................................................................................. 122
1.6.1 Overall change ................................................................................................................................................... 122
1.6.2 Health and healthcare by country ............................................................................................................. 125
1.7 Impact of the crisis on education and early childhood development ........................ 137
1.7.1 Fees, charges and access to education ..................................................................................................... 138
1.7.2 Shifts in financing and provision of education ..................................................................................... 146
1.8 Impact of the crisis on personal debt ....................................................................... 148
PART 2: MEASURES INTRODUCED AS A RESULT OF THE CRISIS....................................... 153
2.1 Government responses in general ........................................................................... 153
2.1.1 General overview of government responses to the crisis ............................................................... 153
Countries emphasising austerity measures .........................................................................................................155
Countries emphasising stimulation measures ....................................................................................................159
Countries with more mixed responses to the crisis...........................................................................................165
2.1.2 Changes that have been made to public spending by sector .......................................................... 169
Changes in sectoral spending in countries with an austerity focus ..........................................................172
Changes in sectoral spending in countries focusing on stimulating the economy.............................177
Changes in sectoral spending in countries with a mixed approach to the crisis ................................181
2.1.3 Changes that have been made to taxation and its effects on the vulnerable ........................... 185
Taxation changes by country......................................................................................................................................187
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2.2 Measures to protect the vulnerable ........................................................................ 193
2.2.1 Measures to protect the vulnerable through changes to cash benefits for families and
children ............................................................................................................................................................................ 194
Countries with increased benefit levels..................................................................................................................195
Countries with unchanged benefit levels...............................................................................................................201
Other countries ..................................................................................................................................................................203
2.2.2 Measures to protect the vulnerable through changes to unemployment benefits and
pensions .......................................................................................................................................................................... 204
Changes to contributory systems ..............................................................................................................................204
Unemployment benefits .................................................................................................................................................208
Pensions ................................................................................................................................................................................209
2.2.3 Measures to protect the vulnerable through health services ........................................................ 210
2.2.4 Measures to protect the vulnerable through social welfare, support and care services .... 214
2.2.5 Measures to protect the vulnerable through school optimization or rationalization
processes......................................................................................................................................................................... 217
2.2.6 Measures to protect the vulnerable through education/training (especially for young
people) ............................................................................................................................................................................. 219
2.2.7 Measures to protect the vulnerable through job protection or creation and employment
policies ............................................................................................................................................................................. 223
2.2.8 Measures to protect the vulnerable through public capital investment ................................... 232
2.2.9 Measures to protect the vulnerable through housing or mortgage protection and support
............................................................................................................................................................................................. 233
2.2.10 Measures to protect the vulnerable through subsidies/price controls .................................. 237
2.2.11 Measures to protect the vulnerable through access to credit ..................................................... 240
2.3 IMF and World Bank responses ............................................................................... 242
2.3.1 Loan arrangements by country .................................................................................................................. 245
2.3.2 Conditionality and social impacts .............................................................................................................. 254
2.3.3Conditionality by country .............................................................................................................................. 255
PART 3: SYNTHESIS OF KEY FINDINGS............................................................................ 259
Tables and figures
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INTRODUCTION
In August 2009, the Regional Office for CEE/CIS requested all 22 UNICEF Country
Offices in the CEE/CIS countries to help complete a questionnaire to assess the
impact of the global financial and economic crisis on children’s poverty and wellbeing
in the CEE/CIS region.
The detailed information provided by most offices in that first round of surveying
resulted in the production of a number of high quality analyses and policy research.
In particular, drawing on the responses to the questionnaire, UNICEF was able to
draft a background paper on social protection and the crisis for the Almaty Ministerial
Consultation on the Financial Crisis, which was held in Nov 2009 in collaboration
with ILO, FAO and UNDP. The replies to the second and third parts of the
questionnaire provided the evidence for the comparative study of social
5
protection/minimum income schemes in the CEE/CIS countries compiled with the
support of Professor Jonathan Bradshaw at the University of York (using a model
family analytical framework).
A year on from that first monitoring exercise, UNICEF carried out a second round
survey, drawing on largely the same framework. We are all well aware that the global
financial and economic crisis continues to affect CEE/CIS region more than any
other region, through multiple channels. Here we present specific evidence from the
survey covering the period August 2009 to August 2010. This report outlines what
the impact of the shocks have been and how effective the policies put in place to
respond to them have been over the past year, especially with respect to children
and vulnerable households.
The report is in three sections:
1. Impact of the crisis: changes since last year’s questionnaire.
2. Measures introduced or envisaged as a result of the crisis.
3. Synthesis of key findings
Note on methods
6
PART 1: THE IMPACT OF THE CRISIS DURING 2009-2010
1.1 Background: major events, crises and emergencies
1.1.1 Natural Disasters
The effects of the continuing financial and economic crisis in the CEE and CIS
regions have been exacerbated in many countries by damage caused by natural
disasters. Severe flooding was experienced in BiH, Croatia, Kazakhstan, Moldova,
Montenegro, Romania and Tajikistan. Russia experienced extreme weather events
and drought and earthquake damage hit Tajikistan.
Bosnia and Herzegovina was affected by floods in January 2010 with an estimated
4,600 children affected during a 3 day period. Later in June that year, 60 households
were evacuated in 8 municipalities.
Due to heavy rains and inadequate protection systems, Croatia suffered two major
floods in Jane and September 2010. There are no reliable and publicly available
estimates of the damages but according to the media, the costs related to the June
floods alone were estimated at HRK 200 million. The representatives of the farmers
affected estimated the damages at more than HRK 1 billion. Croatia expects to
receive some compensation from the European Solidarity Fund.
Seasonal flooding in spring 2010 caused dozens of deaths in the Southern-East
regions of Kazakhstan. The government stepped in with an aid package, and
reallocated more than 7.5 billion tenge from central and local budgets (including
those from non-affected areas) to support the regions suffered from flooding.
Over 3,000 people (including 614 children) were evacuated when floods hit Moldova
in May-July 2010. In total the floods affected some 13,000 people and according to
the estimates of the Government and its development partners (World Bank, United
Nations and European Commission), damages and losses of 41.9 million US dollars
were caused. Floods, as well as the heavy rains, will have a negative effect on GDP
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growth. The initial projection of 3.4% is likely to be reduced to 0.15%. In response to
the Government’s call for aid, approximately 39 million US dollars were offered by
international partners, including approximately 32 million US dollars from the
Romanian Government. Government actions designed to mitigate the consequences
of the floods include the construction of new dams and consolidation of old ones. A
total of 450 tons of humanitarian aid has been received and distributed (private
donations). The Government has set a short term objective to provide housing to all
victims of the floods using funding from both external aid and national budgets.
in January 2010 households in urban municipalities Zeta and Tuzi (Podgorica) and
municipalities Ulcinj and Cetinje of Montenegro were faced with the biggest floods for
the last 50 years. More than 500 households had to leave their homes and overall
costs caused by the floods amounted to almost €1 million. The Government of
Montenegro covered a third of those costs, while the rest of the money was donated
by the private companies and other donors.
Many regions of Romania were badly affected by flooding during the June and July
2010. According to the data reported by authorities, the floods severely affected 37
localities in the North-East - one of the poorest regions of the country - and the
South-East. Effects were suffered by:

3963 houses, of which 863 were destroyed

8,028 houses’ dependence, of which 683 were destroyed

147 social buildings, including 87 schools:, 3 hospitals and 18
kindergartens

5,258km of road infrastructure, including 3,179 km of rural roads

707 bridges

31 km of water pipes

38.5 km of sewage drains

110,585 ha of crop yields
The losses were evaluated at lei 3,671 million (€868 million). An amendment of the
state budget was approved in August and included support for rebuilding houses.
The Government has applied for the EU’s Solidarity Fund and anticipates support of
€24.5 million, based on the threshold the EC has established for Romania.
Floods have not been the only natural disasters affecting the region. Extreme
weather anomalies and drought in some parts of Russia led to the declaration of an
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emergency situation 41 constituent territories of the Russian Federation. In all,
according to experts, crops were lost on 13,300,000 hectares of land (17% of crop
area). To compensate for the losses, 35 billion roubles were allocated from the
federal budget. Additional health problems in 2009-2010 were caused by abnormal
heat, wild fires and smog in the Russian Federation. 14,500 more people died in July
2010 and 41,300 more people in August 2010 compared to the same periods of
2009.
In Tajikistan, a flood hit the city of Kulob in May 2010, killing 13 people and
destroying more than 500 residential buildings. But about 195 different kinds of
natural disaster hit the country over the first six months of 2010, causing 49 deaths.
Around 3,844 residential buildings were affected by natural disasters in early 2010
with damage estimated at 230.889 million TJS (over 52 million US dollars). An
earthquake of medium strength jolted Vanj district in Gorno Badakhshan Oblast on
January 2, 2010, affecting around 1,283 houses. According to the State Statistical
Committee (SSC), 45 countries provided USD 62.287 million worth of humanitarian
aid to Tajikistan over the first seven months of 2010.
Tajikistan has been certified as poliomyelitis-free since 2002 but since the beginning
of 2010, the country has been experiencing an outbreak of wild poliovirus Type 1. By
1 December 2010, the Ministry had reported 710 suspected cases with 458 being
confirmed as wild poliovirus Type 1 cases. This is the largest polio outbreak in the
European region for the last decade and the biggest outbreak this year globally. The
vast majority of cases are children (70% under 5 years old, 90% under 15) although
there are cases identified in the older age groups.
1.1.2 Conflicts
Bulgaria has experienced civil protests related to lay-offs and budgetary austerity
but, most countries in the region have remained free from military or armed conflict
over the period of the survey. The security situation in Kosovo is generally described
as 'stable but unpredictable' with potential threats due to ethnic tensions and a still
fluid political and socio-economic landscape. Inter-ethnic incidents are not frequent
and are mainly located it North of Kosovo where the majority of Kosovo Serb
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population is residing. The NATO-led Kosovo Force (KFOR) has started to reduce its
presence progressively.
2010 was one of the most difficult and turbulent years in the entire history of
independent Kyrgyzstan where violent conflicts were linked to political change. In
April violent protests led to a change in the political regime. The former president left
the country, and an interim government was established. More clashes between
conflicting parties took place in April and May and, in June 2010, these clashes grew
into a fully-fledged inter-ethnic conflict in the southern part of the country. This
resulted in hundreds of deaths and many tens of thousands of refugees. An
important stabilizing factor appeared to be a referendum on the new Constitution
held on 27 June. It approved this new constitution and provided the head of the
interim government with an official status of the president of the country. No major
conflicts have taken place since the referendum. A new technical government was
formed in July and parliamentary elections held in October 2010. The parliament
formed a majority coalition and appointed a new government, which took over power
from the technical government on 20 December 2010.
Military clashes occurred in the Rasht valley of eastern Tajikistan, a stronghold of the
United Tajik Opposition (UTO) during the civil war in 1992-1997. The security
situation in the region has stabilised since the early 2000s. However, in summer
2009, government forces conducted a large-scale security operation in the valley,
reportedly to capture “Islamic militants” – including some with a UTO background –
and interrupt drug trafficking flows. In September 2010, the security situation was
exacerbated further when a Government military convoy entered the Kamarob gorge
seeking to track down fugitives from a prison break in August, was attacked and 26
of the government troops killed. The conflict between the Government and the armed
criminal groups has lasted for almost two months and has become the most serious
internal conflict in Tajikistan for the last ten years.
Recent events in Tajikistan have increased concerns about stability in that country
and raised doubts about the efficiency of the security services. There are also signs
that radical Islamist activity is increasing. Although the authorities are dealing harshly
with this to maintain stability, but the harsh response in itself may fuel further
radicalization. Tajik foreign policy seems to be focusing on resolving disputes with
Uzbekistan (i) over plans to expand hydropower sector and (ii) over rail shipments of
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goods into Tajikistan. Special attention is also being given to the security situation in
Afghanistan and recent events in Kyrgyzstan in order to prevent any spread of
violence into Tajikistan. Tajikistan is also making efforts to strengthen its borders
with Afghanistan.
Relations with Uzbekistan remain strained largely owing to Tajikistan’s plans to
expand its hydropower sector. Uzbekistan has been concerned about Tajikistan’s
planned Roghun hydroelectricity plant which it fears could disrupt the flow of water
needed for the Uzbek agricultural sector (which is heavily reliant on irrigation to
produce cotton). In 2010 rail shipments of goods into Tajikistan were delayed at the
Uzbek border. Uzbekistan claimed that the delays were the result of technical
problems but Tajik authorities believed that it was a deliberate policy to put pressure
on them to halt or scale down their plans for Roghun. At end of May as many as
1,900 rail wagons containing fuel, food and construction materials including 300
wagons of NATO non-military supplies bound for Afghanistan were being held up in
Uzbekistan. As a result of Uzbekistan’s halting of freight cars, TJK railways’ cargo
shipments decreased by 30% over the first 6 months of 2010).
The recent violence in the Kyrgyzstan has alarmed neighbouring countries, and led
to concerns on the part of Governments of Central Asia that the unrest could spread
to their own populations. The control of the interim Kyrgyz administration has been
weak in parts of the country, and in mid-June conflict erupted in southern Kyrgyz
regions between ethnic Kyrgyz and ethnic Uzbeks. The concern is that ethnic conflict
could spill over to Uzbekistan and Tajikistan both of which have sizeable ethnic
minority populations.
Tajikistan also neighbours unstable Afghanistan. The 1,130 km porous border
between the two countries is considered to have potential for further spread of
instability from Afghanistan. There are more ethnic Tajiks in Afghanistan than in
Tajikistan and the border is one of the main routes for drugs coming from
Afghanistan on their way to Russia, Europe and increasingly to China and East Asia.
1.1.3 Political change
Between August 2009 and August 2010, elections held in Montegnegro, Tajikistan
and Uzbekistan resulted in little political change. In May 2010 municipal elections
11
were held in Georgia. The ruling party, National Movement received 65.75% of the
votes and formed majority in each of the over 60 municipalities. This gives the
National Movement a strong mandate to continue market-oriented reforms over the
coming years. In May 2010 local elections in 14 (out of 21) municipalities in
Montenegro resulted in a majority for the leading Democratic Party of Socialists
(DPS) (sometimes in coalition with the Social Democratic Party (SDP)) in 12
municipalities. The parliamentary elections which of February 2010 did not alter the
political landscape in Tajikistan, the People's Democratic Party winning a majority in
both houses. The main opposition party, the Islamic Revival Party, came second with
about 7% of votes. As in past elections, international observers noted serious
irregularities. Parliamentary elections in Uzbekistan were held on 27 December 2009
and 10 January 2010 to elect the 150 members of the Legislative Chamber, the
lower house of the Oliy Majlis (Parliament). No major changes occurred in executive
authority.
Apart from Kyrgyzstan, covered in Section 1.2.2 above, only Croatia, Moldova and
Ukraine reported any significant political change during the survey period. On 1 July
2009, shortly before the start of the period to which this report refers, Croatia’s Prime
Minister Ivo Sanader unexpectedly resigned in the middle of his second term and
was succeeded by his former Deputy Prime Minister Jadranka Kosor. Ms. Kosor
initiated a response to the economic crisis through the first 2009 budget revision (two
more were to follow), and provided the political support to the fight against
corruption. This was enabled by the new legislation and increased independence of
the anti-corruption office (USKOK) and necessitated by EU accession negotiations.
Anti-corruption investigations also implicated some of the former cabinet members,
and then spread to state owned enterprises. Several high-profile cases led to arrests
and indictments of political officials, managers of several state owned enterprises
and their vendors. The relationships with Slovenia were also improved, and tentative
solutions for resolution of some of the disputes (for example, the maritime border)
were developed, which facilitated the accession negotiations with the EU. The
completion of the EU acquis communautaire process is expected by mid-2011.
There were two more significant political changes in Croatia in 2010. First,
presidential elections were held in December 2009 and January 2010. In the second
round of elections, Dr. Ivo Josipović was elected as the third President of the
12
Republic of Croatia. Formerly he was a member of Parliament and was the
candidate of the Social Democratic Party, which is currently in opposition. However,
despite some disputes, the President and the Government of Croatia (which is led by
the centre-right Croatian Democratic Union) have collaborated in a constructive way,
especially in relation to vital national interests such as foreign policy, anti-corruption
initiatives and the reforms needed for EU membership. Second, the Croatian Social
Liberal Party (HSLS) left the ruling coalition in July 2010 and a number of cabinet
reshuffles took place. However, that has not led to any significant policy changes.
Based on the available polls, the rate of approval of the government has been
unfavourable, but its position in the Croatian Parliament has been stable. Although
the activities of the opposition parties have promoted the idea of early parliamentary
elections, it is likely that the next elections will take part as scheduled - in late 2011.
As a result of the failure of presidential elections in Moldova, the Parliament of XVII
Legislature was dissolved and new parliamentary elections were established. The
new Parliament after the elections in July 29 failed to obtain the necessary votes to
elect a Head of the State. The political crisis caused by faulty electoral processes
had a negative impact on governmental stability, and political tensions and
institutional blockages created the need for further parliamentary elections to be held
in November 2010. These elections once again produced a government with no
mandate to elect a President.
In February 2010 Viktor Yanukovych (former leader of the Party of Regions faction in
the Parliament of Ukraine and former leader of the Opposition) was elected as a new
President of Ukraine. His Election Programme envisaged system reforms with the
following key priorities: economic reform, social protection reform (including a further
increase in social benefits for children), and healthcare reform. The Programme for
Economic Reforms for 2010-2014 was released in June 2010 and aims at a
comprehensive modernisation of the country including its economy, finances and
social sector.
Since its independence, Ukraine has not implemented any deep structural reforms
and the reform agenda represents a positive step towards modernisation of the
country although it will involve many unpopular measures particularly in taxation and
social protection. The change in the country’s leadership has brought long-awaited
political stability and effective decision-making to the country as the President, the
13
Government and the majority in the Parliament belong to the same party (Party of
Regions). At the same time, there are some concerns over adherence to democratic
norms and respect to the rule of law voiced by the opposition leaders and
international observers.
Since August 2010, Belarus, BiH and Kosovo have undergone significant political
change. The national political system in Belarus is marked by a strong rule by
President Alexander Lukashenko, in power since July 1994. A rigid hierarchy
discourages deviation from centralised policy. Presidential elections scheduled for 19
December 2010 represent a milestone event for Belarus.
General elections in Bosnia & Herzegovina took place in October 2010. Initial results
suggested that the current Government will be hold a technical mandate until at least
March 2011and that some progress had been made in placing the country on a track
toward greater Euro-Atlantic integration and becoming a more stable, prosperous
nation. There are reasons for optimism as moderate, issue-oriented parties
experienced success in their campaigns at both the state and entity level. However,
there are also reasons for concern as nationalist parties in the Serb-dominated
Republika Srpska (RS) maintained power at the entity level and sowed discontent at
the state level with rhetoric advocating for the country’s dissolution. BiH’s complex
electoral structure was designed to create stability and ensure the fair representation
of BiH’s three constituent peoples – Bosnians, Croats and Serbs. The current
structure, developed as part of the Dayton Agreements that ended the civil war, has
maintained peace over the past 15 years. It has also discouraged national unity. In
the framework of the visa liberalization, Bosnia and Herzegovina has made important
progress. The EU process to establish a visa free regime for the citizens of BiH and
Albania is one of the positive political changes. In spring 2010, the EU and the
United States launched a new initiative to amend BiH's constitution. The
amendments are aimed at moving the country forward in its EU and NATO
integration bids, a process held up by ongoing consultations between the main
political parties.
In October 2010 the President of Kosovo resigned following a ruling by the
Constitutional Count stating that President Fatmir Sejdiu was committing a "serious
violation" of the Constitution of Kosovo for simultaneously serving as President of the
Republic and President of the Democratic League of Kosovo (LDK), a political
14
party. His resignation destabilised the government coalition and led to a vote against
the government by the majority of the Kosovo Parliament. Following this decision the
Acting President dismissed the Parliament and early general elections were
scheduled for December 2010. Supporters of the Democratic Party of Kosovo (PDK)
claimed to have won the country's first elections since it declared independence.
However, the PDK's main rival, the LDK, has also claimed victory.
1.2 A brief update on the evolution of the crisis since
August 2009 and its impact on the macro economy
1.2.1 Earnings
Changes in earnings are not comparable in detail since some refer to nominal and
some to changes in real terms. Similarly some refer to month on month changes and
others to changes in the annual average. However, some general patterns can be
discerned. Romania is the only country reporting an average decrease in net
earnings although Moldova's nominal increase of 6.8% translates into a decrease in
real terms and in Ukraine the real wage index in 2009 was only 91.1% of its 2008
level. Most countries saw some increase in earnings over the survey period. In
Armenia, however, the increase was more marked in the private than in the public
sector and in BiH and Serbia average increases mask cuts in the public sector
(Table 1.2.1).
Real reductions in earnings
In July 2009 average gross nominal earnings were stagnant in Romania and net
earnings were 0.7% lower than in the previous year. In real terms, the decrease in
net salary was 9% compared with July 2008. The highest net average salary was in
the financial intermediation and insurance sector and the lowest in hotels and
restaurants. Due to restricted fiscal policy, since the beginning of the crisis, the
minimum monthly wage has been unchanged and is the second lowest minimum
wage in the EU after Bulgaria. The decrease of average earnings was accelerated
by gross wage cuts in the public sector by 25%, except where wages dropped below
the minimum wage.
15
The monthly average salary of an employee in Moldova over the period January to
July 2010 was 6.8% higher than in the same period of 2009 in nominal terms, but in
real terms was reduced by 0.2%. Wages in agriculture, hunting and forestry, the
fishing industry, leisure, culture and sports, hotels and restaurants, education,
wholesale trade and retail and health and social care remained below the national
average. By August 2010 arrears for wages had increased by 2.4 million lei
compared with the same period in the previous year.
Table 1.2.1: Changes in wage rates and the minimum wage
Country
Changes in wage rates
Minimum wage change
Armenia
Nominal wage increase 14% (0.1%
real). Higher in private sector than
public
10% inc for new graduates; 25% for
teachers and doctors; social sector
15%. Average nominal rise 30%
(10.8% real)
Nominal average wage increase
1.9%. Reduction in public sector
wages 2010.
No change in public sector
Nominal increase 2.3% (1.4% real)
6.9% increase in average earnings
(6.4% for men, 7.7% for women)
Nominal average increase 12.1%
(4.6% real). Public salaries increased
by 20-25%
NDA
8.0% real increase 2009; 7.8%
increase Jan-Sept 2010
Average increase of 1.5%
Nominal increase 6.8% (-0.2% real)
Average net increase 2.16%
New law November 2010 increasing
minimum salary
Belarus
BiH
Bulgaria
Croatia
Georgia
Kazakhstan
Kosovo
Kyrgyzstan
Macedonia
Moldova
Montenegro
Romania
Russia
Serbia
Tajikistan
Turkey
Turkmenistan
Wage cuts in public sector. Net
average decrease of 0.7%
Average net increase 5%
Frozen at nominal level. Average
2.4% real growth but 2.3% decline in
public sector.
Average salary increase 18.2%.
Public sector wages increased by
10% but still very low
Average increase 8.3%
Public sector wages increased by
10% but still very low
16
Increased
NDA
NDA
Unchanged
No minimum wage
Minimum monthly wage increased by
9%
NDA
NDA
No minimum wage legislation
NDA
Concept change in 2010. Must be at
least 30% av wage.
Unchanged. second lowest in EU
after Bulgaria
No change. Remains below
subsistence minimum
NDA
33% increase
Increased by 20%
NDA
Ukraine
Uzbekistan
Real wages in 2009 decreased to
91.1% of 2008 level
Public sector wages increased by
12% in December 2009 and again by
20% from August 2010
NDA
Increased by 12% in December 2009
and again by 20% from August 2010
Public sector earnings
Between January and August 2010, nominal salaries in Armenia increased by almost
14% but because of high rates of inflation the increase in real terms was only 0.1%.
Salaries in the private sector rose more than public salaries.
In BiH, average monthly earnings rose nominally by 1.9% between August 2009 and
August 2010. Earnings were 0.5% higher in public administration and defence and
compulsory social security; 2.4% higher in education; 1.2% higher in health and
social work and 0.3% higher in other community, social and personal service
activities. The average net salary in BiH in the first half of 2010 increased by 0.5%
compared to the first half of 2009, a real decrease of 1.5%. While wages in the public
sector in the first half of 2010 were reduced by 1.7% compared to the first half of
2009, they are still higher than wages in the private sector. The reduction in public
sector wages was a direct result of budget savings in both entities. In the semiprivate sector wage decreases occurred in transport, storage and communications
(1.1%), financial intermediation (0.7%), real estate (1.8%), agriculture (2.8%) and
fishing (6.2%).
As part of the €3 billion IMF 2009 Stand-By Arrangement with Serbia wages in public
sector were frozen at the nominal level, and will remain so until January 2011. The
average net wage in the period January-August 2010 showed a 2.4% real growth
compared to the same period of 2009. Average net wages in the public sector
declined in real terms by 2.3%. This real decline was recorded in mainly in local
public enterprises (-0.7%), administration (-0.8%), education and culture (-3.3%) and
health and social work (-4.1%). State public enterprises recorded a real growth of
wages of 0.1%.
Increasing earnings
In 2009 in Belarus, to contain domestic demand and reduce risks of macroeconomic
instability, civil servants and workers of companies receiving public resources were
17
granted no salary increases. Salaries in some key sectors remained below the
national average, including agriculture (by 31.3%), trade and public catering (by
16.8%), health, sports and social protection (by 18.8%), education (by 28.4%). In
construction, commerce and trade, and research and development monthly salaries
were above the national average by 33.2%, 33.6%, and 41.6%, respectively.
The 5-year cycle of socio-economic development ended in 2010 and presidential
elections were scheduled. The government touted a planned wage hike in the public
sector as evidence of economic stability and salaries were increased step by step
during 2010. Pay was raised by 10% for new graduates of higher educational
institutions and vocational and training schools employed under the compulsory
service system. The pay rates for school teachers and doctors were raised by 25%
and for employees of social service institutions and cultural and enlightenment
institutions by 15%. The directive also provided for an increase in the salaries of
central and local government officials and the heads of government-funded
organizations. The average nominal monthly salary in Belarus averaged increased
by 30% between December 2009 and October 2010, 10.8% in real terms. However,
considerable wage differences across sectors still remained. Since November 2010,
the wages of low-paid categories of workers have seen the steepest increase in the
last several years and a minimum wage was set at 70% above the 2009 level. Critics
argued that the increase was not supported by a rise in profitability and budget
revenues, warning about possible inflationary pressures. The International Monetary
Fund (IMF) criticized the wage hike. “We do not see any economic grounds for such
a steep increase. Any wage increase should be proportional to a rise in labour
productivity." The economy ministry still plans to raise the minimum monthly pay
further in January 2011 to contribute to the social security of low-paid categories of
workers in all sectors of the economy.
Average net salary in BiH in the first half of 2010 remained practically unchanged
compared to 2009 increasing by only 0.5%. In real terms the net wage was lower by
1.5%. Average net wages in private sector are still significantly different from wages
in the public sector. While wages in the public sector in the first half of 2010 were
reduced by 1.7% compared to the first half of 2009, they are still higher than wages
in the private sector. The average net salary in the Federation of BosniaHerzegovina (FBiH) in the first half of 2010 increased by 1% over 2009. In the same
18
period, the average net salary in the Republica Srpska (RS) was reduced by 1%,
Wages in the public sector in the RS were reduced by 4.5% in the first half of 2010,
while in the FBiH they decreased by 0.8%. There were no recorded wage reductions
in the private sectors most affected by the economic crisis (industry, wholesale and
retail).
There were no major cuts or arrears on payments in the public sector in Bulgaria.
The government tried to introduce salary cuts in the public sector under the disguise
of contributive justice, claiming that civil servants have to start paying their social
contributions, which are currently paid by the state. This would be economically
equivalent to an average salary reduction of about 25%. The measure however was
opposed by the trade unions and was not introduced.
Even though the economic crisis emerged in Croatia in the second half of 2008, real
wages remained stagnant and started to fall in the last quarter of 2009. However,
between August 2009 and August 2010, the average monthly net earnings nominally
increased by 2.3% or 1.4% in real terms. In the period from January to August 2010,
the average monthly net earnings in paid employment in legal entities in the Republic
of Croatia saw a nominal decrease of 0.1%, 0.9% in real terms, as compared to the
same period of 2009. The main problem remains that most employed people in
Croatia have experienced a cut or freeze in their salaries. The number of employees
who do not receive salaries for their work, as well as the number of people who
receive their salaries in arrears has significantly increased, and current trends
suggest a further increase in 2011. This has mostly affected the private sector. In
addition, a crisis surcharge tax was introduced in July 2009. The tax rates were 2%
of the total net income from HRK 4.000 to 6.000, and 4% of income above HRK
6.000 but the lower tax rate (2%) was abolished in July 2010. The set minimum
salary remained unchanged during from 1 June 2009 to 31 May 2010.
Average earnings in Georgia increased from 560.1 GEL in the second quarter of
2009 to 598.9 GEL in the second quarter of 2010. In absolute terms men benefited
more than women from increased wages – their average wage increased from 706.1
GEL to 751.9 GEL while women’s average wages increased from 399.2 GEL to
430.2 GEL. However, in relative terms this corresponds to 6.4 per cent increase for
men and 7.7 per cent increase for women. At present Georgia has no guaranteed
minimum income or wage. No wage arrears in public sector have been observed.
19
In January 2010, the minimum monthly salary in Kazakhstan was increased by 9%.
Average nominal income was 258,432 KZT in August 2010, a 12.1% increase in
nominal income and 4.6% increase in real income since August 2009. According to
official statistics, while the cost of healthcare services increased in September 2010
by 9.2% over the level in September 2009, average monthly salaries of healthcare
personnel increased by 23.1% over the period. Public salaries were increased by 2025% on average in Kazakhstan and the minimum monthly wage was increased.
Despite low GDP growth rates, Kyrgyzstan wages grew well in 2009 (8.0% increase
in real terms) and in 2010 (7.8% increase in real terms in January-September).
Wages grew in all sectors of the economy including the social sector. In 2009,
nominal wages grew by 9.1% in education and by 13.3% in health care and social
services. In January-September 2010 nominal wages grew by 8.2% in education and
by 7.5% in health care and social services. Wage arrears were very small and
declining in 2009-2010 both in the private and public sector. At the end of 2009,
arrears were about 0.15% of the total wage bill of the consolidated government
budget. Similarly, the disposable monetary income of the population per capita grew
by 5.3% in the first half of 2010 in comparison to the same period of 2009.
The average wage in Macedonia increased by 1.5% between August 2009 and
August 2010. This was mainly due to rising salaries in the mining and manufacturing
industries (6.6% and 6% respectively), as well as in the education sector (6%).
Average earnings in the health and social sectors during the first eight months of
2010 compared to the same period last year, declined by 2.3%. In the defence and
compulsory social security sectors salaries declined by 1.6%.
Earnings in Montenegro have grown steadily in recent years. Analysis of annual
growth rates shows that in the August 2010 the average gross earnings in
Montenegro increased by 9.6% compared to same period of 2009, while average net
earnings increased by 2.16% during the same period. The largest percentage
increase in net earnings was recorded in the sectors of agriculture, forestry and
water (19.5%), manufacture and supply of electricity, gas and water (19.1%), and the
fisheries sector (17.1%). The largest percentage decrease in net earnings was
recorded in the sectors of public administration and compulsory social insurance (-
20
5.1%), financial intermediation (-1.9%) and education. In 2010, a new concept of the
minimum wage was introduced in Montenegro in order to protect to most vulnerable
part of the population. Before this change a General Collective Agreement defined a
minimum price for work, used for calculation of all wages. The newly introduced
minimum wage cannot be lower than the 30% of the average wage during the
previous six month period.
Average real disposable incomes in Russia for January to September 2010
increased by 5% over the same period in 2009. The biggest growth rates were
observed in the financial sector, in processing industries and in manufacturing of
vehicles and equipment. However, due to lack of indexation, the rate of growth of
wages in the public sector was considerably less than average for Russia. The
lowest wages (48-50% of average for the economy) remain in the agricultural, textile
and garment industries. Wage arrears had further decreased to less than 1% of the
monthly labour compensation fund as of 1 of November 2010. Of total wage arrears,
processing industries account for 53%, construction 12%, transport 10%, agriculture
9%, electric power, gas and water production and distribution 6%. Most arrears
(98.4%) are due to lack of funds. In 2010, the minimum wage did not increase, and
public sector salaries were not adjusted. The minimum wage remained below the
subsistence minimum in all but in 14 regions of Russia.
Wages rose by an average of 20% in Tajikistan in the first half of 2010 and the
average salary in June 2010 was 18.2% higher than in June 2009. The highest
earnings were observed in the finance, credit and banking sector, the construction
industry, communications, transport and the production sector. The lowest paid
workers were in agriculture, fishing and forestry. On July 1, 2010 by President’s
decree the minimum wage was increased by 33% with a view to improving living
standards. Nevertheless, wages, especially in the public sector, remain extremely
low, averaging only US$81 a month. This has enticed many professionals in the
state sector (such as teachers) either to seek private employment or to work abroad
(primarily in Russia and Kazakhstan). Low wages may also affect the quality of
public services and could be a factor in perpetuating corruption. In an attempt to
address these concerns, the President signed a presidential decree increasing
pensions, public-sector wages and student grants. According to the decree, the
basic wage of all state employees, including those in the armed forces (but excluding
21
employees in the state administration, for whom a separate wage schedule has been
introduced on a pilot basis), have been increased by 10% from October 1st. The
decree also requires all state-sponsored student grants (except for students in higher
military schools and the Interior Ministry Academy, who already receive aboveaverage grants) to increase by 10%.
The monthly income index in Turkey increased 8.3% by the end of second quarter of
2010 compared to same period in 2009. The index shows the regular and irregular
payments to workers on salary. The minimum wage is decided by the government
for 6 month periods. For workers aged over 16 in the first half of 2010 it was
increased by 20% over the first half of 2009. No wage arrears in the public sector in
Turkey have been reported.
Turkmenistan raised wages and benefits by 10 percent at the start of 2010. The
average Turkmen salary is still less than living expenses but a further 10% rise is
promised for January although no information is available about any increase in
minimum wages in general.
Finally, since August 2009, the minimum wage, public-sector wages, pensions and
stipends in Uzbekistan have increased twice, firstly by 12% from December 2009
and second by 20% August 2010. The policy of the government is to ensure that
base income is increased compared to August 2009. The Central Bank of
Uzbekistan is following an anti-inflationary policy to reduce inflationary pressure but
this has led to a cash deficit causing delays in payment of salaries and pensions by
one or two months in the regions.
1.2.2 Changing prices over the survey period
Inflation as measured by the consumer price index (CPI) reflects the annual
percentage change in the cost to the average consumer of acquiring a basket of
goods and services that may be fixed or changed at specified intervals, such as
yearly. Measures of inflation in the survey responses are not comparable between
countries as some show a single index figure while others show the percentage
change. The latter do not always give an annual change but often refer to change
over specific months. Table 1.2.2 provides a summary of the information given in the
survey responses, prefaced by IMF data for reference.
22
With a few exceptions (BiH, Croatia, Macedonia and Montenegro) the CPI increased
substantially over the survey period. Food prices rose by around 10% in Belarus,
Russia and Turkey, and by 14.9% in Georgia, with clear implications for poor
families. Only Kazakhstan provided information about the percentage of poor
households' expenditure that goes on food. In Kazakhstan the first decile of the
population spent 5.6% more of its income on food products in August 2010 than in
August 2009, while the tenth decile spent 8.9% more. If we assume that the tenth
decile is the poorest group then increasing food prices are having a
disproportionately hard effect on the worst off households. Kazakhstan also reports
that the same time, the first decile was spent 6.1% and the tenth decile 5.6% more
for non-food products. Romania reports its share of spending on food (43%) as the
highest in the EU, compared with an EU average of 14.2%.
Rising energy prices are mainly noticeable in rising costs of heating fuels and it is
notable that water prices are also rising rapidly. In Kazakhstan price changes were
closely linked to political change. House prices in Turkey were largely unchanged
during the crisis. Prices remained high in Montenegro while increasing in Serbia. The
general picture, though, is of decreasing prices almost everywhere, as expected.
This is at least partly a result of a significant decrease in demand caused by reduced
real disposable income, increased interest rates on housing loans, stricter conditions
for granting loans, as well as by a significant drop in consumer optimism. Customers’
expectations of a further slowdown of price growth in the domestic property market
are likely to have delayed purchase decisions. In Romania, for example, the housing
market is almost blocked. People do not want to invest in houses, due to restrictive
credit costs, conditions and lack of confidence in economy and developers do not
want to sell.
Table 1.2.2: Summary of price changes in survey responses and IMF data
IMF data for reference*
Data from survey
Country
Inflation
2009
Projected
inflation 2010
Inflation
Change in food
prices
Change in energy
prices
Albania
3.5
3.0
NR
NR
NR
Armenia
6.604
7.087
5 (Jan-Aug 2010)
NDA
NDA
Azerbajan
0.676
7
NR
NR
NR
Belarus
10.113
10.035
6.8 (Jan-Sept
2010)
+9.6% (but dec. in
fruit&veg)
heating +10.2%; water
+0.2%; gas&elect.
23
unchanged
BiH
-0.025
3.336
2.1 (Jan- Jun
2010)
-3% (esp cereal &
meat pdts)
elect. +3.5%; heating
fuel+15.9% (Q1 2010);
water+11.2% (Q1
2010)
Bulgaria
1.638
2.7
NDA
NDA
NDA
Croatia
1.862
2.5
0.9 (Aug2009 Aug2010)
-0.7% (but inc. in
fruit&veg)
total+8.9%;
elect.+0.2%;
gas+16.4%; liquid
fuel+16%; solid
fuel+3.2%
Georgia
2.983
8.828
3.3% (2009); 9.5%
(Aug2009Aug2010)
14.9% (Aug2009Aug2010)
energy + utilities 2.3%
(Aug2009-Aug2010)
Kazakhstan
6.269
7.973
6.7 (Aug2009Aug2010)
+5.8% (but dec in
cereal pdts)
utilities +8% average
(2009-2010)
Kosovo
0.09
3.127
5.9 (Aug2009Aug2010)
Inc but not
separated from
non-food
elect,gas,fuels-1%;
water+14.1%
Kyrgyzstan
-0.025
5.996
0% (2009); 10.3%
(Jan-Sep 2010)
-7.4% (2009);
+12.2% (Jan-Sep
2010)
natural gas
+57.3%(2009) +9.4%
(Jan-Sep 2010);
gasolene +23.0%
(2009) +23% (Jan-Sep
2010); coal -3.0%
(2009) -2.4% (Jan-Sep
2010); diesel -13.5%
(2009) +47% (Jan-Sep
2010)
Macedonia
-1.637
2
2.7 (Oct2009Oct2010)
No change Jan-Oct
2010
+6.7% (including
housing)
Moldova
0.441
8
7.8 (Aug2009Aug2010)
-2.6%
NDA
Montenegro
NA
NA
0.4 (Jan-Aug 2010)
+0.4% (Dec2009Jul2010)
No sig change in
electricity price
Romania
4.7
7.885
7.8 (Sept2009Sept2010)
+4.8%
fuels+13.2%; gas,
elect, heating+6.4%
Russia
8.8
7.5
7.5 (Oct2009Oct2010)
+10.0% (Sep2009Sep2010)
heating+14.2%; hot
water+16.8%;
gas+21.3%;
elect+11.9%(Sep2009Sept2010)
Serbia
6.578
6.832
6.6 (Aug2009Aug2010)
+4.4%
housing, water,elect.,
gas & other fuels
+10.0%
Tajikistan
5.005
9.0
6.4 (Aug2009Jul2010)
+4.8%
(Jan-Aug2010)
oil+30% (Jun2010);
electricity+25%(Jan201
0)
Turkey
6.526
7.611
8.33 (Aug2009Aug2010)
+10.37%
NDA
Turkmenistan
0.177
4.596
4.6% (Projected for
2010)
NDA
NDA
Ukraine
12.334
12.029
12.3 (2008-2009)
NR
NR
Uzbekistan
10.604
12.947
NDA
NDA
NDA
NR: No response to survey; NDA: No data given in survey response; NA: Data not available
*International Monetary Fund, World Economic Outlook Database, October 2010
Countries varied enormously in the detail they provided about price changes over the
survey period. Armenia simply reported that its inflation rose to 5% in first eight
24
months of 2010 and was expected to be even higher by the end of the year. In
general the real estate sector recovered from the negative impact of the crisis and
both prices and number of operations increased in the Jan-Sep 2010 period
compared to Jan-Sep of 2009.
In 2009 consumer prices increased by 10.1% in Belarus but the CPI fell to 6.8% for
the first 10 months of 2010. Retail food prices increased by 9.6% in the period
December 2009 to December 2010. Prices of potatoes increased by 37.7%, cereals
by 35.4%, butter by 29.8%, vegetable oil by 28.2%, eggs by 10.2%, cheeses by
14.3%, milk and dairy products by 14.1%, meat and poultry by 9.0%, candies and
confectionery by 13%, cooked sausages by 8.6%, canned fish by 4.5%, fish and
seafood by 3.7%, bread, bakery products by 3.6%, wheat flour by 1.0% and pastas
by 0.9%. In contrast the price of vegetables fell in by 13.6%. The prices of non-food
consumer goods reportedly rose by 6.2% in comparison with December 2009. In
particular, fabrics increased in price by 5.2%, footwear by 3.4%, stationery by 15.2%,
furniture by 4.8%, perfumes and cosmetic products by 5.6%. Prices for medicines
increased by 9.6%, health resort services increased in price by 15.4%, child daycare services by 10.8% and gasoline prices by 17%. Services in October reportedly
increased in price by 5.6% against December 2009. In particular, higher education
services rose in price by 13.4%, utility services provided to households by 2.1%,
including heating by 10.2% and water supply services by 0.2%. Culture services
reportedly increased in price by 7.1%, communications services by 1.2%, tourism
services by 4.4% and public transportation by 13.6%. The tariffs for natural gas and
electricity remained unchanged and so did the rates of suburban bus transportation.
Real estate prices went down during the crisis both in the new and used housing
markets. The average monthly rent rate for one-room apartments was about $200230 in Minsk in August 2010.
In comparison with August 2009, the consumer price index in BiH for the same
month of 2010 was 0.1% higher for food and non-alcoholic beverages and 3.6%
higher for electricity, gas and other fuels. Inflation in BiH in the first half of 2010 was
2.1%. Price increases in BiH are largely driven by costs of transportation, housing,
energy and alcohol and tobacco. Prices on the housing market have decreased in
comparison to 2009 but rental prices have remained the same. Connection of the
BiH prices with the price of oil in world markets has affected the prices in certain
25
categories of products and services. World oil prices in the first half of 2010 grew by
50% and the cost of goods transport rose by 9.7%. However, the price of transport
services for passengers remained unchanged. Prices of tobacco and tobacco
products in the first half of 2010 were higher by 45% compared to the first half of
2009 and thus significantly contribute to the overall increase of prices in BiH. The
second largest category in the overall CPI - housing and energy - also made a
significant contribution to inflation in BiH. Heating fuel increased in price by 15.9% in
the first quarter of 2010 and the price of water for households went up by 11.2%.
Prices of electrical energy in the first half of 2010 year increased by 3.5%. Food
prices in BiH decreased by 3% in the first half of 2010 although the world price of
food increased by 5.8% over the same period. The reduction of prices occurred
mainly for flour and cereals, meat, oils and fats.
Deflation was registered in Bulgaria for a few months in 2008, 2009, 2010 but prices
related to health care and education were much higher than the average inflation
rates in 2009 indicating that troubles may have arisen with the access of the poor to
these most essential public services. After a long period of speculative price growth,
prices on the housing market dropped significantly. But so did access to credit so the
price drop did not increase affordability and the market stagnated. This stagnation
continued throughout 2010.
In August 2010 the CPI in Croatia had increased by 0.9% compared with August
2009. The costs of housing, water, electricity, gas and other fuels rose by 6.7%.
Food prices went down slightly (by 0.7%) over the year but the share of expenditure
for food remained the highest (31.25%). Prices decreased for bread and cereals
(0.2%), meat (5,9%), milk, cheese and eggs (3,3%) and oils and fats (9.3%). On the
other hand, the prices of some important foodstuffs increased, for example fruit
(10.4%) and vegetables (13.5%). This is expected to have a significant influence on
the purchasing power of the poor. The prices of fuels and energy increased
significantly (by 8.9%) in the period August 2009 to August 2010. Electricity prices
rose by 0.2%, gas by 16.4%, liquid fuels by 16% and solid fuels by 3.2%. According
to the Croatian National Bank, the residential real estate prices in Croatia were
reduced by 4.1% in 2009, compared to 2008, a result of a significant decrease in
demand. The downward trend in residential properties demand continued during the
first half of 2010, but to a lesser extent. With housing still in abundant supply house
26
prices decreased by 3.3% over the same period of 2009. The rental price for housing
in August 2010 was 5.7% higher than in August 2009.
Inflation in Georgia in 2009 was at its lowest rate in the past decade at 3.3%.
However, in 2010 it increased rapidly. Between August 2009 and August 2010 CPI
increased by 9.5%. During the same period prices on food have increased more
substantially by 14.9%. Prices of energy and utilities (electricity, water and gas) have
been more stable, increasing by a modest 2.3%. Data available beyond August 2010
show that prices on food continue increasing – since December 2009 food CPI grew
by 22.2%, contributing significantly to the overall CPI increase of 10.5%. Such a
large increase can partially be attributed to wildfires in Russia, which destroyed a
large share of the wheat harvest and triggered protectionist policies on grain across
the world, resulting in significant increases in grain prices. However, the price of
grain alone could not have caused such a huge increase, thus the prices of other
foodstuffs must also have risen substantially. This requires further inquiry as major
increases in food prices will disproportionately affect the poor.
The CPI in Kazakhstan increased in by 6.7% between August 2009 and August
2010. Food prices increased by 5.8%. Prices for on-food products increased by 5.7%
and for other services by 8.3%. Specifically, the prices for sugar increased by 23.3%,
tea and coffee by 13%, oil and fat by 8.3%, dairy products by 7.2%, bread-stuffs by
4.5%, fruits and vegetables by 1.1%, and meat and meat products by 10.3%. At the
same time, the prices for flour decreased by 17.5%, bread by 1.8% and cereals by
3.5%. The cost of utilities increased in 2010 in comparison with 2009 by 8% on
average. Specifically, the cost of house maintenance increased by 4.9%, cold water
by 12.4%, hot water by 8.8%, garbage collection by 6.8%, sewage system services
by 11.7%, electricity by 13.6% and gas by 12.3%. In contrast, prices for rented
housing have decreased by 20 to 25% since the crisis started.
In Kosovo, consumer prices rose by 5.9% in August 2010 compared with August
2009. Increased prices were mainly observed in bread and cereals (23.2%),
vegetables (11.9%), tobacco (7.8%), personal transport (9.2%), fruits (13.4%), sugar,
jam, honey, chocolate and sweets (14.3)%, clothing (4.0%), oils and fats (7.3%),
meat (0.9%), milk, cheese and eggs (2.4%), coffee, tea and cocoa (6.9%), alcoholic
beverages (5.3%), education (4.4%) and personal care (1.6%). Prices decreased in
footwear (-3.8%) and in goods and services for maintenance of the household
27
economy (-2.5%). prices for electricity, gas and other fuels declined by 0.1% but
water supply and 'various services related to residence' increased in price by 14.1%.
Inflation in Kyrgyzstan was 0.0% in 2009. Food prices decreased by 7.4%. Dynamics
of prices for different energy commodities were different: prices for natural gas and
gasoline increased by 57.3% and 23.0% correspondingly, while prices for coal and
diesel fuel fell by 3.0% and 13.5%. The inflation situation in 2010 was completely
different. In November 2010, CPI grew by 16.4% over December 2009. Detailed data
for price dynamics are available for January-September. For this period of time
inflation by CPI was 10.3%, prices for food grew by 12.2%, prices for gasoline, diesel
fuel, natural gas grew by 23.0%, 47.0% and 9.4% correspondingly, prices for coal
and electricity fell by 2.4% and 1.1% correspondingly. Developments in electricity
pricing in 2010 appeared to be strongly affected by political events. At the end of
2009, the previous president’s government made a decision to implement radical
structural reforms in the electricity sector. It had been decided to privatise distribution
companies. In order to make them profitable and attractive for private investors,
electricity tariffs had been increased by more than 100% for the population and
about 40% for enterprises starting in January 2010, with prospects of a further 30%
increase in July 2010. Heat energy and hot water tariffs for the population were
increased by 100% and 300% correspondingly. In order to provide social protection
for vulnerable groups of the population, a substantial reform of social protection
system had been implemented (see Section[]). The first thing done by the interim
government after the change of political regime in April 2010 was to cancel the
energy tariff increases, while all compensatory measures have been left untouched.
So, the resulting change in electricity prices is small.
In Macedonia the CPI was 2.7% higher in October 2010, than in the same month in
2009. The largest increase (6.7%) was in the housing electricity, water, gas and
other fuels (a single category in the SSO bulletin). Costs for health related expenses
have increased by 0.7%, while transport costs went up 6.5%.
Expenses on food
and non-alcoholic beverages in the first 10 months of 2010 remained at their
average 2009 levels (note that in 2009, as reported in the previous year many staple
food items became more expensive), while prices of shoes and clothing increased by
0.6%. Housing prices have experienced a 7% decrease compared to prices in 2008.
28
While the value of dwellings in Skopje has declined by only 1%, in the rest of the
country (rural and urban) prices have dropped by 14%. Construction of new
dwellings has intensified in 2010 following a 9.2% drop in 2009 compared to the
previous year. There were, however, no significant changes in the renting sector.
In August 2010, annual inflation in Moldova, measured as change in the CPI over the
last 12 months, stood at 7.8%. The rate of inflation growth did, however, decline over
the year mainly due to a reduction in prices for food and non-food by 2.6% and 0.1%,
respectively, as well as by relatively stable tariffs for services, rendered to the
population. Core inflation (net of taxes) was within the annual target, increasing over
the last 12 months by 5.2%. The change in the index of consumer prices over the
last 12 months is 2.6 percentage points higher than the core inflation rate, indicating
the heightened influence of non-monetary factors on the inflationary process. In
Moldova, in the first half-year of 2010 the average price per square metre of primary
housing was 15% less than in the same period of 2009. However, the decrease was
not such rough as in 2009 when prices fell by 30 to 50%. Property rental in 2010 was
the most stable segment of the real estate market.
Prices in Montenegro increased during the whole survey period but at very low rates.
In August 2009 inflation was stood at 3.1% and in August 2010 it was down to 0.1%.
During the period January 2010 to August 2010 was the CPI was 0.4% higher than
during the same period of the previous year. Between December 2009 and July
2010 food and beverage prices decreased and in August 2010 showed an annual
growth rate of 0.4%. Electricity prices have not changed significantly and house
prices remain high, reducing demand for property that is in plentiful supply.
Households are increasingly deciding to rent apartments rather than buying new
ones.
The inflation rate in Romania, based on CPI data from September 2009 to
September 2010, was 7.8%. Food prices increased by 4.8%. Important price
increases were registered for the vegetables and tinned vegetables (+16.55%),
edible oil, bacon, fats (+8.3%), fruit and tinned fruit (+8.0%) and bread (4.35%).
Prices also increased for fuels (+13.2%) and electric energy, gas and central
heating, (+6.4%). The tariff for services increased by 6.35%. Medical services prices
increased in price by 3.45%, urban transport by 6.25% and railways by 8.63%. Given
the general rise of prices and the decrease of earnings, a considerable fall in the
29
purchasing power of the population has been registered since the 2009 survey.
However, in the first quarter of 2010, house prices decreased by 3.9% compared
with the same period in 2009. The rental market has evolved in 2010 as an result of
the economic crisis. On the supply side, the number of apartments let for rent has
increased, with apartments in new buildings available at pretty much at the same
price as those in old properties.
Food prices in Russia continue to rise. From May to October, average prices for
basic food products in larger cities increased by 10.5%. In August 2010, food prices
excluding alcoholic beverages and soft drinks) increased by 1.1% as compared to
the previous month (in ЕU countries the average decrease was 0.3%). In October
2010 year-to-year growth in the CPI was 7.5% and consumer prices are continuing
to rise. Despite the crisis, the government has opted for an accelerated increase in
housing maintenance and utilities rates. It is expected that by the end of 2010 the
average electricity tariff rate growth will be 12.1% higher than in December 2009.
The decrease of real estate prices at the beginning of 2009 stimulated the purchase
of low-price houses. However, due to a shortage of low-price housing, the tendency
of prices to decrease ceased very soon, with relative stabilization in 2010. It is
expected that, after a half-year period of stagnation, the prices will gradually begin to
rise again. In the majority of regions the rates of real estate rental charges have
returned to pre-crisis levels.
The CPI for Serbia rose by 6.6% over the survey period. Food and non-alcoholic
beverages rose in price by 4.4% but the biggest increases were in alcohol and
tobacco (12.9%), education (11.0%), transport (10.5%) and housing, water,
electricity, gas and other fuels (10.0%). Prices of dwellings of new construction in the
Republic of Serbia in the first half of 2010 increased by 5.2% in relation to the
second half of 2009.
Despite the robust economic performance in the first half of 2010, inflationary
pressures in Tajikistan have remained relatively modest, with an annual inflation rate
of 6.4% from August 2009 to July 2010. Consumer prices rose by 4.8% between
January and August 2010, with food prices up by 5%, prices of non-food goods up
by 4% and services prices up by 5.5%. In early august 2010, the Antimonopoly
Agency of RT reported about a 20% rise in wheat flour prices. According to the
Agency, the price hike has resulted from an 18% rise in international wheat prices
30
following drought in some grain exporting counters (Kazakhstan accounts for 96% of
Tajikistan’s grain imports and the remaining 4% are delivered from Russia and
Belarus).
More than 90% of oil products imported by Tajikistan come form Russia. As a result
of new Russian export duties, the price of fuel in Tajikistan increased by 30% in June
2010. Electricity tariffs were raised in June 2009 by 25% and again in January 2010
by the same amount.
In August 2010, the CPI in Turkey increased by 8.33% compared to same month last
year. Inflation was 10.37% for food and non-alcoholic drinks but no comparable
figure for energy prices is available.
The consumer price index in Turkmenistan was projected by the IMF to increase by
4.6% over the 2010 period. Crop production increased in 2010 due to favourable
weather and larger plantings but around 25% of domestic cereals are still imported.
Government measures to control and subsidize food prices continue, but vulnerable
groups in rural areas remains at risk. Household costs for housing, water, electricity,
household gas, household fuels, local rates and residential taxes continue to be
heavily subsidised by the government and only a small fraction of costs are covered
by families.
Inflation in Uzbekistan in December 2009 stood at 7.4% but in analysing price and
inflation trends in Uzbekistan it is necessary to take into account three key factors.
First, the government has a price regulation policy on basic consumption goods
(flour, meat, oil, sugar, bread, excluding exported goods) and energy products
(electricity, gasoline, natural gas, heating). Second, inflation is strongly influenced
by the black market exchange rate. This has a strong impact on the price of imported
products that make up over 15% of the consumer 'basket of goods' (Table 1.2.3).
Table 1.2.3: Changes in exchange rates in Uzbekistan
Official exchange
rate
Black market exchange
rate
2009 (August) USD 1=
1,510 UZS
1,870 UZS
2010 (August) USD 1=
1,610 UZS
2,180 UZS
31
And third, each salary increase in the public sector was followed by increases in
prices for basic consumption goods such as meat, vegetables, and bread. Starting in
late 2008, the government introduced a new salary payment mechanism for state
companies’ employees which stipulated that salaries will be transferred to debit
cards. The lack of ATM access and terminals in the regions means that many people
experience problems in purchasing consumer products.
When external migration reached a peak in Uzbekistan in 2007-2008, house prices
drastically increased as many migrants invested their incomes in housing. With the
crisis prices of houses dramatically dropped from early 2009, falling by 9% in 2010.
As in many other countries, construction came to a halt. The government of
Uzbekistan subsidised most public construction during the peak of the crisis, but it
needs to be noted that the private sector confronted difficulties in construction work.
The mortgage market is unaffordable to many people with rates ranging between 1419% per year but in 2010, the rental price was 11% lower than in 2009.
1.2.3 Public finances (public expenditure, tax revenue, budget deficit,
government borrowing)
Table 1.2.4 uses IMF data for 2009 and estimated data for 2010 to show how the 22
countries in the UNICEF survey can be organised into three groups in terms of their
economic situations. In the first group, Albania, Armenia, Azerbajan, Georgia,
Macedonia, Moldova, Russia, Tajikistan, Turkey and Ukraine are all projected to
show economic growth in 2009-2010 with a reduction in net government borrowing
(or increased lending). Belarus, Kazakhstan, Kosovo, Serbia, Turkmenistan and
Uzbekistan similarly exhibit increasing GDP but also increased government
borrowing. In contrast, countries in the third group show stagnant or contracting
economies, some with reduced borrowing (BiH and Romania) but the others with
increasing government debt (Bulgaria, Croatia, Kyrgyzstan and Montenegro).
Table 1.2.4: IMF data from national accounts and government finance
Country
IMF estimated % change in GDP
2009-2010
IMF net lending or borrowing as
% GDP 2009
IMF net lending or borrowing as
% GDP estimated for 2010
Albania
2.6
-7.383
-4.061
Armenia
4.024
-7.783
-4.838
32
Azerbajan
4.28
6.768
13.893
Georgia
5.5
-6.557
-5.373
1.201
-2.641
-2.476
3.2
-6.39
-5.361
Russia
3.966
-6.206
-4.784
Tajikistan
Macedonia
Moldova
5.495
-5.184
-4.37
Turkey
7.8
-5.617
-3.458
Ukraine
3.732
-6.246
-5.499
Belarus
7.216
-0.437
-3.995
5.4
-1.486
-2.848
Kazakhstan
Kosovo
4.554
-0.8
-3.373
Serbia
1.528
-4.135
-4.762
Turkmenistan
9.378
7.755
2.823
Uzbekistan
8.0
3.202
2.231
BiH
0.5
-5.819
-4.957
-1.94
-7.398
-6.771
Bulgaria
0.0
-0.901
-4.941
Croatia
-1.456
-3.224
-4.73
Kyrgyzstan
-3.459
-1.214
-11.002
Montenegro
-1.802
-4.404
-7.088
Romania
Source: World Economic Outlook Database, October 2010
Information provided in the 17 survey responses is often incomplete but is in general
agreement with the IMF estimates and is summarised in Table 1.2.5.
Table 1.2.5: Summary of survey responses on changes in public expenditure, tax
revenue, budget deficit and government borrowing
Country
Public expenditure
Tax revenue
Budget deficit
Government
borrowing
GDP
Armenia
Inc pensions, social
transfers & min.
salary
NDA
Improving
1.5bn USD
Growth 3.1% JanAug2010
Georgia
Increased in
nominal terms
Increased by 9%
2009-2010
Halved 2009-2010
Foreign debt
increased
NDA
Macedonia
Decreased to
33.7% GDP 2009
Soc transfers inc.
share
Decreased to
31.1% GDP 2009
2.6% GDP 2009
76 million USD
IMF account
NDA
Moldova
In Jan-July 2010
increased by 4.8%
over 2009 soc exp
75% total
In Jan-July 2010
increased by
12.8% over 2009
1522.3 million lei
(lower than 2009)
17816.6 million
lei (Inc by 35.8%
over 2009)
NDA
No curtailment of
social programmes,
pensions or benefits
NDA
2.2% GDP (over
first 9 months 2010)
NDA
Growth of 3.4% in
first 9 months 2010
Tajikistan
Spending curtailed
by lack of revenue
Decrease in
collectibility
NDA
Reduced from
38.2 to 31.6%
GDP
Growth 5.5%
projected
Turkey
Increasing to 39.1%
GDP 2010
Growing to
19.72% GDP in
2010
Reducing from 5.15
to 3.4% in 2010
NDA
Growth 6.8%
projected
Russia
33
Ukraine
NDA
NDA
11.4% GDP in 2009
NDA
NDA
Belarus
Soc exp 62.7% of
total spending
68.4% of target
by Oct 2010
0.7% GDP
Dec2009 projected
higher for 2010
because of social
exp.
9.5bn USD
Modest growth
Kazakhstan
Increasing &
reoriented towards
social sector
Increasing
Projected 4.1%
GDP
14.2bn USD
Growth 7.5%
Aug2009-Sept2010
Kosovo
25% GDP 2008
NDA
Projected 2.5%
GDP
6.4% GDP +
€442 million
Growth
Serbia
Real growth of
0.8% first 8 months
2010 over 2009
Real growth of
0.2% first 8
months 2010
over 2009
Projected 4.75%
GDP
32.7% GDP first
6months 2010
Growth of 1.2% in
first half of 2010
NDA
NDA
NDA
NDA
NDA
Uzbekistan
22.9% GDP 2009
23% GDP 2009
Reducing from 1.5
to 0.2% in 2009
NDA
NDA
BiH
Declining to 35.5%
GDP 2010
Increasing
0.6% GDP
22.5% GDP
Decline
Romania
Decreased public
investment to
28.1% GDP
Net increase but
decline in income
& profit taxes
4.56% GDP in first
9 months (annual
target 6.8%)
35% GPD
Decline of 2.3% in
first 9 months
Bulgaria
NDA
NDA
NDA
NDA
Decline
Croatia
Reduced social
transfers
Short of
projections
Widening to 5.2%
GDP
Inc to 53.5%
GDP mid 2010
Decline
Turkmenistan
incl. €200 million
from WB in 2010
Kyrgyzstan
Increased 29.9% to
37% of GDP in
2009 following
Russian aid
package. Pension
spending increased
by 41%
Decreased from
33% of budget
revenues (2008)
to 22% (2009)
Increased from
0.7% surplus (2008)
to 4.2% GDP in
2009 and expected
to rise to 12% GDP
for 2010
Increasing
8.4% (2008) falling to
2.3% (2009)
Montenegro
€1358.1 million
Decreased to
56% of total
income
29.9% reducing to
2.3% GDP
€1115.3 million
Decline of 5.7% in
2009
34.8% GDP
NDA: No data available from survey
Some countries increased or protected social expenditure during the survey period
(Armenia, Macedonia, Moldova, Russia, Tajikistan, Belarus, Kazakhstan) although
increases in local currency units may translate into reductions in US dollars because
of the impact of the crisis on exchange rates (Belarus, Serbia). Other countries cut
public sector wages or social benefits to reduce their budget deficits (Croatia)
sometimes in order meet the IMF's budget deficit criteria and qualify for additional
tranches of Fund aid (BiH). Strategies such as this may lead to decreasing imports
and consumption thus reducing tax revenues (Croatia, Montenegro).
Evidence from Armenia, BiH, Bulgaria, Croatia, Kazakhstan, Moldova, Romania and
Serbia shows the negative impacts of the crisis in the building and construction
sector. As house building slowed the value of housing increased but there are
34
insufficient data to assess the impacts of rising housing costs on households and
children.
Countries with growing GDP and decreasing borrowing
The negative impact of the crisis on Armenia reached its peak in July-August 2009
and GDP began to grow from the beginning of 2010. Real GDP growth was 3.1% by
August 2010. Growth would have been even more positive if agricultural output had
not dropped by 18% due to poor weather conditions and droughts. The main drivers
of the economic recovery were the sectors that had suffered the most in 2009 –
construction (5.5% in Jan-Aug 2010 vs. -42% in 2009), industry (9.8% in Jan-Aug
2010 vs. -7.6% in 2009), and mining in particular. During the crisis period,
construction of housing suffered the most and the government’s anti-crisis plan was
aimed at quick revitalization of the sector. The overall sector recorded a 2.7%
increase in real terms during the first three quarters of 2010 compared to a 42% drop
in 2009.The increase in commodity prices in the international markets contributed to
an increase of Armenian exports by 13%.
The fiscal sector showed a positive trend in 2010 compared with 2009. There was a
significant improvement in the budget deficit. As a result in improvements in fiscal
stability, the government increased pension allocations and some other social
transfers and introduced a mandatory increase in the minimum salary level. All major
social protection programs were undiminished. The donor community allocated
deficit financing, conditional on securing social protection and salary related budget
expenditure levels. Overall, the government borrowed around 1.5 billion USD from 4
donor sources (WB, ADB, IMF and Russian Federation).
In nominal terms, public expenditure in Georgia increased from 5.36 billion GEL in
2009 to 5.6 billion GEL in 2010. Total revenues have increased from 4.9 to 5.3 billion
GEL. The deficit was halved from 450 to 243 million GEL. On the other hand, public
foreign debt increased from US$7.88 billion in the second quarter of 2009 to
US$8.72 billion in the second quarter of 2010.
According to the Ministry of Finance in Macedonia, the budget deficit increased to 2.6% in 2009. Revenue as a share of the central budget GDP decreased from 33.1%
of GDP in 2008, to 31.1% in 2009 while expenditure was reduced from 34.1 to
33.7%. The government continues to borrow from the domestic economy through
35
frequent emissions of government bonds. In 2010 interest rates have been hovering
around 6%. Despite the numerous offers and calls from the expert community, the
government continues to refuse to commit to a stand-by loan from the IMF or obtain
a loan from the World Bank. Instead, the government opted to make a withdrawal
from the IMF account to the amount of 76 million USD to be used for budget support.
In the first seven months of 2010 the National Public Budget in Moldova
accumulated 13.7% more income than in the same period of the previous year.
Expenditure was 4.8% higher than in the same period of 2009. In total the budget
deficit amounts to 1522.3 million lei, which is below the level for January to July
2009. Tax revenues represent 86.8% of total income and increased by 12.8%,
mainly from domestic taxes on goods and services. Also important was the increase
in VAT on imported goods (to 25.5%) and increasing domestic demand.
The increases in expenditure were determined primarily by the need for road repairs
and rising fuel and energy costs. Government obligations in the social sphere have
led to increased spending on education of 17.9% and insurance and social
assistance (13.1%). But spending on environmental protection and on the hydro –
meteorological department was cut by 22.8%. Social sector spending (education,
health, social care, culture, art, sports) accounts for about 75.3% of total
expenditure. The state social insurance budget in January to July 2010 accumulated
revenues that were 17.7% higher than the previous year and compulsory health
insurance funds increased by 31% compared to the same period of 2009. The total
amount of debt (internal and external) managed by the Government at the end of
July, 2010 constituted 17816.6 million lei, an increase of 35.8% compared to the
same period of previous year, largely because of the need to finance the budget
deficit.
According to the Federal State Statistics Service, in 2009 GDP in Russia fell by
7.9%, less than the forecast decrease of 8.5%. In 2010, economic growth was
observed, largely due to extractive and processing industries and construction.
During the survey period, August 2009 to August 2010, industrial production
increased by 6.2%. The biggest growth rates were observed in manufacturing
activities. Agricultural production, however, decreased by 10.7% in JanuarySeptember 2010 as against the same period of 2009. Over the first nine months of
2010 GDP grew by 3.4% more than in the same period last year.
36
For the second year in a row there was a central government budget deficit. Over the
first nine months of 2010 the federal budget was implemented with a deficit equal to
2.2% of GDP compared to 4.7% of GDP in the same period of 2009. The key source
of financing for the federal budget deficit continues to be the Reserve Fund. Over
nine months it decreased but, contrary to numerous forecasts, it will not be fully used
by the end of 2010 due to a drop in the expected deficit. Part of the Reserve Fund
will be saved and directed to cover budget deficit in 2011. In addition to the Reserve
Fund, any federal budget deficit in 2011 to 2013 will be financed out of government
borrowing and revenues from privatization of federal property. It is expected that the
privatization program will add to the treasury 900 billion rubles In January to June
2010, Russia’s consolidated budget and budgets of State non-budgetary funds
(Pension Fund, Social Insurance Fund and Compulsory Medical Insurance Fund)
operated with a net surplus rather than a deficit as in January to June 2009.
Tajikistan was severely hit by the global economic downturn, mainly through a
dramatic fall in labour migration and remittances. With around half of the labour force
working outside of Tajikistan, the 31% fall in remittances in 2009 contributed to a
decline in per capita disposable income of 8% (USD). With financial support from the
international community, the authorities have responded to these challenges by
raising social spending while relying on exchange rate flexibility to facilitate external
adjustment. With the recovery of migrant labour and remittances in 2010, and the
Government’s prudent fiscal and macro-economic policies, the impact of the crisis
has been alleviated and put Tajikistan on the road to recovery. However, the global
downturn has once again highlighted Tajikistan’s vulnerability to exogenous shocks,
which combined with its proneness to disasters and internal fragility, makes
Tajikistan’s development context particularly challenging.
Real GDP growth was reported at 3.4% in 2009, following a pick-up in the final
quarter of the year. The industrial sector performed poorly, with output contracting by
6.3% year on year. However, rising demand for aluminium and cotton exports on
global markets reversed this trend. Industrial output rose by 12% year on year in the
first half of 2010, largely as a consequence of higher aluminium output, and real
GDP expanded. Nevertheless, industry continues to be susceptible to problems in
the power sector, with Tajikistan facing periodic power blackouts. Owing to the
37
strong pick-up in the first half of 2010, it is expected that GDP growth in 2010 will
reach 5.5%.
The indicators of revenue and expenditures of the State Budget in the first two
quarters of 2010 suggest relative improvement in nominal terms compared to the
expected forecasts of the beginning of the year. The overall fiscal situation, except
the external financing of the Public Investment Program (PIP), in general, meets
expected indicators, subject to the budgetary support by all international donors,
including the World Bank, Asian Development Bank and the EU. The Government
makes every effort to fulfil the conditions of the IMF concerning state budget deficit
targets (1% of GDP in 2010, compared to 0.5% percent in 2009). However tax
revenue has slightly decreased compared to the same period of the last year. During
the first six months of 2010 the Treasury expected to collect 94.6% of its revenue
(26.5% of GDP). But in the event, only 39.2% of expected revenue for the whole
fiscal year was collected. The Ministry of Finance associated the low level of revenue
collection with a combination of the global financial crisis and the trade restrictions
imposed by Uzbekistan’s detention of rail cargo destined for Tajikistan. According to
the Ministry, the Uzbek rail blockage directly contributed a loss of USD65 million to
the Tajik economy, almost two-thirds of it accounted for by shortfalls in customs
duties. The government was therefore only able to fulfil 93.5% of its budgetary
spending in the first six months of 2010. Budgetary shortfalls affected the
government’s ability to pay its employees in a timely manner. According to the State
Statistics Committee (SSC), by the end of June the state was in arrears in wage
payments to employees equivalent to USD4.8 million. The state sectors with the
highest level of arrears were construction, telecommunications and transport.
However, the gross volume of foreign debt was reduced from 38.2 to 31.6% of GDP
between July 2009 and July 2010.
Public spending increased in Turkey from 34.6% of GDP in 2008 to 40.1% in 2009
and 39.1% (projected) in 2010. The economy actually contracted by 4.7% in 2009
although it is expected to grow by 6.8% in 2010. Tax revenues were 18.16% of GDP
in 2008, 18.54 % in 2009 and are expected to reach 19.72% in 2010. The rise in
public spending was mostly financed through debt. The public income to GDP ratio
was 32.9% in 2008, 34.6% in 2009 and an expected 35.4% in 2010. The Public
Sector Borrowing Requirement was 1.6% in 2008, 5.1% in 2009 and is expected to
38
fall again to 3.4% in 2010. The last definition is used to mean budget deficit in
Turkey. The public sector definition does not include State Enterprises but all other
national and local government entities.
Countries with growing GDP and increasing borrowing
Belarus recorded modest economic growth in 2009, while inflation slowed down.
GDP growth (0.2% in 2009) was investment-driven, as fixed investment rose by
8.6% in real terms. The 12-month inflation rate declined to 10% in December.
Disciplined fiscal policy helped contain domestic demand. The general government
deficit was 0.7 percent of GDP in 2009.
Social policy is a key development priority in Belarus. In 2009, public social
expenditure, including expenditure on social policy, represented 62.7% of total
spending (including expenditure from the Social Protection Fund). The largest items
of expenditure included social policy (57.9%), education (21.0%), and health
(16.7%). Belarus maintains a high and stable level of public funding for education.
Almost one-half of the total educational expenditure (47.2%) is on secondary
education, followed by pre-school education (19.1%), and higher and post-university
education (12.7%). But though expenditure on education is increasing in terms of
local currency, it is declining in terms of US dollars. Expressed in US dollars,
educational expenditures are projected at $2.56 billion in 2010, down by 17.6% from
2008. Similarly, the share of public educational expenditures is projected at 4.6% in
2010, down from 5.0% in 2009. These declines can be attributed in large part to the
global economic crisis in 2009.
In 2008-2009, public expenditure on social policy increased by 15.1% and is
projected to grow by a further 21.0% in 2010. Expressed in USD, public expenditure
on social policy declined by 12.0% in 2008-2009 but is expected to recover in 2010.
The payment of pensions has represented a substantial proportion of the GDP. In
2009 consolidated budget expenditure on pension support was up by 6.8% from
2008 and is projected to increase further in 2010. Expenditures on family support in
2009 were up by 42.8% from 2008 and are projected to increase further in 2010.
Youth policy is an important component of social policy. Specific objectives of youth
policies include promotion of housing construction for young people, creating
39
opportunities for youth employment in temporary and permanent jobs, moral,
aesthetic and civic education of young people, and prevention of youth crime.
Significant support is provided to talented young people, young families and youth
associations. Total expenditures on youth policy were down by 19.1% in 2009 from
2008 but are projected to increase in 2010. Assistance in the acquisition of housing
is an important component of social policy. From 2008 to 2009, relevant
expenditures declined by 19.1% but are projected to recover in 2010.
Between January and October 2010, the government's national budget revenues
amounted to 68.4% of the target set for the entire year. As much as Br 9.2 trillion
came from value-added tax, or 73% of the target for the year; 4.4 trillion from taxes
on “external economic activities,” 43.4% of the target; and 2.9 trillion from profit tax,
82.3% of the target. As of November 1, tax arrears stood at Br 53.8 billion, Br 4.9
billion less than on January 1. Belarus’ 2010 national budget deficit is expected to be
higher than initially projected, as the government has recently raised pay in the
government-funded sector and increased social security for some groups.
The foreign economic situation in the last two years and a much lower foreign
demand for domestic goods abroad have forced the government to look for
alternative sources of hard currency to pay for essential imports and ensure a
favourable balance of payment. Belarus considered external borrowings as the main
tool for deficit financing. That was the main reason the country's foreign state debt
has increased from $2.3 billion in early 2008 to $3.7 billion at the end of 2008, to
$7.9 billion in 2009 and to $9.5 billion by October 2010, driving up debt service costs
(the upper limit for the 2010 had been set at $9.5 billion).
Table 1.2.6: Government debt in Belarus
Public debt (General government
gross debt as a % of GDP)
2008
2009
2010
estimate
2011
forecast
11.5%
25.2%
29.8%
28.2%
http://www.gfmag.com/gdp-data-country-reports/319-belarus-gdp-country-report.html
Belarus received more than 10 tranches of foreign loans in the last three years.
Since December 2007, the government borrowed $3.44 billion from IMF, $3 billion
from Russia, $500 million from Venezuela and $200 million from the World Bank. In
August it borrowed $1 billion through a Eurobond issue. Belarus' debt portfolio is
40
currently characterized by low refinancing risks and service costs. According to the
Ministry of Finance the annual interest rate averaged out at 3.74% and the
repayment period at 6.3 years as of August 1, 2010. Tied loans accounted for 14.6%
of the debt portfolio, with IMF loans making up 40.7%, Russian loans 38.4% and
Chinese loans 8.9% of the total amount of borrowed funds. Belarus will have to
spend more than $8 billion to service its foreign debt in the next five years. The
government is to start repaying its debts to Russia and the IMF in 2012, while
Eurobond payments are due to begin in February 2011.
According to the EIU, Kazakhstan’s GDP growth averaged 7.5% in August 2009September 2010. The industrial sector continued to grow strongly and construction
output fell by 0.2% in the first three quarters of the year, an improvement on the
3.9% contraction seen in the first half. The government has supported house building
through the ‘Road Map’ programme introduced in 2009 as an anti-crisis measure.
Nevertheless, the total building area commissioned in August 2010 decreased by
4.2% compared to August 2009.
Meanwhile, agricultural output fell by an average of 4.1% in the year to the third
quarter, having grown by an average of 3% in the year to the second. The poor
performance of the sector can in large part be accounted for the by a poor harvest –
due to drought and a 38% fall in the grain harvest. Output growth in the services
sector gained momentum, driven by stronger growth in the transport, real estate and
government administration sub-sectors. Activity in the financial sector continued to
contract, albeit by a smaller 5.9% compared with an average 6.3% decline in the
year to June 2010.
In 2009 and 2010, the Government reoriented public expenditures to reflect national
priorities at several levels. First, there was a continuing reduction in administrative
expenditures and in budget and off-budget stimulus spending relating to production
subsidies. Second, a large share of the resources freed by those cuts was added to
social sector spending (58.2% of total spending). Third, more stimulus funding was
spent on public works and training at the local level to promote local level
employment and employability. Fourth, public spending on agriculture and
manufacturing, including infrastructure and direct support, continued to be aimed at
fostering non-oil growth.
41
The growth of production volume in the real sector of economy in the first half of the
year had a positive impact on state budget revenues. By 1 June 2010, these had
increased by 26.1%. At the same time, tax revenues increased by 24.1%. According
to available data, state budget expenditure in January–May 2010 grew by 25.4%.
The budget deficit rose and, as forecasted by the government, will widen to 4.1% of
GDP by the end of 2010. However, this is based on a conservative oil price forecast.
The authorities of Kazakhstan have introduced a number of measures to discourage
banks’ foreign borrowing and lending. As of 1 July 2010, mid- and long-term
government borrowing equalled $14.2 billion compared to $12.9billion in 2009.
The global financial and economic crisis has had relatively little impact on the
economy in Kosovo, reflecting its limited integration with the rest of the world. The
negative effects of the crisis have been transmitted through three channels:
remittances, exports, and foreign direct investment (FDI). Until recently, Kosovo has
pursued a highly conservative fiscal policy. The overall size of the public sector is
small with expansion constrained, until recently, by the limited coverage of domestic
taxes and the Government’s inability to issue debt. The 2010 budget envisages a
deficit of about 2.5% of GDP, increasing to 3.8% in 2011. A significant part of this is
expected to be financed by donors, in the form of budget support. In the absence of
such extraordinary sources of financing, the Government confronts the prospect of
growing deficits in the years to come. Before 2010, the Government lacked the legal
authority to issue debt. However, the new public debt law adopted in early 2010
permits the central government, as well as municipalities, to access domestic and
external sources of finance. The current level of indebtedness is low at 6.4% of the
GDP. However, Kosovo is also facing other contingent liabilities related to the former
Yugoslavia. These contingent liabilities, toward the Paris Club, London Club and
other creditors were estimated by the IMF to total around €442 million.
Two years after the crisis began Serbia seems to be on the road to recovery. GDP
grew by around 1.2% in the first half of 2010. Annual growth of 2% GDP is expected
in 2010, and 3% in the next year. According to these projections, Serbia will have the
highest GDP growth rate in the Western Balkan region. This recovery is fuelled
largely by growing exports. In the first seven months of 2010 export of goods grew
by 20.3% when compared to the same period of 2009.
42
In June 2010, the Parliament adopted a Law on Construction Sector Support during
the Economic Crisis. The Law regulates the construction of housing, schools and
kindergartens, hospitals, highways and national roads, sports facilities and other
buildings of public importance, and aims at boosting the employment of local
construction companies and increasing sector investments.
The biggest problem for the economy in 2010 is increasing unemployment (19.2%,
compared to 14% before the crisis), low levels of foreign direct investment, a 30%
nominal term dinar depreciation, accelerating inflation and increasing public debt.
The consolidated state budget deficit is expected to reach 4.75% of GDP for 2010.
Social assistance and insurance have experienced a decline of 1% in real terms
(nominal growth of 3.6%) for the period January-August 2010, compared to the same
period of 2009. The largest part of social assistance is pensions, which have
experienced a decline of 3.2% in real terms. Serbia’s public debt stood at around
32.7% of GDP at the end of the first six months of 2010.
According to the IMF, Turkmenistan's economy has proved resilient to the global
financial crisis. It was affected by the crisis mainly through lower external demand for
hydrocarbon exports, causing natural gas and oil production to fall. However,
government policy aimed at diversification of gas export markets paid off as new
pipelines to China and Iran became operational in 2009 and 2010, respectively. As a
result, hydrocarbon production is expected to increase significantly over the next five
years, translating into growing fiscal revenues and a further strengthening of the
external position. This favourable outlook provides a strong foundation for speeding
up current economic reforms, including improving public financial management,
increasing financial intermediation, and stimulating private sector growth.
In 2009, the state budget revenue in Uzbekistan accounted for 23% of GDP. In 2009,
the share of direct taxes in the structure of the state budget revenue decreased to
24.8% because of:

a decrease in demand and lower prices of products carrying the surcharge tax
(for example, natural gas and polyethylene granulate)

a lowering of the individual income tax rate by 1 percentage point on the 1st
and 2nd scales and by 3 percentage points on the 3rd scale.
43
However, revenue from excise tax increased from 12.8% of the total budget in 2008
to 16.6% of total budget revenues in 2009. This was achieved through better tax
collection and improved tax administration, the move in 2009 to index the excise tax
rate on alcoholic drinks, vegetable oil, cigarettes as well as by the unification of the
excise tax rate on beer (removing a distinction based on the level of alcohol in
product). As of December 2009, the share of indirect taxes in the total state budget
revenue grew to 50.2% from 47.1% in 2008. The share of revenue from the valueadded tax (28.5%) in total public finances remained on a par with that of 2008
(28.6%).
The share of revenue from resource payments and property tax payments as a
proportion of GDP grew from 3.6% in 2008 to 3.7% in 2009. In the state budget the
share of revenue in this category grew from 15.1% to 16.6% respectively. Budget
expenditure rose form 22.2 to 22.9% of GDP between 2008 and 2009.
Countries with stagnant or declining GDP and increasing government borrowing
In 2009, the economy of BiH was hurt by the global financial downturn, with GDP,
exports, and employment all showing declines. The fall in exports and overall
economic activity in the past, difficult access to credit, and modest growth in public
revenues burdened the growth of construction and investment activities in general.
One examples is the decline in the value of construction work of 28.3% in the first
half of 2010. The main reason lies in the sharp decline in non-residential building
construction, pipelines and communication lines and road infrastructure in the RS. At
the same time construction in the Federation decreased by 26% in the last year,
continuing the trend. This decrease in construction is primarily a reflection of
diminished interest, and difficulty in financing private investment on the one hand,
and lack of budgetary resources to finance public investment on the other.
One of BiH's main challenges has been to cut public sector wages and social
benefits to meet the IMF's budget deficit criteria and qualify for additional tranches of
Fund aid. In February 2010, the Federation of BiH Parliament passed a set of laws
reforming and cutting cash transfers to war veterans and families of fallen soldiers,
paving the way for the release of much needed financial aid. The adoption of the
laws was a condition for the release of the second instalment of the IMF’s €1.2
million three-year loan for Bosnia and a World Bank budget support loan of some
44
€82 million. The Federation of BiH Government decided to introduce a property
census to determine the limits for welfare payments. This decision provoked several
thousand war veterans to violent protest, resulting in a number of injured police
officers and demolished Government buildings.
Public expenditure in 2010 will be 35.5% of GDP, 2.6% lower than in 2009 when
public expenditure was 38.1% of GDP. The level of public expenditure in 2010 will be
similar to the expenditure in 2006 and 2007. In the first half of 2010, the BiH fiscal
sector was characterized by the growth of total tax revenue by 4.6%. But while
revenues from indirect taxes grew by 6.5%, revenue from direct taxes in the same
period decreased by 3.4%. The level of public external debt in the first half of 2010 in
relation to the end of last year increased by 14.2%. Debt increase occurred primarily
due to the implementation of the second and third tranche of the stand-by
arrangement with the IMF and the new credits of the World Bank and European
Investment Bank. External public debt increased from 18.2% of GDP in 2009 to
22.5% in 2010.
Public finances in Bulgaria were not unaffected by the economic crisis. In the second
quarter of 2010 Bulgaria was one of the few countries in the EU where the economic
decline continued. Bulgaria uses certain budgetary management techniques that
tend to protect public finances at the expense of spreading insecurity and volatility
across all budgetary sectors. The budget is usually spent with a delay through the
year withholding 10% of the planned amount, which is only spent in December. This
mechanism can be clearly seen from the pattern of spending the Republican budget
(excluding social security and health insurance) shown on the chart below, although
at the end of 2009 the government tried to postpone as many payments as possible
in an effort to reduce the deficit calculated on cash basis. This effort was designed to
keep the deficit within the limits required for entering ERM-II (the waiting room for the
euro zone). Later it became clear that this was a mistake as the EU calculates for
policy purposes the deficit only on accrual basis. Postponed payments by the
government must have caused a further demand shock increasing the shrinkage of
the economy and austerity measures introduced led to a further decline in revenue.
Figure[]: Chart showing government expenditure patterns in Bulgaria
45
4,000.00
3,500.00
3,000.00
2,500.00
2,000.00
Revenue
1,500.00
Expenditure
1,000.00
500.00
Jun-10
Apr-10
Feb-10
Dec-09
Oct-09
Aug-09
Jun-09
Apr-09
Feb-09
Dec-08
Oct-08
Aug-08
0.00
Source: Ministry of Finance. UNICEF CO calculations
There was a significant decline in the number of new housing units built in Bulgaria
2009 and 2010. Towards the end of 2008 when the crisis was not yet felt,
construction had exceeded 2005 levels by two thirds. In September 2010 it had only
reached 90% of the 2005 level.
The European Commission (2010) reported that public finances in Croatia continued
to be under pressure from weaker-than-expected economic activity in the final
months of 2009, in spite of three budget revisions. The Croatian Chamber of
Economy reported, for example, that the total value of construction works in the first
half of 2010 amounted to €1.5 million, a decrease of 32.1% over 2009. In the first
half of 2010, construction companies with 20 or more employees completed 1900
dwellings, 54.2% fewer than in the same period of 2009.
Although some spending cuts were introduced, the target for the 2009 general
government fiscal deficit was missed. Revenues continued to fall short of
government projections in the first half of 2010 as the recession continued, forcing
the government to increase its borrowing. The World Bank provided a EUR 200
million loan (please see below), and due debt repayments were made by getting new
loans.
The 2010 budget adopted in December 2009 had projected a general government
fiscal deficit equivalent to 3.3% of GDP, but it soon became clear that the deficit
46
would increase in comparison to 2009. In addition to the prolonged recession, fiscal
measures adopted in the first half of 2010 contributed to widening of the budget
deficit. On the revenue side, decreasing imports and consumption reduced VAT
revenues. The 2% crisis surcharge tax was lifted in July 2010 and tax rates were
lowered. This was partly offset by the abolition of tax exemptions, most of which had
a social purpose. On the expenditure side, several benefits were reduced, including
privileged pensions and supplementary health insurance benefits paid from the
budget.
Due to the worsening fiscal outlook, a budget revision was adopted at the end of
August, this time based on the assumption of a 1.6% decline in real GDP in 2010.
The revised budget lowered projected revenues of general government by 4.5% of
GDP and increased expenditures by 0.3% of GDP compared with the original
budget. The projection for the general government deficit was raised to 5.2% of
GDP. As part of the budget revision, excise taxes on tobacco and petrol were raised,
increasing annual revenues by 0.15% of GDP. Furthermore, it was decided that total
budget expenditures in 2011 and 2012 would not exceed the revised expenditure
level for 2010. According to the latest data submitted by Croatia in September 2010,
the stock of general government consolidated gross debt increased significantly from
29.3% of GDP at the end of 2008 to 35.4% at the end of 2009 and 37.0% in mid2010. When outstanding state guarantees and the debt of the State Development
Bank (HBOR) are included, the level of public debt amounted to 53.5% of GDP in
mid-2010.
The real GDP of Kyrgyzstan grew by 2.3% in 2009 down from 8.4% growth in 2008.
The slowdown of the GDP growth was caused mostly by a fall in exports and in
remittances. The exports of goods decreased by 9.6% in US$ terms due to decline
of exports to Russia (by 40%) and Kazakhstan (by 24%). Remittances, which
predominantly come from Russia and Kazakhstan, fell by 27% in US$ terms. Reexports of Chinese goods to these countries through Kyrgyzstan and associated
incomes of the Kyrgyz traders involved in these re-exporting activities also fell
significantly (by 40% by unofficial estimates) because of devaluation of Russian and
Kazakh currencies against the US dollar and Chinese Yuan. So, the main channel of
the crisis’s impact on Kyrgyzstan was through these two large neighboring
economies severely affected by the crisis.
47
In 2010, the economy of Kyrgyzstan started to recover well driven by production and
exports of gold (the main export commodity of the country) and remittances, which
picked up again with resumption of growth in Russia. However, the political
turbulence and violence since April resulted in some problems with agricultural
production (disorganization of works by political activities and insufficient supplies of
fuel in key moments of crop production cycle), partial closure of the borders of
Kyrgyzstan by neighbors fearing the spread of political instability to their countries
and very low exports of tourism services during the summer 2010 season with
adverse consequences for agriculture, trade and tourism sectors of the country. In
addition, implementation of the arrangements of the Custom Union between Belarus,
Kazakhstan and Russia starting from 1 July 2010 resulted in serious complications
for the re-exports of Chinese commodities to these countries via Kyrgyzstan. For
many years these were an important source of income for many people in
Kyrgyzstan. So, for 11 months 2010 GDP growth rate was registered at the level of 1.0% with output decline of 1.7% in agriculture, 10.2% in construction, 9.4% in trade
and 9.6% in tourism.
The beginning of 2009 was very difficult for budget revenue collection in Kyrgyzstan.
Imports, which are one of the key tax base components in the country, were falling
due to a reduction of foreign exchange sourcess. Coupled with the reduction of VAT
from 20% to 12% in the new Tax Code (adopted at the end of 2008, when the crisis
was already quite visible) effective from January 2009 this resulted in a profound
reduction in collections of taxes on international trade (VAT excise duty on imports
and custom duties), which used to be a key component of the government revenues
(33% of total general government budget revenues in 2008 and only 22% in 2009).
Total tax collections in 2009 fell by 1.1% GDP in comparison to 2008.
In the context of falling revenues the government implemented sequestration of the
budget and social benefits were delayed. In acute need of budget support, the
government accepted a massive aid package from the Russian Federation. It
included a US$150 million grant for general budget support, a US$300 million loan
for development purposes, an arrangement for debt-for-equity swap and an
agreement to invest US$1.7 billion in the Kambarata-I hydropower plant. This
resolved all budgetary problems and allowed an increase government revenue and
expenditure. Total general government budget revenue increased from 29.9% GDP
48
in 2008 to 32.9% GDP in 2009 while total general government budget expenditure
increased from 29.2% GDP in 2008 to 37.0% in 2009. This increase in expenditures
was mostly related to capital investment projects and an increase in pension
payments of 41% in real terms. The emerging budget deficit (4.2% GDP in 2009 in
comparison to surplus of 0.7% in 2008) was financed mostly by the Russian loan but
also by loans of the IFIs for different infrastructure development projects. As a result,
the share of foreign sources in the government expenditure financing increased from
7.6% in 2008 to 23.9% in 2009 and the government budget has now become very
dependent on foreign aid.
The 2010 budget was strongly affected by the political crisis in April and the violent
conflict in June. The expected deviation of government revenues from the original
plan is relatively small (0.3% GDP), but the increase in expenditures is likely to be
more substantial (1.0% GDP). The expenditure increase is mostly related to the
post-conflict reconstruction works in the southern part of the country. According to
IMF estimates, in 2010 the expected revenue of the general government budget is
33.9% GDP (of which foreign grants in the amount equivalent 5.3% GDP), expected
expenditure is 45.9% GDP (a level of government spending never registered in the
history of independent Kyrgyzstan), and the deficit is expected to be 12.0% GDP.
The deficit is going to be financed by new borrowing from international multilateral
and bilateral donors and by the part of the Russian loan received in 2009.
In 2009 Montenegro's GDP fell by 5.7% with a further decline expected in 2010.
Sectors recording significant drops included industry (-32.2%), construction (-21.8%)
and trade (-8.9%). The decline observed in these sectors is partly offset by income
from tourism, agricultural production, and increased foreign direct investments. The
latter reached a record level of €910.9 million in 2009 thanks to the sale of shares of
EPCG. The budget deficit in 2009 amounted to 29.9% of GDP due to poor domestic
production and reduced demand for imported goods. Fiscal policy focusing on
adjustment is expected to reduce the deficit to 3% of GDP.
Public spending in Montenegro in 2009 amounted to €1,358.10 million, while the
budget deficit was 3.37% of GDP. Public debt increased to 37.0% of GDP. In 2010
tax revenues, mainly from VAT and excise duties, represented 56% of total income
and were 2.6% lower than in the same period of the previous year. The decline in
economic activity continued in 2010, with public expenditure projected to remain
49
static and revenues from income tax 0.68% lower than in 2009. The projected
budget deficit for 2010 is 3% of GDP. The state debt of Montenegro at July 2010
year amounted to 34.8% of GDP, 11.8% of GDP domestic debt and 23% external.
Nevertheless, the Government of Montenegro has announced the easing of the
crisis and a positive growth rate occurred in the last quarter of 2010.
For Romania the economic contraction brought about by the global crisis was sharp,
while the fiscal deficit widened significantly. For 2010, projections suggest a negative
growth rate but with the adjustment of fiscal deficit a weak recovery is estimated for
the next year. As the last review of the existing accord with the IMF stated, the
recovery may be delayed by the recently enacted fiscal austerity measures, the
impact of the severe floods on agricultural production and the recent plunge in
consumer confidence. During the first 9 months of 2010 GDP declined by 2.3%
compared to the same period in the previous year. The recession has deepened in
Romania over the survey period because of subdued domestic demand, structural
problems of public finance and low investment ratios. The recovery measures taken
have been weak and unsustainable. The investment ratio dropped by approximately
30% in 2009 and continued to diminish at the same pace in the first quarter of 2010.
Proposed public investments were held back by social insurance fiscal deficits.
Construction works in the residential sector decreased by 38% in the first 9 months
of 2010, as against the same period last year. The number of new developments is
decreasing and therefore, the recovery of the housing sector is delayed.
Based on the international financial accord, the Romanian authorities agreed in 2009
with the IMF, the World Bank and the ECB, the fiscal consolidation continued this
year. In order to maintain the fiscal deficit below the agreed threshold, the
Government decided to cut expenditure by adopting austerity measures. As a result,
the fiscal deficit was maintained in the agreed limits. After nine months, the fiscal
deficit reached 4.56% of GDP, below the annual target of 6.8%. Fiscal revenues
came to 23.5% of GDP and were 3.6% higher than for the same period in 2009.
They increased due to an increase in VAT from 19% to 24% and increases in excise
duties, mainly on cigarettes and tobacco. The collected revenues from VAT were
7.3% higher than last year and excise duties 7.9% higher. Income tax proceeds,
however, decreased by 3.3% and profit tax revenue decreased by 2.9% due to the
fall in economic activity and increased unemployment. A considerable fall was
50
registered in contributions to social insurance, where the proceeds are 5.1% lower
than last year. As an effect of the wage cuts in the public sector, public spending
decreased from 28.8% of GDP to 28.1%. Public debt has doubled over the last three
years and in August 2010 represented 35% of GDP. Government debt, direct and
guaranteed, equals 93.7% of this. Financial stability has faced significant challenges
since last year's survey, but has remained robust.
1.3 Impact of the crisis on the labour market
1.3.1 Trends in formal and informal employment and unemployment
Mitra et al. (2010) describe the sharp increase in registered unemployment faced by
many countries between 2008 and 2009. 'The number almost doubled in the Baltic
states. The increase was also significant in other countries: about 60 percent in
Moldova and Turkey, and between 20 and 40 percent in the Czech and Slovak
Republics, Romania, the Russian Federation, Slovenia and Ukraine' (p164). The
authors do, however, point out that differences in formal unemployment rates can at
least partly reflect levels of unemployment benefits and incentives to register.
Of the thirteen countries for which 2009-2010 data were provided in the UNICEF
survey, only four (Belarus, Kazakhstan, Russia and Turkey) saw a slight upturn in
employment rates in 2009-2010. This was accompanied by a concomitant decrease
in formal unemployment and, in Belarus and Kazakhstan, a declining reliance on
informal employment (Table 1.3.1)
Table 1.3.1: Broad trends in employment and unemployment 2009-2010
Country
Change in formal
employment rate
Change in formal
unemployment
Informal employment
Belarus
+0.6 pp
-0.2 pp
Decrease of 1.1%
Kazakhstan
+3.1%
-0.8 pp
Decrease of 0.3 pp
Russia
+0.6 pp
-0.9 pp
Increase of 12% over 2008-2010
Turkey
+1.4 pp
-3.0 pp
Higher among women and in
agricultural sector
Armenia
-0.3 pp
+0.3 pp
NDA
BiH
-0.6 pp
+ 3.1 pp
NDA
Bulgaria
-3.1 pp
NDA
Suggest rate increasing
51
Croatia
Decrease
+12.9%
NDA
+0.2pp
Moldova
-0.9 pp
+0.9 pp
Suggest rate increasing
Montenegro
-4.5%
+3.9%
NDA
-7%
+1.1 pp
Big increase (both legal and illegal)
Serbia
-2.6 pp
+3.7 pp
Estimated increase of 30,000
Tajikistan
-0.1 pp
+0.1pp
Heavy reliance on temporary and
part-time work
Kyrgyzstan
Romania
Suggest rate increasing
NDA: No data available
Although little statistical information is available, in the countries where employment
rates continued to fall, survey respondents suggested that households were
increasingly reliant on informal employment to replace or supplement their incomes.
Trends in countries with growing employment rates
In 2009, the employed population in Belarus increased by 0.6%. According to the
Ministry of Labour and Social Protection the situation in the labour market in 2010
remains stable and manageable. There has been no significant deterioration of the
situation regarding registered unemployment and no emergency measures are
needed for securing employment for people. Nevertheless unemployment is among
the top three worries in the country, according to opinion polls conducted in early
2010. The registered unemployment rate declined in 2009 and was projected at 1.21.5% at the end of 2010. Throughout the year the jobless rate remained below the
projections and at the end of October the registered unemployment in Belarus was
0.7% of the economically active population (0.9% in September 2009). However,
some experts estimate that the number of unregistered unemployed people may
exceed official unemployment by at least three times. Belarus has not yet adopted
the ILO methodology to calculate the overall rate of unemployment. Currently there
is little information about the people who work, study, serve in the army, are in prison
or otherwise out of a job.
In 2010, an estimated 252,000 working-age persons, or 4.3% of the Belarus work
force had no official employment status compared to 5.4% in 2009. A significant
proportion of these individuals may be employed informally or engaged in crossborder work migration. The true scale of informal employment could be much higher,
as many of the unemployed who have not registered with the employment services,
52
could be engaged in illegal money-making activity. Estimates of informal
employment in Belarus are based on workforce balance data, and represent the
difference between the total workforce and the number of employed and full-time
students (excluding military servicemen, persons on maternity/paternity leave, home
keepers and registered unemployed).
Measures aimed at stabilisation of the labour market in Kazakhstan have effectively
kept unemployment under 6% (5.5% in August 2010, official data, ILO definition).
The ongoing programme comprises public works in housing and utilities,
construction and maintenance of local roads, maintenance of social infrastructure
(schools and hospitals), maintenance of social infrastructure outside of main cities
(libraries, cinemas), creation of social jobs (with 50% co-financing of salaries for
selected target groups), youth internships and vocational training and retraining. The
economically active population in August 2010 increased by 1.6% and the number of
employed people by 3.1% compared to August 2009. Unemployment dropped to
5.5% from 6.3% in August of 2009. At the end of August 2010, the number of people
registered as unemployed (according to the Ministry of Labour and Social Protection)
reached 0.8% of economically active population compared to 1.1% in August 2009.
The long-term unemployment share fell to 2.2% in August 2010 from 2.6% in August
2009 and the number of positions vacant in large and medium enterprises increased.
In July 2010, 33.7% of employed population of Kazakhstan worked in the informal
economy, a 0.3% decrease over 2009.
According to labour force survey data in Russia, in the second week of September
2010 the employment rate (share of employed population in total population aged
15-72) was 63.8% and the general unemployment rate was 6.6%. Between August
2009 and August 2010 employment increased slightly from 63.3% to 63.9%. Over
the same period, general unemployment fell from 7.8 to 6.9% and registered
unemployment from 2.8 to 2.2%. According to Minister of Health and Social
Development Т. Golikova, in 2010 unemployment will be much less than provided for
in the budget.
The definition of the informal sector used by the Russian Federal State Statistics
Service is based on a criterion of absence of state registration as a legal person.
According to experts, the informal sector employs about 20 million people, and this
number has increased by 12% over the two crisis years. However, primary
53
employment in the informal sector in Russia is not great. More typical is periodic
participation of people in the informal economy. Activity in the informal sector in
Russia is largely associated not so much with the necessity to survive as with the
desire to escape taxes and bureaucratic procedures. Presently, a bill is introduced to
the State Duma that prevents employers' evasion from concluding labour contracts
with employees in the case of performance of actual works. The bill also provides for
equalization of the labour rights of migrants and Russian Federation citizens,
including wages, working time and recreation time, labour protection and protection
from discrimination in the sphere of employment. In the context of the widely spread
discriminatory attitude of the employers towards labour migrants, the bill also
provides for adding to article 13 of the Federal Law "On the legal status of foreign
citizens in the Russian Federation" a provision on equal rights for foreign employees
and Russian Federation citizens in the sphere of labour relationships.
In Turkey, employment rates decreased between August 2008 and 2009 but then
increased by 1.4 percentage points over the last year to a higher rate (44.1%) than in
2008. Unemployment rates increased between August 2008 and 2009.They
decreased again by 2 percentage points over the last year but remain higher than in
2008. Data disaggregated by public and private sectors are not available, but there
has been no shedding of public sector personnel (which is legally almost impossible)
so the rise in unemployment almost totally comes from private sector.
Informal employment is defined in Turkey as employment without registration with
the Social Security Institution. No social security premiums or payroll tax are paid.
Data are available regarding informal employment only for agriculture and nonagricultural activities. A change was made in 2009 regarding evaluation methods so
pre-2009 data is not comparable. Since 2009 the informal employment rate has
decreased from 45.7 to 44.8%. However, it remains high at 85.9% in the agricultural
sector in August 2010 compared to 29.8% in the non-agricultural sector. 60.5% of
women's employment is informal compared to 38.5% for men.
Trends in countries where employment rates continue to fall
Between August 2009 and August 2010, employment in Armenia decreased by
0.3%. However, the unemployment rate decreased during the first 8 months of 2010
by 0.1% indicating a trend of increasing employment during the last year. The share
54
of people getting a job compared to those looking for it remains very low and varied
between 0.6% and 1% during 2010. Unemployment pressure on the budget is yet
not decreasing. There is some lag between the impact of the crisis on employment
and its incorporation into budget planning. More people than envisaged are still
eligible for unemployment benefit and the number of eligible people for the benefit in
September 2010 was 16% higher than was planned for by the budget.
The global economic crisis had already affected the BiH labour market in 2009. The
private sector, employing around 70% of total number of labour force, had the largest
number of people needing to be dismissed mainly due to decreased orders for the
export goods. Unemployment remains very high in 2010 but the lack of reliable
labour market data remains a serious obstacle to developing labour market policy.
Republika Srpska adopted a law on mediation in employment and entitlements
during unemployment. In the Federation, a similar law aimed at streamlining
cantonal and Entity level employment services is not yet in place. Most resources
allocated to assisting the unemployed are spent on passive labour market measures.
The large number of labour and employment institutions at State, Entity and canton
levels and the lack of coordination among them remain a matter of concern. Unified
standards and methodologies for data collection are lacking.
A 2010 Labour Force Survey confirmed that negative economic growth in 2009 had
an effect on the labour market in BiH.

The BiH activity rate in 2010 is 44.6% (43.6% in 2009), employment rate is
32.5% (33.1% in 2009), unemployment rate is 27.2% (24.1% in 2009).
The work force in BiH increased by 2.3% while the number of inactive persons
decreased by 1.6% in 2010. Within the active population, the number of employees
decreased by 1.9% and the number of unemployed persons increased considerably
(15.7%), indicating that the actual negative effects of economic crisis on the labour
market appeared in 2010. The unemployment rate in BiH is thus increased to 27.2%.
Around 23% of the total economy of BiH is informal (about 25% in FBiH, 18% in RS
and 25% in BD). 290 thousand people are employed in the informal economy. If 60%
of the informal economy were transferred into regular economy, the country would
be in line with European standards. There are no disaggregated data on the number
of women and men working in the informal economic sector. Informal employment is
55
directly related to age, since more than 50% of young workers are engaged in
informal employment compared with approximately 29% of prime-age workers in the
age bracket 25-49. The move of both informal workers and enterprises to the formal
economy remains a priority high in the agenda of policy-makers.
In Bulgaria the crisis started to affect the total number of employed from the
beginning of 2009. The total number of employed has dropped in Q2 of 2010 to
levels below 2005 erasing the effects of several years of strong economic growth.
Employment rates fell from 50.1% in June 2009 to 47.0% in June 2010. The data
show nothing more optimistic than a slight seasonal increase. The unemployment
rate had dropped below 6% in 2009. At the first 2 quarters of 2010 it was again in the
vicinity of 10%. There are no reliable data on informal employment but some studies
estimating the size of the grey economy show that Bulgaria is one of the EU member
states with the largest grey economy. One of the risk groups present on the grey
labour market are minorities – both traditional minorities like the Turkish and Roma
population, but in the last years also increasingly the new migrants from countries
outside of the EU. In a recent study some of the illegally working migrants have said
that they felt Bulgarian society closer because of its relative poverty, so it was more
similar to their country of origin. The report also finds that it is very difficult to
determine the real pay level in the family businesses of immigrants, because new
coming relatives, juniors and family members often work for free at the beginning.
Payment of health and social security contributions thus also becomes an internal
‘family business’ (Zhelyazkova et al.: 2008, 16). In mid 2009, the President of the
Confederation of Labour mentioned the increasing number of workers in the so
called “grey (informal) economy”. An example was given with the construction
workers for whom there is no statistical data, and now, in the stagnation in this
industry, if unemployed, this will not be statistically recorded. Another example of
unemployed Bulgarians that are not registered, are these returning from abroad due
to the economic downturn, and they are also "missing" from all statistical data. The
crisis has created the phenomenon of “statistically” and legally employed people who
do not actually work and do not get paid.
Due to strong economic growth over almost a decade, labour market conditions in
Croatia had improved by 2008. However, the economic crisis had a substantial
impact on the labour market in Croatia and caused a decrease of employment as
56
well as reduction of job vacancies. At the end of August 2010, the Croatian
Employment Service registered 12.9% more unemployed people than in August
2009. The registered unemployment rate in August 2010 was 16.4%. Out of the total
number of registered unemployed, 24.7% claimed unemployment benefit, an
increase of 8.7% over the previous year. In August 2010, the share of unemployed
persons with the duration of unemployment up to twelve months was 51%.
The economic crisis had an effect on the increase in informal employment in Croatia,
which partially alleviated the effect of the decreased formal employment, although
the share of informal employment increase was less than proportional (due to the
overall decrease in the demand for labour). Unfortunately, the detailed data on
informal employment in Croatia are not available.
Both employment and unemployment grew in Kyrgyzstan between 2008 and 2009.
The employment rate grew from 60 to 61.6% while the unemployment rate,
according to the ILO definition, was 8.4% in comparison to 8.2% in 2008. The
officially registered unemployment rate in 2009 fell to 2.5% from 2.9% in 2008. In
November 2010 the officially registered unemployment rate was 2.7%, almost the
same as in the previous year.
The economically active population (employed population plus unemployed) of the
Republic of Moldova to August 1, 2010 showed a slight decrease of 0.6% in
comparison to the second quarter of 2009. The share of employment in the
economically active population decreased from 93.9% to 93.0%, while the share of
unemployment increased from 6.1% to 7.0%. The employment rate of the population
of 15 years and over (the proportion of employed persons of 15 years and older to
the total population of that age) was 42.3%, registering a slight decrease (-0.8 pp) in
comparison to 2009. 68.6% of the population was employed in private entities,
25.6% in the public sector and 5.8% in units with mixed ownership (public and
private) and foreign capital. 13.8% of the total population worked in the informal
sector in 2009, a slight increase over 2008.
The economic activity rate during 2008 and 2009 in Montenegro was around 40% to
52%. It has not changed significantly and is still on a very low level, and is one of the
permanent characteristics of the labour market in Montenegro. The number of
registered workers increased in 2009 in comparison with the previous year by 4.7%
57
(average year data) and by 0.4% (end year data). According to the MONSTAT LFS
year-end data the number of employed persons decreased by 5.42% in 2009 in
comparison with 2008. In the second quarter of 2010 employment decreased by
4.5% in comparison with the same period in 2009.
Unemployment of 16.8% in 2008 reached 19.1% in 2009 in Montenegro, a rise of 2.3
percentage points. In second quarter of 2010 the rate was 19.8%. Analysis of
unemployment according to both MONSTAT LFS and Employment Agency shows
that the number of unemployed persons increased in 2009 and 2010. This trend
started at the last quarter of 2009 showing that the effects of the crises on labour
market are becoming evident after a short delay. Thus during whole of 2010 we may
expect a further increase in unemployment. Data from MONSTAT LFS refer to both
registered and unregistered workers and suggest that job losses due to the crisis
occurred mainly in the grey economy and affected primarily self employed and family
workers.
Between 2009 and 2010 labour market conditions worsened further in Romania. The
total number of employees in the economy at the end of August 2010 was 4.223
million, a decrease of 7% over the last year. The unemployment rate increased from
4.4% in December 2008 to 6.3% in July 2009 and 7.4% at the end of August 2010.
There was little change in the percentage of unemployment that was long-term (12
months or more). Unemployment in the private sector rose from 70.68% to 81% of
the total. The vacancy rate decreased from 0.89% to 0.59% between August 2009
and August 2010. The official data of the NIS on labour force, the labour force survey
in enterprises differs substantially of the labour force survey in households. In the
households’ survey, the number of employees declared totalized 6.1 million persons.
From the total number of employees in the households survey, 71% work in the
private sector, 27% work in the public sector and 2% in a joint venture company
(public-private).
In official reports and studies, informal employment in Romania appears as the
number of employees on the “black” market, the self-employed, unemployed people
working in agriculture or other rural activities and familial workers. The black market
refers to employees in urban areas that are working without legal forms. There is no
official methodology to calculate informal employment rates. However, estimates
suggest that around 1.6 million residents are working illegally (26.22% of total
58
employees) in Romania or in other EU countries, almost 300,000 persons higher
than last year. The available data on employed people and employees indicate that
informal employment, other than the illegal, is around 3.22 million persons, 400,000
more than last year. These people include the self-employed, people in liberal
professions and familial workers. Many could be workers that came back from
working abroad.
Employment continued falling in Serbia in 2009 and 2010 and reached its record low
in the second quarter of 2010. The Labor Force Survey (LFS) data show that the
employment rate fell by 2.8 percentage points and stood at 47.2% in April 2010. The
total number of employed workers dropped by 7.6% between October 2009 and April
2010. Other than the cut of 2,000 jobs in the administration, the number of workers in
the public sector remained almost unchanged between September 2009 and March
2010. The number of waged workers fell by 11.7% (around 185,000 people), while
the number of self employed workers increased by 9.5% (52,000 people) between
October 2009 and April 2010. These figures indicate an increase in vulnerable forms
of employment given that no rise in employment was registered in the category of
formally registered entrepreneurs. The biggest problem for the Serbian economy in
2010 remains the increase in unemployment. The April 2010 LFS shows an
unemployment rate of 20.1%, compared to 14% in April 2008 before the crisis. The
unemployment rate among the working age population (15-64) grew by 2.7
percentage points over October 2009 and reached 20.1% in April 2010.
A large number of people who stopped working in Serbia joined the category of
inactive persons, which is why the rise in overall unemployment is not proportionate
to the decline in employment. 318,000 inactive unemployed people stated in the April
2010 LFS that they were willing and able to work (the so-called discouraged
workers). Their number has grown by around 30,000 in comparison to the pre-crisis
period (April 2008).
Positive trends in administratively defined unemployment
registered from March to July 2010 do not necessarily reflect the trends in
economically defined unemployment. Unemployment registered by the NES can
decrease at times when the NES updates (‘cleans’) its records more intensively and
when the jobless are more intensively involved in active programs. Moreover, given
that registration with the NES is a prerequisite for obtaining rights to various forms of
59
social assistance, many of the jobless register only when they need certificates of
unemployment.
According to the SSC in Tajikistan, in June 2010 the economically active population
(employed and officially registered unemployed) amounted to 2142.6 thousand
people (97.8%) employed in the economy. Between July 2009 and July 2010 the
number of employed people increased by 1.9% although there was little percentage
point change in the rate. Private sector enterprises accounted for 2.7% of all
employed people in June 2010. By the end of June 2010, employment services
registered 64.6 thousand job seekers, a 9% increase over the previous year. 29.7%
fewer people were registered in employment offices and the number finding jobs was
20.4% lower than in June 2009. According to official data, the registered
unemployment rate on 1 August 2010 was 2.2%. However, the real figure might be
much higher. Between July 2009 and July 2010 the number of unemployed people
increased by 5.4% although there was little percentage point change in the rate.
During the first half of the year about 11.7 thousand people were in part time
employment and, out of them, 10.6 thousand people (90.4%) were required to take
unpaid leave.
The Research Centre “Panorama” attempted to assess the impact of global
economic crisis on households in Tajikistan. It found that nearly 30% of the
interviewed households emphasized loss of employment by household members. At
the same time, given that salary from primary employment was a source of income
for 56% of urban and 38% of rural households and that, on average, there were only
2 people working in every household, the loss of a job by even one family member
has a major impact. Decrease of this type of income was found to be quite tangible
for households since among examined households nearly every second depended
on temporary job. In Khatlon province and RRS this dependence was even higher –
up to 60%. Besides, nearly 19% of households in urban as well as in rural areas
indicated the dependence on temporary jobs. During the crisis, 84% of Dushanbe
households lost incomes from temporary jobs and in Khatlon province the figure was
93%. The study showed that the average number of working members (above 15
and older) per household in the republic for the past 14 days (exclusive of labour
migrants) was 2.11 persons and the average household employment rate was
51.0%.
60
No data are provided on employment rates in Macedonia but the numbers of people
employed are rising in the public sector and falling in the private sector. The formal
unemployment rate increased slightly from 31.9% to 32.1% over the survey period.
Particularly worrying is the very large number of long-term unemployed suggesting
that unemployment rates are not likely to decline rapidly. Data from the National
Employment Agency shows that 20.3% of the unemployed have been looking for
employment for up to 11 months, 30.8% from 1 to 3 years, and 48.9% have been
looking for employment for over four years. As noted in the 2009 report,
unemployment data for Macedonia is not reliable as there is a significant
employment in the gray economy that is not factored in the statistic. This partially
explains the extremely high unemployment rate that constantly hovers around 30%.
According to the Ministry of Labour and Social Policy, around 60.000 people are
employed in the informal economy, while the Union of Workers’ Associations claims
that the number is much higher and that is in the range of 120 to 130 thousands. As
no research exists on informal employment, data trends are impossible to collect.
In 2009, total labour resources in Uzbekistan were recorded as 16.1 million people
from which 11.3 million were employed, a 70.2% employment rate. According to
official statistics the unemployment rate was 0.2% in 2009. However, this figure
represents only those officially registered as unemployed. Many unemployed people
do not register officially because they feel they cannot get-well paid jobs. They prefer
to look for work themselves or to migrate to other countries or cities. There are no
data available about the underemployed or unemployed people in rural areas
although the underemployment rate is estimated to be around 20%. In January to
September 2010, about 543 thousand people applied for jobs through labour
agencies, 4.1% more than in the same period of 2009. 88.2% of all applicants were
placed in jobs, 2.4 percentage points more than in January-September 2009.
Disaggregated data about employment trends by private and public sectors are not
available. The informal economy employs a huge number of people, however,
statistics are not available. Most informal employment is concentrated in the
transportation (taxi and minibus drivers) and retail trade sectors.
61
1.3.2.Labour market change for specific groups
Table []: Summary of the information provided in the survey about labour market
conditions by age and gender. Shading indicates countries with growing or
recovering labour markets
Country
Gender
Age
Belarus
Higher % of women than men
unemployed in 2009
NDA
BiH
Rate of unemployment increased
more for women
50% of younger age group
unemployed
Bulgaria
Employment fell by 3.8pp for men
and by 2.5pp for women
25.5% of 15-24 group employed in
2009 fell to 23.1% in 2010
Croatia
2010 18.9% women unemployed
and 14.2% men
Biggest increase in unemployment
for 25-34 year olds and among
people with degree level education
Women represent increasingly
higher share of all unemployed
Georgia
Kazakhstan
Employment rates higher and
unemployment lower for men (2008
and 2009)
20-24 age group twice the average
level of unemployment in 2008 and
increasing in 2009
Unemployment higher among
women
Youth unemployment fell by 2%
62
Kosovo
Unemployment rates higher for
women 2009
NDA
Kyrgyzstan
Higher % of women than men
unemployed in 2009
Youth unemployment increasing
Macedonia
Slight increase in % of unemployed
who are women
Little change
Moldova
Male unemployment rate higher
than rate for women
NDA
Montenegro
Male unemployment increased
slightly more than female 2008-9
Youth unemployment grew most
2008-9. Tertiary educ. affected
most
Bigger rise in % of women
unemployed
Tertiary educ. affected most
Russia
Higher unemployment rate for
women but both decreased
Highest unemployment rates
continue to be in youngest group
Serbia
Higher unemployment rate for
women but both increased
Highest inc in young unemployment
and highest decrease in young
employment, esp. unqualified
Tajikistan
Higher unemployment rate for
women but both increased
School completions outnumber job
places
Recovery in employment and
reduction in unemployment more
marked for men
Higher youth unemployment in
urban areas
NDA
Young people overrepresented
among unemployed
Romania
Turkey
Uzbekistan
Women are generally under-represented in the workforce and women's employment
rates are lower than those of men. In countries where employment rates are
recovering or increasing, the reduction in unemployment is more marked for men.
In most countries it is younger people who are most affected by formal
unemployment. This is largely attributed to a fall in job vacancies while the number of
school and college leavers remains unchanged.
The average age of the unemployed person in Armenia was 41.5 years at the end of
2009. Almost half of unemployed people are those with secondary general education
level.
In Belarus, the higher share of women unemployed in 2009 reflects the imbalance of
supply and demand in terms of skills and qualifications. The structure of demand in
the labour market continues to favour seekers of full-time jobs and male candidates.
In 2009, the average period of unemployment for was 4.6 months for women and 3.3
63
months for men. Women with small children, university graduates with no work
record and women at pre-retirement age are the most vulnerable.
Employment rates in BiH have fallen for both men (by 1 percentage point) and
women (by 0.4 percentage points) while unemployment has increased by 2.5
percentage points for men and by 4.3 percentage points for women. The labour
market participation of women remains low.

BiH Men Activity rate in 2010 is 56.7% (56.2% in 2009), employment rate is
42.2% (43.2% in 2009), unemployment rate is 25.6% (23.1% in 2009).

BiH Women Activity rate in 2010 is 33.2% (31.9% in 2009), employment rate
23.3%, (23.7% in 2009) unemployment rate is 29.9% (25.6% in 2009).
Nearly half of the younger age group is unemployed. Traditionally, the largest share
of the unemployed have completed secondary education (71.2%), followed by the
unemployed with primary education (21.2%). The educational structure of
unemployed persons showed no major changes compared to 2009.
Employment rates for men in Bulgaria fell from 55.6 to 51.8% and for women from
45.1 to 42.6% between June 2009 and June 2010. Unemployment rates for young
people (15-24) are more than double the average. Only 25.5% of people in this age
range were employed in 2009 and this fell to 23.1% in 2010. There is a strong
differential in the risk of unemployment by level of education. Unemployment rates
vary from around 35% among those with primary or lower education to 3%
(practically no unemployment in the middle of an economic crisis) among those with
higher education. The employment premium for education has to be interpreted with
caution. The labour market in Bulgaria being still characterized by relatively low
demand for skills and knowledge (due to the relatively low level of technology), there
appears to be a significant phenomenon of crowding out. Those with higher
education occupy positions only requiring secondary education, the domino effect
going right to the bottom of the education scale.
In Croatia unemployment rates for women and men were 18.9% and 14.2%
respectively in 2010. Of the total number of unemployed people 58.9% were women,
a 4.7% increase since August 2009. There has been a slight decrease in the
percentage of unemployed women, but unemployment rates remain high and gender
wage differences are persistent. Short-term contracts are often used in some low64
wage activities predominantly employing women (for example, retail). Compared to
the same month in 2009, there was an increase in unemployment across in all age
groups but the sharpest increase was for people aged 30 to 34 years (19%) and 25
to 29 years (18.8%). Compared to August 2009, there was an increase in
unemployment for people of all levels of education but the sharpest increase was for
people with university level and postgraduate degrees (27.5%) and with nonuniversity degrees (17%).
In Georgia the labour market situation did not experienced any major changes in
2009. Overall, unemployment increased by 0.4 percentage point, labour force
participation grew by 1 percentage point and employment dropped by 0.6
percentage points.
Women’s labour force participation remained low and
unemployment continued to be almost four times higher in urban areas as compared
to rural. Young people (age 20-24) continued to be most disadvantaged in terms of
unemployment. In 2009 Women’s employment increased by 1 percentage point
while men’s unemployment has increased 1.3 percentage point and youth
unemployment by 2.9 percentage points.
In Kazakhstan, unemployment is higher among women rather than among men in
both urban and rural areas. Out of 496.7 thousand unemployed people, 43.8% are
men, and 56.2% are women. Youth unemployment fell to 5.2% in August 2010 from
7.2% in 2009. The highest unemployment rate was registered among 25 to 29 yearolds.
In 2009 in Kosovo over half (51.9%) of the working age population were inactive,
32.5% of men and 71.2% of women. Employment rates increased with level of
education.
In Kyrgyzstan the 2009 female unemployment rate was 9.4% and the male
unemployment rate 7.4%. Employment grew for men between 2008 and 2009 and
declined slightly for women.
The percentage of men in the unemployed population of Macedonia decreased from
60.7 to 60.4 between 2009 and the first half of 2010 and the percentage of women
showed a concomitant increase from 39.3 to 39.6%. Between 2009 and the first half
of 2010 there was little change in the
65
In Moldova the unemployment rate was higher (8.7%) for men than for women
(5.2%) and among young people (15-24 years) the unemployment rate was 14.6%.
The unemployment rate in the male population of Montenegro in the fourth quarter of
2009 was 19.2%, 4.2 percentage points higher than in the same period of 2008. For
the female population the recorded rise was 3.6 percentage points. The
unemployment rate for 15 to 24 year olds increased most significantly in the last
quarter of 2009 in comparison with the same period of 2008 (from 31.1% to 42%).
Data suggest that people with the tertiary education were those mostly affected by
the crisis in 2008-9. This may be explained by the fact that there were no new
working places opened, while the inflow of people who finished tertiary education
was similar to the previous period. However, it is expected that the situation will
change due to the impact of the crisis on big companies leading to more
unemployment of low skilled workers.
At the beginning of the crisis in December 2008, the Romanian unemployment rate
of 4.4% was distributed by gender, 4.5% for men and 4.3% for women. Between July
2009 and August 2010 the total rate increased from 6.3% to 7.4%. For men the rise
was from 7.1% to 8.0% and for women from 5.2% to 6.8%. There has been a
constant increase of the number of unemployed with university education, from
40,200 in 2009 to 53,000 at the end of September 2010. The only significant change
in the share of unemployment is in the youngest age group. The number of young
people unemployed (under 25) is the same but the share has decreased from 14%
to 9%. It is very possible though that this group of unemployed is much larger, as
they are not declared as unemployed after graduating school and not having any job
history.
Between August 2009 and August 2010 in Russia men's employment increased
slightly from 68.3% to 69.1% and women's from 59.0 to 59.4%. Unemployment fell
over the same period, from 8.3 to 7.4% for men and from 7.4 to 6.3% for women. As
in 2009, the highest level of 2010 unemployment is observed in the age group 15-19.
Young people under 25 make up 25.8% of the unemployed and high unemployment
levels are observed in the age group 15-19 (32.4%) and 20-24 (17.1%). On average,
the unemployment among the young people aged 15-24 in February 2010 was
18.9%. The average unemployment level excess coefficient among the young
people aged 15-24 compared to the unemployment rate among adults aged 30-49 is
66
2.7, including 2.8 for the urban population and 2.4 for the rural population. Most
women looking for a job are aged 22- to 35. It may be that taking a decision as to
who should be dismissed in the first place the employers have chosen younger and
less experienced employees. At the same time, women over 35 suffered from
dismissals to a considerably lesser extent.
Serbian LFS data show that female employment rate dropped from 42.7 to 40.3%
(2.4 percentage points), while the male employment rate dropped from 57.4 to
54.3% (3.1 percentage points) between October 2009 and April 2010. The gap
between the male and the female employment rate is expected to deepen in the
event of the public sector, which employs far more women than men, being
downsized. Unemployment between October 2009 and April 2010 changed most for
the youngest participants of the labour market. Employment fell by 12.8% in the 1524 age group and by 8.9% in the 25-34 age group. Their unemployment rates have
risen by 4 and 4.8 percentage points respectively. In terms of education levels, the
greatest deterioration of employment (37%) was recorded amongst unqualified
workers (those without schooling); their unemployment rate grew by 1.7 percentage
points.
In Tajikistan from January 2010 to the end of June 2010, the number of unemployed
women increased from 23.9 thousand to 25.3 thousand. Male unemployment
increased from 20.9 thousand in January 2010 to 22.8 thousand in July 2010. Due to
the fact that the educational system can provide for approximately 50 to 56 thousand
places per year, and annually nearly 200-220 thousand people complete general
secondary school, a considerable share of school graduates enter the labour market
without any vocational education and, at the best case, add to a number of unskilled
labour force and, in the worst case, join the ranks of the unemployed.
The labour force participation rate for women, although it has slightly increased with
the crisis, is drastically low in Turkey and is a major determinant of the labour force
structure. Women's employment rates remain at only about a third of those of men.
The increase in men's employment over the last year (by 1.5 percentage points) is
higher than that for women (1.3 percentage points) while unemployment has
decreased less for women, by 1.5 percentage points compared to a fall of 2.3
percentage points of men. Youth unemployment is higher than the rate for the
population as a whole but fell slightly over the last year. In urban areas youth
67
unemployment rates are twice as high as in rural areas and have decreased by 2.2
percentage points over the last year compared to a 3.6 point decrease in rural areas.
The formal unemployment rate for workers over 64 years old increased from 1.2% to
2.2% over the survey period but the informal rate fell from 89 to 87.5%.
Due to lack of sufficient data in Uzbekistan, it is difficult to assess the impact of the
crisis on different groups. Rough estimates hint that persons aged 18-30 (50.8% of
unemployed people) seem to be more affected.
1.3.3 Regional differences in impacts of the crisis on employment
Within most countries labour market conditions vary with region or with urban or rural
locations. However, there is insufficient information from the survey to identify any
relationships between the location of labour market changes and the sectors in
which changes have occurred.
Table [] summarises the changing employment conditions in each country for which
information was provided. The countries shaded in the table are those with growing
rates of employment, described above. There appears to be no consistent
relationship between overall employment growth and changes within individual
sectors. In Belarus and Tajikistan, for example, there is growing employment in the
service sector whereas employment in the sector is declining in Turkey.
Table[]: Summary of changing employment and unemployment by location and
sector. Shading indicates countries with growing or recovering labour markets
68
Country
Regional employment situation
Sectoral employment
Armenia
Slightly better in cities
NDA
Belarus
NDA
Decline in agriculture &
manufacturing. Increase in
construction & services
Employment rate highest in RS and
lowest in DB
Increase in services. Decline in
agriculture
Croatia
Biggest increase in unemployment in
capital and surroundingcounties
Manufacturing, trade and
construction hardest hit
Georgia
Employment much higher in rural
areas. Unemployment 4 times higher
in urban areas
NDA
Kazakhstan
Higher unemployment in urban areas
NDA
NDA
Increase in trade & public admin.
Decline in education & agriculture
Increasing share of unemployment in
rural areas
Slight decline in manufacturing,
health and social work. Increase in
agriculture, construction & education
Higher employment rate in urban
areas but registered unemployment
also higher
Decline in industry & construction
Employment conditions worse in
north
Decline in mining, manufacturing &
utilities. Increase in construction,
trade & services
Unemployment rate highest in south
& south west
Biggest decline in industry and
services
Russia
Higher employment rate in urban
areas but both slightly increased
Decrease of 3.9% of employees in
industry
Serbia
Worse labour market conditions in
southern parts and rural areas
Biggest decline in manufacturing &
construction but also everywhere
except real estate & rental sector
Unemployment increased very
slightly more in rural areas
Decline in productive sector and
increase in services
Higher unemployment rates in urban
areas but these are decreasing faster
Increased employment in agriculture,
construction & industry but decline in
service sector
Rural unemployment rate estimated
30%
NDA
BiH
Kosovo
Macedonia
Moldova
Montenegro
Romania
Tajikistan
Turkey
Uzbekistan
The distribution of unemployment between Yerevan city (the capital of Armenia) and
the regions generally mirrors the distribution of the population. However, while 34%
of the Armenian population live in the capital only 30.8% are looking for work there,
suggesting a slightly better picture in terms employment than in the regions.
69
Construction, retail trade and public catering, real estate, market support and
personal services accounted for most of the increase in employment in Belarus in
2009. By contrast, agriculture and manufacturing industry continued to decline. The
impact of the crisis vividly revealed itself in considerable rise in underemployment in
industrial sector. The number of part-time workers soared in 2009. 357,000 people
worked part time and 55,000 were in forced leave.
Rates of employment and official unemployment in BiH vary by region. Between
2009 and 2010, unemployment rose more in the DB and FBiH regions than in RS.

Activity rate in 2010 in FBiH is 42.9% (41.6% in 2009), employment rate is
30.4% (30.9% in 2009), unemployment rate is 29.1% (25.7% in 2009).

Activity rate in 2010 in RS is 47.9% (47.4% in 2009), employment rate is
36.6% (37.2% in 2009), unemployment rate is 23.6% (21.4% in 2009).

Activity rate in 2010 in DB is 40.6% (38.1% in 2009), employment rate is
25.8% (27.0% in 2009), unemployment rate is 36.4% (29.2% in 2009).
Between 2009 and 2010 the share of the employed population working in the
agricultural sector declined from 21.2% to 19.7% while the share working in the
services sector increased by 2%.
Some of Croatia’s regions have been hit much harder by the crisis than others. The
regions experiencing the strongest employment decrease were those with the lowest
unemployment rates before the crisis. This effect is largely due to the fact that the
regions with lowest unemployment rate were the ones that relied on manufacturing,
trade, tourism and construction, the sectors hit the hardest by the crisis. In August
2010, the City of Zagreb had 13.1% of all unemployed, the County of Split-Dalmatia
(12%) and the County of Osijek-Baranja (11.1%), while the lowest was recorded in
the County of Lika-Senj (1%). Compared to the August 2009 data, registered
unemployment increased in all counties except in County of Karlovac where
unemployment decreased by 0.8 per cent. The greatest increase was reported in the
County of Krapina – Zagorje (29.5%), County of Zagreb (23.2%) and the City of
Zagreb (22.8%), i.e. in the capital city and the counties where a significant part of the
population works in Zagreb. Of the unemployed people with previous experience,
most were previously employed in the sectors most affected by the economic crisis:
24.2% in manufacturing, 20.0% in trade and 12.9% in construction. In August 2010
70
employers registered 13% fewer vacancies with the Croatian Employment Service
than in August 2009. The major share of new vacancies were in education (21.5%),
in manufacturing (17.5%), in wholesale and retail trade (14.2%), in construction
(9.1%) and in human health and social work activities (6.1%).
In Georgia urban employment increased by 1.3 percentage points in 2009 while rural
unemployment grew by 0.6 percentage point.
The highest rates of unemployment in Kazakhstan were registered in Mangistau
(6.3%) and South-Kazakhstan (5.8%) oblasts and Astana (6.2%) and Almaty (6.0%)
cities; the lowest rates of unemployment are in Aktobe (5.1%) and Atyrau (5.2%)
oblasts. Unemployment is higher in urban than in rural areas.
In 2009 in Kosovo the percentage of employed people working in trade increased by
0.3% over 2008 to 17.4%. The percentage in public administration also increased by
0.1% to 9.8% over the same period while in education the figure decreased from
13.6 to 13.4% and in agriculture from 8.0 to 6.2%.
Employment increased in the construction and market services in Kyrgyzstan
between 2008 and 2009 but declined in Agriculture, industry and other services.
In Macedonia in 2009 the percentage of employed people working in trade increased
by 0.3% over 2008 to 17.4%. The percentage in public administration also increased
by 0.1% to 9.8% over the same period while in education the figure decreased from
13.6 to 13.4% and in agriculture from 8.0 to 6.2%. Between 2009 and the first half of
2010 there was a slight decline in the percentage of employed people working in
manufacturing, health and social work and slight increases for agriculture,
construction and education.
The employment rate was 43.5% in urban areas of Moldova and 41.4% in rural
areas in 2010 but there were significant differences between the urban
unemployment rate (10.0%) and the rural rate (4.5%). 32.8% of all employed people
worked in the agricultural sector in August 2010, little changed from 2009. Industrial
sector employment declined from 12.0 to 11.7% and construction from 5.9 to 5.7%.
Uneven development and economic growth between the north, south and central
regions of Montenegro are mirrored by increasing unemployment and falling
economic activity, especially affecting the northern region. Employment decreased in
mining and quarrying (-14.59%), manufacturing or processing industry (-10.32%) and
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production of electricity, gas and water (-9.70%). Job losses in these sectors was
compensated for by increased employment in real estate, renting and business
activities with an annual growth rate of 30.63% as well as in construction, wholesale
and retail trade, hotels and restaurants. All these sectors recorded annual growth
rates of around 13%. The Montenegrin Government decided to stop employment in
public sectors as a budget saving measure in response to the financial crisis but
effects of the measure were evident only in health and social service sector (-1%).
Impacts of the crisis on employment in Romania have also varied regionally. By
territory, at the end of 2008, the highest unemployment rate was registered in Vaslui
County (10.2%), Mehedinti (9.3%), Dolj (8.4%) and Teleorman (8%). By region, the
highest unemployment rate was registered in South-West (7%) and North-East
(5.3%). In August 2010, the highest unemployment was registered in Mehedinti
County, (12.3%), Teleorman (11.9%) and Vaslui (11.6%). By region, the
unemployment rate is the highest in South-West and South-Muntenia. The counties
with the highest rate of unpaid unemployment in the second quarter of 2010 are Dolj
(62.14%), Teleorman (61.41%), Vrancea (60.18%) and Mehedinti (59.5%). The
strongest drop in formal employment was registered in industry (9.5%) and services
(6%). The highest job vacancy rates were registered in health and social assistance
(1.08%), agriculture (0.91%), public administration (0.95%) and ICT (0.84%) and the
lowest in industry, real estate and education (under 0.15% each).
Between August 2009 and August 2010 urban employment in Russia increased
slightly from 64.9% to 65.3% while the rural employment rate increased from 58.9%
to 60.1%. Despite some reduction, to a considerable extent unemployment continues
to be long term, especially in rural areas. Of 1.8 million rural unemployed people,
33.6% had been looking for work for 12 months or more. Unemployment fell over the
same period, from 6.9 to 6.0% in urban areas and from 10.7 to 9.5% in rural areas.
Based on the population employment rate indices; total unemployment rate;
registered unemployment rate; share of the long-term unemployed; share of the parttime employees and those on administrative leave; labor market tension coefficient
(relationship of the total number of unemployed to the number of vacancies), the
Ministry of Health and Social Development has made up a list of regions with the
most difficult situation in the market in 2010, which included Altai Republic, Buryatia,
Dagestan, Ingushetia, Kabardino-Balkaria, Karachai-Cherkess, Kalmykia, North
72
Ossetia-Alania, Tuva Republic, Chechen Republic, Altai Territory, Zabaikalye
Territory, Bryansk region and Kurgan region.
Regional disparities in the Republic of Serbia are among the highest in Europe.
Differences in regional levels of development (average income, national income,
migration degree, and employment and labour market conditions) show deterioration
from year to year. The situation is particularly difficult in southern parts compared to
northern parts of the country, as well as in rural compared to urban areas. Of the 150
total municipalities in Serbia, 46 were extremely underdeveloped, of which 40 are in
the group of devastated municipalities (below 50% of the average national economic
development). These municipalities are mostly located in southern Serbia, of which
19 municipalities are located in four districts - Jablanicki, Pcinjski, Borski and
Toplicki. Underdeveloped municipalities are faced with further depopulation, high
unemployment, low economic activity, underdeveloped infrastructure and low
competitiveness of existing industries, as well as poor access to education and
health services. To date, the crisis has had the strongest effect on employment in
male dominated sectors. The manufacturing and construction sectors have
continued to record the gravest deterioration of employment. Employment fell by
4.7% in manufacturing and by 7.9% in construction. Employment in the agricultural
sector fell by 4.2%, in other utility, social and personal services by 4.6% and in the
state administration and social Insurance sector by 2.6%. Only the real estate and
rental sector saw an increase in employment, growing by 4.3%.
Unemployment in rural areas of Tajikistan increased by 7.2% between June 2009
and June 2010 while total unemployment increased by 7.1%. In June 2010, the
number of employees in the productive industry sectors fell by 0.5% compared to
May 2010 and stood at 657,3 thousand people. However, in non-production areas
the number increased by 0.5% and amounted to 345,9 thousands people.
In Turkey, urban unemployment rates are twice as high as rural rates. However, they
fell by 2.5 percentage points between 2009 and 2010 while rural rates fell by only 1.2
percentage points. Between August 2009 and August 2010, employment increased
in agriculture, industry and construction but decreased slightly in the services sector.
Unemployment is quite high in rural areas of Uzbekistan. Although there are no
official figures available, unofficially it is estimated at 30%. The self-employment of
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women at home is being widely promoted by the government. During the first half of
2009, 534,600 new jobs were created, 61.3% in rural areas. Most were in small,
private businesses. In general, rural people have fewer opportunities than urban
people to obtain sustainable jobs. The vast majority are employed in the agricultural
sector and the decline in cotton and grain prices has affected their income.
1.3.4 Migration and remittances
Background patterns
The Migration and Remittances Factbook 2011 published by the World Bank shows
the latest stock figures for emigrants and immigrants in each country in the survey.
Table []: Emigrant and immigrant stock (thousands)
Country
Albania
Armenia
Azerbajan
Belarus
BiH
Bulgaria
Croatia
Georgia
Kazakhstan
Kosovo
Kyrgyzstan
Macedonia
Moldova
Montenegro
Romania
Russia
Serbia
Tajikistan
Turkey
Turkmenistan
Ukraine
Uzbekistan
Stock of
emigrants
1438.3
870.2
1432.6
1778.9
1461.0
1200.6
753.9
1057.7
3717.3
25.3
620.7
447.1
770.3
0.0
2769.4
11055.6
196.0
791.1
4261.6
261.0
6563.1
1955.1
Emigrants as %
population
45.4
28.2
16.0
18.6
38.9
16.0
17.1
25.1
23.6
NDA
11.2
21.9
21.5
0.0
13.1
7.9
2.0
11.2
5.6
5.0
14.4
7.0
Stock of
immigrants
89.1
324.2
263.9
1090.4
27.8
107.2
699.9
167.3
3079.5
NDA
222.7
129.7
408.3
42.5
132.8
12270.4
525.4
284.3
1410.9
207.7
5257.5
1175.9
Immigrants as %
population
2.8
10.5
3.0
11.4
0.7
1.4
15.9
4.0
19.5
NDA
4.0
6.3
11.4
6.8
0.6
8.7
5.3
4.0
1.9
4.0
11.6
4.2
Source: Migration and Remittances Factbook 2011, World Bank Publications
Figure [] shows the difference between the percentage of emigrants and the
percentage of immigrants in the population.
Figure []: Percentage point difference between emigrants and immigrants
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It is immediately apparent that the percentage of emigrants exceeds the percentage
of immigrants in every country except Russia, Serbia and Montenegro. In
Kazakhstan, Turkey, Ukraine, Uzbekistan, Croatia and Turmenistan the stock of
emigrants is similar to that of immigrants while in Belarus, Tajikistan and Kyrgystan it
is only slightly higher. The percentage of emigrants is substantially higher in Georgia,
Armenia, Macedonia, Bulgaria, Azerbajan, Romania and Moldova and exceeds that
of immigrants in Albania and BiH by around 40 percentage points. Figure [] presents
this information in graphical form.
Figure []: Percentage representation of immigrants and emigrants in the population
75
We might expect countries with a high proportion of emigrants working abroad, such
as BiH, Armenia and Georgia, to be most dependent on remittances. However, the
stock figures presented above give only a snapshot view of migration patterns. The
effects of the crisis need to be elaborated through an examination of migration flows
for which few data are available. The importance of any impact of the crisis on
immigration depends on its effect on internal labour markets and possibly on loss of
income from remittances from family members returning from work abroad. Further
loss of remittances may occur through changes in the rates of emigration.
Interestingly, although the available data are limited, there appears to be no clear
association between emigration and low or falling public sector wage rates. In
Armenia where emigration rates are increasing, salaries increased by only 0.1% in
real terms in 2010 and the increase was higher in the private than in the public
sector. Yet in BiH and Serbia where public sector wages actually fell in real terms,
the continuing decline in remittance inflows supports the suggestion that fewer
people are now leaving to work abroad or that more emigrants are returning home.
The inflow of remittances, including workers' remittances, compensation of
employees and migrants' transfers, declined in every country in the survey between
2008 and 2009. The decline continued into 2010 in Romania and, to a lesser extent,
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in Albania and Turkey. In most countries, however, the volume of remittances was
projected to grow again in 2010 (Figure []) although the World Bank does note that
'perhaps the most difficult aspect of remittance data is estimating informal flows'.
Figure []: Changes in remittance inflows (US$ million) between 2008 and 2010
(estimates)
Source: Adapted from Migration and Remittances Factbook 2011, World Bank Publications
In some countries such as Kyrgyzstan, Romania and Tajikistan, many people are
heavily dependent on remittances, especially in rural areas. But whereas in
Kyrgyzstan and Tajikistan remittance income is beginning to recover, in Romania it
continues to fall. A markedly faster increase in remittances since 2009 is reported in
Montenegro and Armenia, in the latter case accompanied by increasing rates of
emigration.
The porous borders between the Russian Federation, Kazakhstan and Belarus make
estimation of migration and remittance flows particularly difficult. Nevertheless
information from the survey does point to the importance of both emigration and
immigration to the economies of these countries. Concern to protect the local
workforce has led Kazakhstan and Russia to take steps to limit immigration. In
Moldova, migrants are being encouraged to return to their home country but in
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Uzbekistan returning migrants are leading to problems of unemployment and in BiH
returnees themselves are seen as problematic and vulnerable.
In many countries though, including Bulgaria, Croatia, Macedonia, Turkey and
Turkmenistan, there appears to have been little change in migration flows during the
crisis period and in these countries remittances have been fairly stable. In Kosovo,
Serbia and Turkey there is insufficient data to identify any patterns.
Countries highly dependent on remittances
The World Bank estimates that 13% of the population of Romania work abroad.
According to the World Bank report on migration, Romanian emigrants in Spain and
Italy (numbering more than 800,000 in each country) have been affected by the
crisis. The free movement of labour makes it possible for migrants to turn back home
when the conditions get worse in the destination countries and return for seasonal
work. The inflow of remittances to Romania in 2008 amounted to more than €5
billion. The main sources were Italy and Spain. Due to the crisis in the destination
countries for Romanian emigrant workers, remittances flows declined by more than
50% in 2009 but the pace of decline has since slowed down. Romania was still the
second biggest receiving country in 2009 in the EU, after Spain, and was a net
receiver of remittances, which covered 55% of the national current account deficit. In
2010, the net current transfers from abroad decreased by 32.2% in the first 8 months
compared to the same period last year. However, remittance flows to the Europe and
Central Asia region are expected to recover in 2011.
There is no official estimate of the number of labour migrants in Kyrgyzstan but
unofficially the estimate is in the range 300-500 thousand, that is 12-20% of the total
labour force in the country. Recession in Russia and Kazakhstan has caused some
return of migrants to Kyrgyzstan. According to the data of a study conducted in 2009
(http://www.osce.org/item/41641.html), not more than 10% of migrants working in
Russia returned home and 60% of returning migrants were planning to go back to
Russia as soon as the demand for labour increases again.
Remittances to Kyrgyzstan fell by 27% in US$ terms in 2009, 23.4% of GDP. In the
first half of 2010, remittances increased again by 25.4% in comparison to the first
half of 2009. Inflow of remittances through money transfer systems (the method of
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sending remittances predominantly used by the Kyrgyz migrants) increased by
27.2% in January-November 2010 compared to the same period of 2009.
In Tajikistan, the registration of irrevocable migration with residence change is
carried out by the passport departments of the Ministry of Internal Affairs based on
the arrival and departure stamps in citizens’ passports. In January-June 2010, net
outward migration decreased by 1.8 times compared to the same period of 2009.
The number of arrivals in 2010 increased by 8.9% while the number of departures
decreased by 10%. The 2009 study carried out by “Panorama” showed that 1/3 of all
households in the country contain labour migrant members. During the crisis period
of September 2008 to September 2009 a large share of labour migrants were forced
to return home temporarily. Nearly 44% of households indicated this fact. Yet despite
the crisis and the difficulties in finding a job abroad in 2009, 14% of returned labour
migrants later went abroad again for labour purposes.
According to data from the Russian Central Bank (RCB), Tajikistan is the second
largest recipient of workers’ remittances from Russia, after Uzbekistan. However as
a share of GDP, Tajikistan far outstrips all the main recipients of remittances from
Russia. In 2008 remittances from Russia accounted for 49% of Tajik GDP, although
this ratio fell to 35% in 2009 as the global recession affected the Russian economy,
particularly the construction sector, in which many ethnic Tajiks are employed.
According to EIU, the majority of the estimated 1.3 mil. Tajiks working abroad
(around 17% of the population) are in Russia, although around 10% work in
Kazakhstan. Remittances from Russia to Tajikistan fell by 31% between 2008 and
2009, according to RCB data, but in 2010 they have recovered and the World Bank
estimates an increase of 18% for 2010.
The 2009 survey conducted by the research centre “Panorama” showed that every
third household in the republic received labour remittances. In the rural areas share
of households receiving labour remittances was higher (40.1%) than in urban areas
(19.6%). According to the study, the crisis had a significant impact on those
households for which labour remittances used to be the major source of income.
Every fourth household in the republic has been significantly affected by the
decrease in remittances. In rural areas the share of such families reached 30%. The
study also revealed that households headed by women were the most vulnerable
because nearly every second such household lived only on labour remittances.
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According to Central Bank of Montenegro, the first half of 2010 saw a significant
increase in inflows from current transfers due to a massive influx of migrant
remittances. Income from current transfers in the first two quarters of the year
amounted to €68 million, a 24.8% increase compared to the same period of the
previous year. If we look at the period 2009-2010, the inflow of transfers to
Montenegro had a constant increasing trend, while the outflow was reduced due to a
reduction in general government outlays.
As in 2009, in Armenia the permanent inward migration flows in the first 9 months of
2010 were negative. The net outflow was 2.5 thousand people. When tourism is
included, both the inflow and outflow of people increased compared with 2009. Net
outward migration increased by 18 thousand people or 38%.
Table []: Migration flows in Armenia (thousands)
Arrived
Departed
Difference
2009 Jan-Sep
1054.8
1101.6
-46.8
2010 Jan-Sep
1257.5
1322.3
-64.8
The revenues of seasonal migrants who transfer remittances from host countries to
their relatives in Armenia have increased since 2009. Inflows from private transfers
in January-June increased by 52 million USD in 2010 and remittances from workers
reached 37 million USD compared with 34 million USD for the same period in 2009.
According to the Central Bank data in the period from January to September 2010
the net transfers from individuals in the country had decreased in comparison with
the same period of 2009. However, the transfers from traditional labour migration
related countries increased while the net drop was due to a decrease in inflows from
other countries.
Countries with immigration concerns
In January-September 2010 net inward migration to Belarus was 7,229 people. An
estimated 12,261 people came to Belarus, while 5,032 left to live elsewhere. This
migration surplus reduced the natural decline in population by 33.5%. The bulk of
migrants came from the CIS member states. In January-September a total of 10,145
people arrived in Belarus (of them 89% are the citizens of Russia, Ukraine and
Kazakhstan). The majority (74%) of those who left Belarus went to other CIS
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countries, mostly to Russia. In January-September 2010 an estimated 1,382 people
came to Belarus from non-CIS countries and 1,309 left.
Over the last decade Belarus has been experiencing growing labour migration and
nowadays can be considered as both country of origin and destination. Labour
migration is an increasingly important aspect of economic development, posing new
challenges and opportunities for policy makers as well as for family members.
Remittances from citizens working abroad provide an important source of muchneeded funds for families but it very often has a negative impact on family relations
and potentially can lead to family conflicts, breakdown, disintegration with children.
Official statistics on the outflow of people from Belarus are scarce. An assessment of
economic migration is exacerbated by the fact that it is often temporary and irregular.
About 5 or 6 thousand Belarusians annually were given official employment in
Russia over last three years. But the actual figure was much larger, as the border
between Belarus and Russia is transparent. 36 companies in Belarus have been
licensed to provide Belarusians with employment abroad, 25 of them entitled to
provide employment in the Russian Federation. There is practically no sound
research on the quantity, destinations and determinants of external labour migration.
Remittances from Belarus citizens working abroad provide an important source of
much-needed funds for families but at the same time labour migration very often has
a negative impact on family relations and potentially can lead to family conflicts,
breakdown, disintegration with children.
According to official data in Kazakhstan, in January to July 2009 and January to July
2010 both inflows and outflows of migrants decreased. The number of people
immigrating to Kazakhstan decreased by 5.3% and the number emigrating from the
country decreased by 34.6%. External migration flows are primarily within the CIS
region. Labour immigrants primarily come from neighbouring countries of Central
Asia, CIS and Turkey, and are based in regions of economic growth (Astana and
Almaty cities, and Atyrau, Mangistau oblasts – oil extracting oblasts). In 2009, as an
anti-crisis measure, the government restricted the rules and procedures for labour
migrants and started replacing foreign labour migrants with local specialists. In 2010,
the Ministry of Labour and Social Protection developed a Law ‘On migration’ which is
supposed to ensure a set of measures to protect local labour force, and hence, limit
foreign labour migrants (the law is currently in Parliament). At the same time, ethnic
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(Kazakh) repatriates, who arrived to Kazakhstan from other countries on a quota
basis, are ensured appropriate work by the government. The inward remittance flows
to Kazakhstan fell from $192 million in 2008 to $124 million in 2009, and are
projected to be about $131 million in 2010.
The official immigrant quota in Russia was reduced from 3.9 billion in 2009 to 1.9
million in 2010. According to the Report of the World Bank "Migration and money
transfers" (2010), Russia is among the top five countries for the volume of money
transfers abroad and in the number of migrants arriving in the country. Russia
occupied the second place in the world, after the USA, in the number of labour
migrants arriving in the country (12.3 million), and the mutual migration of the
citizens of Russia and Ukraine became the second greatest migration process in the
world's economy. According to the study conducted by the independent non-profit
organization "OPORA-DRUZHBA" ("SUPPORT-FRIENDSHIP") and the Russian
Public Opinion Research Centre by the order of the All-Russian social organization
of small and medium enterprises, the total volume of labour in-migration is 5-6 million
people, only a quarter of them working legally.
It is estimated that 318.3 thousand people from Moldova worked or looked for a job
abroad during 2009. At August 1 2010, 311.6 thousand migrants worked abroad,
2.1% fewer than in 2009. Most emigrants were men from rural areas and practically
all left the country for the first time during the last 6 years (90.4%). The average
period of time spent abroad (including short-term returns) was 2.1 years. Most labour
emigrants work in Russia (61.4%), largely because of the relatively low expenses for
travel, visa-free entry and knowledge of the Russian language. The average period
of stay in Russia is 1.8 years. 28.8% of emigrants work in the European Union (EU
27) in spite of access being more difficult due to the costs and visa requirements.
The average period of stay in the EU is longer at 2.7 years. The main reasons for
emigration is the lack of employment in Moldova and low salaries. 41.6% of
emigrants had both a residence permit and a work permit in the host country, while
some 19.0% had no official status.
The intentions of migrants to return to Moldova depend on the country where they
work. A quarter have not decided yet when they will return to the home country,
22.5% intend to return after 3-5 years, 18.3% after 1 or 2 years and 17.3% in less
than 1 year. To encourage the return of Moldovan migrants from abroad, an Action
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Plan was approved by Government in 2009, supported by a project "Strengthening
Moldova’s capacity to manage the labour market and return of migrants in Mobility
Partnership with the European Union”. With the support of the Project, a Job Fair
was organised for Moldovans in Berlin at which eight different companies from
Moldova offered employment opportunities to participants, favourable financial
conditions and salaries of between €500 and €1200.
The volume of remittances to Moldova from individuals from abroad through the
commercial banks in 2009 amounted to $1,182.02 million, down 28.8% on 2008. The
largest amounts were sent from Russia and Italy. Remittances to Moldova from
individuals from abroad through commercial banks in January to August 2010
reached $762.84 million, an increase of 4.3% over the same period of 2009.
According to the National Bank of Moldova, in January to August 2010 about
$651.53 million, or 85.4% of the total remittances for this period were sent through
the fast money transfer systems. According to the World Bank, the Moldavian guest
workers’ remittances make up about one third of Moldova’s GDP. The money earned
abroad and sent back home by migrants is used primarily to meet daily household
needs, 46.2% paying for food, clothes and utilities. The second most important use
of remittances is the renovation or purchase of housing (20.9%), the third is paying
off debts (9.8%).
Between 2004 and 2008 thousands of people from Uzbekistan, especially from rural
areas, migrated to Russia to work. With the reduced quota for immigrants to Russia
in 2009 many migrant workers returned to their own countries. Due to the economic
crisis, many other emigrants had to return back as they were not able to find jobs.
This created increased unemployment in Uzbekistan.
When asked about the impact of the crisis in their day to day lives, some key
informants in the regions of Uzbekistan answered that definitely migrants returning
from Kazakhstan and Russia had constituted a wide spread phenomenon. Lower
household incomes affected families especially in spring and autumn. Extra costs
had to be covered by families to purchase new clothing for the new season, seeds
for the summer season and school items in autumn. In early 2010, the impact of the
global crisis on Uzbekistan was softened because many workers began returning
again to Russia and Kazakhstan. According to official statistics, this external
83
migration was 187,710. In reality this number is likely to be higher because many
were from rural areas.
Uzbekistan is mainly affected by the global recession in indirect ways, but these still
create economic pain for its citizens, especially in rural areas. These citizens greatly
depend on remittances from family members working in Russia and Kazakhstan
(labour migrants). As the crisis hit Russia and Kazakhstan and the construction
industry contracted the remittances of migrants declined. In 2009, according to
different informal sources, the volume of remittances dropped by 25-30% due to the
world financial crisis. The monthly salary of migrant workers mostly in Russia and
Kazakhstan is about US$ 300 to 1,000.
Migrants use several ways of sending
money to their families, including ‘Western Union’ money transfer or with
acquaintances, friends or intermediaries. The fall in remittances has had a strong
negative impact on many rural households.
The Government of BiH (mainly the Ministry of Human Rights and Refugees), UN
Agencies and local and international nongovernmental organisations are still
implementing programmes to support the sustainable return of people to BiH. The
problems of returnees, internally displaced persons (IDPs) and migrants are regional
problems and still require the full engagement of all countries of ex-Yugoslavia. The
returnees and IDPs are the most vulnerable groups in the society due to the
unresolved basic issues of housing, employment, civic documents, social and health
insurance. Remittances to BiH from abroad continue to decrease. The decrease was
17% between 2008 and 2009 but fell to 16% in the first half of 2010.
Countries less affected by change
The National Statistical Institute in Bulgaria has been monitoring migration since
June 2008. The methodology of the NSI includes time-sample based monitoring of
border check points, which account for most of the cross border traffic. The data
from 2008 indicate a relatively small outflow of 10,000 people. Immigration flows,
which include potential returnees, were estimated at 4,000 people. Both these
figures are insignificant from macroeconomic perspective.
Estimates of Bulgarian emigrants show that a significant number outside Europe is
concentrated in the US (around 200,000) and Canada (around 45,000). In the EU
the largest populations of Bulgarian immigrants are in Spain (120,000), Greece
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(110,000), UK (60,000), Germany and Italy (50,000 in each). In total around 0.5
million Bulgarians have settled or work in other EU countries. A massive return of
these emigrants could put the labour market and public services under serious strain
but until now such a return has not occurred.
The increase in remittances to Bulgaria between 2007 and 2008 was only slight and
since then the aggregate amount has stayed at the same level. It seems that
transfers from Bulgarians working permanently or temporarily abroad represent a
much more stable flow in the balance of payments that credit and investments, which
have proved to be very volatile.
The migration balance in Croatia has been constantly positive since 1999, primarily
due to the immigration of Croats from Bosnia and Herzegovina, most of whom also
have a Croatian citizenship. There are no major changes in migration flows which
could be attributed to recession. The Migrant Information Centre (MIC) has been
established as a part of the Croatian Employment Service. The MIC provides the
information on conditions and procedures regarding education and employment
possibilities, and is intended to ensure that support is provided to Croatian citizens,
as well as returning migrants. The Croatian Employment Service has been
intensifying the activities of its Migrant Information Centre from the beginning of
2010.
There are no available official data for Croatia concerning remittances from family
members working abroad. Estimates by the World Bank country office indicate that
these remittances fell by 2% and amounted to USD 1.57 billion in 2009, whereas the
Croatian National Bank estimated the remittances at USD 1.3 billion and the annual
decrease at 3%. There are some differences in methodologies of these two
estimates. However, the negative trend has been observed for years, and can be
attributed to the gradual changes in the family structure of migrants. Older migrants
have either been assimilated or have returned to Croatia to retire, whereas younger
and better-educated migrants often take their families with them, thereby reducing
the need to send remittances. However, all these changes have been gradual.
Figures on inward migration to Macedonia in 2008 and 2009 are small and there is
no indication as to whether returning nationals are integrated into the labour market.
The total number of returned emigrants in 2008 was 219 compared to 259 in 2009.
85
While most of the returnees in 2008 were from neighbouring countries, those who
returned in 2009 came from OECD and EU countries. The financial crisis had little
impact on emigration in 2008 and 2009. The total number of emigrants in 2009 was
769 compared to 740 in 2008. The choice of destination remains heavily in favour of
EU and OECD countries.
It is important to note that the previously imposed visa requirement for travelling in
the EU was lifted in mid-December 2009. This is likely to have a significant effect on
migration flows in 2010. The national media reported that a large number of
migrants, mostly poor and of Roma ethnic background have arrived in Western
Europe and have asked for asylum. Although their request has been rejected in the
vast majority of cases, these reports indicate the level of desperation that drives
people to leave their homes in search of a better future.
Given the substantial number of Macedonian people living and working abroad,
Macedonian society is highly sensitive to any fluctuations in transfers from guest
workers, mostly from the EU countries, the United States, Canada and Australia.
Reduced private transfers from abroad in 2008 recovered slightly in 2009.
Turkmenistan reported both migration outflow to Russia for working opportunities
and inflow of technicians and middle level management especially to work in areas
where skills are not available at country level, such in the oil, gas and construction
sectors (year not specified).
Countries with little or no data on migration
The only available data on migration in Georgia show that in 2008 net migration was
negative (10.2 thousand people) and it reversed to positive (34.2 thousand) in 2009.
Comparing the first 11 months of 2009 and 2010, the volume of remittances
increased by 13%. There have been no reports of changes in the ways through
which money is transferred from abroad.
Remittances, which accounted for some 12% of GDP in 2008, have held up well in
Kosovo, despite fears of sharp declines due to recessions in key migrant
destinations such as Germany and Switzerland. In comparison to 2008 when the
total remittances were €535.4 million, the remittances in 2009 were €505.6 million.
86
Remittances from family members working abroad to their relatives in Serbia, fell by
25.3% in the period January-August 2010, as compared to the same period in 2009.
The latest external migration statistics available for Turkey are from the 2000
Census. However, external migration is definitely not perceived as a major issue by
the policymakers and public. Internal migration on the other hand has been a major
issue at least since the 1980s. Internal migration has taken mainly two forms, from
rural to urban areas and between regions. The migration between regions is mainly
in the form of migration from the Black Sea Region and Eastern Turkey to Western
Turkey and the Mediterranean Region. The lack of data from 2000 to 2008 and lack
of detailed research into the causes of migration do not allow any solid conclusion on
the impact of the crisis on internal migration trends yet there does not seem to have
been a major shift.
Remittances in Turkey fell between 2008 and 2009 and a continued fall is projected
for 2010, probably due to the crisis in west Europe where millions of emigrant
Turkish workers reside. There are no data regarding money transmission through
unofficial channels but legally and practically there is no impediment for sending
money to Turkey. There is no tax or similar charge, except for the cost charged by
banks and similar organizations.
1.4 Impact of the crisis on poverty
1.4.1 Changes in poverty rates
Three main difficulties arise in using the survey responses to compare changes in
rates of poverty over the last year.
Firstly, all countries across the CEE and CIS region vary in their definitions of
poverty. Uzbekistan, for example, uses the low World Bank threshold of $1 a day.
Some countries use the price of a basket of food needed to provide a certain calorific
intake as the threshold for extreme poverty, expanding the basket to include other
goods and services to define more realistic thresholds. Yet others relate poverty
thresholds to current equivalent household incomes. Not only does the basis for the
definitions vary but countries also use different terminologies for levels of poverty;
extreme, absolute, relative poverty mean different things in different countries.
87
Measurements of poverty provided in the survey responses also vary. Some
countries refer to the percentage of households with income or consumption below
the poverty threshold while others give headcount rates, the percentage of people
living in poor households.
The third difficulty arises from the lack of recent data on poverty in almost every
country in the survey. Table [] summarises the data that are available together with
the thresholds used for poverty definition.
Table []: Information provided in the survey about poverty lines, rates and change
Country
Change in
poverty rate
Latest poverty rates
Basis of poverty line(s)
Albania
NR
34.1% poor; 3.6% extremely poor (2009 pop);
27.6% poor; 1.6% extremely poor (2008 pop)
Food basket
-
3.7% (2009 hhs); 4.2% (2008 hhs)
Minimum subsistence level
WB predicts
increase
NDA
NDA
Bulgaria
+
21.1% official; 14.8% extreme (2010 pop)
50% (extreme) 60% (official)
equiv. median income
Croatia
+
10% (2008 hhs); 13.5% (2009 hhs); 18% <
60% median income (?)
US$380 per adult
Georgia
-?
23.7% official (2009 hhs)
60% median consumption
(official); US$ 2.5 a day
(general); US$ 1.25 a day
(extreme)
Kazakhstan
-
10.5% (August 2009 pop); 8.2% (August 2010
pop)
Food basket (extreme); Food
basket + goods & services
(subsistence minimum)
NDA
NDA
NDA
Kyrgyzstan
NR
31.7% general; 6.1% extreme (2008 pop);
31.7% general 3.1% extreme (2009 pop)
General and extreme rates
indexed to inflation
Macedonia
+
28.7% (2008); 31.1% (2009)
70% equiv. median
expenditure
Moldova
-
26.4% absolute (2008 pop); 26.3% absolute
(2009 pop)
Absolute and extreme lines
but basis unclear
Montenegro
+
4.9% (2008 pop); 6.8% (2009 pop)
€169.13/month/equivalent
adult but basis unclear
NDA
0.6% extreme; 3.2% absolute (2009 hhs);
0.9% extreme; 4.4% absolute (2009 pop)
Relative, absolute and
severe thresholds but basis
unclear
Russia
-
15.0 (2009); 13.6% (2010 pop)
Subsistence minimum basis
unclear
Serbia
+
6.9% absolute (2009); 8.8% absolute (1st half
2010); 17.9% relative (2008 pop); 17.7%
relative (2009 pop)
Relative poverty < 60% of
median income
Armenia*
+
Azerbajan
NR
Belarus
BiH
Kosovo
Romania
88
Tajikistan
-
53.6% absolute (2007 pop); 47.2% absolute
(2009 pop); 17.4% extreme (2007 pop);
17.5% extreme (2009 pop)
Food basket (extreme); Food
basket + other (absolute)
Turkey
+
0.5% food; 17.1% food+ other; 15.1% relative
(2008 pop)
Food basket; 50% equiv.
median expenditure (relative)
NDA
29.9% (1998 pop)
NDA
-
27.0% (2008 hhs); 26.4% (2009 hhs)
NDA
NDA
28% extreme (2008)
$1 a day
Turkmenistan
Ukraine
Uzbekistan
NR No response; NDA No information available from questionnaire; * Data for Armenia from Social
Snapshot 2010
Notwithstanding the difficulties outlined above, it is possible to discern a few general
trends over the crisis period. While in Armenia, Bulgaria, Croatia, Macedonia,
Montenegro, Serbia and Turkey poverty is increasing, in Belarus, Georgia,
Kazakhstan, Moldova, Russia, Tajikistan and Ukraine there has been some apparent
improvement in poverty rates. The rate of improvement in Kazakhstan, however has
been slowed down by the crisis; in Moldova poverty is still increasing in rural parts of
the country and in Russia poverty is expected to rise again as a result of the recent
drought. In Georgia there is apparent slight decline in official poverty rates between
2008 and 2009 but this could be an artefact of the measures used.
Countries where poverty rates are decreasing
The official statistics show that during the past few years Belarus has achieved
significant success in poverty reduction. Economic growth and a strong social safety
net were the key factors behind low poverty levels. While in 2008, 4.2% of
households had income below the SMB, in 2009 this fell to 3.7% and only 0.1% of
the Belarusian population had incomes below 4 PPP US Dollars per day. The low
incidence of poverty in Belarus is also confirmed by international statistical data.
According to the latest UNDP Human Development Report, fewer than 2% of the
Belarusian population were living on less than 2 PPP US Dollars per day.
In Georgia, Geostat publishes limited data on poverty based on the official poverty
threshold of 60% of median consumption and 40% of median consumption for
extreme poverty. According to Geostat the general poverty rate decreased from
22.1% in 2008 to 21% 2009. The extreme poverty decreased from 9.5 to 8.8%. This
is counterintuitive, given that unemployment increased during the same period. One
possible explanation is that relative poverty measures focus on distance between
consumption groups (bottom and middle) and do not capture the general decline in
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consumption if the middle and bottom of consumption distribution are equally
affected. Thus deterioration of living conditions or increase in poverty incidence may
go concealed if the median consumption has also worsened. In 2009 UNICEF
commissioned a nation-wide survey to help understand the impact of the financial
crisis on Georgian families and how they cope with it. These data allow the
measurement of poverty using a range of thresholds, including the official one. The
data are disaggregated in order to measure poverty incidence across age groups
and in families with different compositions.
The financial shock of 2007 led to a slowdown in the decline of poverty in
Kazakhstan. While the poverty headcount declined steadily after 2000, it actually
increased slightly between 2007 and 2008 – from 8.2% in 2006 to 12.7% (2007) and
12.1% (2009). This increase was driven by inflation, unemployment, low wages and
expanding urban poverty. In August 2009, the share of people living below poverty
line was 10.5%, while in the same period of 2010 it was 8.2% - a 2.3% decrease. At
the same time, the official statistics show that the share of people living below
poverty line is 0.6% of total population, with the worst indicators in the oil-extracting
regions – Mangistau (2.9%) and Atyrau (1.1%) oblasts and in Almaty oblast (1.9%).
Kyrgyzstan uses two national poverty lines: general and extreme. Values of these
poverty lines are indexed by inflation annually. The general poverty line is equivalent
to US$3.2 per person per day at PPP while the extreme poverty line is US$2.0.
There was little change in the rate of general poverty between 2008 and 2009 but
extreme poverty was reduced by half.
Absolute poverty rates in Moldova decreased slightly form 26.4% in 2008 to 26.3% in
2009. Extreme poverty rates showed a more marked decrease from 3.2 to 2.1% over
the period. However, while decreasing from 15.2 to 12.6% in urban areas, poverty
actually increased in rural parts of the country. In 2009, rural poverty reached 36.3%
compared to 34.6% in 2008. The main reasons for the growth of rural poverty appear
to be decreasing income from remittances and decreasing agricultural prices.
In Russia, according to the Federal State Statistics Service, by the end of the first
half-year of 2009, 15.0% of the population had incomes lower than the subsistence
minimum (5625 rubles). This had dropped to 13.6% at the end of the first half-year of
2010. However, the growth of real incomes decelerated from 5.1% in the first half of
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2010 to 4.8% in January – September and, according to the World Bank, the
accelerated growth in food prices growth caused by the drought has thrown 700 000
Russian citizens back into poverty. in 2010, the share of Russian citizens having
monthly resources lesser than 50% of the subsistence minimum (5625 rubles) was
3.7%, or more than 5 million people.
In Tajikistan, the apparent decline in poverty rates is far from simple. Using the
absolute poverty line, the poverty headcount declined from 72% in 2003 to 53.6% in
2007 and to 47.2% in 2009. The incidence of extreme poverty declined from 42% in
2003 to 17.4% in 2007 but reached 17.5% in 2009. The poverty reduction since
2007 followed strong GDP growth (7.8% in 2007, 7.9% in 2008) but this declined to
3.4% in 2009 following the global economic crisis. According to the Research Centre
“Panorama” which carried out a survey on the impact of global economic crisis on
households in Tajikistan, the majority of households interviewed (92.2%) noted the
impact of the crisis on their households. The survey showed that the crisis had
primarily affected the households through its impacts on labour migration processes
and decline in remittances, through reduction in self-employed revenues and
increasing household debt and through loss of employment. In 2009, urban poverty
continued to be lower than rural poverty and the decline in rural poverty from 2007 to
2009 was slower than the decline in urban poverty – 3.9 percentage points
compared with 2.9 percentage points per year in the urban areas. However, TLSS
2009 showed that extreme poverty remained nearly unchanged at 17.5% of the
population in both urban and rural Tajikistan. The main hypothesis is that the poorest
households were not able to send migrants abroad and were therefore cut off from
the remittance–fuelled poverty reduction.
A further problem arose In December 2009 when the Government announced the
sale of 25% of the state-owned Roghun hydropower plant to the public. The
government regards the project as vital to ensure a constant supply of energy to
serve the entire country. In January alone, the campaign raised US$150 million (3
percent of GDP, more than the 2009 income tax), but subscriptions have since
slowed. The government’s Roghun campaign was found not to be poverty neutral.
Using data from the 2007 TLSS, experts concluded that the poverty headcount rate
may increase by 2.2 percentage points in 2010 on account of the equity financing
campaign, while the incidence of extreme poverty may rise by 0.8 percentage points.
91
The following assumptions were made under the baseline scenario: (a) the
government collects 1 billion TJS by the end of 2010, (b) 59 percent of this amount
will be financed by the households; (c) households contribute to the Roghun project
an equal proportion of their consumption (WB, 2010).
Countries where poverty rates are increasing
According to the WB poverty in Armenia is increasing for the first time in decades.
Consumption has been reduced by 10% in urban and by 7% in rural areas. The
crisis had a negative impact on over 40% of the population of Armenia, affecting
them through the loss of labour income, remittances and other income. However, the
anti-crisis measures of the government softened the negative impact and poverty
less than expected. (The 'Social Snapshot 2010' also shows a rise in poverty. In
2009, both the incidence of poverty and its gap and severity increased as compared
to 2008. In 2009 approximately 34.1% of the population were poor, 20.1% very poor
and 3.6% extremely poor. Corresponding figures for 2008 are 27.6% poor, 12.6%
very poor and 1.6% extremely poor.)
Although, social exclusion and poverty are pressing problems in BiH, there are no
updated, available data for 2010. WB Empirical simulations for 2010 suggest that the
predicted GDP decline may lead to a rise in poverty, reversing half of the gains prior
to the crisis. A 4% income shock, for example, will lead to a rise in the poverty rate of
2%.
Data from the Household Budget Survey of the Bulgaria NSI indicate that incomes
have started to drop or stagnate across all five income quintiles since the middle of
2009. In the first quarter of 2010 according to the Crisis Monitoring Survey the
overall poverty rate was 21%. An increase in poverty rates in Bulgaria is confirmed
by a variety of different sources, including the EU-SILC survey, the national statistics
and surveys done by other organizations. However, this process started before the
economic crisis due to a package of poverty propagating tax and welfare reforms.
NSI data should be used with caution. (The NSI sample seems to be quite biased
and according to independent experts needs to be changed. In 2008 for example
Eurostat gave Bulgaria a main at-risk-of-poverty rate of 21.4% (this is the last data
available from Eurostat on the topic). While according to the NSI this rate was
14.4%.)
92
Before the crisis, the poverty in Croatia was relatively low and mostly connected with
long-term unemployment and inactivity, concentrated among low skilled workers.
The impact of the crisis changed both the poverty rate and the poverty profile. The
unemployment increase, as well as a decrease in real wages pushed many people
into poverty. The share of households living below the accepted poverty line of USD
380 per adult increased from 10% in 2008 to 13.5% in 2009. According to the World
Bank, the increase in poverty during the crisis is largely due to reduced income and
consumption and to a lesser extent due to an increase in inequality. That would
imply that the crisis has reversed the gains in social welfare achieved during several
years of economic growth.
The State Statistical Office of Macedonia's latest poverty report noted that in 2009
the poverty rate was 31.1%, up from 28.7% in 2008. The poverty gap also increased
from 9.2% in 2008 to 10.1% in 2009. Data on extreme poverty could not be found.
The overall absolute poverty rate in Montenegro increased from 4.9% in 2008 year to
6.8% in 2009. In urban areas the increase was from 2.4 to 2.6% but in rural parts the
effect was much greater, from 8.9 to 14.8%. The poverty gap, an indicator of the
depth of poverty, increased from 0.9% in 2008 to 1.4% in 2009.
The most recent data on poverty in Romania, for 2009, showed that the extreme
poverty rate was 0.6% of total households while 3.2% of households were in
absolute poverty. Poverty rates are substantially higher in rural than in urban areas
but there is no information on change since 2008. (Based on a recent quality of life
survey, 31% of the population considered their actual income is not sufficient to
cover strictly necessary needs.)
After a period of significant reduction (2002-2008), absolute poverty in Serbia began
to grow in 2009 as a result of negative labour market trends caused by the effects of
the global economic crisis. The absolute poverty rate increased from 6.1% in 2008 to
6.9% in 2009. This growing trend in absolute poverty has continued in 2010, and
according to the January-June data, the rate of absolute poverty stands at 8.8% and
has virtually returned to the level of 2006. According to the relative poverty line,
17.9% and 17.7% of Serbia's population was at risk of poverty in 2008 and 2009,
respectively, which is slightly above the average risk of poverty rate of EU27
countries in 2008 (16.5%). Further deterioration of the Serbian labour market
93
indicators in 2010, resulting from the effects of the global economic crisis, points to
the possible emergence of a much larger number of poor in 2010 compared to 2009.
Between 2007 and 2008 in Turkey, the food (hunger) poverty rate remained at 0.5%
while the food plus non-food rate decreased slightly from 17.8 to 17.1%. The relative
poverty rate, however, increased from 14.7 to 15.1% over the period.
The latest poverty data currently available for Turkmenistan dates from 1998 and
registers 29.9% of the population living below the national poverty line. Turkmenistan
apparently had the lowest incidence of poverty in the region, due to the centralized
economy, free provision and subsides on public goods such as water and energy
and essential commodities. However, the lack of data leaves uncertainties about the
real poverty figures in the country, as well as on differences between rural and urban
areas. Data are similarly sparse for Uzbekistan where according to the Global Study
on Child Poverty extreme poverty (less than $1 a day) in late 2008 stood at 28%.
1.4.2 Rural and urban poverty
In the eighteen countries for which we have data, poverty rates are consistently
higher in rural than in urban areas. We have information on changes in rural poverty
for nine countries. The decrease in overall rates seen in Belarus and Tajikistan is
occurring more slowly in rural areas but in Georgia and Ukraine rural poverty rates
are declining slightly faster. In Moldova and Kyrgyzstan it is urban poverty that has
declined while rural poverty actually rose. Where overall poverty rates are increasing
in Croatia, Montenegro and Serbia, it is rural rates that have seen the sharper rise
but in Armenia the overall rise is driven by increasing urban poverty.
Table []: Rural and urban poverty
Country
Rural & urban poverty
Urban poverty rate
Rural poverty rate
Armenia
Fall in consumption greater in urban
areas
Increased by 3.1 percentage
points
Increased by 2.6
percentage points
Belarus
Slower rural decline in poverty rate
3.3% (2008 pop); 2.9%
(2009 pop)
5.9% (2008 pop); 5.7%
(2009 pop)
BiH
Predicted more income loss and
greater increase in poverty rate in
rural areas
NDA
NDA
Bulgaria
Higher rural poverty rates
19.6% (official); 13.9%
(extreme) (2010 pop)
25.2% (official); 17.0%
(extreme) (2010 pop)
Croatia
Greater increase in rural poverty
NDA
NDA
94
rates especially among the elderly
Georgia
Decreased more in rural areas
where rate is higher
18% (2008); 17.6% (2009)
26.2% (2008); (24.3%
(2009)
Kazakhstan
Higher rural poverty rate
>10%
>20%
Kosovo
NDA
NDA
NDA
Kyrgyzstan
Rural poverty higher and increasing
as urban poverty declines
22.6% (general, 2008 pop);
21.9% (general, 2009 pop);
36.8% (general, 2008
pop); 37.1% (general,
2009 pop);
Macedonia
Rural child poverty rates higher
NDA
NDA
Moldova
More poverty and increasing in rural
areas. Less poverty and decreasing
in urban areas.
15.2% (2008); 12.6% (2009)
34.6% (2008); 36.3%
(2009)
2.4% (2008; 2.6% (2009)
8.9% (2008); 14.8%
(2009)
Rural child poverty rate 37.7%
(34.9% 2008); urban child poverty
rate 12.8% (11.7% 2008)
Montenegro
Rural poverty rate higher than and
increasing more than poverty in
urban areas
Romania
More poverty in rural areas,
especially absolute poverty
0.2% (2009, extreme); 1.4%
(2009 absolute)
1.1% (2009, extreme);
5.6% (2009 absolute)
Russia
More poverty in rural areas
NDA
NDA
Serbia
More poverty increasing more in
rural areas
5.0% (2008); 4.9% (2009)
7.5% (2008); 9.6%
(2009)
Tajikistan
More poverty and declining more
slowly in rural areas. Extreme
poverty showing slight rural
increase
49.3% (2007); 41.8%
(2009); 18.9% (2007
extreme); 17.5% (2009
extreme)
54.4% (2007); 49.2%
(2009); 16.9%
(extreme 2007); 17.5%
(extreme 2009)
Turkey
In 2008 rural poverty rates higher
than urban
0.3% (2008 hunger); 9.4%
(2008 food + nonfood); 8.0%
(2008 relative)
1.2% (2008 hunger);
34.6% (2008 food +
nonfood); 31.0% (2008
relative)
Turkmenistan
NDA
NDA
NDA
Ukraine
More poverty but declining faster in
rural areas
21.5% (2008); 21.4%
(2009)
38.2% (2008); 36.8%
(2009)
Uzbekistan
Rural poverty rate higher
25%
28%
Countries with overall decreases in poverty
In Belarus poverty fell by 0.5 percentage points from 4.2% of households in 2008 to
3.7% in 2009. Over the same period the rural poverty rate only fell by 0.2 points
while the fall in urban areas was 0.4.
Figure [a] illustrates the lower rate of decline in poverty at the higher threshold in
rural parts of Tajikistan, by 2.9 compared to 3.9 percentage points. However Figure
[b] shows that extreme poverty remained nearly unchanged and even increased a
little to 17.5% of the population in rural parts of the country. One hypothesis is that
the poorest households were not able to send migrants abroad and are therefore cut
off from any remittance–fuelled poverty reduction. Extreme poverty affects people
95
who cannot afford to purchase a food basket to satisfy even their basic dietary
needs.
Figure [a]: Changes in poverty rates in Tajikistan
60
53.1
54.4
49.3
47.2
49.2
41.8
40
20
0
2007
2009
Tajikistan
Urban
Rural
Figure [a]: Changes in extreme poverty rates in Tajikistan
20
17.4
18.9 17.5
17.5
2007
16.9
2009
17.5
0
Tajikistan
Urban
Rural
This idea is supported by the fact that rural families with a migrant experienced a
large decrease in poverty (Figure []).
Figure []: Poverty by household migration status
50
2007
40.5
34.3
2009
33.9
51.6
46.0
27.7
47.6
32.1
0
Urban - No Urban - Some Rural - No
migrant
migrant
migrant
Rural - Some
migrant
Between 2007 and 2009 there was no welfare increase for the poorest 40% of the
Tajikistan population in rural areas. Growth in welfare, as measured by a basket of
96
consumption, increased gradually from 1% for middle consumption groups to 18%
growth for the richest rural people (Figure []).
Figure []: Growth in rural consumption in Tajikistan 2007-2009
2007-2009 Growth
Rate
25.0
5.0
-15.0
18.2
9.9 10.511.5
7.4
4.7
1.1
-0.3 -1.6-1.5
10 20 30 40 50 60 70 80 90 100
poor<-- Consumption Centile --> wealthy
Rural
Urban growth was more broad-based, but still did not benefit the very poorest
(Figure []). The poorest 10% saw no growth in consumption, while the somewhat
better off people witnessed increasing growth, up to 12%. Surprisingly, the wealthiest
10% experienced much smaller growth, which may reflect the impact of the global
economic crisis.
Figure []: Growth in rural consumption in Tajikistan 2007-2009
6.4
-15.0
12.1
11.2
8.9
8.8
7.6
2.4
100
90
80
70
60
50
20
10
-5.0
0.0
9.2
2.3
40
5.0
30
2007-2009 Growth
Rate
15.0
poor <-- Consumption centile --> wealthy
Urban
In Georgia, according to Geostat, general poverty decreased from 26.2% in 2008 to
24.3% in rural areas in 2009 and from 18% to 17.6% in urban areas. Extreme
poverty decreased from 11.9% to 10.2% in rural areas and increased from 7% to
7.3% in urban areas.
In 2009, for the second year, poverty continued to increase in rural areas of Moldova
while the urban poor population continued to decline, especially in Chisinau and
Balti. In urban areas poverty fell to 12.6% in 2009 from15.2% in 2008. Meanwhile,
97
rural poverty grew to 36.3% compared to 34.6% in 2008, largely because of
decreasing incomes from remittances from emigrant workers and falling agricultural
prices. During the crisis years farm incomes fell by about 17% as agricultural prices
decreased by 18.5%. The main source of rural income is employment (46.2%),
followed by individual agricultural activity (10.1%), individual non-agricultural activity
(7.7%) and social payments (8.8%). An important source (22.4%) of income for
households with children is transfers from abroad and, compared to rural areas, in
large cities remittances have had an upward trend.
Children in rural areas now face a poverty risk of 37.7% compared to 12.8% for
urban children. The poverty rate for the latter actually fell by 1.1 percent points over
the previous year while for rural children it increased by 2.8 points. Rural children
also have poorer access to education. Three quarters of the children who do not go
to preschool institutions are from rural areas and only a quarter are from urban
areas. This situation is explained by high costs, lack of childcare, the lack of preschools in some rural localities and the large distances children have to travel to
reach them.
Countries with overall increases in poverty
The World Bank provides information on the relative impact of the crisis on the urban
and rural population of Armenia. Falls in consumption during the crisis period fell in
all categories except utilities, reaching 10% in urban areas compared to only 7% in
rural areas. The lowest and highest quintiles have reduced their consumption the
most. In the current survey we find that poverty in urban areas has increased by 3.1
percentage points and by 2.6 percentage points in rural areas. Urban areas again
showed a greater increase in extreme poverty (2.6 percentage points) than rural
areas (1.6 percentage points).
Employment in Croatia declined more in urban than in rural areas, which led to an
increase of the urban population in the poorest quintile. Nevertheless, since most of
the poor live in rural areas, in absolute terms the increase of poverty was much
higher in rural than in urban areas. During the crisis, elderly people living in rural
areas with no pension face a particularly high risk. They are estimated to have
around three times the average risk of poverty and account for almost 8% of the
98
poorest decile of the population. Every second elderly person without a pension and
living in a rural area was found to be poor.
In 2009, poverty had increased in both urban and rural parts of Montenegro. The
urban poverty rate in 2009 was 2.6%, up two percentage points from 2008. Rural
poverty rates increased much faster to 14.8% in 2009 from 8.9% in 2008.
The situation is particularly difficult in rural compared to urban areas of Serbia. The
rural population has limited access to key markets for goods, information and
financial capital. Most rural households have inadequate access to state support for
agricultural development. Absolute poverty rates have been consistently higher in
rural areas where they grew by 2.1 percentage points between 2008 and 2009.
Urban poverty only grew by 0.1 percentage point.
Table []: Absolute poverty rates (%) in Serbia by type of settlement
2006
2007
2008
2009
Urban areas
5.3
6.0
5.0
4.9
Other
13.3
11.2
7.5
9.6
Total
8.8
8.3
6.1
6.9
Other countries
Eight other countries reported high rates of rural poverty. In Kazakhstan and Russia,
overall rates declined but rural poverty remained consistently higher than that in
urban areas. While the poverty headcount rate in Kazakhstan fell to under 10% in
urban areas, it remained at more than 20% in rural locations during the survey
period. Rural people in Russia are twice as likely as urban residents to be poor.
According to the World Bank studies, in villages with less than 200 people the risk of
poverty was three times higher than in megalopolises with populations exceeding 3
million people.
Although we have no new data on poverty rates, huge disparities were reported in
access to services between urban and rural areas of BiH. The income losses and
poverty increases predicted by the World Bank appear higher in rural areas
99
compared to urban areas (except in the Federation) and consumption levels are
lower and poverty levels are already higher in these parts of the country.
A recent (non-published) analysis of urban poverty trends provides a time series of
poverty indicators for Bulgarian cities from 1992 to 2008. The effects of the current
economic crisis cannot be seen from the data, but some long-term trends are
discernible. One of the dimensions of poverty studied is by occupational status. The
analysis shows that the contribution to the overall poverty rate of employed people
living in cities has been diminishing since 1996, when Bulgaria was hit by a severe
economic and fiscal crisis. In 1996 25.7% of the poor in cities were employed, while
in 2008 the share of employed among the poor living in cities was 12.7%. The
analysis shows that in-work poverty in cities has dropped mainly due to the
contribution of the capital city of Sofia and other big cities. In small cities the situation
with in-work poverty remained very volatile just like poverty among the unemployed,
pensioners and children. This is an indication that rural areas may be the place
where high poverty rates remain even in years of prosperity.
In the first quarter of 2010 according to the Crisis Monitoring Survey the overall
poverty rate was 21%. Poverty was more severe and more widespread and in rural
areas where it affected over a quarter of the population. This pattern is evident at
different poverty lines although the difference between rural and urban rates is less
marked at the lower threshold (Figure []).
Figure []: Rural and urban poverty in Bulgaria 2010
Poverty Headcount Rate
(%)
Poverty Gap
(%)
Urban
19.6
7.1
Rural
25.2
8.4
Total
21.1
7.5
Urban
13.9
5.3
Rural
17.0
5.8
Relative poverty line 60% of median
Relative poverty line 50% of median
100
Total
14.8
5.4
Source: OSI-Sofia and World Bank, Crisis Monitoring Survey, March 2010
Child poverty rates in rural areas of Macedonia are higher than those in urban areas.
53.2% of poor children live in rural areas, 12.5% live in Skopje (where a quarter of
the country's population resides), while 34.3% live in other urban areas outside of
Skopje.
In Romania the extreme poverty rate in 2009 was 1.1% in rural areas and 0.2% in
urban areas and the absolute poverty rates were 1.4% in urban areas and 5.6% in
rural areas. A qualitative study revealed that 56% of respondents considered that
their possibilities of success in life were low or very low, with significant urban and
rural differences. 86% of people living in rural areas thought they had low prospects
of finding a job. In urban area the figure was 68%. The survey suggested that 76.2%
of households in rural areas, compared to 14.1% in urban areas, had no access to
hot water. 74% of the rural population lived in houses without a toilet or shower,
compared to 12.3% in urban areas.
No information is available beyond 2008 in Turkey but in that year, on all poverty
thresholds, rural poverty rates higher than urban.
Poverty is widespread in rural areas of Uzbekistan where people have less
opportunity to get well-paid and productive jobs. According to the Global Study on
Child Poverty and Disparities the poverty rate ranges between 25% (urban) and 28%
(rural). In reality there are huge disparities among urban and rural areas with very
high rural poverty rates.
Rural and urban poverty and changing sectoral employment
One possible explanation for the disproportionately high levels of poverty in rural
areas is the decline in remittances discussed in section 1.3.4, together with the loss
of farm income resulting from falling prices for farm products. A further explanation is
the reduction of employment in the agricultural sector. While the majority of countries
have seen employment fall in manufacturing, construction or other productive
industries, four countries in the survey (Belarus, BiH, Kosovo, and Serbia) reported a
decrease in formal employment in agriculture (Table 1.3. []). Macedonia, where rural
poverty is less marked, saw a decline from 2008 to 2009 but reports evidence of a
101
recovery in the first half of 2010. Turkey is the only other country with an increase in
agricultural employment but this is accompanied by a decline in the service sector.
The picture is complicated by the high incidence of informal employment in rural
areas. In Turkey, for example, 85.9% of agricultural employment is informal.
Romania reports high numbers of unemployed people working informally in
agriculture but also relatively high vacancy rates for formal jobs in the sector. In
conditions where formal employment opportunities are few, more people may turn to
informal work. Estimates of rural poverty then depend on the methods used to
incorporate non-cash elements into calculations of income or consumption.
1.4.3 Groups at high risk of poverty
Child poverty
Poverty rates (per capita or per adult equivalent) are higher where increasing
household size is accompanied by an increasing dependency ratio. The inclusion of
more household members (for example, children or pensioners) who do not bring
any additional household income tends to increase the risk of poverty. It is no
surprise then that in most countries poverty rates increase with the number of
children in households.
Of more concern is the disproportionate poverty rate of poverty experienced among
children. In every country for which data are available, the child poverty rate is higher
than the rate for the population as a whole (Table 1.4.[]).
Table 1.4 []: Changes in child poverty measures
Country
Latest poverty rates for
comparison
Child poverty rate
Children
disproportionately
poor?
Children's
situation
improving?
34.1% poor; 3.6% extremely
poor (2009 pop); 27.6% poor;
1.6% extremely poor (2008
pop)
38.1% poor; 4.5%
extremely poor (2009 pop
0-18)
Yes
No
3.7% (2009 hhs); 4.2% (2008
hhs)
8.6% (2008 hhs with <18);
7.5% (2009 hhs with <18)
Yes
Yes
NDA
NDA
NDA
NDA
Albania
Armenia
Azerbajan
Belarus
BiH
102
Bulgaria
21.1% official; 14.8% extreme
(2010 pop)
24.3% (2010 pop in hhs
with 1 child <6)
Yes
NDA
Croatia
10% (2008 hhs); 13.5% (2009
hhs); 18% < 60% median
income (?)
9.8% (2009 pop 0-14);
19.5% (2008 hhs with 3+
children); 31.6% (2009 hhs
with 3+ children)
NDA
No
Georgia
25.7% official (2009 pop);
9.9% extreme (2009 pop)
28.4% official (2009 pop
<16); 11.5% extreme (2009
pop <16)
Yes
NDA
Kazakhstan
10.5% (August 2009 pop);
8.2% (August 2010 pop)
NDA
NDA
NDA
NDA
NDA
NDA
NDA
Kyrgyzstan
31.7% general (2008 pop);
31.7% general (2009 pop)
39.3% general (2008 pop 017); 37.9% general (2009
pop 0-17)
Yes
Yes
Macedonia
28.7% (2008); 31.1% (2009)
NDA
Yes
Yes
Moldova
26.4% absolute (2008 pop);
26.3% absolute (2009 pop)
28.2% (2009 children
absolute); 2.9% (2009
children extreme)
Yes
Yes (urban)
and no (rural)
Montenegro
4.9% (2008 pop); 6.8% (2009
pop)
11.1 (2009 pop <15)
Yes
NDA
Romania
0.6% extreme; 3.2% absolute
(2009 hhs); 0.9% extreme;
4.4% absolute (2009 pop)
5.8 (2009 pop <15
absolute); 1.3 (2009 pop
<15 extreme)
Yes
NDA
Russia
15.0 (2009); 13.6% (2010
pop)
NDA
Yes
NDA
Serbia
6.9% absolute (2009); 8.8%
absolute (1st half 2010);
17.9% relative (2008 pop);
17.7% relative (2009 pop)
20.8 (2008 pop <18
relative); 22.1 (2009 pop
<18 relative); 7.3%(2008
pop absolute); 9.8 (2009
pop absolute)
Yes
No
Tajikistan
53.6% absolute (2007 pop);
47.2% absolute (2009 pop);
17.4% extreme (2007 pop);
17.5% extreme (2009 pop)
55.9% (2009 pop <6
absolute) 22.8% (2009 pop
<6 extreme)
Yes
No
Turkey
0.5% food; 17.1% food+
other; 15.1% relative (2008
pop)
NDA
NDA
NDA
29.9% (1998 pop)
NDA
NDA
NDA
27.0% (2008 hhs); 26.4%
(2009 hhs)
NDA
NDA
NDA
28% extreme (2008)
27.8% (2009 children
extreme)
NDA
NDA
Kosovo
Turkmenistan
Ukraine
Uzbekistan
Child poverty rates vary with household characteristics, such as the number of
children and age of the youngest child, the number of working age and pension age
adults in the household, the characteristics of the household head and whether the
household is in a rural area. In the countries for which data are available, the poverty
rates for children, or for households with children, are without exception
disproportionately high. In only three of these countries (Belarus, Macedonia and
urban areas of Moldova) is there any indication that the situation may be improving.
103
Even in these countries however, the position of children is far from secure. In
Armenia, Bulgaria, Montenegro, Romania, Russia and Uzbekistan child poverty is at
least persistent and the data provided for Croatia, Serbia and Tajikistan indicate that
it is increasing.
Countries showing some slight improvement in child poverty rates
Between 2008 and 2009 in Belarus the total household poverty rate fell by 0.5
percentage points while the poverty rate for households with children under 18 fell by
1.1 percentage points.
Table []: Proportion of individuals in Belarus living below the poverty line, %
2000
2005
2006
2007
2008
2009
Share of households living in poverty
(%)
35.7
9.3
8.4
5.6
4.2
3.7
Households with children below 18
years of age
47.8
16.1
13.7
9.7
8.6
7.5
With 1 child
39.5
11.2
8.7
6.1
4.9
4.6
With 2 or more children
60.6
24.7
22.5
16.0
14.5
12.6
Single-parent households
43.4
13.6
17.3
12.2
10.4
9.9
Including:
The risk of being poor increases with a number of children a family has, rising
moderately up to two children but steeply thereafter. In 2009, the proportion of
families with one child living under the poverty line was 4.6%, and with two or more
children 12.6%. The share of children under 6 living under poverty line among all
children of the same age decreased from 12.5% in 2008 to 10.0% in 2009 and the
share of children aged 7 to 15 decreased from 11.5% to 10.8%. While the share is
decreasing, the number of children under 15 living on less than the Subsistence
Minimum Budget level is still considerable, about 170,000.
Table []: Child poverty in Kyrgyzstan 2008-2009
Child poverty rate (general poverty line), % of all children 0-17 years old
Total
39.3
37.9
Urban areas
27.7
26.1
Rural areas
44.6
43.2
104
Child poverty rate (extreme poverty line), % of all children 0-17 years old
Total
7.9
4.2
Urban areas
4.5
3.4
Rural areas
9.5
4.6
Households with children represent 54.3% of all poor households in Macedonia. This
is an improvement of 2.6 percentage points over 2008 when they accounted for
56.9% of poor households. The poverty rate in general increased by 2.4 percentage
points between 2008 and 2009 suggesting that child poverty may be in decline.
Children aged 7 to 14 represent the largest share of poor children (49.4%), followed
by children under 6 years old (29.6%). Households with two or more children
represent 79.2% of all poor households with children in the country.
In 2009, households with children under 18 years old constituted 39.9% of all
households in the Republic of Moldova. 57.2% of these households live in rural
areas. In 2009, the disposable incomes of households with children showed the
same trends as other categories of household with average incomes approximately
10.0% lower than in 2008. An important source (22.4%) of income for households
with children is transfers from abroad. In 2009, when the poverty rate for the total
population was 26.3%, it was 28.2% for children. 2.9% of children were suffering
extreme poverty compared to 2.1% for the total population. Every fourth person is a
child in the total poor population, and in the total population in extreme poverty, one
third are children. The increase of absolute poverty among children is driven by the
increase of poverty in rural areas. Children in rural areas face a poverty risk of 37.7%
compared to 12.8% in the case of urban children. Over 2008-2009 the poverty level
among urban children decreased by 1.1 percentage points but in rural area it
increased by 2.8 percentage points.
Although there are no data for the percentage of children living in poor households in
Ukraine, Table [] shows that the poverty rate for households with children, although
still much higher than the rate for all households, declined between 2008 and 2009.
Table [] Poverty rates for households with children in Ukraine
Household type
2008
105
2009
One child
26.4
26.9
2 children
42.0
39.6
3 and more children
62.4
53.8
4 and more children
76.4
72.3
With children under 3 years
of age
37.6
34.2
Ukraine
27.0
26.4
Countries with persistent child poverty
At the time of the survey in Armenia information on poverty by age groups was only
available for 2008 when over a quarter of children lived in poverty compared with
23.5% of the total population.
Table []: Poverty rates by age group in Armenia
Age group (years)
2008 poverty rate
Children 0-5
27.1
Children 6-14
26.5
Children 15-19
25.6
20-24
21.4
25-29
22.8
30-34
22.1
35-39
25.2
40-44
24.5
45-49
21.1
50-54
19.7
55-59
18.1
60-64 y.o.
23.3
65+
24.4
Total
23.5
The poverty rate among households without children is slightly lower than the
average (21.1%) in Bulgaria but households with children are over-represented
among the poor on both poverty thresholds (Table []).
106
Table []: Poverty in Bulgaria 2010 for children 0 to 6 years old
Poverty
Headcount
Rate
Distribution
the Poor
No children 0-6
19,1
71,8
79,2
1
24,3
19,0
16,4
2
41,9
8,1
4,1
3 or more children1
100,0
1,1
0,2
No children 0-6
12,8
68,9
79,2
1
19,1
21,3
16,4
2
29,6
8,2
4,1
3 or more children
100,0
1,5
0,2
of Distribution
Population
of
Poverty line 60% of median
Poverty line 50% of median
Source: OSI-Sofia and World Bank, Crisis Monitoring Survey March 2010
According to Georgia's Welfare Monitoring Survey (WMS) results, 28.4% of children
in Georgia are poor (official threshold) and 11.5% are extremely poor (1.25 US$ a
day) compared to 25.7% of the population in poverty and 9.9% of the population in
extreme poverty. Similarly, families with children had a higher official poverty rate
(27.9%) than those with no children (22.8%). Also, families with three or more
children were more likely to be poor (35.2%) than those with one or two children
(26.3%).
In Montenegro the poverty rate for children under 15 years is 11.1%. At the highest
risk of poverty are families with three or more children under 6 years of age. The
lowest rate of poverty is among households with no children (4.8%) and households
with one child (12.0%). However, in households with two children the risk of poverty
is almost twice the size of the national average of 6.8%.
Extreme poverty and absolute poverty rates in Romania increased with the number
of children in the household. Households with 3 children registered an extreme
poverty rate of 2.3% and an absolute poverty rate of 12.5%. Those with 4 children or
1 Small sample, data is not reliable.
107
more had an extreme poverty rate of 6.7%. The extreme poverty rate of childless
people was 0.5% and the absolute poverty rate 2.8%. For children under the age of
15, the extreme poverty rate was 1.3% and the absolute poverty rate 5.8% of the
total individuals of this group. In the group aged 15-24, the extreme poverty rate was
1.4% and the absolute poverty rate reached 7.2%.
The chances of falling below the poverty line in Russia are determined by the
household demographic composition. The bigger the household is, the greater the
chance of falling below the poverty line. The maximum risk of poverty and highest
levels of poverty are found in families with children and for children under 16 years of
age. 60% of poor Russian citizens are families with children. The birth of a second
child doubles the risk of poverty.
Extreme poverty among children in Uzbekistan is about 27.8% (Global Study, 2009).
As highlighted in the Uzbekistan Child Poverty study, due to socio-cultural patterns,
children are often not involved in the family decision making processes and their
needs and interests are therefore given lower priority than other aspects of family
life. For this reason, when household incomes decrease and families have to
compromise and prioritize the expenses, the costs devoted to cover children’s
specific needs will most likely be among the first ones to be excluded from the
household basket.
Countries where child poverty is increasing
The social protection programmes in Croatia during 2009 and 2010 protected the
majority of vulnerable groups from a more dramatic growth in poverty. However, the
high unemployment rate (16.9% in September 2010), and rising living costs increase
the risk of poverty, especially for single person households, single parents and
households with more children. Therefore, an increase in child poverty is to be
expected, particularly in households with two and more children: increased
unemployment affects household income, the abolition of free textbooks and
transportation increases education costs and increases in the price of utilities and
health services put additional pressure on household resources. There is likely to be
a negative effect on access to secondary and tertiary education of children from poor
families. Using the lower poverty threshold, around 9.8 % of children aged 0-14
years were found to live in poor households. The largest increase in vulnerability,
108
from 19.5% in 2008 to 31.6 % in 2009, occurred in households with three and more
dependent children: such households are ‘incubators’ of child poverty.
Further deterioration of the Serbian labour market indicators in 2010, resulting from
the effects of the global economic crisis, points to the possible emergence of a much
larger number of poor in 2010 compared to 2009. Especially vulnerable are the
young. Analysis of the poverty risk rate by age (using the relative poverty threshold)
indicates that children under 18 were most at risk of poverty compared to other age
groups. In 2009, the highest growth of poverty was recorded in children under 18,
youth aged 19-24 and adults aged 25-45. Although the poverty risk rate for children
under 18 decreased during the period 2006-2009, it grew from 20.8% in 2008 to
22.1% in 2009, and this statistically significant increase was only recorded for this
age group.
Families with large numbers of children in Tajikistan seem to be experiencing an
increase in poverty. Between 2007 and 2009, households with no children
experienced a declining poverty rate from 39.2 to 29.6% while the poverty rate in
households with four or more children saw an increase from 61.6 to 71.5%.
According to the preliminary data of TLSS 2009, the poverty rate among Tajik
children under 6 years of age was about 55.9%, while extreme poverty among
children of this age amounted to 22.8%
Table []: Poverty rate by age groups in Tajikistan
Poverty by age groups (TLSS, November 2009)
Age
Absolute poverty line,
monthly
Extreme (food)
poverty line, monthly
0-5
55.9
22.8
6-14
49.5
18.5
15-19
43.8
15.1
20-24
44.5
15.5
25-29
48.2
19.7
30-34
52.9
20.8
35-39
50.2
18.6
40-44
42.1
15.8
45-49
36.8
11.0
50-54
36.9
11.8
109
55-59
42.4
15.3
60-64
45.9
17.7
65+
47.8
15.8
Total
47.2
17.5
Source: TLSS, nov. 2009 (preliminary data)
Poverty among the elderly (65+)
In some countries pensioners are no less vulnerable to poverty than the population
as a whole. They may even be better off. 2009 data for Bulgaria show that the
poverty rate among people aged 65 or more is 14.9%, only slightly above the overall
poverty rate of 14.8%. Because of relatively generous social transfers in Georgia,
pensioners had a lower poverty rate (22.2%) than the general population (25.7%) in
2009 and a lower extreme poverty rate (7.3% compared to 9.9% in the population).
The lowest rate of poverty in Montenegro is among retired people, 4.1% compared to
6.8% for the 2009 population. In Romania the extreme poverty amongst elderly was
0.4% and absolute poverty was 2.5%. Poverty in the population as a whole stood at
0.9% and 4.4% respectively. Pensioners' risk of poverty in Russia is lower because
one third of the pensioners continue to work and the social security system is elderly
people oriented. The poverty rate among pensioners in Russia is four times lower
than that among children. On the whole, according to the experts, it is about 10-12%.
However, among the elderly, there are twice as many people who deem themselves
poor than among the middle-aged. However, elderly people need medical care more
than other categories of Russian citizens and far from all of them have access to it,
especially in rural areas. According to the Federal State Statistics Service, the
average awarded pension in May 2010 had increased by 47.3% compared to the
same period of 2009. This increase is considerably higher than the growth in
consumer prices or pensioner living costs. In Tajikistan the absolute poverty rate for
pensioners (47.8%) was only just above that of the total population (47.2%) and for
absolute poverty the pensioner rate (15.8%) was considerably lower than the
population rate (17.5%). Poverty among elderly in Uzbekistan did not change as
retirement payments are paid and the law offers protection for this group. However,
there are cases in which pensioners have received their allowances with several
months delay. In Ukraine, household poverty rates were considerably lower for
110
pensioner-only households in 2009, 21.7% compared to 26.4% of all households.
Where all household members are over 75 the situation changes and the household
poverty rate increases to 29.0%.
In some countries the elderly are clearly at a greater disadvantage. In Croatia during
the crisis, the elderly have faced elevated risks of poverty. This is especially true of
the elderly who did not receive a pension (a little over 2% of total population) and
who live in rural areas. These people have around three times the average risk of
poverty and account for almost 8% of the poorest decile. Every second elderly
person without a pension and who lives in a rural area is poor. In Macedonia, elderly
households comprise 5.7% of all poor households, up from 4.9 in 2008, and 4.6 in
2007. The poverty rate among the elderly in Moldova increased from 38.2 to 39.6%
between 2008 and 2009 while it decreased from 25.9 to 24% of childless people of
working age. An above-average poverty risk rate (18.2%) was recorded among the
elderly group (65+) in Serbia in 2009. Even better off pensioners are sometimes only
relatively advantaged when the overall poverty rate for the population is driven down
by the desperately low income and consumption of Roma or people from other
minority ethnic groups.
Poverty among minority groups
The main minority groups in Bulgaria are Turkish and Roma people. Poverty rates in
both of these groups are significantly higher than among the Bulgarian majority
(Table []). Three out of five Roma live in extreme poverty defined as income below
50% of the median and almost 3 quarters of them live below the official poverty line
(60% of the equalized median income).
Table []: Poverty among ethnic groups in Bulgaria
Poverty headcount rate
2010 (< 60% median
income)
Poverty headcount rate
2010 (< 50% median
income)
Bulgarian
14.1
8.9
Turkish
41.4
30.9
Roma
72.5
59.0
Other
45.2
33.3
Total
21.1
14.8
111
The Roma population of Romania registered an extreme poverty rate of 4.5% of
households in 2009, compared to 0.5% for the Romanian or Hungarian ethnic
groups and 0.6% for all households. Especially vulnerable to poverty in Serbia are
the young, and those seeking a job for the first time, and of course unemployed
people from vulnerable groups such as Roma, internally displaced persons and
people with disabilities.
Poverty in households with people with disabilities
Given its statutory list of benefits, privileges and compensations provided to disabled
people, Russia should be rated among the countries that best consider the demands
of disabled people. Disabled people's rights to use services of healthcare, social
security, rehabilitation and employment even exceed those guaranteed to all
citizens. However, there are no data to monitor either the number of recipients of any
benefits or their impacts on households with disabled people. A lot of policy attention
is similarly given to people with disabilities in Uzbekistan. But despite people with
disabilities benefiting from disability allowances, the amount of benefits is not high
enough to cover immediate needs of these people.
Education and employment
The risk of poverty increases systematically down the education levels in Bulgaria
and is almost 10 percentage points higher among female-headed households.
Similarly in Romania, the most vulnerable people are those with low educational
levels. Poorly educated people are also vulnerable to exclusion from access to
services, housing and utilities. In Serbia there is a strong link between poverty and
the level of education. Household where parents or custodians have education below
primary school level have experienced the greatest rise in poverty during the crisis.
Families with the least education were the least likely to benefit from Tajikistan's
economic growth (Figure []).
Figure []: Poverty rates in Tajikistan by education status
112
60
56.3 54.8 55.1
47.8
49.2
41.2
40
30.5
27.1
20
0
Primary
Basic
Secondary
2007
2009
Tertiary
Poverty according to activity status is strongly associated with status in the labour
market in Montegnegro. At the greatest risk of poverty are those who are
unemployed and children under 15 years.
Before 2009 in Uzbekistan, government-employed women workers with children
under two years old received monthly payments at their work places. Since 2009
these benefits have been provided through Mahalla and are not paid to selfemployed mothers.
The household poverty rate in 2009 in Ukraine was 26.4% but this increased to
35.2% for households where at least one working age household member was
unemployed.
1.5 Impact of the crisis on inequality
1.5.1 Gini measures
Twelve countries provided estimates of their Gini coefficients of inequality. Nine
reported estimates based on income and six based on consumption (Table []).
Table []: Gini coefficients of inequality
Country
Gini coefficient for income
inequality
Gini coefficient for consumption
inequality
Armenia
0.34 (2008); 0.36 (2009)
0.24 (2008); 0.26 (2009)
Bulgaria
0.36 (2010)
Croatia
0.24 (2010)
Georgia
0.38 (2009)
Kyrgyzstan
0.36 (2008); 0.37 (2009)
Macedonia
0.42 (2006)
Moldova
Montenegro
0.27 (2010)
0.25 (2008); 0.24 (2009)
0.29 (2008); 0.31 (2009)
0.25 (2008); 0.27 (2009)
Romania
0.26 (2009)
113
Russia
0.40 (2010)
Serbia
0.33 (2006); 0.32 (2007); 0.30
(2008); 0.29(2009)
Tajikistan
0.30 (2009)
Ukraine
0.30 (2008). 0.29 (2009)
The figures show an increase in equality between 2008 and 2009 on both measures
in Armenia, in income equality in Montenegro and Kyrgyzstan, and in consumption
inequality in Moldova. On the whole though, the changes are small ones and the
crisis does not appear to have had any major impact to date.
None of the responding countries mentioned inequalities based on age and only in
Romania were ethnic groupings singled out as a source of consumption inequality.
Differences in consumption between rural and urban areas were important in
Moldova and Tajikistan. The rural-urban divide is also mirrored by differences in
healthcare in Belarus and labour markets and utility provision in Romania and has
been covered in more detail in Section 1.4.2. Important differences in access to safe
drinking water exist between urban and rural areas of Kyrgyzstan. Over 99 % have
access to clean water in urban areas compared to only 86% in rural parts of the
country.
Broader regional disparities in development were highlighted in survey responses
from BiH and Montenegro and regional effects were also apparent on child benefit
rates, labour markets consumption, cash income, education and health in a number
of countries (Table []). Gender differentials had particular impacts on labour markets
in Belarus and Russia. The survey responses, however, are far from comprehensive
and it is likely that many of the selected influences on inequality are interlinked as
explained below.
Table []: Income inequalities, access to services and labour markets across different
quintiles, regions and gender
Country
Income quintile
Armenia
Education;
Healthcare
Region
Belarus
BiH
Development;
Child cash benefits
Bulgaria
Croatia
114
Gender
Urban/rural
Labour market
Healthcare
Macedonia
Moldova
Montenegro
Consumption
Consumption
Romania
Russia
Serbia
Development;
labour market
Consumption
Number of children
Cash income
Labour market;
access to hot
water; sanitation
Labour market;
wage rates;
management jobs
Education
Tajikistan
Uzbekistan
Consumption
Gross Regional
Product; child
poverty; education;
health
1.5.2 Responses of individual countries on inequality
On measures of both income and consumption inequality, levels increased in
Armenia between 2008 and 2009 (Table []). Essential government services such as
education and health are also distributed unequally across households in different
income quintiles. Although there is a higher incidence of utilisation of general
education among lower quintile households, this is basically because poorer families
tend to have more children rather than because the services themselves are propoor. Similarly the higher utilisation of health services by the lower wealth quintiles is
explained by the fact that people in higher quintiles make more use of paid health
services, ignoring the government services, which they consider to be of poorer
quality. Urban and rural inequality is discussed in Section 1.4.2.
Women remain at an apparent disadvantage in the labour market in Belarus. The
workforce is characterised by a predominance of women in the social sectors,
personal services and culture, which tend to be among the worst paid. In 2009,
women represented 66.4% of the total employment in personal services. The
proportion of women employees is among the highest in sectors such as health care
and education (over 80%, and rising), while the proportion of women workers in
industry and construction declined over last decade by 45.3% and 21.2%,
respectively. In 2009, the average monthly salary of women employees was only
74.6% of the male salary, down from 81% in 2000. The average salary of a woman
115
worker equalled 70.2% of the male salary in industry, 77.4% in retail trade, 79.3% in
education and 62% in health care. Although women are still under-represented in the
private sector, the number of female-owned businesses is increasing.
The higher share of women unemployed reflects the imbalance of supply and
demand in terms of skills and qualifications. The structure of demand in the labour
market continues to favour seekers of full-time jobs and male candidates. Of the total
vacancies published by employment services at the end of 2009, 68.9% were bluecollar jobs (bus driver, bricklayer, electrician, tractor operator, police officer, concrete
worker, bus ticket taker, programmer were in the highest demand in the labour
market). Most of the above professions are traditionally predominantly occupied by
men. This limits the chances of re-employment for women, and results in longer
spells of unemployment for female job seekers. In 2009, the average period of
unemployment for was 4.6 months for women and 3.3 months for men. Women with
small children, university graduates with no work record and women at preretirement age are the most vulnerable.
The formal system of healthcare in Belarus suffers from an inherent inequality of
service provision between urban and rural areas. High quality healthcare in Belarus
is concentrated in urban areas where purchasing powers are higher. Rural health
institutions provide emergency medical services, first aid and basic outpatient care to
people residing in villages and small towns. They provide people with routine health
checks, maternity care, immunization, and first aid, treatment of minor injuries,
round-the-clock emergency cover and home visits. Health posts refer patients in
need of more complex procedures to a hospital. Doctor-led practices serve the larger
rural districts. These practices often have their own small hospital wings for inpatient
care. However, the provision of qualified medical personnel remains an especially
acute problem. Many doctors stationed in the rural health centres are only recently
qualified and are seldom qualified as general practitioners. They often treat
conditions that are more complex than their skill levels allow. Many young
professionals leave rural areas after working for the required time after graduation.
Rural areas also see fewer private healthcare investments. The number of chemist
shops noticeably decreases as one goes from urban to the rural areas of the
country. The use of traditional or 'home made' remedies also adds to the dismal
nature of the formal insurable healthcare system in Belarus.
116
Significant disparities exist between different regions of BiH and between urban and
rural areas (1.4.2). More than half the regions are underdeveloped or extremely
underdeveloped. Among these are some of the smallest municipalities in the
country, a number of which are populated by only a few hundred inhabitants. While
significant gains have been made in terms of human development in the most
developed regions such as Sarajevo Canton, Neretva Canton, Zenica-Doboj Canton
and the regions of East Sarajevo and Banja Luka, some of these smaller, less
sustainable municipalities require more attention in order for BiH to see more
consistent and even development throughout the country in the future. Furthermore,
children in BiH do not have equal levels of cash benefits. Cash benefits differ
between the two entities and between districts. In the Federation of BiH, each of the
10 cantons determines the threshold of child cash benefits according to its available
budget. Official data issued in early 2010 for 2009 show that out of 10 cantons, only
4 of them had allocated budgets and actually distributed child cash benefits.
The overall income distribution in Bulgaria displays a large right tail, an indication of
the increasing prevalence of some very rich people against a background of general
increases in poverty. This is confirmed by the Gini coefficient of 0.36 (Figure []), a
very high value for an EU member state, placing Bulgaria in the company of some
developing countries outside Europe.
Figure []: Lorenze curve for income distribution in Bulgaria
117
Data from the Household Budget Survey of the NSI indicate that incomes started to
drop or stagnate across all five income quintiles in Bulgaria shortly after the middle of
2009. In 2010 the incomes of all but the poorest quintile started to recover slightly.
In the years preceding the crisis, income inequalities in Croatia stagnated or grew
only slightly. With the crisis came increasing inequality, with income inequality higher
than that for consumption (Table []).
Table []: Consumption and Income Inequality in Croatia
Consumption
Income
Total
Urban
Rural
Total
Urban
Rural
4.2
4.5
4.6
3.4
3.4
3.8
Consumption/income share of the top
decile (%)
20.6
20.4
19.3
21.7
21.1
20.3
Decile share ration (top/bottom)
5.0
4.5
4.2
6.5
6.2
5.3
Gini coefficient
0.236
0.220
0.230
0.270
0.259
0.254
Consumption/income share (%)
100.0
60.7
39.3
100.0
61.3
38.7
Population structure
100.0
52.9
47.1
100.0
52.9
47.1
Consumption/income
bottom decile (%)
share
of
the
Source: World Bank, Croatia – Social Impact of the Crisis and Building Resilience, 2010
According to the World Bank (2010), the lower middle-income class was hit hardest
by the consumption decline related to the crisis, although the differences between
income groups are relatively small. The very poorest population observed a milder
118
consumption drop than the average population because they were not hit as hard by
the employment decline and because they were able to take advantage of both
increased social transfers in 2009 (pensions, social assistance benefits) and some
waivers and exemptions for lower income households. The largest reduction of
consumption was experienced by the second quintile, followed by the third quintile,
again indicating that the lower middle-income class suffered the most during the
crisis. The increase in poverty during the crisis can largely be attributed to the fall in
consumption and to a lesser extent due to an increase in inequality. Inequality
increased during the crisis, thus contributing to the increase in poverty, but this effect
played a smaller part.
In Kazakhstan there are no specific data to confirm a rise in income inequality but
the suggestion is that this is likely to have occurred.
The latest figure for the Gini coefficient, 0.42 (2006), indicates that inequality is high
in Macedonia. To date there is no information about the impact of the crisis on
inequality, nor is there any research on inequalities arising from reduced
employment, ethnic and gender disparities.
According to the Gini coefficient, consumption inequality in the Republic of Moldova
was 0.31 in 2009, compared to 0.29 in 2008. The ratio of consumption in the top
decile compared to the bottom also increased from 6.01 to 6.51 over the period.
Inequality in cities actually fell slightly but increased in small towns and rural areas
(Table []).
Table []: Inequality in Moldova 2008-2009
Consumption
spending by quintiles
(20%) of population
Total
Large cities
Small towns
Rural
communities
2008
2009
2008
2009
2008
2009
2008
2009
TOTAL
100
100
100
100
100
100
100
100
Quintile I
8.9
7.9
9.0
9,5
9.8
9.0
9.4
8.5
Quintile II
13.6
13.1
13.7
14.0
14.5
14,1
14.2
13.3
Quintile III
17.3
16.9
17.2
17.1
17.7
17.5
18.1
18.2
Quintile IV
22.4
22.5
23.1
21.5
22.3
22.7
22.5
22.2
Quintile V
37.7
39.6
37.0
37.9
35.7
36.6
35.8
37.8
Gini coefficient
0.292
0.309
0.285
0.268
0.266
0.274
0.271
0.289
90/10 distribution.
average consumption
6.01
6.51
5.75
5.5
5.21
5.54
5.25
5.68
119
costs by adult equivalent
Source: MET, based on HBS data
The Gini coefficient in Montenegro increased from 25.3% to 26.7% between 2008
and 2009, reflecting inequality in the development process. Over the period, the
share of spending of the lowest income quintile fell from 9.5% to 9.2%. In contrast,
the richest quintile increased their share in the distribution of total expenditure from
36.2% to 37.3%. In other words, in 2009 the richest quintile consumed 4.1 times
more than the poorest group. The main drivers of economic growth, development
and overall economic activity in the previous period and in the past year were
construction and tourism. Uneven development in the north, south and central
regions has been accompanied by accompanied by an unequal distribution of
increasing unemployment and falling economic activity. The northern region has
fared worst, demonstrating yet another imbalance in policies related to the
development of the northern part of the country.
The Gini coefficient for consumption was 25.8 in 2009 in Romania. Ethnic inequality
is particularly marked with Roma households experiencing an extreme poverty rate
of 4.5% compared to 0.5% of Romanian or Hungarian ethnic groups. Inequality also
exists between the South and North-East regions and the rest of the country. In rural
areas 86% of people considered they had little chance of finding work whereas in
urban area the percentage is 68%. 76.2% of households in rural areas, had no
access to hot water compared to 14.1% in urban areas. 74% of the population living
in rural areas lived in houses without a toilet or shower, compared to 12.3% in urban
areas.
According to the data provided by Federal State Statistics Service in Russia, the Gini
coefficient has not actually changed during the last 10 years, but varies around the
value of 0.4. In January to September 2010, the richest decile of the population
received 30.5% of the total cash income, the same as in the same period of 2009,
while the bottom decile received only 1.9%. It is necessary to note that the family
pattern of the poorest decile against the richest varies, the number of children
brought up by the poor families exceeding the number of children brought up by the
rich ones who usually have a single child. Cash income also varies in constituent
territories of the Russian Federation from a minimum of 7807 rubles in the Republic
of Kalmykia to a maximum of 37,821.0 rubles per capita in Moscow.
120
The crisis has also affected gender inequality in the labour market. Women account
for 79% of the total employed in education and their salary is 11% lower than that of
men. They represent 84% of people engaged in the health-care sector where their
salary is 15% lower than that of men and 64% of employees in the cultural sector
where their salary is 26% lower than that of men. In the private sector the
percentage of companies reporting they had no gendered inequalities in pay rates
has declined from 89% in 2007 to 86% in 2009 and 79% in 2010. According to
research by Price Waterhouse Coopers and the Russian Management Association in
2010, the number of male respondents who declared that their income exceeded the
income earned by women in similar jobs
was 16% higher than in 2009. The
proportion of female managers has gone up, but they have minor duties only. The
highest proportion is found among the positions of chief accountant (93%), HR
director (70%) and financial director (48%). As for the positions of general director,
chairman of board of directors and corporate president, the proportion of women
remains low.
The economic crisis has not affected income inequality in Serbia. The Gini coefficient
fell from 0.302 in 2008 to 0.295 in 2009, continuing a four year slow but steady trend
of decline. Similarly in 2009 the richest 20% of the population had income that was
4.7 times higher than the poorest 20%. The equivalent figure in 2008 was 4.8, down
from 5.6 in 2007. Regarding education, however, significant differences exist
between different parts of the country. In the least developed municipalities such as
Razanj, Gadzin Han, Crna Trava, Rekovac, Osecina, Bojnik and Zabari, there are six
times as many people with incomplete primary education than in the best performing
cities (such as Belgrade, Novi Sad, Kragujevac, Nis and Pancevo).
Inequality in consumption in Tajikistan, measured by the Gini Coefficient, is relatively
low (30.36%). Inequality is lower in rural areas (Gini = 28.9%) than in urban parts of
the country (Gini = 33.3%). The ratio of consumption by the richest decile of the
population to that of the poorest is also lower in rural areas (Table []).
Table []: Consumption inequality in Tajikistan (2009)
p90/p10
Gini coefficient
Urban areas
4.54
0.33
Rural areas
3.42
0.29
Total
3.71
0.30
121
Source: TLSS, Nov. 2009 (preliminary data)
The gross regional product in Uzbekistan varies widely with region, ranging between
US$ 516 in Karakalpakstan and US$ 2,559 in Tashkent city. The child poverty rate
also exhibits major regional disparities ranging between 47% (Karakalpakstan) and
12% (Tashkent city). The average rate across the country is 28%. Similarly, the
lowest preschool coverage is in Namangan (5.6%), Surkhandarya (9.1%), Jizzakh,
(9.4%), Kashkadarya (10.7%), Navoi (11.6%) regions. The highest is in Tashkent city
(42.7%), Tashkent region (35.5%) and Bukhara region (24.8%) region. Regional
inequalities in health are exemplified by the prevalence of anaemia in woman aged
15 to 49 years. While the prevalence rate is 25% in Tashkent City it rises to 48% in
Surkendarya.
1.6 Impact of the crisis on health
1.6.1 Overall change
It is likely that any impact of the crisis on health outcomes will only become apparent
in the longer term. For the time being there is no obvious evidence of the crisis
having any direct causal effects. However, changes to healthcare systems are taking
place in Belarus, Bulgaria, Croatia, Kazakhstan, Macedonia, Romania and Russia.
Where change is on-going, the crisis may be affecting policy-making processes and
the speed of implementation. Continuing attempts to improve healthcare while
containing costs have implications for the levels and share of co-payments,
contributions and charges (Table []).
Table []: Changes to healthcare and payment systems
Country
Change to system
Payments
Armenia
Nothing major
Co-payments piloted for hospital care
Belarus
Modernisation programme since 2006
Co-payments only for pharms., dentistry &
opticians
No change
No change
Bulgaria
Reduction in sick pay; limited budgets
Co-payments and privatization under
discussion
Croatia
New insurance programme; ward & hospital
closures
Co-payments introduced 2009
BiH
Georgia
Reduced premium paid by state to health
insurance companies
122
Kazakhstan
Introduction of single free healthcare sector
Kyrgyzstan
No significant change 2009-2010
Macedonia
New private clinic in capital.
Decrease in insurance contributions. Additional
voluntary scheme being considered
Information campaign; quality management;
new health centres
Reduced cost of individual insurance
NDA
Increased insurance contributions 2008-9
Increased budget for health
Co-payments to be introduced
Russia
Prevention programs continued
Increasing prices for private servcies
Serbia
No change
Employee contribution to health insurance
increased 2009-10
No change but spending as % GDP continues
to fall
Only 17% publicly funded
Turkey
No change
No change
Uzbekistan
No change
No change
Moldova
Montenegro
Romania
Tajikistan
None
At the same time staff shortages, sometimes associated with low pay as in Romania,
and rising costs of healthcare provision continue to affect access to, and quality of,
healthcare (Table []).
Table []: Healthcare staffing and service use
Country
Healthcare staff
Outcomes
Use of services
Armenia
NDA
Slight increase in child
mortality
Reduced, especially in lowest
quintile
Belarus
Shortage of qualified medics,
especially in rural areas
Decrease in infant mortality
Wide geographical variability
NDA
No change
No change
Shortage of qualified medics,
especially in rural areas
Postponement of treatments
by providers
Postponement of treatments
by patients
Kazakhstan
Shortage of qualified staff
especially in rural areas
NDA
NDA
Kyrgyzstan
Real average salary
increased 2.4% 2009-10
NDA
NDA
Macedonia
Shortage of qualified medics,
including for child healthcare
NDA
NDA
Moldova
NDA
NDA
Reduced for lowest quintile
Romania
Low pay and shortage of staff
Declining quality of care,
especially for children
NDA
Russia
Poor staff:patient ratios in
rural areas
Declining quality of facilities &
infrastructure
Reduced use of private
services
Serbia
Wages declined in 2009-10
Some evidence of the poor
foregoing medicines
NDA
NDA
Evidence of the poor
foregoing medicines and care
Increased use of selftreatment
No change
No change
No change
BiH
Bulgaria
Tajikistan
Turkey
123
In Belarus, Bulgaria, Kazakhstan and Russia shortages of qualified staff are
particularly acute in rural areas. It has important implications for treating childhood
health problems in Macedonia while in Romania the declining quality of care for sick
children is clearly apparent.
Decline in the use of health services, while partly attributable to a lack of appropriate
provision, is also influenced by the monetary cost to patients. Table [] shows that the
price of medicines has risen considerably over the crisis period in most countries for
which we have data. (In Armenia, official figures suggest a stable CPI for
pharmaceuticals but there are questions about the particular products used for teh
calculation.) Since in most parts of the CEE and CIS a high proportion of
pharmaceutical products are imported, the rise in price results not only from
increased costs of production but is strongly affected by fluctuating rates of currency
exchange. Reliance on imports is also associated with unreliable supplies, as for
example in Bulgaria.
Table []: Changes in the price of pharmaceuticals
Country
Price of pharmaceuticals
Armenia
Officially little or no price change
Belarus
CPI increased 116.5 (Dec 2008) to 124.2 (Dec
2009)
BiH
CPI increased by 3.2% (Aug 2009 to Aug 2010)
Bulgaria
Stable but supplies variable
Croatia
CPI down in 2009 but increased by 1.9% in 2010
Kazakhstan
Price rise 8.7% (2009 to 2010)
Kyrgyzstan
Increased by 17.8% (2009 to 2010)
Moldova
Increased by 15.4% (2008 to 2009)
Romania
Some increases up to 40%
Russia
Tajikistan
Turkey
Uzbekistan
Increased
Increased by 20% (2009 to 2010)
No change
Increased significantly
124
1.6.2 Health and healthcare by country
There were no changes introduced to Armenia's healthcare system last year and its
main problem remains the overall model. Fragmented efforts to introduce more
adequate and sustainable systems take place in the country but those have no
significant impact on healthcare outcome indicators. In the last few years efforts
have been made to clarify roles and responsibilities and to improve access to
primary healthcare facilities. Maternal care (prenatal and delivery) certificates have
been introduced and legalised co-payments for hospital care have been piloted.
However, these efforts cover only some parts of the healthcare system and the
country still does not have a sustainable model for development.
Infant mortality increased slightly between 2009 and 2010 but the size of the
increase and the short time span of comparison make it difficult to ascertain
significance and even more difficult to attribute it to the financial crisis (Table []).
Table []: Infant and child mortality rates in Armenia
Rate per 1000
Jan-Sep 2009
Jan-Sep 2010
Infant mortality (under 1 year)
10.4
11.2
Child mortality (under 5 years)
12.1
13.3
Source: NSS report on social-economic conditions for January-September period 2009, 2010
Life expectancy remained stable during the crisis period and even improved. Birth
and death rates both increased but the net population growth was almost six per
cent. According to a WB report, however, many households have reduced their use
of healthcare services. This is true of more than 60% of households in the lowest
income quintile and around 35% of the highest quintile. Similar reductions are
recorded for the consumption of medicines.
The prices of pharmaceuticals and healthcare services increased by 3.5% between
January and August 2009. According to the NSS report on CPI, the prices for
pharmaceuticals did not change and only healthcare services became more
expensive. The official figures, however, do not reflect the commonly held view that
the CPI is not based on a realistic basket of common pharmaceuticals and captures
only some vital ones that might have had a stable price pattern.
Access to healthcare in Belarus is universal and free at the point of use. It is
guaranteed by Article 45 of the Constitution and directly funded through general
125
taxation. Despite the crisis, Belarus is not introducing fee-for-service medicine.
However, the package of free health care benefits is limited and in February 2009
the Council of Ministers issued a list of services for which state health institutions
must charge individuals. Citizens can buy private health insurance to supplement the
state system and to cover them for the services deemed non-essential. However, not
many people have the means to do this and the volume of private healthcare in
Belarus is insignificant and is limited to a few rich individuals and a small minority of
employees, who receive private healthcare as a benefit of their job. The practice of
making ‘under-the-table’ payments is prevalent and thus the poorest members of
society are barred from treatment.
Although responsibility for the provision of healthcare services rests with the local
governmental bodies, this mandate is frequently not matched by appropriate
resources and a legal entitlement to generate revenue for the local budget. Hence,
there are profound disparities in quality of healthcare services in poorer and richer
regions of Belarus and between rural and urban areas. The provision of rural areas
with qualified medical personnel remains an especially acute problem. Many doctors
stationed in the rural health centres are only recently qualified and are seldom
qualified as general practitioners. Many young professionals leave rural areas after
working for the required time after graduation. Rural areas also see fewer private
healthcare investments. The number of chemist shops noticeably decreases as one
goes from urban to the rural areas of the country. The common use of traditional or
'home made' remedies also reflects the dismal nature of the formal insurable
healthcare system in Belarus.
The situation in healthcare in Belarus mirrors the legacy of Soviet healthcare system.
The large numbers of medical colleges have resulted in a large number of medical
professionals plying their recognized expertise in the country. The large numbers of
medical professionals have also resulted in the lower pay of doctors and other allied
medical practitioners. The lower pay has resulted in lesser adherence to standard
medical codes. In the public health sector average monthly earnings are 24% less
than the average nominal monthly salary. Doctors have not fully developed their
roles as family counsellors or general practitioners and consequently people lack
confidence in their abilities and frequently refer themselves to consultants and
specialist doctors.
126
Investments have been made in reconstructing the most socially significant health
care establishments. More than 70 healthcare facilities were built or modernized in
the country between 2006 and 2010 and large-scale overhaul of the healthcare
system will continue over the next few years. The Belarusian authorities will continue
efforts to complete the modernization of health institutions by 2012.
Reductions in infant mortality are partly attributable to changes in health care
provision, including the modernization and renovation of maternity wards and
children’s hospitals, reorganization of birthing facilities into a tiered system of
prenatal centres, strengthening of genetic counselling services and early diagnosis
of congenital diseases. The concentration of advanced medical equipment and best
medical specialists in national research hospitals, and the introduction of state-ofthe-art medical technologies have also contributed to reductions in infant mortality by
improving access to high-tech medical care throughout the country.
There is a network of government and privately owned pharmacies all over Belarus.
Seven state-owned companies manufacture drugs and they own more than 4,300
outlets. There are 1,500 private pharmacies. Most citizens have to pay for all of the
medicines sold, but the government has determined that certain vulnerable groups
(including some people with long-term illness, pregnant women, war veterans,
diabetics and people with tuberculosis) should receive free or reduced-price
medicine, e.g. pregnant women, war veterans, diabetics and tuberculosis patients.
The CPI for medicines increased from 116.5 in December 2008 to 124.2 in the same
month 2009. Since 2008 parents have had to pay for all their children’s prescription
medicines.
In Bulgaria financing for health care is centralized and flows directly from the
National Health Insurance Fund to health care providers. Municipalities get funding
only for activities delegated by the state, including running dispensaries. The
privatization of municipal hospitals is currently being discussed. Over the last few
years the complete liberalization of hospital registration procedures has led to a huge
growth in hospital numbers. The majority are owned by the municipalities and
provide only a limited number of health care services. Many are under heavy
financial pressure to close down. There is also on-going discussion about introducing
co-payments for health care at quite high rates but the measure is politically
127
unpopular. Although part of the proclaimed health care reform philosophy, it is likely
to have a negative impact on the access to health care for many Bulgarians.
In an effort to transfer costs to patients the government has also introduced a rule by
which the person who on sick leave does not get paid for the third day of the leave.
The first two days are paid by the employer at 80% of salary and the National Social
Security Institute starts paying from the fourth day. This was advertised as a
measure to stop the misuse of health care funds, but in reality it will most likely lead
to reduced access to health care. Treatment will be postponed for as long as
possible in an effort to avoid loss of income during the crisis.
Newly introduced delegated budgets are actually completely rigid budget constraints.
The government transfers to each hospital a fixed amount, which is calculated based
on macroeconomic concerns. If demand exceeds the available budget the hospital
has the option to postpone treatment or run into debt. Because many of the hospitals
are already indebted it is hard for them to operate by generating additional (usually
commercial) debt because in times of crisis suppliers have become more reluctant to
wait for their payments.
The lack of availability of GPs in some rural areas has been problematic since before
the start of the crisis. It can be assumed that the crisis might have exacerbated this
situation but there are no newer data. Although no changes have been introduced to
official health care provision during the crisis, vulnerable families are facing
difficulties in accessing care because of the additional costs incurred, such as
transport and the official minimum fee to be paid for a doctor’s examination.
Reduced supply must also have affected vulnerable groups especially those living in
remote rural areas.
In general the prices for pharmaceuticals have remained stable during the economic
crisis. There has been, however, some irregularity in supply of pharmaceuticals
commissioned and paid for by the government, including medicines for certain
chronic diseases and even vaccines for babies.
In Croatia there have been no significant changes in the health system that could be
attributed to the crisis. However, its increasing lack of financial viability (since the
system was financed by contributions from gross salaries from all employees, and
deficits were covered from the state budget) has led to reforms whose
128
implementation coincided with the crisis. The effects of these reforms on the general
population and on health indicators remain to be seen. Within the reform
programme, the co-payments by patients were increased in early 2009, but have not
been changed since. The supplementary health insurance programme implemented
by the Croatian Health Insurance Institute included 810,291 new beneficiaries, who
have opted to join the scheme rather than pay co-payments. They have started
contributing to the healthcare costs on a monthly basis. These initiatives were
undertaken primarily to increase the financial viability of the public health system and
distribute some of the financial burden to final users. There are no analyses to
estimate the health-related effects of any of the initiatives.
Some of the more controversial initiatives included the closure of maternity wards in
several smaller, and often remote, Dalmatian cities, as well as in the city of Đakovo
in eastern Croatia. However, following the public protests these maternity wards
(except the one in Đakovo) are to be reopened after they fulfil the necessary
requirements in terms of staff and material conditions. Another initiative included
attempted mergers of hospitals in the City of Zagreb in order to reduce costs.
However, that seems to be legally problematic since many of the hospitals are
owned by the City of Zagreb, which has not granted its approval. Some of the most
controversial cases include two children’s hospitals, which have been put under
pressure to merge with general hospitals.
In Georgia, the major health programme for vulnerable population is the Medical
Assistance Programme, which provides families registered in the database of
socially vulnerable families and having a means-testing score below a certain
threshold with free health insurance. In August 2009 there were 904 897 persons
benefiting from this programme. The number of beneficiaries has decreased to 896
775 persons in August 2010.
The prices of healthcare in general, according to the CPI, increased by 1.8% in
between August 2009 and August 2010. Prices of pharmaceutical products
increased by 1.9% while medical and hospital service prices remained more stable.
The Ministry of Health and Social Welfare has estimated that the savings on
pharmaceuticals resulting from lower prices and a wider use of generic products in
2009 was HRK 410 million.
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The government of Kazakhstan is currently reforming the healthcare sector, trying to
introduce a new ‘single healthcare system’ by the end of 2010. A key area for reform
is the expansion of the provision of medicines and healthcare services under
Kazakhstan's guaranteed free healthcare scheme (GOBMP). A briefing from the
Ministry of Health at the end of 2009 outlined increased funding for regional projects
and the establishment of new disease prevention and treatment programmes.
According to official statistics, the cost of healthcare services increased in
September 2010 by 9.2% in comparison with September 2009. At the same time,
average monthly salaries of healthcare personnel in 2010 were 23.1% higher than in
the same period of 2009, 15.4% in real terms. In August 2010 the cost of outpatient
services increased by 10.1% compared to August 2009. The latest available data
(October 2010) indicate a significant lack of health workers of Kazakhstan, especially
in rural areas. The new healthcare reform programme seeks to attract health
specialists to rural areas of the country by offering higher salaries. From January
2010 in-patient treatment has been centralized and its financing shifted from local to
the republican budget. Out-patient treatment is still paid for from local budgets.
According to official statistics, in August 2010 the prices of pharmaceuticals were
8.7% higher than in the same period of 2009.
In Kyrgyzstan no significant changes in the health care system organization,
financing and performance have taken place in 2009-2010. Prices of medicines
increased by 8.9% in 2009 and by 17.8% in January-November 2010 in comparison
to the same period of the previous year.
The contribution for mandatory health insurance in Macedonia has been reduced
from 9.2% in 2008 down to 7.5% in 2009 and 7.2% in 2010. In 2011, the plan is to
reduce the contribution further to 6%. However, the government may revisit this
decision as it influences significantly the annual income from health insurance. This
is especially important during the financial crises, when other planned revenues of
the HIF have shrunk. A new Private Clinic Centre has been opened in the capital
city, providing a similar range of health services as the major university health clinic.
There has been a major migration of the health staff towards the private clinic and its
maintenance costs have contributed to the need for an increased health budget in
2011. The MoH is currently revising the basic benefit package and has initiated
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reforms in the mandatory health insurance scheme, possibly to include voluntary
additional health insurance.
Currently, the state-owned health system is short of 442 physicians, including 69
physicians to provide systematic health checkups and immunization for pre-school
and school children.
A new rulebook has been endorsed in 2010 to define Macedonia's policy for unified
and ceiling prices of registered drugs (Law for Medicines, MoH). Unified prices are
set through a predefined calculation formula and in comparison with prices of
pharmaceuticals in the neighbouring countries (Slovenia, Croatia, Serbia and
Bulgaria).
Medical insurance is compulsory in Moldova and is calculated as 7% of salary and
other income in 2009 and 2010, payable in equal shares by employer and employee.
The cost of individual insurance has been reduced by half compared to 2009 for
policies purchased in the first half of 2010 and owners of agricultural land will benefit
from a reduction of 75% of the cost of compulsory medical insurance policy. In July
2010, changes were made to the Law on mandatory health insurance to assure
coverage of mothers with four or more children, previously not insured. However,
pregnant women were insured by the state and remain to be so.
In 2009, about 30% of the population in the lowest income quintile did not have
medical insurance, nearly twice as many as among the most affluent quintile. Every
second person in the poorest quintile had free medical insurance (55.5%), compared
to 39.1%. of the richest quintile. However, 42.6% of people in the latter paid monthly
insurance contributions). Analysis of expenditure on health care services within
households with children shows that people in the richest quintile were spending
about MDL 113 a month on health care before the crisis and MDL 150 during the
crisis. A person from the poorest quintile was spending 10 times less. The
implication is that both before the crisis and during the crisis, the access of children
from poor families to health care services not covered by the compulsory health care
insurance system is still quite limited.
In 2009, in order to support vulnerable groups in the country, to increase the access
to services and reproductive health information, the Ministry of Health, jointly with
UNFPA Office in Moldova, developed social information campaigns in villages with
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populations of predominantly Roma ethnicity. Also protected are uninsured people
(mostly in vulnerable groups) who need urgent medical care, where social diseases
have a major impact on public health.
An institutional quality management system for medical assistance has been created
by forming a Quality Council in all medical and sanitary institutions in the country.
The implementation of an anti-flu program has been largely successful. Between
2009 and 2010, 22 new autonomous health centres were established, including one
private centre, meeting clear quaity criteria. Monitoring of the medical audit system
has been organized in 9 territories and in 33 public medical and sanitary institutions
and 82 clinical protocols for various specializations have been developed. A World
Bank project is being actively implemented, providing for the rehabilitation of 65
health centres.
In 2009 pharmaceutical prices increased by 15.4% compared to 2008. In the first half
of 2010, the price of medicines further increased by about 6.4%. State intervention in
medicine prices during June to September 2010 led to a decrease in prices of
imports by 5.47%. At the same time, the pharmacies reduced prices by 3.22%.
The current health contribution rate in Montenegro is 12.3%, compared to 10.5% in
2009.
Reform of the healthcare system in Romania has been criticised by the Romanian
Medical College mainly for its decentralization and the politicizing of the hospital
administration of hospitals. Other criticisms include:
-
major deficit of staff (unofficial estimates about 50% staff shortage);
-
inadequate infrastructure of hospitals;
-
equipment deficiencies;
-
inadequate financing of medical services for ambulatory and outpatients;
-
failure to provide maintenance services for medical equipment;
-
lack of a national program to prepare the hospitals to deal with special
situations and disasters.
The budget for health in 2010 was established at 3.9% of GDP, less than half of EU
average allocation, but 6.6% higher than 2009 in nominal terms. There are
progressive delays in transfers for compensated medicines to pharmaceutical
companies and arrears of hospitals to medical assistance companies. The projected
health budget is only sufficient for 9 months, after amendments in July. Another
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amendment was announced in order to transfer money for health insurance to
eliminate the arrears. The contributions fund for health insurance has decreased as
unemployment has increased. Co-payments might be introduced in 2011 and a
personal contribution limit has been set.
An informal evaluation shows that 6,000 out of an original 46,000 doctors have left
the country to work in European Union since 2008, 2,500 this year alone due to
wage cuts of 25%. Romania has only 19 doctors to 10,000 persons, well below the
EU average, and a resident physician earns €250, compared to the EU average of
€1,400. There is an acute shortage of nurses, assistants and doctors, especially in
remote areas and this is reflected in the quality of medical services.
Nursery services have worsened in the last year, even in the best nurseries in the
country, although it is known that informal payments in the health system bring in
around 450-500 million Euros a year. The mothers are often neglected, the quality of
the services is poor and the places in nurseries are insufficient compared to the
demand. There are often cases of overcrowding, mothers sent home prematurely
after birth because the lack of rooms and beds. An eloquent example of the effects
on quality of services is the tragic event happened in Giulesti Nursery in Bucharest,
the best equipped and modernized nursery in the country. Due to a fire started from
the air conditioner machine in the new-born intensive therapy room, without any
medical staff around to notice, 11 babies burned alive, of whom 7 died and the
others suffered severe injuries. One of the causes mentioned was the lack of
medical staff. After this case, the government unlocked the freeze on vacant
positions in the health system. The number of malpractice cases increased and there
are numerous examples of negligence or bad will, blamed on the decrease of staff
motivation.
There were two lists of compensated medicines and a third one came into force in
October 2010. The cost of list A medicines are compensated 90% for pensioners
under a certain income level and the cost of basic medicines on list B
is
compensated 50% for every patient. However, changes in calculation formula for list
B medicines mean that compensation is now based on the cheapest price of the
active chemical substance and not on the actual medicine price, as before.
According to specialists’ opinions, the price of medicines in list B has increased by
40% on average. The new list of compensated medicines comprises medicines
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prescribed for the treatment of specific diseases or type of patients and they are
compensated 100% the price of the active substance.
The priority Health Care National Project was continued in Russia in 2010 along with
the federal target programs “Disease Prevention and Control Strategy” (2007–2011)
and “Children of the Russian Federation” (2007-2010) These were aimed at
reduction in traffic accidents, cardio-vascular disease and cancer and the
development of primary health and medical care, as well as the advancement of
pregnancy care and other medical treatment measures. Some training programs
have been taken for improving physician proficiency and health-care infrastructure
has been more thoroughly developed.
Public expenditure on health care provision amounted to 62.5% of total health
spending, and private 37.5%. The total health expenditure exceeds 10% of GDP
when private health care is included, and it has not been significantly affected by the
economic crisis. The market for paid medical services was slowly yet steadily
declining in 2010. In 2009, private medical enterprises immediately responded to the
crisis by raising prices of their services. Clinics strove to compensate for slumping
demands by raising prices. Meanwhile the quality of the national health care system
continued declining. Today, no uniform health care service standard system is
applied within the territory of the Russian Federation and, therefore, no statistics for
changing use of medical services are available.
More than 30% of Russian health care institutions are under a threat of breakdown.
Many clinics and hospitals lack the specific health care facilities to meet today’s
medical service requirements. In the last year many rural medical institutions and
drugstores have been closed. As a result, patients could hardly have the opportunity
of using competent medical services. In spite of the fact that nurse-midwife stations
are categorised as the basic rural medical institutions, their number fell by 7.6%
between 2009 and 2010. More than 50% of their buildings require complete recovery
and reconstruction. The number of rural health care institutions was reduced by
approximately 22% chiefly due to reorganisation of inefficient medical units into
centralised medical departments and the rate of rural coverage provided by
physicians and paramedical personnel is respectively 3 .5 and 1.7 times less than
the rate of coverage provided in the Russian Federation as a whole.
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Nevertheless, no significant changes in health-care accessibility, the paid to free
service ratio or formal and informal payments have been recorded during the crisis
itself. From the very outset of the economic crisis in Russia, pharmaceutical costs
jumped dramatically. By the end of 2009, a Government and State Duma initiative
introduced monitoring of pharmaceutical prices for their compliance with relevant
regulations.
There has been no change in health care financing in Serbia, even though it was
required by the World Bank to fulfil loan conditions. The health care system is based
on the Bismarck model, which means that more than 90% of the cost is financed by
compulsory health insurance. Health care is also financed from state budget funds
for uninsured persons and, especially, vulnerable groups.
The revenue and expenditure structure of the State Health Insurance Institution has
been fairly constant over the past eight years, and did not change during the time of
the economic crisis. Only 3% is allocated for prevention activities, 33% for primary
healh care and 63% for hospital care. Budgetary payments to the Fund are highly
irregular.
Average wages for employees in the health and social sector declined in the first
eight months of 2010, by 6% in nominal and by 4.1% in real terms, compared to the
same period of 2009. Between January and August 2010 employees' contributions to
health insurance experienced a nominal growth of 2.3% compared to the same
period of 2009.
The percentage of people who lack the money for drugs, medical treatments and
therapeutic products is not known, but the latest Living Standards Survey shows that
a high percentage of chronically ill patients living below the poverty line do not take
regular medication. According to that survey, around 6% of the population in Serbia
has no health insurance. The situation is particularly bad in rural areas of Serbia,
especially for children under 19 and women.
Total government expenditure on healthcare in Tajikistan fell from 4.5% of GDP in
1991 to 1.6% in 2010 and healthcare is increasingly dependent on unofficial private
payments for medical services and on foreign aid. For many years, every citizen was
entitled to free health care, but now, because of low budget allocations, only 17% of
total health expenditure is publicly funded. The amount allocated to the sector barely
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covers minimal needs. Surveys indicate that through formal user fees and informal
out-of-pocket payments, households contribute about 72.4% of total health
expenditure. Tajikistan’s system of health care financing has even worse implications
for the poor because it does not offer risk protection, nor is it equitable. The poor that
become sick usually go untreated or fall further into poverty.
There is a significant gap in the distribution of material resources and budget funding
between primary health care (PHC) and hospital care. The bulk of funding is
earmarked for secondary healthcare (hospitals) providing services that are
expensive and unattainable for the poor. In 2010, 61% of total public health
expenditure was spent on hospitals, and the rest was distributed to polyclinics, public
health, and miscellaneous categories. This has created an under-resourced and
poor-quality primary health care system, with about 80% of patients bypassing
primary health care centres to seek care at the next level.
The TLSS 2009 data showed that a significant share of households had family
members who, during the previous 12 months, delayed seeking help or did not seek
help at all for financial reasons. About 18% percent reported that they reduced visits
to doctors for preventive medical care and nearly 20% made greater use of public
rather than private health centres. According to the opinion of the majority of
household members interviewed in another study by the Research Centre
“Panorama”, the crisis has worsened their access to healthcare services. Due to the
lack of financial resources, many family members put off seeking medical advice and
prefer self-medication. Among those who mentioned that they were in need for
medical care but didn’t seek it, 58.1% of household members turned to selftreatment, using unreliable traditional and non-traditional cures. Accessibility of
healthcare services for the major part of the population remains an urgent problem
due to lack of financial resources (also due to reducing remittances partially spent for
health care). Owing to widespread presence of unofficial payments and parallel selffinancing in many medical facilities, the population becomes ever more vulnerable to
poverty affecting their health (Panorama, 2010).
According to the MoH, the prices for pharmaceuticals rose by 20% between August
2009 and August 2010. It is worth mentioning that 99% of pharmaceuticals are
imported to Tajikistan from other countries.
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In principle, health services are free in government facilities in Turkmenistan.
However there is a limited supply of life essential drugs, disposable injecting
equipment and other basic equipment in primary health care centres and district
hospitals. People must cover the expenses of basic drugs and supplies when
accessing medical care. There are anecdotal reports of under the table payments to
health professionals for providing medical care at all levels of the health system.
There is no minimum health protection floor for vulnerable people and there is a high
probability that they do not have proper access to health care services. Although the
government has declared that free healthcare is provided to all citizens, many
vulnerable people cannot afford medicine and some surgeries. Transport is another
challenge for marginalized groups of people. Traditionally, because of strong
community support, many rural people borrow money from their relatives to get
medicine or undertake complicated surgery. The child poverty study (2009) reported
the following out of pocket expenditures for families needing to get medical care and
transport when a child becomes sick:
-
US$ 29 for rural health points
-
US$ 60 for city/town/district health facilities
-
US$ 150 for Regional health facilities
-
US$ 290 for Republican health institution.
The cost of pharmaceuticals has significantly increased over the past year due to the
fact that most are imported. As the black market exchange rate goes up, the prices
immediately increase. No documented data are available on the price change in
pharmaceuticals at this time.
1.7 Impact of the crisis on education and early childhood
development
Education has been affected by the global economic crisis in many countries. In
some cases the level of inputs has changed. There is less expenditure on education,
fewer free items and higher fees for higher education. Even in countries where most
primary and secondary education is free, hidden costs and payments often exist
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causing difficulties for parents, hindering access to school or increasing dropout
rates.
The effects can also be seen in terms of outcomes for children. In some countries,
for example Moldova, Romania and Kazakhstan, school enrolment has declined.
Nevertheless, education and early childhood development (ECD) seems to remain a
priority for several countries, for example Belarus, Turkey and Kazakhstan.
The case shows of Moldova suggests that we need to monitor closely how countries
are changing in the proportion of teachers close to retirement to younger teachers.
The ratio is increasing in Moldova, as the payment structure rewards age over
competence and because of the low wages for teachers in general.
1.7.1 Fees, charges and access to education
Table [] shows that prior to the crisis, government spending on education as a
percentage of GDP was increasing in Belarus, Bulgaria, Croatia, Moldova, Serbia
and Ukraine. Since the crisis, however, cuts in education spending are reported in
Croatia, Kosovo, Macedonia and Montenegro. Some countries have chose to reprioritise within their education budgets. Croatia, for example, has abolished school
transport and free books but has removed any fee for the first year of higher
education. The crisis has lowered the capacity of municipalities to finance education
in Croatia, BiH and Bulgaria.
Country
Fees & charges
Access
Govt spending
Albania
Armenia
Increase in University fees
Azerbajan
Belarus
Inc 4.1% GDP 2007;
5.3% 2008
BiH
Preschool attendance
very low
Bulgaria
Inc 6.3% GDP 2007;
6.7% 2008
Croatia
Free textbooks and transport
abolished 2009
Georgia
Free books introduced in 2010 for
children in socially vulnerable
families
Kazakhstan
Costs increased by 8.8% 2009-10
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Hindered by increased
costs; persistent
problem for Roma
children
Inc 8.4% GDP 2007;
8.6% 2008;
Decreased 2009
Dec 9.2% GDP 2007;
7.1% 2008
15% decline in HE
enrolment since 2007
Kosovo
Decreased 2009
Kyrgyzstan
Increased by 25.4% (2009) and by
2.5% (2010)
Macedonia
Primary & secondary education &
primary textbooks remain free
Moldova
Montenegro
Romania
Russia
Increased 5.5%
(2008-9); Decreased
4.7% (2009-10)
Preschool enrolment
declined to 2010
Decreased 2009
Education free but additional
hidden costs; Lack of resources for
children with special needs
Inc 10.3% GDP
2007; 10.8% 2008
University fees increased; Annual
book costs increased by 20%
(primary) 15% (secondary)
Decreased 2009
Education free but additional
hidden costs
Dropout rates
increasing
Most education free
Reduction in school
admissions. Access to
private education
hindered by lack of
affordability
Serbia
Preschool places
increasing but still too
low
Tajikistan
Inc 14.1% GDP
2007; 16.0% 2008
Decreased in real
terms 2009-2010
Turkey
Free transport
extended from primary
to secondary students
Turkmenistan
Ukraine
Uzbekistan
Inc 8.7% GDP 2007;
8.9% 2008
Education free but additional
hidden costs
Pre-school coverage
fell from 22% in 2009
to 19% in 2010
In Armenia there was a 4.1% increase of the price of education services in 2009,
Private school fees increased by 7.7% and college fees by 3%. However, the vast
majority of the population uses state schools so the overall price increase in
education services most probably is explained by the 7.6% increase in university
fees. The school access issue is somewhat complicated as there seems to be no
major negative impact of the crisis on school enrolment. However, the government
introduced a major reform in the school system during the pre-crisis period and the
implementation of that reform coincides with the crisis. As a result, some drop in high
school enrolment in coming few years is expected. There is a high probability that
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high school reforms will negatively affect enrolment in rural areas. In small village
schools higher grade classes will be cut and there will be no institutional replacement
for high schools in those villages.
There are no relevant data on how the economic crisis has affected education and
child development in BiH. However, there is a direct link with shortage of funds for
implementation of the Law on pre-school education. Pre-school attendance remains
very low. At local level there is evidence that the local budgets for covering the
transportation costs of school children have been cut, depending on the available
local resources in each municipality.
The main impact of the crisis on the Croatian education system was the abolition of
free textbooks and transport for primary and secondary school pupils in mid-2009.
These measures are expected to be in force until the end of the envisaged period of
the crisis at the end of 2010. Poorer families who have been deprived of free
textbooks will be helped through the social welfare system with one-off purchases of
textbooks. However, transport costs have increased while local transport subsidies
have remained the same or have been lowered. This is likely to hinder access to
secondary education of children from poor families. The limited availability of preschool programmes in many cities and municipalities, unresolved during economic
expansion, is unlikely to change under current circumstances. Prior to the crisis, the
Ministry of Science, Education and Sports estimated that, on average, 5.000 children
are unable to enrol in kindergartens (mostly in larger cities) due to limited capacity.
Some local authorities have increased the fees for kindergarten programmes or
changed the pricing policy. The justifications offered for such changes usually
include increasing costs of inputs and the need to limit kindergarten subsidies due to
worsening financial conditions. Limited capacities and financial difficulties are likely
to worsen the accessibility of preschool programmes, which may have particularly
harsh consequences for children with special needs and for Roma children.
In August 2010 the Ministry of Education and Sciences in Georgia provided school
students from families registered at the database of socially vulnerable families and
having means-testing score below a certain threshold with school books.
In September 2010 in Kazakhstan the cost of education services had increased by
8.8% compared to September 2009. Expenses for pre-school and primary education
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increased by 5.6%, for secondary education by 1.7% and for higher education by
13.7%. The minimum cost for uniform and other school materials needed for one
pupil to go to school, according to official statistics, fell from 14,000 KZT in 2009 to
11,000 in 2010. Unofficial statistics, however, put the 2010 minimum figure at 20,000
KZT. There are important wealth differentials in access to education in Kazakhstan.
Of children living in the top two wealth quintiles, 44.8% and 22.5% respectively
attend preschool facilities. The figure drops to 8.6% and 2.8% in the poor and
poorest households. At the same time, general access to compulsory pre-primary
education in the past decade has increased considerably owing to the growth of preprimary groups and classes. However, acute lack of provision is felt everywhere, with
rural areas at a greater disadvantage. The preschool enrolment rate in urban areas
is 24.1%, compared with 7% in rural areas. Up to 239,000 children are currently on
waiting lists. The crisis has also had an impact on the number of young people
enrolled in higher education institutions. Since 2007 this figure has fallen by 15%.
In Kyrgyzstan no significant changes in the education system organization, financing
and performance took place in 2009-2010.
The economic crisis had little direct impact on education in Macedonia. Primary and
secondary education is free and textbooks for primary education remain free of
charge. However, the government did take some time to introduce new textbooks as
there were problems identifying qualified and willing authors to produce the textbooks. The number of teachers has been increasing yet, at the same time, the
number of students in the primary education has been declining despite the free
textbooks and mandatory nature of primary education. The number of secondary
school students was in decline until 2010. A reason for this could be that secondary
education was made mandatory and free in 2009. One other possible explanation is
that conditional cash transfers are now available for families, recipients of social
assistance who have children who are enrolled in secondary education.
It is not clear why the rate of enrolment in primary school education had been
declining. The UNICEF study on the wellbeing of children in difficult economic times
did not find a link between the crisis (or poor economic conditions) and the decision
of parents to send their children to school.
Unofficial discussions with relevant
stakeholders from the ministry of education, academia, the bureau for development
of education and others suggest that the reduced number of children enrolled in
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primary education could be due to a reduction of the total number of children in the
population or to poor control mechanisms in schools for the tracking of student
enrolment and failure to keep reliable records of students who switch schools.
In the state education system of Moldova there are no fees and charges for
education. However, parents must pay informal contributions for private tutorials,
additional group lessons, gifts to teachers, payments to the School Fund, school
events, exams, school heating and technical assistance for repairs, security services
and the processing of graduation certificates. Some payments have been recorded
for increasing pupil marks. These informal payments in education are controversial.
Despite the fact that about 50% of parents consider that informal payments
disadvantage the pupils from poor families, the teaching and managing staff deny
this. At the same time, the impact of such payments is so strong that the government
has attempted to take measures to formalise them.
In rural Moldova, the reasons for non-enrolment in school are clearly related to low
welfare levels, lack of income and the absence of migrant of parents (Table []).
Table []: Reasons given for lack of school attendance in rural areas of the Republic
of Moldova
Reasons for not enrolling
%
Working with their parents
11.4
No clothes or other consumables necessary for school
25.4
Parents left for work and do not supervise their children
35.1
Parents are present, but are neglecting their children’s education
28.1
Total
100.0
60% of pre-school age children benefit from education in Moldova. Three quarters of
the children who do not go to pre-school institutions are from rural areas and only a
quarter are from urban areas. This situation is explained by the high cost of paid
childcare, the need for child care to be provided by grandparents or parents if they
are not employed, the lack of pre-schools in some rural localities, and the large
distances children have to travel to reach them.
One of the most pressing problems faced by the educational system in Moldova is
that of ensuring access to high quality education for children with special educational
needs. These children increased from 10.5 per 1,000 children in 1995, to 17.9 per
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1000 children in 2008.On average, there are 4.1 computers for every 100 pupils,
40% with access to the internet. Regretfully, the situation is different for children with
special educational needs. So far, no provision of textbooks has been explicitly
formulated in educational policy documents, and the budgets of educational systems
do not even stipulate appropriations for the development, publishing and distribution
of such textbooks.
Education in the Republic of Moldova, including access to education, is indissolubly
related to living standards. Since 1990 the most affected social categories were the
people employed in agriculture and education. The long economic crisis, poverty,
unemployment and corruption have deeply affected the quality of education and
whether people exercise their right to education. The most vulnerable families in the
Republic of Moldova are families with 3 and more children, those most affected by
poverty. The access to high quality education in the existing conditions of the
Republic of Moldova depends in most cases upon the number of children in the
family. The poverty risk goes up with the increase in the number of household
members, from small households to those with five and more members.
The survey response emphasizes the fact that during 2000 to 2008 the Moldovan
authorities ensured a constant increase in the resources allocated to education.
Unfortunately this increase did not lead to an increase in the gross enrolment at all
education levels. Thus, from 2005 to 2009 the share of public expenditures for
education rose from 6.8% to 8.2% of GDP, but during the period the gross enrolment
rate decreased from 71.7% to 69.8% at all education levels.
For children at primary school in Montenegro, the average amount that needs to be
set aside for books and supplies each year has increased by 20% from 2009 to
2010. For secondary school pupils the change was 15% on average. At private
universities tuition fees increased by 19% between 2009 and 2010 while at state
universities the fees doubled.
Although primary and secondary education is free of charge in Romania, there are
additional hidden costs for tuition, transport, meals and the class fund. Increasing of
prices and decreasing incomes have meant that the school dropout rate, for 18–24
year olds increased from 15.9% in 2008 to 16.6% in 2009. The highest rate of school
dropout was registered in high schools, where 20% of young people do not complete
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their education. The problem is worse in rural areas and the number of dropouts is
increasing. According to a social survey in Romania, 29% of respondents consider
the education system is inaccessible, especially in rural areas. The most decisive
factor governing accessibility is the level of income. 37% of those with low income
and only 21% of those with high income believed that education is inaccessible.
Perceptions of the quality of the education system have worsened over the last 4
years. Now, 31% consider the education system is good and 32% consider it is bad,
compared to 42% in 2006 who considered the system was good and 21% who
admitted it was bad. This change might be caused either by continuous instability of
the system and by the effects of the recent crisis.
The bulk of children in Russia attend state and municipal education institutions. The
number of general education institutions decreased in 2009, which, to some extent,
may be explained by reductions in the number of children of school age. At the same
time, the number of state and municipal gymnasiums and lyceums rose by 0.7% and
2.4% respectively and accordingly increased the number of pupils learning in them.
Admission to state and municipal education institutions for secondary professional
education was reduced by 0.5% compared to 2008. 27.5% of all students began
their studying on conditions of complete compensation of cost of learning in them.
Due to the financial crisis, many students paying for their learning had problems in
continuing their education as organisations began to grant credits more readily for
studying at secondary specialised or higher education institutions within the Russian
Federation. Taking into account the general problems in economic life, it is probable
that a larger number of students will be forced to apply for education credits as, at
least in the near future they will not be able to pay for their study on their own. Over
350 ungraded schools were closed in Russia in 2010.
Although numbers are increasing in Serbia, the network of pre-school education
institutions does not match the needs in terms of geographical distribution and
capacity. Only 46.9% four year olds were in any kind of pre-school education in
Serbia in 2008. This figure is significantly lower than that for the EU27 which was
85% for the same year. Pre-school institutions are mostly attended by children from
urban areas (Belgrade), Western Serbia and Vojvodina. The lowest percentage
attendance is for children from rural areas and Roma. Large number of municipalities
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lack funds for the construction of additional pre-school institutions, and for the school
year 2009/2010 13,791 children were on the waiting list.
The quality and status of the education system in Tajikistan heavily depends on the
financial capacity and the prioritization of the sector by the Government. The state
budget expenditure for education over the last nine years has increased 26 times in
absolute terms (from TJS 42 million in 2000 to TJS 1.070 billion in 2010). The
financial crisis has inevitably affected the education system. In 2010, the education
budget was reduced by 31 million TJS, mainly accounted for by the universities.
In Turkey the government is responsible for the transport of 700,000 pupils in rural
areas to primary schools. In 2009, the government extended the program to
freshmen in high schools and, in this sense, accessibility has increased. It is a top
national priority to increase enrolment in education and the rate has increased
rapidly in the last few years from 29.9% in 2007-2008 to 33.9% in 2008-2009 and
40.7% in 2009-2010.
In 2010, the Uzbekistan government pledged to target about 60% of the state budget
to the social sector. About 34% of that amount is for education. However, the public
education sector is suffering from a variety of problems which reduce the quality and
accessibility of services to children. Informal fees collected at school, for example,
make life difficult for low income families, sometimes creating a psychological impact
on children and families who cannot afford them. In many schools, teachers use
maintenance costs as a key instrument to collect money from parents.
ECD has become a critical issue in Uzbekistan over the last several years. Although
intensive dialogue has been conducted with the government, preschool coverage is
declining year by year. It was approximately 22% in 2009 and has declined to 19% in
2010. Some experts of the Ministry of Public Education have said that this is
associated with the minimum wage increase that makes services unaffordable for
low income families. As minimum wages increase, so do monthly fees for preschool
services.
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1.7.2 Shifts in financing and provision of education
No shifts of provision to the private sector have taken place in Bulgaria where the
proportion of private schools is very small, of little significance for the education
system. The education budgets of municipalities were cut by a total of 20% in 2009
and 2010. Most of the schools except the vocational schools are owned by the
municipalities and are funded by the state on per student basis as a so-called
delegated service. There are four groups of municipalities. The third and especially
the fourth group include smaller rural municipalities. Each group has a different rate
per student but the groups are not well designed and rural municipalities are heavily
underfunded as is the whole school education system.
The education sector in Croatia, on the other hand, has been affected by the
spending cuts during the crisis. The state budget for education began to decrease in
2010 and budget projections to 2013 show that this trend will continue. This implies
that the investments necessary to fulfil the conditions of the state pedagogical
standard (new school buildings, equipment, and staff) will be postponed in most
cases – or that the financial burden will be shifted to local and regional authorities.
The number of teachers is increasing in Kazakhstan and Macedonia. The increasing
number of teachers in Macedonia is due to the fact that newly opened private
schools have increased demand and opened new posts for teachers. Of all new
teachers engaged in the academic year 2009-2010, 86% are in the private sector.
The real average salary of education workers in Kyrgyzstan increased by 4.0% in
2009 in comparison to 2008 and by 3.2% in January-September 2010 in comparison
to the same period of 2009.
Pre-school education in Macedonia is financed through the Ministry of Labour and
Social Policy (MLSP) in a form of block grants to the municipalities (only 6
municipalities receive specific allocations for kindergartens). Kindergarten fees have
not been changed for several years. The MLSP reports that the state covers 75% of
real expenditure per child for kindergarten education, and has hinted that in future
parents who are able to pay more might be asked to contribute.
The weakest point of the Moldovan education system is the shortage of teaching
staff. This problem is raised both by parents and by the government; nevertheless,
the measures undertaken in past years did not bring the expected results. In general,
146
in education, the share of young teaching staff is decreasing, while the share of
teachers of retirement age is increasing. From 2002 to 2007 the share of teaching
staff of retiring age doubled from 6.7% to 15.6%, and the share of young teaching
staff decreased from 8.7% to 8.2%. The decreasing trend of the share of young
teachers in general education persisted during the academic year 2008/2009,
dropping their participation to 7.9%.
Education
expenditure
is
relatively
inefficient.
Imperfect
school
financing
mechanisms are based on indicators centred on institutions and not on pupils.
Imperfect mechanisms for the remuneration of teaching staff are based mainly on
the seniority of staff and not on performance, leading to the exodus of young
teaching staff from the educational system. Low wages and high workloads have
negative impacts on the quality of education. Communities have become
increasingly involved in providing ECD services and 15-20% of the renovation cost of
local kindergartens and Community Centres was locally provided.
The ongoing reform of higher education in Montenegro equates the status of
students at private and state universities. The number of students attending private
University is constantly increasing, and the statistical projections are expected in the
period 2010-2015 is equal to the number of students at private and state university.
Currently, there are about 7,000 students studying at private universities compared
to about 20,000 students in state institutions. There are canteens at the state
university and a meal costs from €0.20 to €0.40 on average. But there is no canteen
in the private universities, only a private shop in which food is available with certain
discount.
The crisis in Russia led to a decrease in incomes and subsequent drop of consumer
demand for the paid education services utilised by about 1.5% of all children. The
amount of paid education services rendered to the population in 2009 was 3.9% less
than in 2008.
Total expenditures for education (public and private) in Serbia amounted to 5.4% of
GDP, and have been constant for the past few years. More than 90% of these funds
are directed towards wages for teachers and others employed in the sector. A new
model of education financing on a per capita basis will start in 2011-2012, and will
gradually be introduced until 2015. This new model should enable more efficient
147
financing of education, and local governments will be motivated to optimally use its
resources and provide a greater degree of inclusion and equality in education.
In Turkey the national government covers teachers’ salaries and similar recurrent
expenditures and local administrations cover capital investment. There is a policy of
the national government to rely even more on local governments, unions of local
governments and private contributions to help with the crisis. The financing of school
construction by private people and companies goes deeper than corporate social
responsibility and has long been in practice.
1.8 Impact of the crisis on personal debt
There is evidence that the crisis has exacerbated the impact on households of
personal debts to banks and utility providers. The volume of debt increased in many
countries up to 2009 although there are signs, for example in BiH and Bulgaria that it
began to stabilise in 2010. From late 2008 banks in Turkey reduced their lending
while access to credit in Kazakhstan has long been limited. Poorer households and
households with children are particularly likely to need to borrow money for essential
needs, as in Macedonia. In Croatia the average household in debt has twice as
many children than one without debt. The crisis has also increased the incidence of
bad debt and poorer households of course have more trouble in keeping up their
repayments. Depreciation of local currencies has also contributed to repayment
difficulties in Serbia and Tajikistan.
In Belarus, the total volume of indebtedness of individuals with bank credits rose by
58% from 2008 to 2009 and again by 27% from 2009 to 2010. The bank system
actively gives credits to people for building and habitation acquisition. In October
2010 the debts of people with such credits reached Br 14,231.2 billion, 1.37 times
more than in January 2010. About 80% of the population has an opportunity to
borrow money from banks for purchasing Belarusian-made consumer goods.
Consumers’ bank debts jumped by Br 300 billion from January to September to Br
5,860 billion.
The problem of outstanding utility bills is acute. Elderly people, who make up the
lowest income group account for only 3% of all non-payment. As many as 207
households were evicted from apartments in Belarus in 2009 for persistent failure to
148
pay their housing maintenance and utility bills. Sixty-nine were not provided with any
accommodation and 138 were given smaller apartments. In 2009, 525,000 warnings
were issued to households in arrears on their utility bills, and 74,000 suits were filed
against debtors, with authorities seeking the eviction of 828 people. In 2010 a total of
118 debtors were evicted by court order, 76 were provided with smaller apartments.
Forty-two households failing to pay their utility bills have been evicted without being
provided with any accommodation.
In annual terms, long-term claims on households in BiH were 4.5% lower in June
2010, while short-term claims were 3.2% higher than in 2009.
In Bulgaria the effect of the crisis on the credit market came with a delay and was
moderate in comparison to other EU countries. The problem with bad credit was
contained to some extent due to a more conservative banking system, which was
less exposed to the newest financial innovations. This saved the banking system
from trouble but gave little relief to households. A large part of the fast credit
expansion was due to small business and consumer credit, which has created a
potential road to poverty. The ballooning economy literally sent wrong signals that
easy credit would be available forever and that even precarious jobs requiring only
low qualification can earn a good living. On the long run this is a sure recipe for
poverty and indebtedness.
However, both consumer and mortgage credit have
remained stable during 2010.
During the period 2005 to 2008, Croatian households doubled their borrowing and
their debt. Now, according to the Croatian National Bank, around 6% of households
are late with at least one repayment instalment a year. The average household in
debt has twice as many children than one without debt. Approving loans to more
risky borrowers has increased the vulnerability of households to debt. Reduced
employment, increased unemployment and uncertainty about the future of jobs and
earnings has contributed to reducing of indebtedness of households during 2009.
There are no comprehensive data on utility debts, but there is some indicative
evidence that these debts have been moderately increased due to the crisis.
The financial crisis has significantly curtailed the ability of Georgian families to repay
bank loans and debts and has further exacerbated their economic problems. Half of
the respondents of the WMS stated that their situation has worsened because of the
149
crisis. Repayment of loans was the most frequently stated reason for a worsened
economic situation, accounting for 38% of all reasons mentioned and was reported
in nearly two thirds of crisis-affected families (63%). Nevertheless, borrowing was still
used as an additional source of livelihoods. In the 12 months preceding the WMS,
36% of all families had borrowed either from banks, pawn shops or friends and
relatives. This may be due to lack of other sources of livelihoods – 62 % of the crisisaffected families reported that they had no additional source of livelihood during the
strained times.
Access to credit has become limited for the people of Kazakhstan. For instance, if a
person wants to receive a mortgage loan, he or she has to pay an initial instalment of
30% and the effective interest rate will be 16 to 18%.
Banking lending to households is very small in Kyrgyzstan. At the end of 2009,
outstanding consumer and mortgage credits were worth 2.6% of GDP. The total
amount of this lending in December 2009 has been reduced (in nominal terms) by
11.1% in comparison to December 2008; in September 2010 it has reduced by 9.4%
in comparison to the period 12 months previously.
In 2009, bank debts represented 90.8% of all debts owed by Macedonian citizens.
About 77% of the debt was used to spend on essential and non-essential goods,
automobile credit and credit-card payments interest. A significantly lower number of
citizens opted for a bank loan to purchase dwellings. The number of apartment loans
declined from 45.1% in 2008, to only 7.6% in 2009. In 2007 that figure had been
63.8%. The number of “bad loans” increased by 57.7% in 2009 compared to 2008
and what is worrying is that 60% of these “bad debts” are owed by people with low to
middle incomes.
The volume of new bank loans in Moldova fell in 2009 largely because of high
interest rates. Access to bank lending has always been an acute problem for
Moldova and even a constraint to the development of investment activity and
economic growth overall.
Many banks in Montenegro have had problems with loan recoveries because of the
crisis and have therefore tightened lending measures and raised interest rates. In
October 2010, the liability of Montenegrin citizens amounted to €1,378 per capita.
Montenegrin households and companies currently owe to Montenegro Electric
150
Enterprise (EPCG) €135 million for electricity bills, which threatens the very
operations and liquidity of domestic energy companies. Of this amount, the
Montenegrin households owe about €60 million. EPCG on an annual basis sues
about 35,000 household consumers.
Households in Romania have a significant degree of indebtedness and one in ten
debtors has overdue bank loans. According to the study of quality of life in 2010,
46% of the households could not meet their monthly expenses and 31% of the
population could not pay for even strictly necessary goods and services. This
situation has deteriorated since 2009, when the arrears (mortgage or rent, utility bills
or hire purchase), according to Eurostat, affected 27.1% of total population. The
social categories affected most by the worsening of the economic conditions were
people occupied in agriculture, 35%, and pensioners, 26% of those who couldn’t pay
for the strictly necessary goods and services.
15% of the population of the Russian Federation have overdue debts and the
amount of indebtedness of physical persons continues to grow. Since January, 2010
its specific share in the overall amount of indebtedness grew from 3.7% to 7.4%. The
current laws do not defend to the full extent rights of those individual debtors who
quite frequently become victims of semi-criminal methods of collecting debts.
Data for Serbia show a 6.8% increase in the indebtedness of the population from
2008 to 2009 and further growth of 4.2% in the first seven months of the 2010
compared to the end of 2009. The debt of the population in all types of loans rose by
25.8% in July 2010 compared to the end of 2008. The share of non-performing loans
in July 2010 has increased to 11.99%, compared to 4.7% at the end of 2008. 6.79%
of personal loans are non-performing. In addition to the crisis, a large depreciation of
the dinar (35%) has further adversely affected the ability of regular repayments, for
both companies and persons.
Amid the crisis, half of the households in the republic of Tajikistan indicated in a
survey that they had growing debts. Nearly 30% of households were forced to
borrow money to feed the family. In urban areas every third family had borrowed
money to buy foodstuffs for the past 12 months. Nonperforming loans accounted for
about 20% of all loans at the end of 2009, compared to less than 10% at the end of
2008. Currency depreciation has also affected the repayment capacity.
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In Turkey, data from the Banking Regulation Authority shows some increase in
personal indebtedness and point to serious problems in repayments. It should be
noted that the banks in general had a policy to avoid giving loans especially in late
2008, and there was probably caution on behalf of consumers as they decreased
spending in luxury goods, but it is not possible to disaggregate these two factors.
It is very common in Uzbekistan for people to have debts from utility providers for
electricity, natural gas and heating. Vulnerable people especially cannot pay for
services on time and this can lead to the accumulation of huge debt and insolvency
problems. Payments that are delayed for utilities are quite often deducted from
salaries and cash benefits.
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PART 2: MEASURES INTRODUCED AS A RESULT OF THE
CRISIS.
2.1 Government responses in general
2.1.1 General overview of government responses to the crisis
The effects of the economic crisis in CEE and the CIS have been variable. In
Kosovo, for example, limited integration with the world economy meant that effects
were relatively low key. In Tajikistan, at the other extreme, close dependence on
exports and income from remittances made the country more vulnerable to global
change. General government responses to the crisis have also varied to date, some
countries focusing on austerity measures while others have taken an approach that
relies on increased spending to stimulate the national economy (Table []).
Table []: General responses to the global economic crisis
Country
Change in government spending
% GDP 2008-9
Main emphasis of
response
IMF involvement
2008-2010*
Albania
+
Armenia
-
Azerbajan
+
Belarus
+
stimulus
SBA
BiH
+
austerity
SBA
Bulgaria
-
austerity
None
Croatia
+
stimulus
None
Georgia
-
austerity?
SBA, ECF
Kazakhstan
+
stimulus
None
Kosovo
+
stimulus?
SBA
Kyrgyzstan
+
stimulus
ECF, ESF
Macedonia
-
stimulus
Not yet
Moldova
+
stimulus
EFF, ECF
Montenegro
-
austerity
None
Romania
-
austerity
SBA
Russia
+
stimulus
None
Serbia
-
austerity
SBA
Tajikistan
-
stimulus
ECF
EFF, ECF
austerity
SBA, EFF, ECF
ECF
153
Turkey
+
stimulus
SBA
Turkmenistan
+
?
None
Ukraine
+
stimulus to 2010,
then austerity
SBA
Uzbekistan
+
?
None
* Source: http://www.imf.org/external/about/lending.htm Financial arrangements and loans
outstanding December 2010. (SBA: Standby Arrangement; EFF: Extended Fund Facility; ECF:
Extended Credit Facility; ESF: Exogenous Shocks Facility)
Austerity measures, usually including reductions in public spending, were
emphasised
in
the general government
responses of
Armenia,
Bulgaria,
Montenegro, Romania, Serbia and Ukraine (from 2010).
Figure []: Changes in general government final consumption expenditure (% GDP)
Source: World Development Indicators (Edition: December 2010)(Updated
February 2011)
Other countries, such as Belarus, Croatia, Kazakhstan, Moldova, Russia and Turkey,
increased public spending as a percentage of their GDP and emphasised increased
public investment to stimulate a return to economic vitality while more mixed
154
responses were apparent in BiH, Kosovo, Macedonia, Tajikistan, Turkmenistan and
Uzbekistan.
Countries emphasising austerity measures
The Armenian government’s response to the crisis focused on macroeconomic
revitalization, fiscal stability and countercyclical efforts to assist the worst affected
sectors of the economy. However, in the social protection sector policy responses
were more reactive and no significant social policy adjustments were made to
mitigate risks or prevent negative trends.
The government responded to the global economic crisis with a noticeable delay.
The first indications of the coming crisis were observed in autumn 2008 but even in
presenting the 2009 State Budget Law to parliament the government had made no
adjustment to fiscal parameters. Thus, starting from the first months of 2009 the
government collected significantly less tax revenue than expected and a severe risk
to fiscal balance eventually emerged.
The government then responded to the fiscal risks in several ways:

by rescheduling the calendar for some non-vital expenditures (mostly capital
for public organizations’ capacity building) and moving these towards the end
of the year while imposing stricter rules on disbursing amounts to be paid;

by securing the equivalent of around US$1.5 billion in external financing for
the inflated budget deficit;

by adopting an anti-crisis program including:
o public investment projects (big infrastructure programs, housing in
earthquake zones)
o a new Pan-Armenian Bank for financing national projects
o support for new business projects
o a simplified tax administration system (while not decreasing the taxes)
o facilitation to create a free economic zone
o securing financing for business support credits and participation in
capital support guarantees for construction companies and businesses.
Even before the global economic crisis the Bulgarian economy suffered from
structural weaknesses, produced by a neoliberal philosophy of development. The
dependence on the inflow of money in the form mainly of FDI was combined with
very low tax rates. Essentially, to attract foreign investment Bulgaria built a
155
regressive tax system combining indirect taxes, with a flat tax rate on income. The
result was, on one hand, an inflow of mainly speculative money, which pumped the
economy for a while but did not contribute to the long term fundamentals of
sustainable growth. On the other hand, Bulgaria emerged at the beginning of the
crisis with a very skewed distribution of incomes, which showed a society in the
process of increasing social differentiation.
In this context it was not easy for the new government from the centre right, which
took office in the middle of 2009 just when the crisis was gaining strength to come up
with a reasonable strategy not just for emerging from the crisis but for the long term
development of Bulgaria. Unfortunately the government started from the very
beginning with a set of austerity measures, which stifled demand even further and
brought chaos in the delivery of key public services. Social inclusion policies have
suffered most from the austerity measures. The government has mainly focused on
the philosophy of tax reduction in an effort to boost consumption and investment,
combined with austerity measures in the public sector. This reduced demand and the
public revenue further.
The economy started year 2010 with what we can call a rising budgetary deficit
without stimulus packages for the economy and with little concern for the situation of
the poorest and the most vulnerable. Bulgaria needs to rethink its whole trajectory of
development and consider carefully how it wants to fit into the Europe 2020 agenda.
The sacrifice of solidarity and social inclusion purely to pump up the economy
without innovation or research does not bode well for the future. It is good that the
crisis exposed these generic weaknesses but it is not clear if the right lessons will be
learned or everything will finally boil down to a “more of the same” strategy.
The Government of Montenegro reacted quickly to the crisis, introducing a package
of anti-crisis measures that accounted for over 10% of GDP, significantly more than
in many other countries. The measures are mainly aimed at preserving the liquidity
of the economy and supporting banking system. The latter operates through the
provision of guarantees for credit support from international financial institutions of
the European Investment Bank and the German Development Bank and is the first
initiative of its kind requested by a country.
156
In order to preserve macroeconomic stability, increase productivity and maintain a
favorable economic environment the government aims to:

provide government guarantees to commercial banks for credit lines that are
financed by international financial institutions;

reduce current, unproductive government spending;

restraining the growth of current expenditures to the level of GDP growth;

increase budgetary expenditure to finance capital projects by 52% over
previous year;

support citizens and businesses through reduction in electricity prices for
small and medium industry, the abolition of fees for highways and land use
and the deferred payment of customs debt;

continue to subsidise the most vulnerable population groups; and

continue tax reform.
The government is continuing its efforts to restructure the industrial system in order
to minimize the negative effects of any major business problems on the overall
economic system and to avoid additional pressures on social expenditure in the case
of redundancies. All social welfare benefits amounts have been increased by 10%
since January 2009, with exception of disability related benefit which increased by
20%. The Ministry of Finance in cooperation with the Employment Agency of
Montenegro, Development Fund and SME Agency have initiated a program of
support to employment in the northern, poorer region of the country.
The Romanian economy evolved in the same direction as most of its peers in
Central and Eastern Europe, with a sharp economic contraction and widening of the
fiscal deficit. For 2010, projections show a negative growth rate and the adjustment
of fiscal deficit Although a weak recovery is estimated for 2011 it may be delayed by
the recently enacted fiscal austerity measures, the impact of the severe floods on
agricultural production and the recent plunge in consumer confidence.
The main political decisions to tackle the crisis aimed for financial stability to reduce
the impact of the crisis and to stimulate investments. The stand-by accord with
international financial institutions (IMF, WB, EBRD and ECB), the restructuring of
agencies, central and local government, austerity measures and reform of salaries
and pensions in the public sector, the freezing of vacant positions in the public
sector,
increasing
VAT
and
taxation,
157
encouraging
public
investments
in
infrastructure, and co-financing of public projects from European funds all played an
important part.
The Government adopted in 2009 an action plan containing social measures,
business and economic incentives. This includes:

assistance to employees and employers following redundancies;

exemption from social insurance contributions for firms hiring unemployed
people;

the ”First Home” Programme (see the housing section);

the “Scrap” Programme which encourages car owners to take old cars off the
road and buy new ones;

support for SMEs through a Guarantee Fund ;

guarantees for beneficiaries of projects financed by structural funds, of almost
80% the value of the loan;

guarantees for loans contracted by associations of owners for thermal
rehabilitation of buildings;

a state aid scheme for SMEs to stimulate initial investment;

reinvested profit tax exemption, to encourage investment in technology
upgrade; and

reduced VAT of 5% for purchase of social housing up to a limit of 120 sqm.
The authorities have initiated the overhaul of the system of social benefits, to
strengthen social safety nets and eliminate inefficiencies, using assistance from the
World Bank. The government is preparing legislation to protect the most vulnerable
from the effects of austerity measures.
Authorities in Serbia reacted quickly to deteriorating external conditions through
initiating a program with the IMF, and undertaking a significant fiscal adjustment. The
fiscal deficit amounted to 4.1% of GDP in 2009 and was the result of the collapse in
economic activity and thus revenues. The Government put in place expenditure
controls using a range of measures, including a nominal wage and pension freeze.
Prudent monetary policy in the pre-crisis period and an agreement with foreign
banks in the early stages of the crisis assured that the banking system has
weathered well the external shocks; banks in Serbia remain highly liquid and well
capitalized. However, with inflation accelerating significantly in second half of 2010,
exit from the pension and wages freeze will cost more than anticipated. Public wage
and employment policies during 2012–2015 will be constrained by a rule to gradually
158
reduce the general government wage bill to 8% of GDP and pension bill to about
10% of GDP by 2015.
The measures for mitigation of the crisis in 2010 were a continuation of those used
during 2009. Two main objectives of the program for 2010 were the preservation of
job places and the achievement of economic growth. In early September 2010, the
Government adopted a set of measures for boosting the construction industry,
including assistance with the funding of 117 construction projects in the territory of
Vojvodina and Belgrade.
The Serbian Government is committed to structural reforms that address the key
bottlenecks for shifting to a more export-led model of growth. They have launched a
comprehensive regulatory “guillotine” project to remove unnecessary business
regulations, with an estimated annual cut in the costs of doing business of €20
million. Recent legislative actions aim to strengthen competition and improve public
procurement.
The new political leadership in Ukraine heavily criticised the previous political
leadership for its inability to provide an adequate response to the crisis. The
Programme of Economic Reforms launched in June 2010 envisages reforms in PFM,
public administration and the social sector (social protection, education, pension
reform, and healthcare). This was the key response to the crisis under the new
leadership: cutting expenditure on public administration, adoption of the new Tax
Code, planned pension reform (including increase in pension age) and further
targeting of social assistance benefits.
Countries emphasising stimulation measures
Impacts of the economic and financial crisis in Belarus catalyzed work on a shortterm liberalization programme for 2009 and on a medium-term programme for
comprehensive “modernization of the economy”, including transformation of
institutions to intensify investment
processes,
support for innovation and
strengthening an incentive structure for business operation and productivity growth.
To reduce the resulting financing gap and fulfill their commitment to the IMF, the
authorities maintained a balanced budget in 2009, despite lower revenues due to the
downturn. Monetary policy remained tight, more exchange rate flexibility was allowed
159
and public sector wage increases were postponed. The programme also includes
structural measures such as stronger privatization effort, legislative changes to
increase the central bank’s independence and plans to reduce further price and
wage controls and remove mandatory production and employment targets for private
companies.
The Government launched stimulus measures in order to boost productivity,
competitiveness, export diversification and domestic demand, especially in the
housing construction industry that is considered as locomotive for economy
development. Some of achievements included a slowdown in the rate of
depopulation, reduction on the poverty rate by more than one-half, improved
structure of consumption, better performance of the health and education systems
and housing construction, as well as successful implementation of complex
interventions on environmental protection and natural resource management.
Privatization: Until 2007, state ownership was one of the pillars of the socioeconomic model implemented by Belarus. At present privatization is viewed as an
instrument to attract strategic investors that will be able to improve the effectiveness
of Belarusian enterprises. Virtually all the services enterprises, light industry, food
industry, woodworking and civil engineering industry enterprises have been
reformed. Several major petrochemical and mechanical engineering enterprises
have been reincorporated as joint-stock companies. In July 2010 two laws were
adopted to regulate the privatization of state property. The laws have expanded the
privatization area into sales of shares after trust management and have reduced the
number of properties that can be owned exclusively by the state.
Banking: Belarus’ banking sector is still actually controlled by the state. The country’s
three largest state banks have a combined capital of $20 billion, while the capital of
the remaining 28 banks totals $8 billion. Foreigners hold stakes in 25 Belarusian
banks, eight of which are fully controlled by foreign businesses. Foreigners account
for 27% of banking capital, while the rest belongs to the government or state-run
enterprises. The outlook for Belarus' banking system remains negative, primarily
reflecting significant uncertainties about the government's continued ability to support
the largely state-controlled banking system and the overall economy. Official
statistics show that bad debts accounted for 4% of the total assets on October 1,
2010 and the National Bank of Belarus (NBB) says that the main cause of bad debt
160
is banks’ involvement in financing state programs. During 2009-2010 the country
accumulated international reserves to support the national currency and efforts were
undertaken to lower interest rates on loans. The latter policy aims to increase lending
to enterprises, making bank loans cheaper and more accessible to help accelerate
the country's economic growth. But on the other hand, banks find it more difficult to
attract savers’ funds on deposits. The National Bank of Belarus (NBB) is working on
a new payment system concept for a period between 2010 and 2015. It aims to
identify a middle-term strategy for the development of the system, increasing its
efficiency, sustainability and security. Meanwhile, the IMF has insisted that the
government transfer existing bank loans under government programs to a Financial
Development Agency to clean up banks’ balance sheets. The government is
expected to set up the agency in the near future.
Improving the investment climate: Belarus has annually attracted around $2 billion in
net foreign direct investment in the last few years and this seen a key to enterprises'
profitability, labor productivity and sales. Measures taken to create long-term, stable
and attractive conditions for domestic and foreign investors include development of
the stock market. The procedure for registering real estate rights and for allocating
land has been streamlined and taxation of foreign enterprises in Belarus is becoming
simpler. Foreign organizations are exempt from profit taxes and open joint-stock
companies have right of priority for buying their own shares. A draft decree on
protection of investors is being prepared in Belarus and revision of the law on
securities and stock exchanges is being prepared.
Mitigation of the effects of the oil import price shock: On January 27, 2010, Belarus
and Russia agreed on changes to the 2007 oil supply agreement following intense
negotiations. Based on the new agreement, Russia will impose the full export duty
on crude oil exported to Belarus, except for the portion identified for domestic
consumption which will be duty-free. As a result, subsidies from Russia will continue
but at a lower level. In response to the oil price shock, the authorities plan to
rationalize the sector, cutting production to a level that can produce the optimal
package of oil products for both domestic consumption and exports, eliminating
export duties on oil products, and increasing domestic prices for oil products. These
measures will allow the government to stop subsidizing the oil refineries, which will
help minimize the impact of the oil price shock on the budget.
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Tax system reform: According to the IMF the tax reform agenda confronting Belarus
is large and complex, requiring simultaneous reform of multiple layers of economic
distortions
arising
from
a
far-reaching
system
of
government
regulation,
administration, taxation, and support. According to the survey response, the
challenge facing Belarus is to move from extensive, public investment driven growth
to productivity growth led by the private sector. This will require increase private
investment, in particular foreign direct investments, to support the transfer of new
technologies, and to facilitate the process of structural transformation.
Protecting the vulnerable: To address negative social effects stemming from the
impact of the crisis and the policy response, it is necessary to create a fiscal space
enabling expansion of well-targeted social assistance programs without undermining
the macroeconomic framework. Finally, it is necessary to ensure that there is an
active dialogue and consultation with stakeholders, including with the private sector,
on the reform program both in relation to the response to the crisis and other longerterm measures.
Even though the crisis hit the Croatian economy hard in 2009 and 2010, the policy
response has been very limited. The measures implemented to prevent and mitigate
the effect of the crisis include:

special credit schemes for companies in financial difficulties;

aid to companies to save jobs;

exemption from paying crisis surcharge tax for lowest-income households;

maintenance of social rights in the 2009 and 2010 budgets; and

increased one-off assistance to citizens.
The biggest efforts were targeted at the preservation of the attained level of social
rights, but existing social programmes were also revisited and reforms in some social
sectors initiated. The economic crisis led to postponement or curtailment of the
implementation of some reform projects that had already been prepared. However,
less has been done to stimulate economic activity, investments and job creation and
efforts to stabilise public finance have mainly included new loans and taxes.
The anti-crisis measures developed and introduced in Kazakhstan in 2008-2009, are
still in place and include:

financial sector stabilisation;
162

development of the real estate and residential construction sector;

support for small and medium-sized enterprises;

development of the agro-industrial sector; and

realisation of industrial and infrastructural projects.
The ‘Road Map’ programme was set up in the spring of 2009 and continued in 2010.
It involved an additional public works program of US$1.5 billion (1.5 percent of GDP)
for the creation of jobs, training, and the provision of temporary wage subsidies to
vulnerable groups at the regional level through special budgetary transfers to local
authorities.
The approved three-year rolling budget for 2010-2012 reflects a gradual withdrawal
of the fiscal stimulus. Following the exceptionally high expenditures in 2008 and
2009, the Government plans to reduce budgetary spending down to around 25% of
GDP over the next three years. The non-oil deficit will decline from its peak levels in
2008-2009, but still remain above pre-crisis levels as non-oil revenue is projected at
lower levels, due in part to the continued impact of the tax reform of 2009 and some
new (primarily social) budgetary commitments of a permanent nature. The phasing
out of the fiscal stimulus will depend on the pace of recovery of growth and of non-oil
revenue, both of which remain uncertain.
In May 2009, the intention of the Kyrgyzstan authorities was to maintain
macroeconomic stability through control of inflation and promotion of economic
growth. There were no important changes to previous policies. In practice, the most
important anti-crisis activities of the government were closing the fiscal gap by using
thef budget support provided by Russia and expansion of the capital spending
program. Important and sensitive reforms in the structure of the government and in
the energy sector and accompanying social protection reforms were initiated in
November 2009, but these do not seem to be directly linked to the global crisis
agenda. After the change of the regime in April 2010, the interim Kyrgyzstan
government and then the technical government were trying to cope with the
consequences of conflicts and maintenance of basic macroeconomic stability.
The Economic Stabilization and Recovery Plan (ESRP), which the new Government
of Moldova approved during its first 50 days in office, aims to re‐ launch economic
growth within two years. Already being implemented, the ESRP intends to achieve
the following objectives:
163

to stabilize public finances and optimize allocation of scarce resources
according to policy priorities;

to stimulate economic recovery through market reforms, access to credit and
public investment in infrastructure; and

to alleviate the impact of the economic downturn on the most vulnerable.
In order to achieve this Plan, economic and financial policies for 2010 to 2012,
provide a set of measures designed to secure the stabilization of public finances, the
restoration of economic growth and the protection of the vulnerable population. The
Government’s Activity Program "European Integration: Freedom, Democracy,
Welfare” lays out a framework for Moldovan governing policies to overcome the
crisis for 2009 to 2013.
The Russian Government adopted an anti-crisis program for 2009 that has been
mainly fulfilled. However, several measures continued to be implemented in 2010.
These included credit aid to the regions and provision of state loan guarantees to
system-forming enterprises, the federal purchase of automotive vehicles and subsidy
assistance to air companies providing passenger transportation services. In
December 2009, the Government of the Russian Federation approved an Anti-Crisis
and Modernisation Plan 2010 providing for:

the expansion of credit aid to enterprises and debt restructuring;

the development of small- and medium-sized businesses;

restructuring of the economy of mono-cities; and

development of infrastructure sectors of the economy.
To attract national and strategic foreign investors, the government plans to reduce
the share of state property in the economy, conducting privatisation through tenders
and auctions. Russia has not curtailed any social programmes, pensions or benefits
in response to the crisis.
In Turkey, the Government response to the crisis included several lines of action
including:

giving up the fiscal austerity measures that had been in place for a decade
and bolstering public spending, mainly to support growth, including major
infrastructure projects;

introducing measures to boost employment; and
164

providing tax breaks and incentives for investment.
Since the crisis, the structure of social protection has changed little if any. However,
demand for social services including assistance schemes has increased, which often
means more beneficiaries and increasing cost.
Countries with more mixed responses to the crisis
Given the rapidly changing economic environment in the wake of the global crisis,
the BiH authorities requested the World Bank for an urgent reprogramming of the
lending program to help mitigate the impact of the crisis in BiH. It was agreed that
the aim should be to:

maintain macroeconomic stability and protect the vulnerable through
improved targeting of social benefits;

mitigate the impact of the crisis on the real economy, and Small and MediumSize Enterprises (SMEs) in particular; and

accelerate implementation of already approved investment projects.
In January 2010, the authorities submitted their fourth Economic and Fiscal
Programme for 2010-12. The macroeconomic framework presented is more realistic
than in the previous year, but is still on the optimistic side. The programme remains
fragmented and does not reveal a coherent formulation of economic and fiscal
policies. It is not fully integrated into budgetary procedures and its objectives are not
adequately quantified or backed by concrete policy measures. The implementation of
fiscal adjustment and structural reform measures agreed with the International
Monetary Fund in the 2009-12 Stand-By Arrangement has been broadly satisfactory.
The conclusions of both the first and the second programme review were delayed
due to the slow implementation of structural benchmarks, in particular in the
Federation of Bosnia and Herzegovina. In April 2010, the World Bank approved a
Development Policy Loan to the country that is linked inter alia to a transformation of
the predominantly rights based system of social benefits into an increasingly needsbased system. The Fiscal Council failed to adopt the global fiscal framework 2011-13
within the deadlines prescribed by law, reflecting the lack of consensus between the
entities and the state on economic and fiscal policy. Some fiscal and structural
reform measures have been enacted recently under the pressure of budgetary
imbalances and the international support programmes.
165
The global financial and economic crisis has had relatively little impact on the
economy of Kosovo, reflecting its limited integration with the rest of the world. The
negative effects of the crisis have been transmitted through three channels:
remittances, exports, and foreign direct investment (FDI). Until recently, Kosovo has
pursued a highly conservative fiscal policy. The government is preparing a policy on
emergency liquidity assistance (ELA). The government’s bank balances will in part
be held in a Special Reserve Fund of the Treasury at the Central Bank of Kosovo
(CBK) and be available for ELA, if needed. This emergency assistance would be
extended on a temporary basis only. With IMF technical assistance, the government
and the CBK will finalize a memorandum of understanding on cooperation to
enhance crisis preparedness and the CBK will issue a regulation that would govern
any potential extension of ELA, by the first review.
The government of Macedonia responded to the global economic crisis by increasing
the budget deficit to stimulate demand and spending (Ristestki, 2010). It adopted
four packages of anti-crisis measures between 2008 and 201. The first aimed to aid
economic entities in the real sector by writing off liabilities and tax reduction. The
second was intended to help realise infrastructural projects and the third to support
business interests. The fourth and last package of anti-crisis measures was adopted
in March 2010. This package according to the government had no significant fiscal
implications for the central budget, as it consisted mainly of the facilitation of
payments, extending deadlines for tax payments, reducing the price of construction
land for companies, extension of the validity of construction permits and unburdening
the registration process for new companies. Some of the social anti-crisis measures
undertaken by the government involved the increasing of the number of soup
kitchens form 19 to 35 and subsidising heating costs for social welfare beneficiaries
to the amount of €10 a month. The main problem with all of the country's anti-crisis
measures is the lack of follow-up and evaluation of what has been achieved
(Ristestki, 2010).
The government is also implementing the Conditional Cash Transfer programme for
which the World Bank has provided $19 million for the next three years. The
requirements for the families to receive this benefit are that the child regularly
attends secondary education, and that the family is a recipient of social welfare on
166
any grounds. The official disbursement of payments was expected to start in
December 2010.
Tajikistan's Anti-Crisis Action Plan, adopted in April 2009, included short-term and
medium-term measures in monetary, fiscal, real and social areas of the economy.
High attention was paid to short-term measures without infringing the reform
program for the medium and long-term. The Government successfully maintained
the stability of the national currency and full control of the budget deficit through
increasing tax revenue and decreasing debt servicing by external debt restructuring.
It also increased trade operations on traditional goods and services and developed
domestic non-cotton production in agriculture.
A timely decision was made to increase budget expenditure for the social sectors,
including for promotion of investment projects and creation of job opportunities within
the country. The actual economic indicators of the Republic of Tajikistan during the
crisis were optimistic compared to majority of the CIS countries with projections of
GDP growth, falling deficits and external debt levels and an increase in the export of
goods and services. However, Tajikistan is still vulnerable to external factors
determined by the fact that the prevailing portion of export proceeds comes from
aluminium, cotton, energy export and labor migrant remittances. The national
economy largely depends on import of energy resources and food products from
neighbouring countries, increasing Tajikistan’s vulnerability to external shocks, which
can have an impact on economic development and poverty reduction.
To mitigate risks, the Tajikistan government, in line with increasing budget financing
for social sectors and economic activity, intends to continue conducting institutional
reforms in all sectors of economy to extend domestic capacity not only to ensure
high economic growth but also to reduce poverty. The public administration reform
program alongside promotion of investments in the private sector can contribute to
the achievement of sustainable economic growth in the medium term. Additional
investments in energy projects and more effective energy infrastructure management
in the country will address the challenge of energy deficiencies in winter time and
develop entrepreneurial activity by expanding the production and sale of goods and
services both in the domestic market and abroad. In December 2010, the National
Development
Forum
was
organized
by
the
government
to
discuss
the
implementation of the Tajikistan Poverty Reduction Strategy for 2007-2009, including
167
the anti-crisis measures taken by the Government. It aims for open dialogue
between government representatives, development partners and the civil society on
the implementation of the country’s National Development Strategy and the Poverty
Reduction Strategy for 2010-2012 adopted by the government in 2010.
Efforts to develop the private sector of the economy in Turkmenistan have gained
momentum. The government's recognition that private sector development is
important for economic diversification and sustainable growth has lead to increased
support to Small and Medium Enterprises (SMEs) and the enhancement of investors'
rights. Recent legislation aims at streamlining registration procedures, simplifying
taxation, and easing SME's access to financing.
According to the IMF, monetary policy remained focused on exchange rate and price
stability in 2009. The strong external position and limited integration with
international financial markets helped the Central Bank of Turkmenistan (CBT)
maintain a stable exchange rate of the manat. Directed lending under government
projects continued, but was expected to moderate somewhat in 2010. After a
successful unification of the exchange rate in 2008 and introduction of the new
manat in January 2009, reform efforts shifted to the implementation of International
Financial Reporting Standards (IFRS) in the banking system and strengthening the
anti-money laundering and combating financing of terrorism framework. A
comprehensive action plan envisages IFRS implementation across all banks by the
end of 2011.
In Uzbekistan, an anti-crisis program for 2009-2012 was issued at the end of 2008.
Key measures of the programme included:

100% state guarantee of people’s deposits in commercial banks;

increased minimum capital requirements for commercial banks and Jointstock companies, increased capital base of largest banks from state budget;

credit support to exporters; restructuring of current debts;

restructuring of payments arrears for electricity, natural gas and utilities;

increasing foodstuffs production, including the increase of irrigated land for
food crops and greenhouses;

modernization of electricity production, reduction of energy consumption and
introduction of energy-saving measures; and

improving the business environment for SMEs through increased credit
access and tax reduction.
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2.1.2 Changes that have been made to public spending by sector
Data on public spending by sector are collated by the IMF and made available for
research purposes. The latest figures at the time of writing refer to 2008 and are
complete for only seven of the 21 countries in the UNICEF survey. Changes in the
sectoral share of government spending for health, education and social protection
between 2007 and 2008 are shown in Figure [] a to c.
Figure [] a: Spending on health as a share of total government outlay 2007-2008.
Figure [] b: Spending on education as a share of total government outlay 2007-2008.
169
Figure [] c: Spending on social protection as a share of total government outlay
2007-2008.
Source: International Monetary Fund, Government Finance Statistics, ESDS International,
University of Manchester (December 2010)
Prior to the crisis the share of spending on health was increasing only in Croatia and
Bulgaria but education spending was increasing in all countries shown except
Georgia. Expenditure on social protection represented an increasing share of total
spending in Croatia, Serbia and Ukraine but was fairly steady in Georgia and falling
slightly in Bulgaria, Belarus and Moldova. Against this background the information
170
from survey respondents suggests that government responses to the economic crisis
have varied more with political positions than with past spending patterns. Table []
summarises changes in public spending for countries according to their general
styles of response to the crisis.
Table []: Changes to public sector spending
Country
Main emphasis of
response
Public expenditure
austerity
Increased pensions, social transfers & minimum salary but
no significant policy adjustments
Belarus
stimulus
Increasing for education, health and social policy
BiH
austerity
Decreased by wage freezes and stricter controls on tranfers
austerity
Disrupted health funding, reduced social protection & frozen
pensions
Croatia
stimulus
Most social expenditure protected but education reduced
Georgia
austerity?
Albania
Armenia
Azerbajan
Bulgaria
Kazakhstan
stimulus
increasing spending reoriented towards social sector
Kosovo
stimulus?
Increase in pensions & social protection, decline in health &
education
Kyrgyzstan
stimulus
Increased general spending and spending on social
protection (except education)
Macedonia
stimulus
Total public expenditure decreased from 34.1 to 33.7% GDP
2008-2009. Decrease in education and social protection for
families and children
Moldova
stimulus
Budgets of all depts cut by 20% but in Jan-July 2010 public
spending increased by 4.8% over 2009 with social
expenditure 75% total
Montenegro
austerity
Public sector wage reductions, increased social security
contributions. Health and pensions spending still increasing
but education cut.
Romania
austerity
Public investment fell to 28.1% GDP but unemployment
benefits and pensions increasing with increasing numbers
Russia
stimulus
No curtailment of social programmes, pensions or benefits
but pensions budget received increased share
Serbia
austerity
Real growth of 0.8% in first 8 months 2010 over 2009.
Tajikistan
stimulus
Spending curtailed by lack of revenue but share of social
spending increased
Turkey
stimulus
Total spending increasing to 39.1% GDP 2010
?
Increased spending on higher education and social security
stimulus to 2010
Increased spending on education and social protection.
Decreased spending on health care
?
22.9% GDP 2009. Social sector share increased
Turkmenistan
Ukraine
Uzbekistan
171
Changes in sectoral spending in countries with an austerity focus
During the crisis in Armenia the government frequently announced that social sector
expenditure was secured. However, unlike preceding years, there were significant
fluctuations and shifts in the budget execution by function. Allocations to 'economic
affairs', 'housing and community amenities' and the 'reserve fund', for example,
significantly exceeded planned levels. This reflected the government’s response to
the crisis in terms of supporting the recovery of the construction sector, other
infrastructural projects and business support activities. The environment, education,
health and culture functions got less than their planned allocations while the social
protection sector received pretty much its planned amount. However, a closer look at
social protections expenditure by program reveals some inconsistency with the
announced policy of securing social protection. Despite the crisis, the allocation for
family benefits was around 6% less than planned initially. Almost 7,000 households
were excluded from the system. The government explained this as a result of
improving the targeting of the family benefit program. However, tightening targeting
by reducing the numbers of people eligible for the benefit without improving inclusion
ratios does not represent a mitigation measure in the context of increasing poverty
rates.
Table []: The family benefit budget in Armenia 2009
Family benefit
Budget (Dm)
Beneficiaries (households)
2009
2010 Q2
Planned
Actual
Approved
Executed
32,324,310
29,146,390
15,511,477
14,988,133
114,000
107,490
110,700
106,500
Similarly, the prime-minister’s anti-crisis speech in parliament highlighted the
importance of the 'Paid Public Works' program in the crisis period as a swift
mechanism to support unexpectedly increased unemployment. Nevertheless, the
program was not adequately financed in 2009 or in the first half of 2010. Budget
allocations and coverage of beneficiaries for the program were reduced in
172
comparison to the pre-crisis period. On the other hand, government expenditure on
social pensions has increased and spending on unemployment benefits significantly
increased in the crisis period with more newly unemployed people covered by the
program. Overall, policy responses to the crisis in the social protection sector seem
to have been more reactive to events rather than proactive and no significant social
sector policy adjustments were made to mitigate risks or prevent negative trends.
The government’s proactive responses package focused mostly on macroeconomic
revitalization, and fiscal stability.
In Bulgaria austerity measures were introduced as a pre-emptive measure to avoid
deficit at the start of the crisis. It is increasingly clear that this approach was of
dubious efficacy. What actually happened was the development of a deficit due to
falling income in the budget, but without any package of stimuli. The term anti crisis
measure itself, contrary to its usage in the EU, was used in Bulgaria to refer to
measures protecting the general government budget from deficit. The government
has mainly focused on tax reduction in an effort to boost consumption and
investment, combined with austerity measures in the public sector. This has further
reduced demand and public revenue, which in Bulgaria is dependent on indirect
taxes, mainly VAT.
It was decided that revenues would be linked to costs on a monthly basis. This
procedure has the potential to generate delays in social transfers and 'stop-and-go'
funding affecting the functioning of hospitals. Fixed amounts are given to hospitals
independent of the real amount of activity. As a result, hospitals often have to
postpone non-emergency activities. The have expressed fears that even emergency
care, which represents very high proportion of the health care in Bulgaria will have to
be cancelled in some cases. The immediate impact of these measures has come in
the form of protests organized by medical associations and discontinuity in the
functioning of some hospitals. Wider societal impact like the formation of long waiting
lists and eventual impacts on death rates and morbidity cannot be assessed at this
stage.
Social inclusion policies have suffered most from the austerity measures. Among the
most harmful is the recently introduced rule that the National Social Security Institute
will not pay the first three days of sick leave, but these will be paid by the employer
at a reduced rate – 80% of the salary after July 2010 and a proposed 70% of the
173
salary from January 2011. Before that the employer paid 100% of the salary for the
first day of sick leave and then the National Social Security Institute paid the
remainder. It was even proposed by the government that the third day of sick leave
should not be paid at all. This measure was advertised as an attempt to reduce
cheating, which according to the government was reflected in the increased number
of days of sick leave from the beginning of 2010.
In 2009 the funds allocated for social protection were 736 million BGN, while in the
2010 budget the originally planned funds were 638 million BGN, a reduction of more
than 13%. By mid 2010 it had become clear that the social protection budget would
face a large deficit by the end of the year, as more than 61% was already spent. On
the 8th of July the State Budget Act was amended and it was decided to increase the
budget of the so-called administered programmes. The government also announced
plans not to increase pensions until 2013. The budget for social protection is among
the most significantly reduced. In 2010 the Ministry of Labour and Social Policy did
not have enough funds to continue with the soup kitchen programme. Almost 1
million dollars were contributed from an anti-crisis fund of George Soros to allow
soup kitchens to function over the winter season of 2010-2011. But other more
fundamental segments of social policy are left without support.
While in 2010 the state budget of Georgia increased significantly, the composition of
public expenditure has not changed much. Major changes took place in defence and
general public service expenditure. The share of the former dropped by 3.6
percentage points, while the share of the latter increased by 5 percentage points.
The share of social expenditure also decreased by 1.6 percentage point, while the
shares of education and health grew by 0.6 and 1.1 percentage points respectively.
Table []: Composition of public expenditure in Georgia 2009-10
2009
2010
General public service
23.8%
28.8%
Defence
13.8%
10.2%
Public order and security 13.6%
12.1%
Economic activities
12.2%
12.2%
Environment
0.4%
0.3%
Housing
0.0%
0.3%
Health
5.4%
6.5%
174
Leisure, culture and
religion
2.3%
2.3%
Education
7.3%
7.9%
Social protection
21.0%
19.4%
Public spending policy in Montenegro during the crisis period was aimed at ensuring
sustainable public finances by limiting the level of current public spending and
rationalising expenditure. Austerity measures were adopted, restricting public sector
employment, reducing use of company cars, reducing expenditure for representation
and business travel, changing the process of purchasing goods and services. These
measures achieved savings of €4 million. The stabilization of economic conditions
and the slight recovery in economic activity led to good dynamic flow of budgetary
resources, especially in the third quarter of 2010. Consolidated budget expenditures
for January to September 2010 were 18.5% lower than planned.
Earlier growth in government spending had caused a significant increase in public
sector wages. Between 2006 and 2009 year the increase in the minimum wage and
the coefficient of pay scales meant that the gross earnings of employees increased
by about 63% and pensions increased by over 46%. To ensure sustainability of
public finances, it was necessary to review the wage and employment policies in the
public sector. In addition to other austerity measures there was an increase in social
security contributions paid by employees. This was a necessary measure that was
taken after exhausting all other solutions and the degradation of an agreement with
the union.
However, in 2010 there was a 4.3% reduction in current spending as a percentage of
GDP compared to 2009. Also, the budget for 2010 includes the issuing of
guarantees as a continuing support to the economy. Along with other measures this
provides support to the real sector most affected by the crisis, and along with the
Establishment and Development Investment Fund is intended to encourage credit
growth next year. Reductions in personal income tax, and the proposed
amendments to the law on compulsory social insurance were necessary measures
to reduce the cost of the total fund in order to conduct credible talks with international
financial institutions, the IMF and World Bank. Other employers have more
opportunities to adjust to these legal provisions.
175
When we talk about education, the story is very different. The process of
harmonizing national legislation in the field of education with EU regulations requires
activities focused on education reform. However, in 2009 the education budget was
reduced by 2.7% compared to 2008, while a budget in 2010 was lower by 2.4%
compared to the year 2009.
Activities monitoring the reform of primary, secondary and tertiary levels of health
care are supported by the World Bank. As the reform of secondary and tertiary levels
of care was carried out, activities were aimed at the development of information
systems for health and general hospitals. The main objective is to support the core
business IT functions in general hospitals, important for analyzing the current
situation, identifying problems and creating a basis for continued reform. In 2010
these healthcare expenditures increased by 52.4%.
In 2007, total expenditure on the pension system in Montenegro was higher than in
the 14 other EU countries and the past few years have shown that the system is
inflexible to the impacts of external shocks such as the economic crisis. In 2009
expenditure on pensions increased by approximately 4 percentage points of GDP
compared to 2008 and grew from 8.6 to 12.2% of GDP. Although the planned
expenditure on pensions in 2010 amounted to approximately 10.5% of projected
GDP, there are indications that the figure could reach 12%.
The Romanian authorities agreed in 2009 with the IMF, the World Bank and the ECB
to continue fiscal consolidation measures in 2010. In order to maintain the fiscal
deficit at the agreed threshold, the Government decided to cut expenditures, by
adopting austerity measures. As a result, the deficit was maintained within the
agreed limits.
The toughest challenge for fiscal policy remains the pensions’ budget. In September
2010, the deficit of public social expenditure reached 3.8% of GDP. As an effect of
wage cuts in the public sector, public spending decreased from 28.8% of GDP to
28.1% but a reduction in the number of employees diminished the contributions fund
where the proceeds are 5.1% lower than last year. At the same time the number of
pensioners increased expenditure on pensions. Social assistance spending in
August 2010 was 9.3% higher than in the same period in the previous year, mainly
due to the increase of assistance needed for the unemployed. The health budget
176
increased by 6.6% in 2010 in nominal terms and received more money at the budget
amendment in July. However, spending on medicines decreased by 10%.
The authorities have initiated an overhaul of the system of social benefits, to
strengthen social safety nets and eliminate inefficiencies, using assistance from the
World Bank. The government is preparing legislation to protect the vulnerable from
the effects of austerity measures.
In response to the economic crisis in Serbia there was a redistribution of funds in the
budget for active employment measures in early 2009, and the public works fund
was almost doubled. However, the total number of participants in public works was
expected to decline by almost 50% in 2010, due to the virtually frozen budget for
active measures in that year. Social assistance spending has been protected during
the crisis. There were no major changes in spending on education and health.
However, to control expenditure and following two large discretionary rises in 2008,
pensions were nominally frozen for 2009 and 2010.
Changes in sectoral spending in countries focusing on stimulating the economy
Social policy expenditure in Belarus has been increasing steadily since 2008
although it had declined slightly from 6.09 to 5.67% of total government outlays
between 2007 and 2008. The level of the minimum income guarantee has increased
alongside increases in spending on social pensions and benefits for children and
young people, childcare and childbirth. Spending on education and health care also
increased between 2008 and 2009 and the rise is projected to continue in 2010.
Table []: Public expenditure on social programmes in Belarus 2008 to 2010
(projected)
Billion rubles
2008
2009
2010
Education
6636.0
6767.0
7681.3
Health
5025.0
5354.0
5869.4
Social policy expenditures (including expenditures from
the Social Protection Fund)
16176.0
18620.0
22510.0
Pension support
1201.8
1283.1
1396.3
Support to families with dependent children
0.7
1.0
1.2
Assistance in the acquisition of housing,
0.8
1.5
1.7
Expenditures on youth policy
19.4
15.7
18.9
177
State allowances for families with children in Belarus constituted 8.4% of the total
expenditure of the Social Protection Fund in 2010. The package for families with
children is well developed in terms of accessibility and coverage. It includes a mix of
universal and targeted cash transfers provided by employers from the Social
Security Fund or by the social protection department of local executive committees.
Over 24.9% of the total child population, including 96.5% of children under 3 years of
age, receive government support in the form of monthly family allowances.
After 2001 in Croatia, the share of social expenditures in GDP gradually declined,
mostly because of economic growth and a reduction in pension expenditures.
However, as economic growth and GDP fell during the crisis, the social expenditure
share of GDP increased. In 2009 it was 1.6 percentage points higher than in 2008
(Table []).
Table []:Structure of Total Social Expenditure in Croatia (% of GDP)
2005
2006
2007
2008
2009
Total expenditure
19.33
18.79
19.02
19.10
20.77
Health
5.10
5.13
5.59
5.60
6.16
Social protection
14.23
13.63
13.43
13.50
14.62
Sickness and disability
2.09
2.11
2.34
2.37
2.58
Old age and survivors
9.17
8.81
8.34
8.34
8.35
Family and children
1.80
1.69
1.74
1.70
1.87
Unemployment
0.47
0.38
0.33
0.31
0.43
Housing
0.01
0.01
0.01
0.01
0.01
Social exclusion n.e.c.
0.29
0.23
0.23
0.22
0.22
R&D Social protection
0.01
0.01
0.01
0.02
0.01
Social protection n.e.c.
0.38
0.39
0.44
0.52
0.51
Of which:
Source: Ministry of Health and Social Welfare. Report on the implementation of the Joint
inclusion memorandum (JIM) of the Republic of Croatia in 2009
178
In the period from 2008 to 2009, there was an increase in the share of expenditure
for sickness and disability, family and children and, particularly, unemployment. The
share of expenditure for old age and survivors, housing, social exclusion, R&D social
protection and social protection has remained on the same level or have
experienced a slight decrease.
The sector that has been most strongly affected by spending cuts is education. The
budget revisions in 2009 reduced the budget of the Ministry of Science, Education
and Sports leading to delays in planned investments, as well as to some cuts in
current spending. The budget of the same ministry in 2010 has been decreased
further but is expected to gradually recover in the next two years.
In 2009 and 2010, the Kazakhstan government reoriented public expenditures to
reflect national priorities at several levels. First, there was a continuing reduction in
administrative expenditures and in stimulus spending on production subsidies of
various forms. Second, a large share of the resources freed by these cuts was
added to social sector spending, and planned social sector spending reviews will
help gauge the effectiveness of this policy. Third, more of the stimulus budget is
being spent on public works and training at the local level to promote local level
employment and employability. Fourth, public spending on agriculture and
manufacturing, including infrastructure and direct support, continues to be aimed at
fostering non-oil growth. The government has protected social expenditures from
budgetary sequestration, insured all pension payments (including those from private
pension funds) indexed to inflation. The republican budget for the healthcare sector
was increased in 2010 but will be decreased 2011.
In November 2010 the government adopted new rules and regulations for policies
aimed at improving the effectiveness and effectiveness of public expenditure,
including social sector spending. in the period of 2009-2010 (projected), social
expenditure shares were slightly decreased for education (16.5% to 15.7%) and
healthcare (11.3% to 10.6%). The share of spending for social protection and welfare
was increased from 19.0% in 2009 to 21.1% in 2010. These increases went mostly
into higher pensions but a part also went to higher wages and salaries for teachers,
medical practitioners, and other public sector employees. Teachers, medical
practitioners, and other public employees are some of the lowest paid people, and
179
many count among the poor. The effectiveness of this additional spending in terms
of impact on social service delivery is so far unclear.
General government spending was increasing in 2009-2010 in Kyrgyzstan. Social
spending was also increasing in 2010 although capital spending in education in 2010
is reported to be just a half of its level in 2009. It should be noted however that
spending on the reconstruction of schools damaged during the conflict in the
southern part of the country may be accounted among other reconstruction
expenditures and may not be included into education spending figures. The dramatic
increase in spending on social protection (benefits and compensations for the
population) is related to the energy sector reform implemented in the end of 2009.
The growth in pension spending is also partially related to compensations for energy
tariff increases and partially to the presidential elections in July 2009 and
parliamentary elections in October 2010. The increase in expenditures in other
sectors in 2009 is mostly related to the construction works on the Kambarata-II
hydropower plant.
Table []: General government spending in Kyrgyzstan as a percentage of GDP
2008
2009
Jan-Sept 2009
Jan-Sept 2010
Total expenditures
29.2
37.0
35.0
38.0
Education
6.2
6.4
6.3
6.0
Health care
2.8
3.5
3.3
3.5
Social protection
1.6
1.6
1.6
2.8
Social insurance (pensions)
4.7
6.5
6.4
8.9
Other sectors
14.0
19.0
17.4
16.7
The Government of Moldova cut the budgets of all ministries and other central and
local public authorities by 20%, affecting the training of the civil servants, travel,
capital investments and office supplies for state institutions. However, expenditure
on social aid to the least favoured families in Moldova more than doubled in 2010.
The level of the guaranteed minimum income increased, as did the number of benefit
recipients. More public money was spent on social aid and pensions, benefits for
children, child care and birth, people with disabilities and on subsidies for utilities.
Due to lower fiscal revenues, budget expenditures in Russia were to be reduced
from 25.5% of GDP in 2009 to 22.9% in 2010. The key Federal Budget expenditure
180
priorities for 2010-2012 include unconditional fulfillment of the State’s social
obligations alongside enhanced targeting of social assistance, implementation of
priority national projects, provision of support to housing construction, quality
improvement of educational and healthcare services.
Russia has not curtailed any social programmes, pensions or benefits in response to
the crisis. In the 2010 budget, public expenditure and inter-budgetary transfers
increased (due to increased transfers to the Pension Fund). However, transfers to
other budgets and expenditures for housing maintenance and utilities, education,
health, culture and social services were reduced and received lower shares of the
total budget. At the same time, expenditures on temporary disability benefits,
motherhood and childhood, industrial accident insurance, medical care for pregnant
women and regular medical check-ups of a child during the first year of life
increased. In 2010, pension amounts were increased twice.
Turkey's increase in public spending can be seen from the public spending to GDP
ratio, which was 34.6% in 2008, 40.1% in 2009 and 39.1% (projected) in 2010.
However, these numbers should be approached with caution. The economy
contracted by 4.7% in 2009 and is expected to grow by 6.8% in 2010. The rise in
spending was mostly financed through debt and was partly due to the contraction in
2009 and an increased demand for social services.
Table []: Public Social Spending in Turkey as % GDP
2005
2006
2007
2008
2009
2010
(projected)
Education
3.2
3.1
3.2
3.4
3.9
3.7
Health
4.0
4.1
4.1
4.3
5.1
4.5
Public Pensions
6.5
6.4
6.7
6.5
7.4
7.6
Social Assistance
0.4
0.4
0.4
0.5
0.7
0.7
Direct Income Support
to Farmers
0.4
0.4
0.3
0.2
0.1
0.2
Total
14.5
14.3
14.6
14.9
17.2
16.7
Source: Adapted from SPO
Changes in sectoral spending in countries with a mixed approach to the crisis
In BiH the 2010 budgets were dominated by a need for fiscal consolidation, mainly
through a reduction of current expenditure. Substantial savings were envisaged in
181
the public sector wage bill through a wage freeze. Reductions in transfers were
made by eliminating special unemployment benefits for demobilised soldiers, the
implementation of eligibility audits for civil and war benefit recipients and stricter
control over pensions provided on favourable terms. After initial delays, the
Federation advanced a reform agenda and parliament adopted a new civil service
wage law at the end of July rationalizing the wage bill by consolidating a large
number of allowances into the basic wage. Eligibility audits of privileged pension and
war disability benefit recipients started in July, albeit slowly. The Federation also
rebalanced its budget in September 2010 in order to comply with IMF requirements
and to account for increased revenues. In Republika Srpska wages in public
administration were cut by 10% (and 15% for the highest paid employees). An
eligibility audit for social transfers was conducted in Republika Srpska, reducing the
number of beneficiaries.
In Kosovo on health and education budgets declined slightly between 2009 and 2010
both in actual terms and as a percentage of total public spending. At the same time
the budgets for pensions and social protection increased (Table []).
Table []: Sectoral Composition of Public Expenditure
2009 budget
2010 budget
(€mn)
(€mn)
2009 %
2010 %
Education
177.1
169.5
15.05
15.08
Transport
116
130.8
9.86
11.63
Other central
141.2
112.4
12.00
10.00
Police
102.6
110.8
8.72
9.86
Health
113.4
102.9
9.64
9.15
Other municipal
116
129
9.86
11.47
Pensions
89.4
100.7
7.60
8.96
MEF/MPA/KTC
150.2
93.2
12.76
8.29
Social Protection
69.5
72.9
5.91
6.48
KEK subsidies
47.1
44.5
4.00
3.96
Justice
36.4
36.5
3.09
3.25
PM/Assembly
17.8
21.1
1.51
1.88
1,176.70
1,124.30
100
100
Total:
Source: World Bank: Kosovo Public Expenditure Review, June 2010
182
Table [], provided in the survey response for Macedonia, shows that while spending
on health and housing increased considerably in 2010, it fell for education social
protection and families with children. The lack of data for total public expenditure
prevents any analysis of sectoral spending as a percentage of the total. However,
Ristestki (2010) reports that "from around 27% in 2009, social transfers grew to
30.17% of the national budget in 2010".
Table []: Public spending by social sector in Macedonia
2007
2008
2009
2010
% change
2010/2009
Total for Education
15,503.80
21,707.20
21,655.62
20,161.53
-6.90
Total for Health
1,606.10
2,191.29
1,960.16
2,323.08
19.00
Social Protection
19,346.42
15,944.87
22,152.27
22,967.68
3.68
16,423.20
14,676.28
20,545.65
20,221.57
-1.58
615.68
751.35
1,067.77
1,002.00
-6.16
0
0.60
55.79
128.28
129.90
Functional spending (miliion MKD)
including:
Social protection
Families and children
Community housing construction
With the economy still recovering, the Government of Tajikistan continued to
implement supportive policies in 2010. However, although revenues showed some
increase as a percentage of GDP, this was not sufficient to offset the expected
decline in donor grants. Within an unchanged expenditure envelope, social spending
was increased to 9.5% of GDP, mainly through raising wages in the social sectors
and increasing the minimum pension. Wages in the health and education sector are
low, and the increases made by the Government are expected to improve the quality
of social services. Increasing the minimum pension is also expected to provide a
direct benefit to low-income groups.
Since 2003, growth in the share of education in public expenditure demonstrates
strong commitment of the government to give priority to education. However the
state budget of 2010 and draft state budget of 2011 may raise questions about the
continuity of this commitment. The decrease of educational expenditures relative to
other sectors in 2010 and 2011 is explained by MoF as a response to the need to
compensate other sectors for the cuts made in 2009 under the influence of the
financial crisis.
183
Figure []: Public spending by sector in Tajikistan
Source: Adapted from MoF, September 2010 (MTEF Team)
According to the IMF, economic performance in Turkmenistan remained strong in
2010. Despite a sizable drop in hydrocarbon production due to lower demand in the
external market, real GDP grew by 9.4% in 2010, reflecting continued growth in
public investment spending and a surge in foreign direct investment. Inflation slowed
significantly from 8.9 percent in 2008 to 0.1 percent in 2009 primarily due to falling
import prices coupled with a stable exchange rate, a more liberal trade regime, and
an increased access to foreign exchange.
Fiscal policy continued to reflect the objectives of the National Program of Social and
Economic Development until 2030. At 7.8% of GDP, the surplus of the state budget
exceeded the target. While total revenues fell as a percentage of GDP, current
expenditures increased on account of higher education and social security spending
and the doubling of capital spending.
In 2010, the Uzbekistan government increased social sector spending to 59% of total
budget expenditure. In 2009, the share was about 52%.
184
Table []: Social spending as % total budget expenditure
2010 projection
Expenditures for social areas and social protection
59.0
including:
education
34.0
health
12.0
culture and sport
1.0
science
1.0
social insurance
0.4
social allowances for families, including with children
10.0
Source: Calculation made by UNICEF staff based on the President’s Decree.
2.1.3 Changes that have been made to taxation and its effects on the
vulnerable
Table [] shows how the countries in the survey have responded to the crisis through
changes in their tax systems. The table places these changes in the context of the
general tenor of response - austerity or stimulus - and changes in tax revenues (also
covered in Section 1.2.3).
Tax revenue increased in Kazakhstan, Moldova and Turkey, all countries taking a
positive stimulus approach to the crisis. It declined in Macedonia, Russia and
Tajikistan, also 'stimulus ' countries. Tax revenue also fell in Amenia, BiH,
Montenegro, Romania and Serbia, all countries focusing on austerity measures. In
Montenegro, Romania and Serbia, however, the decline mainly reflected loss of
income tax revenue while VAT income actually increased. It is possible that, if
reductions in personal tax revenue are resulting from lower employment rates and
increased VAT revenue reflects more spending, people are using more credit. This
has clear long-term implications for vulnerable groups living on low incomes.
On the other hand, lower income tax revenue may result from reductions in the rate
payable. Personal taxation rates have been reduced in Croatia and Montenegro,
although in the former there has been a simultaneous reduction in extra tax benefits.
The personal allowance level for tax liability has been increased in Moldova.
185
Similarly, increasing VAT revenues can reflect increased VAT rates rather than
increased spending. VAT has gone up in Belarus (to 20%), Croatia (to 23%),
Romania (to 24%) and Moldova (on imported energy and luxury goods).
Many countries are undergoing reform of their taxation systems to simplify them and
improve efficiency of registration and collection procedures (Armenia, Belarus,
Montenegro, Serbia and Turkmenistan).
Table []: Main changes to tax systems (orange shading means austerity, green
means stimulus)
Country
Main emphasis
of response
Main changes to tax system
Changes in tax revenues
Albania
Armenia
austerity
Improved collection efficiency
25% fall in 2009 Positive trend
in 2010
Azerbajan
Belarus
stimulus
?
BiH
austerity
VAT increased 18 to 20% in
2010. Some taxes abolished.
More simplification planned.
NDA
Bulgaria
Croatia
austerity
stimulus
Georgia
austerity?
Kazakhstan
Kosovo
Kyrgyzstan
stimulus
stimulus?
stimulus
Macedonia
stimulus
Moldova
stimulus
Montenegro
austerity
Romania
austerity
No change. Flat rate 10%
income tax.
Lowest income tax rate
reduced 15 to 12% but other
tax benefits reduced. Crisis
surcharge (2009) abolished
2010. VAT increased 22 to
23% 2009
Reduced personal tax band
abolished; VAT & excise duties
increased
Export tax scrapped.
No change
VAT exemptions for energy
bills removed 2009 but
replaced 2010
Deadlines for tax payments
extended.
Personal allowance increased.
VAT increased on energy
imports and luxury goods.
Tax reform on-going. Income
tax reduced to flat rate 9%.
Employees' insurance
contributions increased.
VAT increased 19 to 24%.
Excise duty increased.
186
Indirect tax revenue fell in
2009. Positive trend in 2010
?
Short of projections
Increased by 24% June 2010
?
Decreased in 2009
12.8% increase 2009 to 2010
Income tax revenue fell, VAT
revenue increased slightly
Income & profit tax revenue
fell, VAT & excise revenue
Russia
stimulus
Serbia
austerity
Tajikistan
stimulus
Turkey
stimulus
Turkmenistan
Ukraine
Uzbekistan
?
stimulus to 2010
then austerity
?
Many taxes reduced. Social
insurance payable by
employers to be increased.
Reform under discussion.
Some special taxes introduced.
Duty on fuel, alcohol & tobacco
increased.
VAT reduced 20 to 18%. Profit
tax reduced 25 to 15%
Tax on cigarettes, fuel and
restaurant food increased
Legislation to simplify system
Post 2010 personal income tax
increased 15 to 17%;
Enterprise income tax reduced
25 to 16%
Reduced income tax.
Increased excise duties. Tax
exemptions, tax credits, and
cancelled penalties for
delaying tax payments
increased. Net increase in
fiscal revenues of 3.6%
Tax revenue decreased 200910
Real growth of 0.2% first 8
months 2010 over 2009 but
income tax fallen. VAT &
excise revenue increased
Low collection levels reduced
revenue
Growing to 19.72% GDP in
2010
?
?
23% of GDP in 2009
Taxation changes by country
No significant changes to the taxation system were made in Armenia. However, the
government tried to improve the tax administration system by simplifying the
requirements and improving relations with businesses. As a result, tax collections
throughout 2010 grew and exceeded planned levels. There is an argument that the
introduction of tax administration efforts during the crisis period had the effect of
worsening the impact on private businesses, especially, small and medium sized
enterprises.
According to the World Bank, paying tax in Belarus takes an average of 900 hours a
year, with high tax rates, fine rates and complicated paperwork imposing a great
burden on national businessmen. Work on improving the tax system is continuing
but, according to the IMF, the reform agenda is large and complex, requiring
simultaneous reform of multiple layers of economic distortions arising from a farreaching system of government regulation, administration, taxation, and support.
To address negative social effects stemming from the impact of the crisis and the
policy response, it is necessary to create a fiscal space enabling expansion of welltargeted social assistance programs without undermining the macroeconomic
187
framework. Since January 2010 VAT has risen from 18 to 20% and four taxes
(compulsory payments into the Fund for Support of Agricultural Producers, the local
tax on retail sales, the local tax on purchases of motor vehicles and the local parking
tax) have been abolished. It was projected that the reduction in revenues resulting
from abolition of the taxes would be compensated by increased income from the
higher rate of VAT.
In 2011 further simplification of the tax system will reduce the amount of taxes and
improve mechanisms for payment and filing returns. The local area development tax
will be scrapped along with the local tax on services and three types of
environmental tax. The tax ministry also plans to lower the rate of income tax for sole
entrepreneurs from 15 to 12%. Only seven major taxes will be left: consumption tax
(value-added and excise taxes), taxes on profits and income, property tax,
environmental and social taxes. Ordinary people will pay only five of them and they
will do this every quarter.
Since 2009 income tax on individuals is levied at the rate of 12% on total income
(salary, bonuses, dividends, capital gains and overseas premium) derived from
sources both in and outside the Republic of Belarus (for Belarusian residents) and
on total income derived from sources in the Republic of Belarus (for non-residents).
Certain types of income (social allowances, income from sale of personal property
and products cultivated on household plots and others) are exempt from this tax. If
there are sufficient grounds, taxpayers have the right to apply for standard, social
and other tax exemptions.
The fiscal strategy in BiH is governed by the stand-by arrangement with the IMF,
requiring the reduction of the budget deficit through reductions in public spending. In
the first nine months of 2009 indirect tax revenue decreased but it is expected to
increase in the following years based on macroeconomic indicator prognoses,
implementation of the SBA and the new Law on Excise Taxes.
There have been no changes in the taxation system in Bulgaria due to the crisis.
Bulgaria underwent a tax reform before the crisis, introducing a flat tax rate of 10%
and creating in effect a very regressive system dependent on indirect taxation. In the
last quarter of 2009 there were discussions about the eventual reintroduction of a
188
more progressive tax system but these were quickly dropped due to pressure from
businesses and the many influential neo-liberal think tanks.
In Croatia, personal income tax rates have been changed to include three rather
than four tax bands. The lowest tax rate for the people with the lowest income has
been decreased from 15% to 12%. Gains to tax payers from the new system will be
offset by the abolition of previous personal income tax benefits related to housing
needs or coverage of health care expenditures (up to HRK 12.000).
The special tax on salaries, pensions and other benefits has been abolished. This
crisis surcharge included a 2% tax on net salaries and pensions from HRK 3.000 to
HRK 6.000, while a 4% tax was introduced on salaries and pensions higher than
HRK 6.000. The tax rate of 2% was abolished in July 2010, while the 4% rate will be
abolished on 1 November 2010. A new law on VAT is being applied from August
2009, increasing the VAT rate from 22% to 23%. This was supposed to ensure
additional revenues for the state budget, which has been under constant pressure
since the beginning of the crisis.
In August 2010 the parliament of Georgia approved amendments to tax code, which
included: the elimination of the reduced personal income tax rate; enlargement of the
capital gain tax base; increase in excises on beer, spirits and scrap metals;
introduction of an excise on telecommunication services; and elimination of VAT
exemptions for private education and imported medical equipment. The planned
reduction of the tax on interest and dividends has also been cancelled.
Kazakhstan has brought back a tax on crude exports that it scrapped during the
global financial crisis. The government has announced the imposition of a rate of $20
per ton on oil exports - in the hope of raising around $400m this year. No other major
changes have been made.
The energy reform package adopted in November 2009 in Kyrgyzstan eliminated the
previously existing exemption of electricity and heat energy supplies to the
population from VAT and sales tax. This measure increased the burden of the
energy tariff increase for the population. On the other hand it provided the
government with resources to finance compensatory payments to vulnerable groups.
Immediately after the change of the political regime in April 2010, the interim
government replaced the exemption.
189
Domestic taxes have little coverage in Kosovo and no changes have been made
during the survey period.
The only change in the tax system in Macedonia in 2009-10 was the extension of
deadlines for certain payments.
In response to the global crisis Moldova adopted a law to provide a range of fiscal
actions in order to revive economic activity and reduce fiscal pressure on business.
The level for personal tax exemption has been increased by 900 lei for tax payers
and dependants. The deadline for tax exemption for interest income has been
extended by 5 years. A new VAT rate of 8% (instead of the standard 20%) has been
proposed for for primary agricultural production. VAT exemption was provided for
services related to state registration of economic agents and a zero rate applied to
ticket sales for international maritime transport. The zero-VAT taxation procedure
has been simplified.
To increase budget revenues the VAT rate for natural gas and liquefied gas imports
has been increased from 5 to 6% and excise duty has been increased on beer
(25%), cigarettes (400%), gasoline (50%), perfume (300%) and luxury cars (200%).
Local tax on land has doubled and the fee for commercial units increased by 50%.
In 2010 tax policy in Montenegro focused on creating good conditions to develop
entrepreneurship in small and medium enterprises and to attract new investment. To
improve the effectiveness of tax policy, the Montenegrin tax administration
implemented a project from March 2010 that unified the registration and collection of
taxes and contributions. By applying the tax principle named "one application, one
counter ", a previous tax practice which included the submission of 16 different
application forms to several institutions, has been simplified .The new project
involved the formation of a central register of taxpayers, a single place of payment
and a single tax application which is expected to solve the problems of discrepancies
in operation and information between Montenegrin institutions.
Montenegro also introduced tax benefits for employees (meals, bonuses) in January
2010 and reduced personal taxation from 12.0 to a 9.0% flat rate. On the other hand,
the employee contributions rates for pension and disability insurance have been
increased from 12 to 15% and the employer's share has been reduced from 8.5 to
5.5%. Furthermore, for health insurance the employee's increased to 8.5 % and the
190
employer's share decreased to 3.8 %. The tax exemption on use of passenger
vehicles of certain state agencies and local governments was abolished. Excise duty
on mineral oils was increased, as well as the excise tax on tobacco and tobacco
products. The government in April 2010 adopted a regulation on the delayed
payment of taxes on corporate profit, allowing taxpayers to pay debt due in six equal
monthly instalments. In addition, as a measure of support to the economy, payment
of customs debt was extended.
Collection of indirect taxes (VAT (17%), excise duties and taxes on international
trade and transactions) increased in the third quarter of 2009. Collection began to fall
again, stabilizing in the second and third quarter of 2010. Customs revenues
improved due to the recovery of imports, while VAT revenue saw some recovery due
to increased retail sales. Overall indirect tax collection was higher in 2010 than in
2009 but revenues from income tax were 0.68% lower than in 2009.
In Romania in response to the crisis, VAT has been increased from 19 to 24%.
Excise duties have increased and the exemption of interest tax payment has been
eliminated. Income from copyrights is now subject to social contributions. The Prime
Minister announced that, as a result of restructuring measures, 45,000 employees
were laid off between December 2008 and June 2010 and another 88,000 job losses
were announced. Yet it is not clear how many employees were really fired, as many
positions were already vacant. From IMF declarations, around 30,000 employees
were fired. In 2010, the ex-employee received from the state budget (for a maximum
90 days layoff) 75% of his basic salary. There was exemption from social insurance
contributions for firms hiring unemployed workers.
In 2009 in the Russian Federation the following measures were introduced:
 abolition of the sales tax;
 introduction of bonus depreciation;
 lowering of the mineral extraction tax; and
 adoption of a simplified taxation scheme for small-sized businesses.
Tax revenue has therefore been reduced to 30.3 from 35.6% of GDP, with many tax
funds under-received. The most reliable revenue was from VAT and, at regional
level, individual income tax. In 2010, the tax reduction process was suspended,
because, as the Minister of Finance noted, “its potential has been exhausted”, and
the tax burden is expected to be higher in 2011.
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In 2010, new rules for the calculation and payment of social insurance contributions
entered into force. The unified social tax (UST) was replaced by insurance
contributions with insurance payment rates remaining at teh current level until
January 2011. Numerous reviewers of this innovation note that it may lead to
employers understating their profit in different ways, moving it to offshore zones, and
applying other optimisation schemes. The possible consequences of such activities
include optimising the number of employees by reducing the share of workers and
workplaces in small-sized businesses leading to growing unemployment. This
overload on the labour compensation fund will result in a decrease in budget
revenues. The majority of business officials insist on delaying the enactment of the
relevant laws.
No changes have been made to major direct or indirect tax rates but discussions
were opened on a need to reform the tax system in Serbia. Some extraordinary
taxes that affect individual sectors have been introduced (for example, a tax on
mobile telecommunications) and excise duties on petroleum, alcoholic beverages
and tobacco have been increased.
The following changes to the tax system have been in effect in Tajikistan since 2009:





VAT reduced from 20 to 18%
Tax on profit reduced from 25% to 15%
Moratorium on inspection of SME
Refinancing rate reduced from 12 to 10%
Increased and simplified tax system threshold for total revenue (from 600
thousand TJS to 800 thousand TJS)
A number of small changes were made in the taxation system in Turkey. Those up to
mid-2009 aimed to trigger sales and hence spur growth:







The investment incentives (income tax breaks and energy support) that ended
at the end of 2008, were extended for a further year.
Excise duty on internet connections was decreased from 15 to 5%.
Excise duty on motor vehicles was temporarily decreased.
Excise duty on household goods and electronics was temporarily decreased
from 6.7 to 0%
VAT on sales of large houses, newly constructed office space, furniture, ICT
goods and machinery and equipment was temporarily decreased from 18 to
8% for three months.
It was made possible to clear annual taxes and some fines when old vehicles
were put out of use.
Tax on immobile assets registration was temporarily decreased from 1.5 to
0.5% for three months.
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In June-July 2009, some tax increases were also made to increase budget revenue:
 Excise duty on cigarettes was increased by 50 Turkish Cents per pack.
 Excise duty on fuel was increased to 15 Turkish Cents a litre for diesel, 20
Turkish Cents a litre for gas and 10 Turkish Cents a litre for LPG.
 VAT on food in first class restaurants was increased from 8 to 18%.
 The minimum excise duty on cell phones was set as 40 TL a piece,
regardless of value.
The tax changes detailed above were mostly meant to spur sales and in some cases
generate revenue. As such, it is hard to pinpoint any specifically aiming to protect the
vulnerable. The tax changes detailed above were mostly meant to spur sales and in
some cases generate revenue. As such, it is hard to pinpoint any specifically aiming
to protect the vulnerable.
Recent legislation in Turkmenistan aims to streamline registration procedures,
simplify taxation, and ease SMEs' access to financing.
As part of the state budget support to enterprises in Uzbekistan, VAT is returned to
export enterprises in less than 20 days and various tax preferences to textile
enterprises have been extended. The business environment for SMEs has been
improved by increased access to credit, a tax reduction from 8 to 7% and a reduction
in planned inspections by 30% in 2009.
Some key local government informants in the regions reported regional government
actions taken in response (Kashkadarya region) to the threats of the crisis including
reduction of tax rates and support to SMEs.
2.2 Measures to protect the vulnerable
Government responses to the economic crisis vary widely in the extent to which they
include explicit measures for the protection of vulnerable people. In Bulgaria, for
example, 2010 began with a rising budgetary deficit, no stimulus packages for the
economy and little apparent concern for the situation of the poorest and the most
vulnerable. In contrast, in Turkmenistan, fiscal policy continued to reflect the
objectives of the National Program of Social and Economic Development. While total
revenues fell as a percentage of GDP, current expenditures on higher education and
social security increased. Social assistance spending in Serbia has also been
protected during the crisis but maintaining spending levels does not always mean a
193
reduction in poverty. The Government of Armenia has taken a number of steps to
provide protection to the poor, including the maintenance of public spending on
social protection and other pro-poor programs. Such anti-crisis measures of the
government have softened the negative impact and poverty has risen by only 3
percentage points instead of estimated 8. The major benefit reforms introduced by
Kyrgyzstan at the end of 2009 to increase the effectiveness of social protection
produced high percentage increases in benefit rates for families and children but still
left family incomes at a relatively low level.
The challenge is to reduce the disproportionate impacts of the crisis on poor families,
and the extent to which this succeeds cannot be measured simply in spending terms.
Steady levels of spending on social protection may mean more generous benefit
rates but with fewer beneficiaries.
2.2.1 Measures to protect the vulnerable through changes to cash benefits for
families and children
The information provided in the survey shows that in nine countries (Armenia,
Belarus, Kazakhstan, Moldova, Montenegro, Russia, Serbia, Turkmenistan and
Uzbekistan) benefits to help families and children have been increased or extended
over the past year (Table []). This indicates a more generous response to the
impacts of the crisis on the poor but in some cases, such as Kyrgyzstan and
Tajikistan, the percentage increase has a very low base. In other cases, such as
Armenia, the increase in benefit levels is achieved at the expense of benefit
coverage. In Russia increases are to be accompanied by obligations on able-bodied
claimants to work. Where increases in benefit levels have been small and
accompanied by increasing numbers of recipients, as for example in Kazakhstan, the
effect on poverty rates is likely to be minimal.
Table []: Summary of changes to social protection schemes for families and children
Country
Family benefits
Benefits for children
Armenia
Budget held steady but
beneficiaries reduced in number.
Only when non-contributory social
protection considered in conjunction
with contributory pensions.
Belarus
Increased eligibility for one-off
allowance for poorest hhs, usually
with children
Child rearing allowance for children
under 3 years increased from 80%
to 100% of subsistence minimum
budget level.
194
BiH
No change
No change
Bulgaria
No increase
No increase
Croatia
No change
Free textbooks and school transport
abolished
Georgia
No change in benefit levels
No change in benefit levels
Kazakhstan
Increase in social benefit, state
allowance and TSA
Disabled children's allowance
introduced.
Kyrgyzstan
Increase in benefits for families with
children
Increase in benefits for disabled
children
Kosovo
Cash assistance unchanged
Free text books for primary school
children
Macedonia
NDA
NDA
Moldova
23% increase in guaranteed
minimum family revenue.
Compensation payments for cold
weather.
Increase in aid to orphans.
Montenegro
All welfare benefits increased by
10%
NDA
Romania
NDA
NDA
Russia
Social benefits to be increased by
10%
NDA
Serbia
MOP increased by 4%
Child benefit increased
Tajikistan
NDA
State sponsored student grants
increased
Turkey
No change
No change
Turkmenistan
Benefits increased by 10%
Benefits increased by 10%
Ukraine
Subsistence minimum per person
increased across the board 2008-9
Increase of 13.5% children < 6;
10.7% children 6 to 18
Uzbekistan
Increase linked to rise in minimum
wage
Increase linked to rise in minimum
wage
Increases in birth and child care
payments
NDA: No data available
Countries with increased benefit levels
Family benefits, one of the biggest budget programs in Armenia had its financial
allocation in 2009 kept at the 2008 level. However, the number of beneficiaries was
reduced by more than 10% so that the average amount of benefit paid to each
household increased in 2009. This same trend continues in 2010. This means that
the government has de facto reduced the poverty risks for those inside of the budget
programs but not for outsiders.
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According to NSS data only 67% of extremely poor families are reached by family
benefits. At the same time, only a third of poor families (13% of all families) are
covered by the family benefit system. Coupled with other programs (mainly pensions
which reach 75% of the poor), the government reaches 82% of all poor families.
There is of course room for debate on this model where contributory schemes
overlap with, and therefore substitute for, the pure social protection scheme. Another
pro-children program – childcare transfers for families with children under 2 years old
- has registered some increase in the demand over the crisis period. The number of
beneficiaries increased by 15% between January and September 2010 period while
recipients of child delivery transfers increased by 1137 cases more than planned.
In order to increase targeted social assistance to the most vulnerable households
affected by the crisis in Belarus, a presidential edict came into force in January 2010.
Under this edict people whose income does not exceed 150% of the per-capita SMB
(increased from 120% in 2009) are eligible for one-off social security payments.
These payments range from 50% SMB to 5SMB. The number of recipients nearly
doubled in the first eight months of 2010 due to the above edict, the majority of them
being families with many children and single parent families.
The 2010 edict also replaced two general types of targeted social assistance granted
to households with incomes below the SMB – a monthly allowance and non-cash
utility subsidies – with one monthly allowance provided to people whose incomes
were less than the per capita SMB in the 12 months preceding the application date.
Earlier applicants’ eligibility was reckoned on the basis of their average income in the
previous three months. Since January 2010 allowances are paid for six months
instead of three.
In 2009 the universal child-rearing allowance for children under 3 years old was
calculated as 80% of the Subsistence Minimum Budget (SMB). Since 1 January
2010 the monthly allowance paid to parents caring for under-three-year-olds has
been increased to the level of the per capita SMB. The edict also introduced new
types of social allowances to be paid for people with third-degree disabilities and for
non-disabled children under 18 years of age who need to buy special equipment
such as hearing devices, ocular prostheses or insulin syringes. This allowance is
non-means tested and was provided for 11,900 recipients in the first eight months of
2010.
196
The rate of payment for social benefit in Kazakhstan was increased by over 10%
between 2009 and 2010 while the number of people receiving benefits increased by
1%. The special/categorical state allowance also increased slightly over the period
and the number of recipients increased. At the same time, the number of people
receiving targeted social assistance (TSA) decreased over the period of JanuaryAugust 2010 although the amount of TSA slightly increased. In January 2010,
disabled children started receiving allowances equal to the minimum monthly wage
and in August 2010, the minimum monthly wage was increased. Rates have also
increased for age-related cash transfers, the 'loss of a breadwinner' allowance and
for disability benefits. However, since benefit rates have not been increased
significantly and the number of people receiving (certain) benefits has gone up in
2010, it is difficult to argue that the changes have had any positive impact on the
reduction of poverty.
Two main instruments of support to vulnerable groups in Kyrgyzstan in 2009-2010
were the reform of the social benefits and pension increases. The primary purpose of
the adoption of the new law was to increase effectiveness of social protection in
poverty reduction and to improve selection of the beneficiaries. The reform was
implemented following long-term research and technical work by the State Social
Welfare Agency with support of UNICEF and the EC. As a result of the reform, the
number of recipients of the Monthly Benefit for Poor Families with Children (MBPFC)
changed from 6.8% coverage of the total population at the end of 2008 to 6.9% at
the end of 2009 and to 6.7% at the end of September 2010. The average size of the
benefit has increased by 41% from 2009 to 2010. Another relatively large benefit is
Monthly Social Benefit (MSB) intended mostly for children with disabilities or adults,
who have a disability from childhood. Its number of beneficiaries has increased from
60.2 thousand at the end of 2008 to 62.2 thousand at the end of 2009 and to 66.1
thousand as of 30 September 2010. The average size of the benefit has been
growing from 827 soms/month in 2009 to 1,509 soms/month in January-September
2010, a rise of 82%. Recipients of these two benefit schemes are also eligible for the
WB/EC-funded compensation for soaring food prices, which is being paid on the top
of the core benefit from 2008. Its original size was 35 soms/month; starting from
2010 the compensation amount has been increased to 40 soms/month. However,
despite of these benefit increases, both MBPFC and MSB amounts per recipient are
197
very low: below 20% of the extreme poverty line for MBPFC and below this line for
MSB in 2009.
In 2010 the guaranteed minimum monthly revenue of a family in Moldova was
increased by 23%. The number of recipients of social assistance also increased and
expenditure on social aid to the least favoured families more than doubled in 2010.
The National Fund for Support to Population has been used to provide financial aid
to veterans, people with disabilities and orphan children. The average amount has
increased by 6% since 2009.
Vulnerable families, retired, and state budget
employees on the minimum salary have received social compensations to provide
for the cold period of 2010. Increases have been made to the one-off birth payment,
the monthly allocation for care of children up to 18 months and for child care up to
three years. Between 2009 and 2010 the average value of allocations for insured
mothers increased by over a third.
Social welfare benefits, child and parental protection in Montenegro are financed
directly from the central budget. In response to global financial crisis the Government
increased all social welfare benefits amounts by 10% since January 2009, with
exception of disability related benefits, which increased by 20%. There are quite rigid
eligibility criteria for benefits offering material support to families (MOP) and the
number of beneficiaries has not been significantly increased. Since increasing import
and domestic prices caused the average electricity bill to rise to one quarter of the
average wage in 2007 an electricity subsidy is available to recipients of MOP,
personal disability benefit, other person care benefit, foster family accommodation
beneficiaries and beneficiaries of family material support for veterans. It was
calculated as 30% of the average minimum electricity bill for a four-member
household and is paid every three months. Since June 2008 the subsidy has been
increased to 45% of the monthly bill and eligibility has been extended to certain other
low-income households facing high bills.
The government in Russia has committed itself to improving the targeting of its social
support. Regional authorities have been given expanded powers allowing them to
decide independently which social support programs should be implemented in their
region, taking into account the income level of beneficiaries of the respective
subsidies and benefits. Social allowances and benefits are to be indexed by 10%. In
2010, the Government intended to begin work on introducing conditional allowances
198
through system of social contracts (“social adaptation agreements”) designed to
represent mutual agreements between a beneficiary of targeted social assistance
and a social security body at the place of beneficiary’s residence. This is a new
model of social protection for the poor under which an able-bodied person below the
poverty line has to work in order to receive an allowance. In 2010, a pilot project
concerning the provision of state social assistance for low-income citizens through
social contracts was conducted in four rural districts and two cities (including Rostovon-Don) of the Rostov region. Social contracts are concluded for a period of six
months.
The draft Law on Social Protection in Serbia provides mechanisms for widening
social assistance to the poor, through greater amounts of benefits and increase in
the number of users, especially among multi-member households and households
where all members are unable to work. It includes strategic objectives related to the
reform of social services and regulates rights, types of services, service providers,
user groups, quality control mechanisms and authority in establishing and funding
services. The changes are particularly significant in the institutional and regulatory
area - the introduction of a chamber of social protection, licensing social service
professionals and service providers, introducing public procurement of services,
reformulating the mechanisms of control and inspection. New provisions of this Law
should enable the functioning of a system in which minimum standards of service
would be clearly defined, where equal treatment for state and non-state service
providers would be enabled, and gradually refocusing from institutional to noninstitutional social care. Furthermore, it would enable special-purpose transfers for
financing services under the local government’s jurisdiction from the budget of the
Republic of Serbia: (a) services in less developed municipalities, (b) services in the
municipalities where social accommodation facilities and institutions in the process of
transformation exist, including the transformation costs, (c) innovative services and
social protection of particular importance for Serbia.
Although the importance of social transfers in reducing poverty is growing, especially
for child poverty, it is still much lower than in EU countries, where social transfers
reduced the average poverty risk rate by as much as 32% in 2008. The amount of
child benefit was increased in 2009. In the first eight months of 2010 the crisis
affected the number of recipients, which, although increasing slightly, remained
199
lower than in 2008. Material family allowance (MOP) does not target children directly
but it represents a significant transfer for poor families with children. The draft Law
on Social Protection introduced equivalence scales and effectively increased the
number of MOP users and the monthly amount paid. Between August 2009 and
August 2010 the number of families receiving MOP increased by 10.7% owing to the
negative effects of the economic crisis. The amount paid increased by about 4%.
During 2009, amendments were adopted on the Law on financial support to families
with children to precisely regulate benefits for employed mothers on maternity leave,
eliminating abuses in the system. Changes in the law gave guardians or foster
parents the right to child allowance for more than four children. Each of Belgrade’s
17 municipalities has one soup kitchen and the number of users has increased since
the beginning of the crisis by 30%, according to the Serbian Red Cross.
In Turkmenistan all social assistance benefits were increased by 10% from January
2010. A further similar increase is envisioned for 2011.
To protect the vulnerable in Ukraine, gradual increases in social standards took
place between 2008 and 2009. Changes in the value of the social standards to which
all the social assistance payments are linked is provided in Table [].
Table []: Changes in subsistence minimum standards in Ukraine 2008-2009
31.12.08 UAH
31.12.09 UAH
Change for
2008
Change for
2009
Per person per month
626
701
+94
+75
Children under 6
557
632
+87
+75
Children of 6 - 18
701
776
+97
+75
People of working age
669
744
+101
+75
People of non-working
age
498
573
+87
+75
Minimum wage:
605
744
+145
+139
Minimum old age
pension:
498
572.4
+82.9
+74.4
Average old age
pension:
898.4
999
+307.6
+100.6
Average monthly wage
1,335
1,456
+384
+121
Subsistence minimum:
In December 2010 a law was adopted which introduced changes to the Law on the
Social Assistance to Low-Income Families. It now provides for increases in the size
200
of benefits per child per month for families with children. For children aged 3-13 the
increase will be UAH 60 (2011), UAH 120 (2012), UAH 180 (2013), and UAH 250
(2014); for children 13-18 the increase will be UAH 100 (2011), UAH 230 (2012),
UAH 360 (2013), and UAH 500 (2014). A draft law on increasing the size of the
universal birth grant was also introduced to the Parliament envisaging further
increases in birth grants up to UAH 24,480/US$3,087 for the first child, UAH
48,960/US$6,174 for the second child and UAH 97,920/US$12,348 for the third and
each subsequent child. The draft law is expected to be adopted by the end of
January 2011 and the payments will be effective from 1 February 2011. Both laws
were initiated by the President of Ukraine and the changes suggested are
particularly important to mitigate the consequences of the economic crisis of 20082009. Both changes are in line with recommendations of the UNICEF Study on Child
Poverty and Disparities in Ukraine and are expected to significantly reduce child
poverty in Ukraine.
Since August 2009 in Uzbekistan the minimum wage, public-sector wages, pensions
and stipends increased twice, by 12% effective from December 2009 and by 20%
effective from August 2010. This reflects government policy to ensure that base
income is not eroded by inflation. Most social assistance, including child benefit,
MOP, child care allowance, allowances for disabled children and people disabled
since childhood, orphans allowances, allowances on the loss of a breadwinner and
allowances for adoptive parents, is calculated on the basis of the minimum wage. As
a consequence, minimum wage increases lead to rises in the levels of these
benefits.
Countries with unchanged benefit levels
It is expected that the recent changes in the administration of social allowances from
rights-based to needs-based in the Federation of BiH will allow for the redistribution
of available resources towards the most vulnerable. It is too early yet to make an
appropriate assessment of the results.
Year 2010 in Bulgaria began with a rising budgetary deficit yet no stimulus packages
for the economy and little apparent concern for the situation of the poorest and the
most vulnerable people. No increase in benefit levels has taken place.
201
According to the World Bank, the existing social protection system in Croatia was
effective in preventing a rise in poverty among the economically inactive population.
The two best-targeted social assistance programs in Croatia are social welfare
support and the child allowance programs. The targeting efficiency of other programs
is considerably lower. Household Budget Survey data show that the poorest 20% of
the population receives 52% of total cash social assistance, which compares
moderately with other ECA countries. This result reflects the good targeting
performance of the child allowance program (46% of the spending reaches the
poorest quintile) and especially that of the social welfare support program (71% of
the spending reaches the poor, which is one of the best regional targeting results).
Entitlement to the benefit is determined by family size, combined family income,
combined family assets, and also by a limited number of proxy means, for example
ownership of a second property or a car.
Less than 28% of all funds are distributed to upper quintiles. However, the social
welfare support program covers only a fraction of the poor and its coverage has
eroded over time. It covers only about 2% of the total population, which is less than
the 4% coverage rate in the EU new member states for the guaranteed minimum
income benefit. Nevertheless there have been few major changes in noncontributory social assistance schemes in the period between August 2009 and
August 2010. Free textbooks and school transportation were abolished in 2009, a
move justified by the necessity of spending cuts. Only poorer families are able to use
the social welfare system to obtain one-off assistance for the purchase of textbooks.
In Georgia, the share of targeted social assistance (TSA) in total social expenditure
has remained at 14% in 2009 and 2010. However, the number of beneficiaries
decreased from 158,587 households to 150,138 households during August 2009 –
August 2010. Under Georgia’s proxy means-testing scheme, families need to identify
themselves as poor and go through means-testing, after which if qualified they
automatically get cash benefits. In 2010 the Social Services Agency made a number
of changes to the proxy means-testing formula: some items (such as TV sets and
mobile phones) were removed from the list of proxies, chronic illness was ascribed a
higher weight in the formula, expenditure on utilities was subjected to seasonal
adjustments and valuable items received as gifts will not be included in the proxies
list. According to the WMS, TSA reduces the official poverty headcount by 2.4
202
percentage points and extreme child poverty headcount by 2.9 percentage points. It
also reduces extreme poverty headcount by 3.7 percentage points and extreme child
poverty headcount by 4.9 percentage points.
The amount of cash assistance benefit for poor families in Kosovo has remained the
same as in 2009. Free text books have been distributed to all primary school
children.
Turkey suffered a serious economic crisis in 2001 and then experienced a relatively
calm period of growth. During this period the Government carried out structural
reforms of the social security system, medical services finance and provision, and
social assistance schemes. There has been little change since then but the current
crisis has led to increasing demand for social services including assistance
schemes. This often results in more beneficiaries and increasing cost. An important
change is on the way. ‘’While there were no major changes in the design or
administration of social assistance benefits to respond to the crisis, a number of
measures are being taken in 2010 to improve the efficiency and effectiveness of
social assistance in Turkey, including the new Social Assistance Information System
(SOYBIS), which aims to integrate all social assistance benefits under a single
database. SOYBIS is expected to enhance the responsiveness of the social
assistance system to future crises by determining eligibility automatically and
objectively from within the system and by directing payments directly to beneficiaries,
although it will also be important to improve the outreach to the poor and vulnerable
so they are aware of the different social assistance benefits.’’2
Other countries
Macedonia adopted a National Strategy to Combat Poverty and Social Exclusion
(NSCPSE) on 12 October 2010. A collaborative effort involving 5 UN agencies
(UNDP, UNICEF. UNFPA, UNIFEM and WHO) and the Ministry of Labour and Social
Policy resulted in a comprehensive strategic document that has the ambitious goal of
reducing social exclusion and poverty during 2010 to 2020. The strategy is currently
being operationalized and it remains to be seen whether sufficient funds will be
2 WB, UNICEF, TEPAV ‘Household Welfare in the Face of Economic Slowdown: Results from Five
Urban City Centers in Turkey’, June 2010, p 26
203
allocated for its effective implementation. Some of the social anti-crisis measures
already undertaken by the government are increasing of the number of soup
kitchens from 19 to 35, and subsidizing heating costs for social welfare beneficiaries
to the amount of €10 a month.
A recent check carried out on 50% of the beneficiaries of the minimum guaranteed
income in Romania showed that 25% were illegal claims so regulations will be
changed next year. The government plans to enhance requirements for benefit
receipt, increase control over grants and reduce legal coverage. A new law for social
assistance and another proposal for the quality of the social services are being
debated in the Parliament. Some allowances have already been eliminated
(maternity allowance and trousseau, allowance for the first marriage) and some
reduced (parental indemnity for baby care, allowance for invalidity). Big changes are
expected in the minimum guaranteed income, the parental indemnity for baby care
and the subsidy for heating in winter.
The most consistent message from the data in Tajikistan is that social assistance is
generally ineffective in reaching the poor and improving their well-being. Analysis of
recent and detailed data on households (TLSS 2009) suggests that the social
assistance programs have lowered the poverty rate by only 0.3 percentage points.
An important reason is that benefits are negligibly small. The other main reason is
that less than a quarter of social assistance was received by the poorest 20% of the
population, while the rest leaked to better-off quintiles.
2.2.2 Measures to protect the vulnerable through changes to unemployment
benefits and pensions
Changes to contributory systems
The countries in the UNICEF survey vary enormously in the extent to which pensions
are based on contributions, the rate of any contributions and the coverage of the
schemes. Responses to the survey gave only patchy information about changes
related to the crisis. Nevertheless, there are signs that some countries (for example,
Turkey), in attempts to stimulate employment, have decreased the proportion of
contributions payable by employers. This is usually at the expense of employee
204
contributions in order to maintain pension fund revenue (for example in Kyrgyzstan,
Montenegro and Romania).
Turkey has introduced a targeted, time-bound and step-wise reduction of employer’s
social security contributions for women and youth (100% in the first year, declining
thereafter by 20% each year) together with an across-the-board reduction in the
employer’s social security contribution by 5%.
In 2009, the rates of contributions to the Kyrgyzstan Social Fund changed. The
cumulative rate of contributions increased from 27% to 27.25% of payroll, while the
rate for employers decreased from 19% to 17.25% and the rate for employees
increased from 8% to 10%. The latter increase is related to the introduction of a fullyfunded pillar into the pension system. These additional 2% employee contributions
have to be accumulated in a special fund to be invested. However, in the short-term
the changes imply some increase of tax burden on hired workers and reduction of
funds available for the pension fund to be redistributed to current pensioners.
In Montenegro the government initiated an increase in social security contributions
paid by employees in 2010. This was a measure that was taken after exhausting all
other solutions and the breakdown of an agreement with the union. The compulsory
contribution rate for pensions and disability charged to the employee increased from
12.0% in 2009 to 15.0%, while the rate for the employer declined by 8.5% to 5.5%.
The unemployment insurance contribution amounts to 1% of the gross wage out of
which the employee pays 0.5% and the employer 0.5%.
A considerable fall was registered in contributions to social insurance in Romania,
where the proceeds in 2009 were 5.1% lower than in the last year. The reduction of
the number of employees diminished the contributions fund accordingly and
increased the number of pensioners. Since February 2009, the contributions quota
has increased: the contributions of the employees to 10.5% of the gross salary and
for employers, 20.8% of the gross salary for each employee in normal working
conditions, 25.8% in severe conditions and 30.8% in special conditions. The
employee component includes 2% administered funds. At the end of June 2010, in
Romania, 5.7% more people had private pensions than in June 2009. The average
monthly contribution to a private pension increased from 5.37 Euro/person to 6.28
205
Euro/person. The compulsory contribution rose to 2.5% of the base salary from
March 2010, increasing from 2%.
For the moment, excluding the general contributory scheme, there function
separately special schemes for different types of public servants, partially
contributory or non-contributory. These special schemes address a number of more
than 200,000 ex-employees in the public system, including magistrates, policemen
and employees in the security institutions, aviators, parliamentarians and military
staff. The pensions are paid from the central budget. These schemes will be
abrogated and included in a general contributory scheme and the pensions will be
recalculated based on the number of equivalent points.
The contributions for unemployment insurance consist of the contributions of the
employees (0.5% of the gross salary) and employers (0.5% of the gross salary for
each employee).
Armenia has a relatively high level of mandatory social contributions, approximately
22% of salary in the case of an employee on an average salary and 20% of salary in
the case of an employee on a salary double the average. It is in the process of
introducing major reforms. There is, however, significant political criticism which is
holding up implementation. The progress of reforms will be significantly dependent
on the macroeconomic performance of the country, currently in a risky shape due to
the crisis.
A major issue in Bulgaria relates to the pension funds of some categories of workers
such as the miners. These funds have existed for 10 years and were functioning on
the basis of private accounts. But it became clear that the funds had not
accumulated enough money to pay decent pensions to some workers, especially to
those whose employers have defaulted on the payment of social security
contributions. In some cases employers had paid the minimum social security
contribution (obviously working in the grey economy), which does not allow for the
payment of decent pensions under private pension accounts. Control on behalf of
the state has obviously not been very efficient. The collapse of the stock exchange in
2008 with a negative return of about -23% also contributed to the problems faced by
the private pension funds. Thus at present the private accounts contain an average
of slightly more than the equivalent of €1000. This would allow private pension funds
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to pay a monthly average of €25 per person, which is an amount below the social
pension. The government announced the controversial step to nationalize the funds
and pay all the pensions from the main budget of the National Social Security
Institute but the final decision has not yet been taken. The government has also
announced its plans not to increase pensions until 2013.
In Russia, the labour pension consists of a base and insurance components. The
size of the insurance component depends on the amount of pension contributions
paid. The size of the base component depends on the degree of ability to work.
Since January 2009, the base component of the labour pension will be included into
the insurance component and will be called a fixed base size of the insurance
component of the labour pension. The amount of the fixed base size of the insurance
component of the disability labour pension will depend on the disability group. In
2010, new rules for the calculation and payment of insurance contributions for social
insurance entered into force when the unified social tax (UST) was replaced with
three insurance contributions. The overall contribution rate remained at the level of
the applicable UST rate.
Other countries have seen little change. The rate of contribution for social insurance
in Uzbekistan is determined by the Cabinet of Ministers on a yearly basis. From
2005, the contribution has been one per cent of salary, which is income-tax
deductible. Self-employed people, farmers and other citizens whose participation in
the system is voluntary have the right to make contributions to their or thirds parties'
pension accounts. However, the current safety net system is not adequate to shield
for children from poverty and makes a very limited contribution to poverty reduction.
There were few major changes in non-contributory social assistance schemes in
Croatia in the period between August 2009 and August 2010 although contributory
schemes have changed. The assets in private pension funds grew by almost 9% in
nominal terms, thereby compensating for most of the losses incurred in 2008. In
Kazakhstan, all citizens are covered by the government pension scheme. Employers
are obliged to deduct pension contributions from each employee’s salary. Both public
and private contributions are 10% of the gross wage. No changes were introduced in
the pension scheme system as a result of the crisis. No changes occurred in
Moldova where state social insurance contributions are 23% for employers and 6%
for employees.
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Unemployment benefits
Survey respondents reported few changes to unemployment benefits. While they
were reduced in Croatia, they were increased for new claimants in Montenegro and
the claim period was extended in Kazakhstan (Table []).
Maximum unemployment benefits were reduced prior to the survey period (in July
2009) and after it (in November 2010) in Croatia. Now claimants receive 70% of the
baseline amount during the first three months but only 35% of the baseline amount
thereafter. In contrast, a new Employment Law was adopted by the Parliament of
Montenegro in December 2009, increasing the unemployment benefit for the newly
unemployed. For recipients under the old law, the benefit amounts remain the same.
The Kazakhstan government extended unemployment benefits from four to six
months (although later in the survey response it appears "there are no
unemployment benefits"), and promoted the signing of memoranda between regional
authorities and larger enterprises on preserving jobs.
Unemployment benefits in Armenia have undergone no policy change, but there has
been a significant increase in financial allocations due to an increase of eligible
demand.
Table[]: Summary of changes to unemployment benefits and pensions
Country
Unemployment benefit
Change in pensions
Armenia
Belarus
BiH
Bulgaria
Croatia
NDA
NDA
NDA
NDA
Benefits reduced in July 2009 and
November 2010
Unemployment benefits extended from
4 to 6months.
+15% since beginning 2009
NDA
NDA
Frozen
No change
Kazakhstan
Kosovo
Kyrgyzstan
NDA
NDA
Macedonia
Moldova
Montenegro
Romania
NDA
NDA
Unemployment benefit increased for
new claimants.
NDA
Russia
NDA
Serbia
NDA
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All index linked pensions insured by
govt. & rate increased by 25%. Agerelated cash transfers increased
NDA
Increases in both base and contributory
pensions
NDA
NDA
NDA
Minimum guaranteed pension
maintained
Average size of labour and social
pensions increased.
Frozen
Tajikistan
Turkey
Turkmenistan
Uzbekistan
NDA
NDA
NDA
NDA
Minimum pension increased by 33%
No change
Pensions increased by 10%
Increased by 12% in December 2009
and again by 20% from August 2010
Pensions
The World Bank found that the crisis had a negative impact on over 40% of the
population of Armenia but that government action had softened the this impact. One
reason for the general effectiveness of the anti-crisis measures is that the
contributory and non-contributory social protection systems taken together cover a
significant portion of the population. Pensions, for example, reach around half of all
households. The fact that pensions have risen by around 15% since the beginning of
2009 has already reduced the risk of poverty for elderly people. However pension
increases mainly compensate for inflation and play a lesser role in improving the
social conditions of households.
The share of pensions in total expenditure on social protection in Georgia has
slightly increased, from 76% in 2009 to 77% in 2010. Between August 2009 and
August 2010 the number of pensioners has slightly decreased from 842,975 to
840,913. However, this decrease is due to demographic change as eligibility criteria
have not changed. According to the WMS, pensions reduce the official poverty
headcount by 13.4 percentage points and the official child poverty headcount by 9.2
percentage points. Similarly, pensions reduce extreme poverty by 13.8 and extreme
child poverty by 9 percentage points.
There were several rounds of pension increases Kyrgyzstan in 2009-2010 affecting
both base and insurance parts of the pension. The base part of the pension was
increased from 530 to 630 soms a month in April 2009, to 800 soms in July 2009,
and to 1000 soms/month in October 2010. The insurance part of the pension was
increased according to a complicated schedule from July 2009 and from March
2010. In addition, compensation for growing energy prices was increased twice in
July 2009 and January 2010. As a result of these increases the average size of
pensions grew from 1,426 soms a month at the end of 2008 to 2,111 soms a month
at the end of 2009 and is expected to reach 2,808 soms a month at the end of 2010.
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Despite these increases the level of average pension is still below the minimum
subsistence level for pensioners but higher than the general poverty line. There were
also increases of pensions for military pensioners in 2009-2010 related to the
increase in energy tariffs.
The level of the minimum guaranteed pension was maintained in Romania.
The level of pension coverage of Russian citizens was substantially raised in 2010
through the introduction of a mechanism that increased the average size of the
labour retirement pension. To adjust the level of material support for pensioners to
the pensioner's subsistence level, federal and regional social supplements to the
pension were introduced. From April 2010, to maintain the material standing of all
categories of pensioners, the insurance component of the labour pension was
increased by 6.3% and the social pension by 8.8%.
Social assistance spending in Serbia has been protected during the crisis but, to
control expenditure, pensions have been nominally frozen for two years (2009 and
2010). This came on the back of two large discretionary pension increases in 2008.
Social transfers (excluding pensions) reduced the risk of poverty in 2009 by 7.9%.
In Tajikistan, almost 44 percent of the poorest quintile of households benefited from
pensions even though the largest component of pensions, old age pensions, is a
contributory program.
Retirement pensions will range from $46 to $205 a month in Turkmenistan in 2010.
War veterans will receive up to $246 a month after the increase.
2.2.3 Measures to protect the vulnerable through health services
Few countries reported changes to health systems in direct response to the
economic crisis although many are undergoing continuing reform and some are
explicitly concerned for more vulnerable citizens.
As funding for health care comes from general taxation in Belarus, the Ministry of
Finance is responsible for collecting financial resources for health care, but there are
no earmarked taxes or other contributions specifically for health funding. Since
January 1 2010 healthcare establishments were exempted from paying value-added
tax on proceeds from health services to individuals.
210
Changes in the health care system in Bulgaria have been limited to austerity
measures including reduced hospital budgets, delayed payments and deficit of
pharmaceuticals paid by the National Health Insurance Fund.
The costs of public health insurance in Croatia were partially shifted in 2009-10. In
addition to the contributions of current employees and direct budget transfers, health
system reforms introduced or increased co-payments for health services and
introduced a supplementary health insurance programme targeted primarily at those
who want to reduce their co-payments (rather than to expand their health insurance
coverage). The reform has included some steps towards cost-effectiveness and a
wider reliance on generic pharmaceuticals, which has resulted in savings. However,
these measures have not specifically targeted vulnerable groups. On the other hand,
the extension of co-payments has resulted in increased costs of healthcare.
The Kazakhstan government protected social expenditures from budgetary
sequestration, and public salaries were increased by 20-25% on average. However,
medical practitioners, and other public employees are some of the lowest paid
people, and many count among the poor themselves.
The contribution for mandatory health insurance in Macedonia has been decreased
from 9.2% in 2008 down to 7.5% in 2009 and 7.2% in 2010. In 2011, the plan is to
further reduce the contribution down to 6%. However, the government may revisit
this decision as it influences significantly the annual income of the health insurance
fund, especially in time of financial crises. The Ministry of Health is currently revising
the basic benefit package and has initiated reforms in the mandatory health
insurance scheme, with possibilities to include voluntary additional health insurance.
Preventative healthcare spending, including expenditure on mother and child health,
has been reduced by 32%. In addition, funds for specific health protection measures
for mothers and children have been reduced by almost a half compared to 2009. The
consequences of this remain to be seen. Finally, the noticeable increase in funds for
mandatory immunization is due to the procurement of expensive HPV vaccines, as
well as H1N1 vaccines.
One important effort in this regard that is worth mentioning is the project
“Rehabilitation of Mother and Child Health Services” financed jointly by the Dutch
and Macedonian governments. Namely, with the assistance of UNICEF the Ministry
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of Health secured the financial assistance from the Dutch government to the amount
of €8 million. The government committed itself to provide the remaining 15 million.
The project implementation will begin in 2011 and will last for three years, until the
end of 2013.
Compulsory medical insurance in Moldova is calculated as 7% of salary and other
rewards is in 2010, the same as in 2009. It is payable in equal shares by employer
and employee. The cost of a fixed amount insurance policy purchased individually is
lower in 2010 than in 2009. Individual entrepreneurs, residing in Moldova, who are
not insured from the state budget will benefit from a reduction of 50% to purchase
insurance policies of healthcare, if they buy this in the first half of 2010. Owners of
agricultural land will benefit from a reduction of 75% of the cost of compulsory
medical insurance policy, offering a measure of financial protection of this class of
people.
In order to support vulnerable groups, to increase access to services and
reproductive health information, the Ministry of Health, jointly with the UNFPA Office
in Moldova, has developed in 2009 social information campaigns in villages with a
population of predominantly Roma ethnicity. In this Campaign were included about
550 beneficiaries. Uninsured people, mostly in vulnerable groups, receive free
emergency medical care. For 2010, the list of partially compensated medicines has
been extended, and the allocations for partially or entirely compensated medicines
have increased by 51.2% over 2009.
There has been a cumulative increase in contribution rates for health insurance in
Montenegro from 10.5% to 12.3%. The contribution payable by the employee is
8.5% and by the employer, 3.8%.
The contributions fund for health insurance decreased as unemployment increased
in Romania. Contributions for health insurance paid by employees increased to 5.5%
in 2010 and for employers to 5.2%.
The priority Health Care National Project in Russia was continued in 2010 along with
such federal target programs as “Disease Prevention and Control Strategy” (2007–
2011) and “Children of the Russian Federation” (2007-2010) These were aimed at
the development of primary health-care, improvement of traffic accident rates,
cardio-vascular and cancer disease medical care, as well as the advancement of
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pregnancy care and other medical treatments measures. Training programs have
also been introduced for improving physician proficiency, and the health-care
infrastructure has been more thoroughly developed.
Considering the tendency of reduced access to medical services for the most
vulnerable groups of the population, the government suggested establishing a Health
Fund that will be used for supporting unemployed pensioners. The government will
annually deposit one thousand roubles in pensioners’ personal accounts to be used
as medical insurance co-payment.
During 2010, the Ministry of Health is continuing the development of the perinatal
centres framework that will allow the implementation of the progressive three-level
system of healthcare for women and infants. This system is already functioning in a
number of regions of Russia. Women with a normal course of pregnancy are
directed to maternity hospitals, maternity divisions of municipal and district hospitals.
Those pregnant women who have a medium risk of deviations in giving birth
detected during their pregnancy are destined to give birth in inter-district perinatal
centres and maternity divisions of hospitals of territorial, regional and republican
levels. Pregnant women with a high degree of risk are directed to federal perinatal
centres. Perinatal centres available in the Russian Federation, being equipped with
modern medical equipment and applying the state-of-the-art technology, contribute
to saving the lives of approximately 650 children under 1 year of age annually.
Setting up of perinatal centres in all parts of the Russian Federation will allow the
saving about 1.7 thousand children’s lives annually. The availability of perinatal
centres also influences indexes of maternal mortality, reducing rates by 18 to 30%
compared to other parts of the Federation.
Social assistance spending in Serbia has been protected during the crisis but there
has been no change in health care financing, although it was required by the World
Bank. The health care system is based on the Bismarck model, which means that
more than 90% of the cost is financed by compulsory health insurance (employee’s
contributions, State Pension and Disability Insurance Fund and the National
Employment Service). Health care is also financed from state budget funds, for
uninsured persons and especially vulnerable groups, from donations, participations
and other payment methods, but always less than it is required.
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The government of Tajikistan is still piloting the Guaranteed Benefit Package (GBP),
which regulates entitlements of Tajik citizens to medical services through a set of
rules for levels of payments and exemptions when accessing such services. Started
in 2007, the primary goal of the GBP was to reduce informal payments by
establishing a predictable and transparent system of patient rights and obligations.
From its creation the GBP was expected to reduce financial burdens on patients in
certain population groups. A survey conducted after 15 months of GBP
implementation revealed that the mechanism contributed to a certain extent to the
financial protection of patients. The scheme also introduced some new mechanisms
that led to improved quality of care and transparency. Nevertheless, there are
remaining problems which undermine the efficiency of the whole scheme.
Health care reform in Turkey regarding the extension of coverage, cost-sharing,
policies to increase the availability of generic medicines and interventions to increase
cost-effectiveness had already been started and mostly realized before the crisis so
very few extra interventions were carried out in the last two years.
In Uzbekistan, several groups receive health assistance. For instance, people in the
following groups receive free food when receiving treatment at treatment-andprophylactic institutions:





single pensioners requiring extra care;
disabled participants of the World War II and other military men;
those disabled from the Chernobyl disaster;
pregnant women with low level of haemoglobin in their blood; and
children under 18 years from evacuation zones.
2.2.4 Measures to protect the vulnerable through social welfare, support and
care services
Social and economic sources of vulnerability may require specific types of human
resource intensive social support to identify and respond to vulnerability and
deprivation particularly at the child and household level. These services help to
reduce social vulnerability and exclusion, to strengthen resilience and capacity to
cope and overcome shocks and strains, and to link children, women and families to
existing social assistance programmes and social services. As such, they are
considered part of the system of social protection.
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In the UNICEF survey, few countries reported any particular changes to these
services to protect the vulnerable during the crisis, although currently, the
Uzbekistan government is developing the second generation of its Welfare
Improvement Strategy (WIS). UNICEF is closely working with the WIS project team
and participating in its working sessions.
Measures to protect vulnerable children in Armenia through improved orphanage
services and transfers to orphanage graduates and their foster families are either
insignificant or nonexistent. Considering the increased vulnerability of children
deprived of parental care related to the crisis, this lack of improved measures – as
well as the decreased number of families reached by Family Benefits - can be
considered as actually having a negative impact on the protection of children in the
country.
No efforts have been made to protect the vulnerable in Bulgaria through social
welfare services. The social services are understaffed by a factor of at least 3. This
happened as a result massive reforms to reduce the public administration, which
took place in the years before the economic crisis. Social and child welfare
authorities of the BiH Federation have developed a separate Law on Protection of
Families with Children but it has not yet been adopted.
Despite the crisis, the reform of the child welfare system is steadily advancing in
Georgia, due largely to major advocacy efforts and the financial support of
international donors including UNICEF. In October 2010 the MOLHSA adopted a
new Plan of Action of Child Care System Reform for 2011-12. The plan re-iterates
the government’s strong commitment to reform and sets forth an ambitious goal of
closing down almost all residential institutions and downsizing the ones for children
with disabilities. The residential institutions will be replaced with alternative forms of
care, such as small group homes, and child abandonment prevention mechanisms
will be strengthened through increased support to vulnerable families. To achieve
these objectives, the plan includes the following activities: establishment of 72 small
groups homes; increasing the number of social workers by 30-50; setting up
counselling and support services for single mothers; provision of baby food and other
essential items for families below the poverty line; training and re-training of foster
carers; setting up of two crisis centres for street children. In addition, the plan
envisages the setting up of services for vocational training and provision of
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temporary housing for young people leaving state care at the age of 18 (50 young
people leave state care each year). The care leavers will also be entitled to pension
savings which will be accrued on their personal accounts while they are in state care
and can be withdrawn at the age of 18.
The number of children in the child care system continues to decrease, though the
use of different definitions at different times makes it somewhat difficult to compare
figures. Overall, since the start of the reform the overall number of children in
institutional care has decreased from 5000 to 1300 in 2010; the number of children in
foster care has increased to 600.
Social services are still underdeveloped and institutional care remains dominant in
Kyrgyzstan. However, introduced with support from UNICEF, social contracting has
been providing opportunities to boost social services development and finance their
provision from the state budget. Nevertheless, in 2009, the number of children in
institutions increased slightly between 2007 and 2009. The number of children under
adoption and guardianship arrangements declined. No significant changes in the
child care system organization, financing and performance took place in 2009 and
2010.
The number of children requiring some type of social welfare in Macedonia grew
from 4992 in 2008 to 5547 in 2009. The most significant share of the increase was in
children lacking parental care and in need of foster care. Social welfare services for
juveniles were also more in demand in 2009 compared to the previous year (9913
compared to 6445).
In Moldova a total reform of disability services has been started. In order to
implement reform, the government will attract and co-finance projects in the following
3 years. During 2010 and 2011 the process of creating over 50 social inclusion
services for people with disabilities will be initiated.
From November 2010 in Romania, the children in primary school and pre-school
receive one fruit each day of school, a croissant, honey and a glass of milk.
Social welfare workers in all regions of Russia are being transferred to the sector
compensation system. The salaries of social workers are expected to be based on
new rates, with adjustments made every year. They will consist of three components:
base salary, compensatory payment and incentive payment, the latter representing a
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substantial part of labour compensation. Apart from that, rural social workers will be
paid a 25% salary supplement. Alongside the state government patronizing the
state-funded social welfare system, the Russian Orthodox Church is also actively
involved in social work. In 2010, the parishes’ staff schedules began to include social
worker positions. The Moscow and St Petersburg School of Theology has begun to
offer church social work training programs.
In Serbia, the most frequently recorded feature of children in contact with social
welfare centres is financial poverty (46.3%) and this phenomenon grew over the
period of the economic crisis. In frequency it is followed by disturbed family
relationships, behaviour disorders, lack of parental care and developmental
disabilities.
As a result of Administrative Reform launched by the President of Ukraine in
December 2010, a number of structural changes have been introduced to the family
support services that may negatively affect coverage and quality of services. This is
because of significant downsizing, merging of different service delivery agencies and
reduction in the number of social workers involved. The rationale for the reform was
optimisation of the system of the central executive agencies, avoiding duplication of
their functions, reduction of a number of public officials and cutting respective public
spending, and enhancing the overall effectiveness of public administration. In the
short term, the reform will inevitably result in deterioration of the quality of the family
support services.
2.2.5 Measures to protect the vulnerable through school optimization or
rationalization processes
School rationalization
Rationalisation and reorganisation of schools is taking place in Croatia, Georgia,
Moldova, Serbia and Tajikistan and the Government of Russia adopted a priority
action plan for modernisation of general education in 2010. In other countries such
as Macedonia there is little change. Pre-school education in Macedonia is financed
through the Ministry of Labour and Social Policy (MLSP) in a form of block grant.
Kindergarten fees have not been changed for several years. MLSP reports that the
state covers ¾ of the real cost per child for kindergarten education, and has hinted
217
that in future parents who are able to pay more might be asked to contribute. The
Government is continuing to distribute free of charge textbooks for primary and
secondary students but the project is not running smoothly as many textbooks have
yet to be produced. Authorship deficit is a serious problem, even though, according
to the Minister, funds have been secured.
In July 2010, the Ministry of Science, Education and Sports in Croatia confirmed that
there would be no school closures. The only changes may include mergers of
schools in order to reduce the administration (rather than teaching) staff. Based on
the agreement between public sector trade unions and the Government, the current
level of salaries in the public sector is to be preserved for three years; therefore no
rationalisations in the case of teacher salaries are expected.
In Georgia, five boarding schools which basically served the same function as longterm residential homes for children have been closed and children moved to other
institutions.
School infrastructure optimization reform has been initiated in Moldova. Based on
proposals from local public administration authorities, 108 institutions were
reorganized, 7 have been closed and 11 were merged. Additionally, from the state
budget 15 school buses the purchased for villages in the country in which the access
of children to school is difficult due to long distances. Curricula have been evaluated
and modernised by 24 working groups with some 160 pre-university and university
professors.
The reform of education in Serbia receives World Bank support. The first level of
optimization in 2009 merged classes with low number of students. The goal is to
reduce the number of classes by 5% by 2012 to achieve cuts in education
expenditure. Staff rationalization is expected to reduce the number of people
employed in education by 5,000 in the next five years.
Tajikistan aims to protect the vulnerable through school optimization and
rationalization processes, including adjusting the salary of teachers.
Salaries
Pay rises for teachers have been awarded in Belarus, Kazakhstan, Moldova and
Uzbekistan but the percentage increases are from a generally low base.
218
In Belarus the salaries for school teachers and doctors were raised by 25% in 2010.
Employees of social service institutions and cultural and enlightenment institutions
had a salary increase of 15%.
Kazakhstan has started to develop options to shift to a per capita financing system
for education. In August 2010, the salaries of teachers rose by 22.8% in comparison
with 2009 but are still low compared to national average wages. In the 2009/2010
school year, the number of professional teachers slightly increased. Social
expenditures were slightly decreased for education from 16.5% of the total in 2009
to15.7% in 2010.
An upward trend is noticeable in Macedonia in the number of professional teachers
in both primary and secondary education.
From September 2009 in Moldova, salaries have been increased for teaching staff of
pre-university education institutions by 24% on average and for professorial staff in
higher education institutions by 55%. As a result, the average monthly salary of preuniversity teaching staff in 2010 has exceeded the average national salary.
Currently, UNICEF jointly with the Ministries of Primary Education and Finance in
Uzbekistan is conducting a study on fiscal planning and resource gaps in the
education sector. This study may reveal more evidence-based recommendations to
improve the pre-school system. Since 2006 the government has been employing a
per capita budgeting tool in the public education sector to determine salaries of
teachers based on the number and performance records of students. Every year the
government increases the salaries and pensions of public workers by an average of
20 to 30%.
2.2.6 Measures to protect the vulnerable through education/training (especially
for young people)
Improving access to pre-school education for children from vulnerable groups is a
priority in Armenia, Kazakhstan, Moldova and Serbia while Belarus and Moldova
also focus on increasing enrolment in higher education. BiH and Turkey are
encouraging entry to vocational education while Russia is turning to distance
learning to assist people in remote rural areas. However, the costs of education can
be prohibitive for many people. The Romanian government scholarship programme
“Money for high-school” can hardly cover the number of applications made and the
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government of Uzbekistan has established several non-budgetary funds to support
the infrastructure and maintenance of public education facilities. A complete set of
winter clothes and free-of-charge educational accessories is provided to children
from needy families and the scheme is administered on the basis of the decisions of
parental committees. This kind of social insurance is provided to 15% of all pupils of
comprehensive schools. However, in many schools, teachers use maintenance costs
as a key instrument to collect money from parents.
Access to pre-school education continues to be of most concern in Armenia.
Children in richer households are much more likely to be enrolled in pre-school
education than those in poorer households. By prioritizing the role of pre-school
education and with a view to establishing equal conditions for the comprehensive
development of children the Government of Armenia started the implementation of
the Preschool Education Reform Strategy Programme in 2010. The programme aims
to raise the inclusion rate for the upper pre-school age group (5 to 6 years old) up to
90%, and gives priority to disadvantaged families and communities without operating
pre-school institutions.
In 2008, extra classes in specific subjects for capable students in Belarus were
abolished because of the reintroduction of an 11-year general education school
program instead of a 12-year program. Instead, students were offered optional
classes to study subjects of their choice in greater depth. Such classes are available
in rural schools if at least three students apply for them and in city schools if there
are at least five applications. The number of optional classes is not limited. More
than 350 programs have been devised for optional classes and 85% of Belarus’
schoolchildren attend them.
More than 70,000 people graduate from higher educational institutions in Belarus
annually. In 2010, 19,464 new graduates were assigned to employment under the
compulsory service system, or 94.4% of those who had studied on a non-fee-paying
basis. As many as 1,408 of former fee-paying students or about 11% of their total
number were voluntarily assigned to jobs.
According to the education ministry, the country’s higher education institutions have
enrolled in 2010 a total of 92,900 students compared with 90,000 last year, with the
state institutions accepting 80,500. A total of 25,900 new full-time students will study
220
on a non-fee-paying basis. The enrolment policies of public higher educational
institutions are based on economic development trends. Full-time non-fee-paying
students on technical courses currently account for about 25% of the total number.
The proportions for those on medical and teaching courses, economy courses, and
law courses are 11, 6.6 and 4.1%, respectively. The government-funded monthly
stipends paid to students were raised by 11% in 2010 with the rise backdated to
June. The aim of this is to step up the social security of students.
In BiH long-term measure to reduce unemployment is harmonisation of the
education system and labour market, introducing vocational training programmes in
the shorter term.
In the first part of 2010 the Government of Croatia passed a decision to the effect
that starting with the school year 2010-2011 all first-year students at higher
educational institutions and polytechnics will be able to study free of charge.
Exemption from payment of scholarships in higher years will depend on the success
of their studies. The persistent problem of access to education, especially affecting the
Roma community, is being tackled through various measures, starting with increased
availability of pre-school programmes.
In February 2010, the government of Kazakhstan adopted the ‘Balapan’ programme
aiming to increase the coverage of pre-school education by 70% by 2015, and to
ensure that 100% of children will be enrolled in pre-school education by 2020.
In 2010 Moldova continued to invest heavily in Early Childhood Development (ECD)
with the financial and technical support of the EFA/FTI, UNICEF and the World Bank.
Local Public Administration is focusing on the most vulnerable and trying to reduce
discrepancies in school enrolment rates between rural and urban areas and between
disadvantaged and middle-income groups. Much attention is given to inclusiveness
and to leaving no child behind: priority being given to vulnerable communities. For
the first time 3 pre-school institutions received the status of inclusive kindergartens.
The inclusive approach has helped to mainstream children with special educational
needs into regular kindergarten groups, changing the mentality of parents, teaching
staff and representatives of local public administration regarding early inclusive
education. One of the latest community centres was inaugurated in Vulcanesti
village, where 95% of the population is Roma. Nevertheless, equitable access to
221
quality ECD services still remains a challenge for the most vulnerable children like
Roma,
children
with
disabilities
and
those
with
migrant
parents.
The
institutionalization of Community Centres through official approval in 2010 will
increase the access of vulnerable children to ECD programs and ensure their
sustainability.
Annually, some 400 students participate in long-term academic mobility programs
under collaboration protocols with other countries. During the academic year 20102011 their number has considerably increased as a result of signing the collaboration
Protocol in the education area with Romania, which offered 950 scholarships for
lyceums, 1100 scholarships for higher education, the offer being subsequently
supplemented with 2800 places. In order to consolidate and adjust the professional
education system to the requirements of the national and international labour market,
the National Centre of Professional Education Development has been created. This
academic year (2010-2011) 22486 new student places have been offered in higher
education, including 6985 financed by the budget and some 15501 for contract. The
age limit, stipulating a 35 years old limit for higher education candidates, has been
cancelled.
The Priority National Project “Education” arrangements that were in force in Russia
in 2009 were to be continued in 2010 although with a 42% reduction in financing.
Priorities include the support of the Southern, Siberian and Far Eastern federal
universities and financial support for the development of distance education for
children with disabilities.
In the period 2009-2010 a set of laws on Education and Early Childhood
development were adopted in Serbia, the first effects of which are expected in the
2010-2011.
1. The Law on Education and Training System Principals establishes conditions for
the non-segregated inclusion of children in education and continuing schooling,
facilitates the enrolment of children from socially vulnerable groups and regulates an
inclusive approach and support mechanisms for children and teachers. Clear rules
on the prohibition of discrimination, violence, abuse and neglect are introduced. The
law also stipulates the introduction of per capita funding from 2014.
222
2. The Law on Textbooks and Educational Materials has made state and private
publishers of textbooks equal. The Law prescribes textbooks' content and quality
standards and forbids any discrimination on the basis of race, ethnicity, language,
religion or gender, developmental disorders, disabilities, physical and psychological
characteristics, health status, age, social and cultural background, financial status or
political affiliation. It establishes the right of students with special needs and
disabilities to obtain a book in a most suitable format. Textbooks are used in Serbian,
as well as in the languages of the minorities.
3. The Law on Pre-school and Primary Education gives enrolment priority to children
from vulnerable social groups and provides for the inclusion of all children. This Law
also enables the realization of specific and specialized programs in the Serbian
language, as well as in foreign languages and languages of minorities. The preschool preparatory program (PPP) was established as a separate part of the preschool program and is free for children attending public institutions, the children' and
escorts' transportation provided by local municipalities. Children without one or two
parents and children with disabilities do not pay the full cost.
4. The Law on Student Standards reforms student welfare rights, and rights relating
to their organizations and activities.
The reform of high school education is also in progress in Serbia.
In Turkey a major change was made to extend vocational education to all
unemployed people, not only those who had paid unemployment insurance
premiums.
2.2.7 Measures to protect the vulnerable through job protection or creation and
employment policies
Countries in the UNICEF survey reported a wide range of policies, services and job
creation schemes to maintain workers in employment and to support activate reintegration into the labour market. Table [] gives a summary of the kinds of schemes
used to support employment in general and vulnerable groups in particular.
Table []: Measures to protect the vulnerable through employment and training
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Type of measure
Countries
Introduction of, or increase in, minimum
wage rates
Belarus, Moldova, Montenegro
Temporary employment provided in
public works schemes
Belarus, Croatia, Russia, Serbia, Turkey
Subsidies or loans for the creation of new Belarus, BiH, Moldova, Romania, Russia,
jobs in the private sector
Turkey
Bans on the cutting of jobs
Belarus, Russia
Extension of benefit periods for
unemployed people
Kazakhstan, Turkey
Training and re-training, sometimes
linked to education
Belarus, BiH, Croatia, Montenegro,
Russia, Turkey
Special support for the disabled or other
vulnerable groups such as women and
young people
Belarus, Macedonia, Montenegro,
Russia, Serbia, Turkey
It should be noted that not all of the measures listed are wholly specific to the crisis
period. In Macedonia, for example, the special support for disabled people is part of
an on-going programme. Nor are all the measures unreservedly successful. One
drawback of job creation in public works schemes is that the jobs may be poorly paid
so that take-up rates are low, as in Croatia for example. Or it may result in low labour
productivity as in Belarus.
In some countries pressures to save costs have led to active labour market
programmes and subsidies being suspended or reduced during the crisis as, for
example, in Croatia in 2009 and Serbia in 2010. Even special support for the
disabled was discontinued in BiH in 2010.
During the crisis the government of Belarus prohibited state managers from cutting
jobs and suspending production. Many Belarusian enterprises introduced shorter
working weeks or “forced leave". The minimum wage was increased in 2010 to
contribute to the social security of the low-paid workers in all sectors of the economy
regardless of the ownership forms.
The Council of Ministers approved a set of measures to boost employment in the
country in 2010. The measures were designed to increase the number of employees
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to 4,740,000 people and prevent the unemployment rate from exceeding 1.2 and
1.5% of the economically active population. Particular emphasis was placed on job
creation. The target for the creation of new jobs was raised to 175,300 jobs
compared with the previous year, including 25,500 in small cities and 17,500 in rural
areas
In addition to job protection and creation the government also offered unemployed
people temporary infrastructure maintenance jobs, assistance in starting a small
business, professional training and retraining and professional counselling. It also
provides subsidies and loans to enterprises and organizations that create new jobs
and can partially compensate companies for payroll costs. Young people are
guaranteed a first job. A system is put in place to reduce unemployment among
citizens who are unable to compete in the labour market on equal terms. Particular
attention is paid to the employment of people with disabilities. More than 26,000
unemployed people in Belarus were enrolled on retraining programs in 2010 of
whom about 45% were employed upon completion.
In comparison with 2009 almost all the indicators characterizing the employment
strategy of the state, such as employment of the jobless and unemployed citizens
and assignment to professional training, have increased. Between January and
September 2010 nearly 160,000 people were placed in jobs. Some 19,300
unemployed were placed on professional training courses. 75,500 people, including
39,000 unemployed were engaged in public works. More than 133,000 new jobs
were set up, 24,100 of them in small towns.
However, one side effect of the employment maximization policies has been
excessive employment in enterprises with low productivity of labour. A large number
of outdated and uncompetitive jobs still remain, and imbalances have continued to
persist between supply and demand in terms of workforce skills and qualifications.
Many job vacancies remain unfilled due to low quality of employment and inadequate
salaries.
In BiH the Directorate for Economic Planning (DEP) plan for 2010-2012 includes
measures for the improvement of the labour market flexibility through the creation of
a more open environment for investment, both domestic and foreign, with systematic
support to the private initiatives for small enterprises. With regards to unemployment,
225
a long-term measure to deal with unemployment is the harmonisation of the
education system and labour market, while a short-term measure is the introduction
of vocational training programmes.
During 2008-2009, the Federation of BiH implemented a programme of support to
employers providing job opportunities for people with disabilities. However, the
Programme was closed at the end of 2009 and has not been renewed or replicated
in other parts of the country.
Active labour market programs are run on a small scale in Croatia and have not
been expanded in the wake of the crisis. In fact, because of the fiscal strain,
expenditures on active labour market policies were reduced and most programs
were suspended in the mid 2009.
Instead the government introduced a new program of short-time work subsidy. The
program was intended to support labour demand in firms affected by the crisis and
discourage lay-offs. However, the take-up rate for the program has turned out to be
extremely low due to limited incentives provided to employers and strict eligibility
conditions. Hence, the actual impact of the additional anti-crisis program was close
to nil.
Training and public works are the two main active programs implemented during the
crisis. In fact, only these two programs were expanded in 2009, while all remaining
programs were reduced in size. Enrolment in training (for the unemployed) increased
by 2% and that in public works more than tripled relative to the pre-crisis levels. In
2009, training for the unemployed accounts for 48% of total program enrolment and
public works for 31%. Hiring subsidies, which played a dominant part before the
crisis, currently play a minor role.
The expansion of the public works program partially compensated for the diminishing
job opportunities and provided temporary income support to those unemployed who
are not eligible to unemployment benefit. However, even after the expansion the size
of the program is small. The wage rate under public works program is set at a low
level: 75% of the minimum wage (30% of the average wage). This is consistent with
the principle that the wage rate under public works program is set below the market
level so as to encourage self-selection of those unemployed who are most in need of
earning opportunities.
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The Government of Kazakhstan extended unemployment benefits from four to six
months in response to the crisis, and promoted the signing of memoranda between
regional authorities and larger enterprises on preserving jobs. Public salaries were
increased by 20-25% on average.
Macedonia has yet to adopt a law on minimum wages and the government still has
not adopted any special employment policies and measures as a result of the crisis.
The National Employment Agency (NEA) implements programmes aimed at the
unemployed and, more specifically, identifies needs of the labour market, providing
training to enable the unemployed to become more competitive. Municipalities
prepare their own local employment action plans based on information received from
NEA.
There are several programmes to help the unemployed derived from the national
employment strategy (2010). The NEA also provides subsidies for the employment
of the following vulnerable groups: people with disabilities (8 in 2009), single parents,
single parents with 3 or more children, young single parents until the age of 27,
young couples with 3 or more children, and parents of children with special needs
(total of 222 in 2009), individuals aged 55 to 64 years (629 in 2009), young people
who have been made redundant, or victims of family violence (571 in 2009). For all
these categories the law on employment foresees the possibility of providing
subsidies for employers of such individuals to the amount of 22,500 MKD monthly for
up to 6 months, provided the employers continues to offer them employment for 12
months after that.
Public works schemes have been organized to provide the unemployed with
opportunities to acquire work skills and enable equitable growth and development. In
2009, 5000 individuals were included in these schemes. For 2010, a project for
employment of women victims of family violence is supposed to be implemented but
no data exists to date about whether it was implemented or how many women were
included.
During the period October 2009 to July 2010 in Moldova, 71,501 unemployed were
registered, of whom 12,719 (17.8%) were later employed following the promotion of
active labour market measures. The Government implements a Moldova-EU Mobility
Partnership, under which a series of initiatives is being implemented to facilitate
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employment. Legal norms have been developed for the adjustment of unemployment
benefits provision mechanism, in order to stimulate job search. Under the National
Economic Empowerment of Youth Programme in 2009-2010 82 businesses for
young people were funded. In order to ensure government protection of low-income
employees the minimum guaranteed salary has been increased by over 7%.
In 2010, a minimum wage was newly introduced in Montenegro in order to protect to
most vulnerable part of the population. The Employment Agency has continued to
implement active employment policies during the crisis. Measures include stimulating
entrepreneurship by financing high-quality business ideas using public works to
provide seasonal employment, providing training courses and a project to work with
categories of difficult to employ people.
The Ministry of Finance in cooperation with the Employment Agency of Montenegro,
Development Fund and SME Agency have initiated program of support to
employment in the northern, poor region of Montenegro.
The Department of Employment has started a project to prepare students for the
labour market in which the students, for the first time in Montenegro, have a chance
to explore the world of modern business.
A job fair bringing together people with disabilities and employers was held in May
2010. The legal provisions, rights, obligations and opportunities for people with
disabilities were explained to potential employers and employees to aid faster
employment, labour market and social integration. The fair has had positive effects.
In Romania exemptions from social insurance contributions were made for firms
hiring unemployed people.
A bill is presently before the State Duma in Russia that prevents employers from
concluding labour contracts with employees who have performed of actual work. The
bill also provides for equalization of the labour rights of migrants and Russian
Federation citizens in terms of wages, working hours and protection from
discrimination in the sphere of employment.
A new wage system to be introduced in 2011 provides for public sector salaries to be
increased by 'incentive payments' for high quality performance. However, in the
context of the crisis and sharp reduction in the income of regional and municipal
budgets, this results in lower wages for employees since the lack of the budget funds
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first of all causes the decrease in the variable part of the salary - the incentive
payments.
At the national level, job creation in mono cities and labour market development in
depressed regions is on the agenda. In particular more than 400,000 new jobs are
planned in the North Caucasus republics over the next 10 years. Also, the federal
small business support program was continued in 2010. 3,000 small businesses
have been created under the grant support program alone.
In 2009, public work and temporary employment schemes were launched. Programs
of advanced retraining were introduced for personnel at risk of dismissal and
practical training for people leaving educational institutions. Training schemes were
also provided to encourage the self-employment of unemployed people and
assistance give to those moving to work in other areas. In 2010, this work continued.
Employment programs for women, including young mothers, were developed in 46
regions. Furthermore, in 2010, measures to assist employment of people with
disabilities were implemented.
According to the latest data provided by the Ministry of Health and Social
Development, in January-September 2010 more than 1.5 million people participated
in regional anti-crisis programs to improve their situations in the labour market. This
included 146,200 people in advanced vocational training, 85,300 leavers from
educational institutions in practical training, 1.4 million people in temporary job
creation programs, including 12,000 specially equipped work places for people with
disabilities, and 169,100 people in self-employment programs. The palliative public
work and temporary employment program continues to be the most large-scale.
In 2011, the Government will allocate funds for the professional retraining of women
after the end of their child-care leave. According to the Ministry of Health and Social
Development, 60% of mothers plan to resume work after the child is 3 years old.
About 20% wish to improve their skills or receive training in new specialities.
Two major programs to encourage active employment were introduced in Serbia in
the last two years. The First Chance Program is directed towards educated young
people through subsidizing their first jobs and the Public Works Program is directed
towards long-term unemployed coming from vulnerable groups, particularly those
with lower education and from poor underdeveloped regions. However, apart from
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public works programs and some minor programs targeting people with disabilities,
active employment programs are still not focused on members of the most
vulnerable groups.
In response to the economic crisis in early 2009 there was a redistribution of funds
within the budget for active employment measures, and the Public Works fund was
almost doubled. However, the total number of participants in public works recorded a
decline of almost 50% in 2010, due to the further redistribution of resources in a
virtually frozen budget for active measures in 2010. Although wages in public sector
were frozen, they are above the average for private sector wages, so it is estimated
that the impact of this measure on worsening social conditions is negligible.
Unemployment was a serious concern in Turkey before the crisis. The so-called
‘Employment Package’ was adopted in May 2008. The reforms were mainly geared
to reducing non-wage labour costs through reduction in employer’s social security
contributions for women and young people, an across-the-board reduction of
employer’s social security contributions and a relaxation of obligatory hiring
regulations. As part of its ongoing activities, Turkey also continued to strengthen the
development of a competency-based skill-building system, boosted active labour
market programs such as on-the-job and specialized training, and continued reforms
of curricula in secondary schools.
With the crisis drastically increasing unemployment, further measures were taken. In
April 2009 the Government extended an incentive scheme for firms to offer jobs to
women and young people until 2010. It lengthened the time period for which workers
can claim short-term benefits from the Unemployment Insurance Fund and
significantly increased targets for the delivery of active labour market programs.
Table []: Employment measures introduced in Turkey in 2009 in response to the
crisis
Measure
Description
Duration
Beneficiaries
Extension of subsidies
for women and youth
hires
Existing
subsidy
program
(social security contributions)
covering
previously
unemployed
new
hires
extended one more year
Until July 2010
53,000
Subsidy for hiring UI
beneficiaries
Social security contributions
subsidized for remainder of UI
benefit eligibility period
Until end of 2010
230
(2009)
46.891
(End of November 2009)
Short-term
compensation
extensions
subsidy
Public works
Expanded
training
vocational
Youth internships
Business start-ups
Expansion
payments
of
UI
Subsidy for loss in earnings
due
to
reduced
hours
increased
by
50%
and
maximum
subsidy
period
extended from 3 to 6 months
Until end 2010
Resources increased from
10% of Active Labor Market
Policy (ALMP) budget to 35%
Until end 2010
Training to be provided by
ISKUR to 150,000 registered
unemployed in 2009
Not time bound
Stipend for graduates
vocational education
Not time bound
of
192,244 (2009)
26,616 (2010)
45,445 (2009)
46,078 (2010)
168,407 (2009)
135,145 (2010)
1,300
(2009)
Counseling,
training,
and
grants for new business startups
Not time bound but
implementation has
not started yet
lengthening the time period for
which workers can claim shortterm benefits
Not time bound
471.690 (2009
beneficiaries)
all
UI
271.840 (2010
beneficiaries)
all
UI
Source: Adapted from WB, UNICEF, TEPAV ‘Household Welfare in the Face of Economic Slowdown:
Results from Five Urban City Centers in Turkey’, June 2010, p 25 and SPO. Note: The 2010 data are
provisional.
A further package in 2009 included a public works scheme, a new apprenticeship
program for high school graduates, and further increases in active labour market
program delivery.
Starting on May 2008, half of the social security premiums normally paid by the
employers on behalf of the workers started to be paid by the Treasury but only for
the disabled. No further measure was taken after the crisis for the disabled alone. A
Programme worth mentioning here is the Social Support Programme, funded by the
national government and executed in cooperation with Governors Offices in the
relevant provinces. The Programme has 3 pillars, Employment, Social Inclusion, and
Culture, Art and Sports. In 2010, it funded 1187 projects. Again, this Programme
was not intended as a response to the crisis but the rapid expansion may be related
to the crisis.
Several new textile plants were installed in Turkmenistan in 2010 with a capacity to
employ 500 people in Dashogus and Ahal regions of the country.
In response to the economic crisis, the Uzbekistan government is attempting to
reduce unemployment by taking different measures, including recruitment of skilled
and unskilled workers. Elder workers with experience are more in demand compared
to recent graduates. There is no differentiation in ethnicity observed. Within the anti231
crisis programme, the Ministry of Labour and Social Protection is organizing job fairs
and other activities across the country to create new jobs for youths and unemployed
people. This programme at some level is effective in filling out vacancies in both
public and private sectors. Every year the government sets up a plan for creating
new jobs but the vast majority of reporting agencies inflate the actual numbers so
data are unreliable.
2.2.8 Measures to protect the vulnerable through public capital investment
There is little evidence that public capital investment is being used to protect the
vulnerable. Although there has been an increase for some projects in Macedonia
and a future plan in Turkmenistan, the general picture is one of cutbacks.
Capital investments have increased in Macedonia in the 2010 budget. Most of the
funds will be allocated for ongoing investment projects such as “Skopje 2014” which
involves the completion of several public buildings (museums, government buildings,
art buildings and monuments). Additional investments in the renovation of schools,
sports facilities and infrastructure have also been planned. However, funds for these
have been reduced significantly compared to 2009. For example, funds for
construction and reconstruction of primary schools have been reduced by 54% and
74% respectively. Funds for the reconstruction of secondary schools and building
sports facilities for secondary schools were also reduced by 75% and 37%
respectively. Transfers for capital investments in the ministry of health increased
from 406 million MKD in 2009 to 1.020 million in 2010. Capital investment transfers
to the ministry of Labour and Social Policy in 2010 have also increased to 145 million
MKD up from 55.4 million in 2009.
A new 15 billion dollar Olympic village project has been announced in Turkmenistan,
which should create additional employment opportunities.
Public capital investments have been reduced in Croatia. This has affected the
workers in the construction sector where pay arrears and layoffs have become
widespread. No measures to compensate for these trends have been undertaken.
The Economic Stabilization and Recovery Plan (ESRP) for Moldova for 2009
required the optimization of the administrative costs of central and local public
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authorities, including at least 50% reduction of capital expenditure for purchase of
goods and services and targeted for subsidies. In the view of the Ministry of
Economy, in order to revive investment activity and create favourable conditions for
entrepreneurial activity a set of new measures is needed. These include the
introduction of additional benefits and incentives for investors to import new
equipment and technology and the strengthening public transport development and
municipal infrastructure.
2.2.9 Measures to protect the vulnerable through housing or mortgage
protection and support
Schemes to encourage house-building, supporting both the construction and housing
sectors, are in place in Armenia, Belarus, Moldova and Uzbekistan. In Russia many
of the new houses are intended for public sector workers who can buy them at
favourable rates of mortgage interest. Low or zero interest rates for housing are also
available in Serbia and for narrowly targeted groups of vulnerable people in Armenia,
Belarus, Moldova, Romania and Russia while in Romania increased amounts of
mortgage credit are available. Macedonia has reduced dwelling prices for vulnerable
young couples. However, complex targeting rules can lead to problems as in
Montenegro where the poorest families are often denied help. Other countries such
as Belarus and Croatia are still reorganising their rules for entitlement to housing
assistance or have strategies under review. In Bulgaria, There are indications that
some houses earmarked for demolition have been kept to provide shelter for a
couple of years more until bad times are over.
During the crisis period in Armenia, the sector suffering most has been construction
and housing. Naturally, the government’s anti-crisis plan was aimed at quick
revitalization of the sector. As a result, the government introduced a multidimensional construction sector facilitation program by securing funding from the
banking sector to support construction companies; by providing state guarantees for
completion of unfinished buildings and by direct financing for building new houses.
The latter is mostly relevant to the earthquake zone rehabilitation programs, where
the government boosted a high volume of housing projects. Apartment construction
in the January-September period increased by 20% in 2010 compared with the same
233
period in 2009. The highest increases were recorded in the Lori and Shirak marzes.
The increase of funding for apartment construction from state budget resources was
30 times higher, while private sector input from organizations and individuals
decreased by nearly 26%.
Some specific and narrow targeted housing lending programs with lower than market
interest rates and better financial accessibility terms have been developed and
financed from the state budget. Those are mostly aimed at young and middle-class
families. A very recent adjustment in the policy (November 2010) promotes
participation in the programs by families from rural areas. The initial payment
minimum level was decreased down to 10% and interest rates went as low as 6-7%
compared with market interest rates for similar housing crediting of 11-12%.
Housing policy is one of the government priorities in Belarus. Its main goal is to
provide each household with decent, affordable and qualitatively standard housing,
particularly for young families. The number of square metres of housing space
commissioned in 2009 was 14% higher than in 2008. Housing was completed in the
first 10 months of 2010 was 75.3% of the target for the year and 11.2% more than in
the same period of the previous year. Nevertheless, November 2009 saw
amendments to a presidential edict governing state assistance to households
formally recognized to be “in need of better housing conditions.” Now families that
own an apartment of more than 15 square metres per family member may not be put
on the waiting list for better housing. Under the new rules, families that have already
built or purchased a house or an apartment with state assistance are no longer
eligible for repeated assistance from the government. On the other hand, the edict
provides an exhaustive list of categories of people entitled to temporary housing on a
priority basis. It extends the period for which orphans or children left without parental
care may be provided with free housing after they reach the age of 18 from two to six
months. In January 2010, approximately half of all citizens registered on the list of
persons in need of improving their living conditions were young people under 31
years of age.
The main policy instrument in the Belarus housing sector is the provision of
subsidized loans. Since June 2009, interest rates on privileged loans for the
construction of housing for families with three and more children was reduced from 3
to 1% annually. The amount of financial assistance available increases with the
234
number of children in the family. In 2010 the upper limit on the amount of soft
housing loans was raised to 100% of the housing price. Households on the waiting
list can finance the purchase of housing, up to a maximum size, with a low-interest
loan. In October 2010 rules for getting onto the housing waiting list were tightened.
The rules were due to take effect from January 2011. They will make it more difficult
for rural residents and will cut the number of people on the waiting list for housing.
In Croatia the Social Housing Strategy is under preparation. It should define the
concept of social housing and integrate the Housing Programme for Homeland War
Victims and the Programme of State Supported Public Housing. It should also make
provisions for housing for socially vulnerable groups of citizens, which is within the
competence of local self-government units. Under the Programme of State
Supported Public Housing Programme in 2009 the total number of flats built at 4
locations was 178, whereas in 2008 in 2 locations 99 flats were built.
Housing subsidies in Kazakhstan, provided to ‘needy’ households by local
authorities, are almost the same as in 2009. The amount has been slightly increased
but the number of households receiving such support decreased somewhat.
Intensive housing construction is going on now in the southern part of Kyrgyzstan
and many individual house owners have received subsidies or concessional loans
for reconstruction of their homes. Rather than a response to the economic crisis, this
part of the post-conflict recovery works.
The government of Macedonia has implemented a programme for young couples
who cannot afford to buy houses to do so at reduced prices. An open call for the
allocation of 208 “social apartments” was announced in February 2010. The
government plans to build 1,753 such apartments by 2012. The cost (per 1m² of
these apartments is 30% lower than the market price). No mortgage assistance is
provided to those in need, nor are there any initiatives or discussions to start such
schemes despite the increasing levels of bad debt.
Mortgage programs for young families have been developed in Moldova and state
programs to stimulate employment of young specialists in rural areas has continued.
The Economic Stabilization and Recovery Plan (ESRP) developed in response to the
economic crisis sets out various tasks, including the development of mortgage
235
lending by attracting external credit lines. It also includes mechanisms for providing
long-term loans for the construction industry in order to complete apartment blocks.
The real estate market in Montenegro suffered a big shock during the crisis. There
are more and more new empty flats or unfinished buildings and households are
increasingly deciding to rent apartments rather than buying new ones. Although
there is a high supply of housing, demand is low because of high prices. The
Montenegrin Government, through the Ministry of Urban Planning and Environmental
Protection in cooperation with the Council of Europe Development Bank (CEB) and
Montenegrin banks, is developing a project to enable citizens to take low interest
bank loans for accommodation. Of the total number of realized credit arrangements,
half are intended for households whose members are employed in public
administration, 10% are allocated to households whose members are persons with
disabilities and 30% to young married couples. However, complex criteria and
regulations are slowing the process. Practically, many lower or middle class citizens
are not eligible to apply for flats and apartments so the loans are left for those who
already have accommodation. So the system results in the wealthier class of citizens
benefitting and occupying the new flats. Special project loans have been developed
to revive demand for housing and to mitigate the effects of the economic crisis in the
construction sector.
Romania's “First Home” Programme, launched in 2009, raised the limit of mortgage
credit for building of a new house. 14 contracts have been agreed with financing
institutions offering advantageous conditions for clients in the form of low mortgage
rates or low interest rates. The Government intends to enhance the programme,
raising the mortgage credit threshold still further.
In addition to federal housing programs in Russia, regional programs are
implemented in some parts of the Russian Federation. The Target Program “Housing
for Education, Health and Social Service Workers” was adopted in St. Petersburg,
the first program in Russia targeted at the improvement of housing conditions of
public sector workers. In 2010, 1,954 dwellings will be provided to the program
participants to be purchased on deferred terms without interest over 10 years.
Considering that 2010 is the Year of the Teacher, the St. Petersburg Government
decided to provide housing to all teachers participating in the program in 2010. In
addition to teachers and their families, program participants from other public sectors
236
such as medical and social workers will be able to purchase housing in 2010. At the
end of July 2009,the Russian Government published housing price standards for the
second half-year of 2010, specifying average market values of a living space square
meter for every region of the Russian Federation. The mean value is applied when
calculating size of housing subsidies (welfare payments) to be granted to the people
categorised as eligible to participate in specific government programs. There are
specific government subsidies for young families, and federal and regional schemes
for social housing for veterans and disabled persons on waiting lists. An upper limit is
specified as a starting price for housing auctions to buy out houses from building
companies for specific social programs. The number of people entitled to social
housing rental support has gone down.
In September 2009 the Serbian government adopted measures to support the
construction industry through subsidizing interest rates for mortgages and long-term
residential lending. This Regulation refers to loans of up to €100,000, and envisages
that the citizens will provide at least 5% of the loan as a down payment. The
government will provide an interest-free loan of 20%, and the remaining 75% will be
provided by the bank. The maximum maturity of such loans is 30 years. For the first
three and last five years repayments will be interest-free, because the government
will subsidize the interest in full.
In 2009, the Uzbekistan government launched a programme “Improving Rural
infrastructure” aimed at building modern houses in rural areas. The programme
includes mortgage instruments for rural people with a favourable 6 to 10% percent
interest rate and 10-year maturity. There is no other subsidy provided by the
government for housing.
2.2.10 Measures to protect the vulnerable through subsidies/price controls
Far from introducing subsidies and price controls to help the vulnerable in response
to the financial crisis, most countries in the survey are actually reducing subsidies or
tightening eligibility rules. The Turkish Government has mostly abandoned subsidies
and price controls. Only in Macedonia and Montenegro are energy subsidies
increased although in Armenia they have kept up with price rises.
237
Utilities
In spring 2010 the Armenian government agreed that the gas supply company could
increase its tariffs, increasing the price for households by 35%. However, the
government introduced a compensatory mechanism for two main categories of
vulnerable groups – pensioners and beneficiaries of the family benefit system.
The government of Belarus raised utility rates for households twice in 2008,
increasing the average monthly utility bill by 15%. In January 2010 utility bills rose
again because of the cold weather. In 2010 households covered 30% of the actual
costs of the utility services provided to them and the government financed the
remaining 70%. At the beginning of 2010 the government abolished special
allowances aimed at helping low-income households pay for utility services and they
are now expected to use social allowances providing within Social Targeted
Assistance scheme to finance their utility bills. In June 2010 housing maintenance
rates were increased for households living in apartments with “excessive space” and
for owners of modern single-family houses with all amenities.
Measures designed to solve the problem of outstanding utility bills are largely
punitive. The House of Representatives on November 24, 2010 approved the first
reading of the draft Housing Code. A draft Housing Code will contain provisions for
stiffer punishment for failure to pay utility bills. The draft legislation would allow the
authorities to file eviction suits against private housing owners over their failure to
pay utility bills. Under the bill, such apartments would be auctioned off, with the
proceeds to be spent on repaying the debt and buying a cheaper apartment of a
smaller size for the family. The draft Housing Code also would allow the authorities
to require households with big debts to utilities to swap apartments with families
formally recognized as being in need of better housing conditions. The legislation
would entitle a housing owner to evict any former family member who doesn’t have
share in house ownership (after divorce) at any time without providing them with
other accommodation. The bill would allow banks to file eviction suits over persistent
failure to repay a housing loan. However, if small children live in such apartments,
banks would have to consult social security agencies before going to court.
In Macedonia, the Ministry of Labour and Social Policy has introduced an energy
subsidy for recipients of social welfare of €10 a month. The recipients have to
238
present a receipt for payment of the last electricity bill to be eligible for the subsidy.
Housing costs increased in the first ten months of 2010 compared to the 2009 period
mostly because of the increase in the prices of domestic fuels and lighting (8.5%)
and a small increase in the price of furniture (0.4%).
Montenegro's programme to subsidise electricity consumers in 2010 is linked to
requirements to reduce consumption. It covers beneficiaries of social protection,
providing a subsidy of 45% for electricity bills in the range of 0 to €80.
Subsidies for winter heating for all citizens connected to central heating in Romania
have been maintained without change at the average level of 45% of the price of
fuel. For people with low incomes, most of them living in rural areas, the subsidies
were allocated on the basis of income ranging from 90% of the monthly bill for the
lowest earners to 40% for those with higher incomes. 3.2 million families (around
40% of the total population) benefited from the subsidy last winter, most of them for
heating with wood. The Government intends to introduce some additional provisions
to this aid, starting in 2010-2011. Other conditions are to be imposed relating to
valuable assets owned by beneficiaries, like cars or second properties. These
conditions would reduce the number of beneficiaries by 10%.
Overall financing of housing maintenance and utilities in Russia has been reduced
by 18.8%. Expenditures were curtailed in 59 regions, more than twofold in 37 regions
and by at least 90% in five.
Utility prices are subject to government regulation in Uzbekistan and every year the
government reviews and increases utility prices. In low income families utility fees
are often unaffordable. In many cases, huge debts are accumulated, causing
insolvency problems for utility providers. Sometimes, electricity prices are increased
twice a year as huge hydro and heat power generation stations are operated with
very high maintenance costs. Starting from 2007 the state introduced a new
regulation according to which public employees receive their salaries after
deductions for utility payments.
Food
The Belarus government control of prices charged by up-market restaurants, cafes
and bars. was scrapped in March 2010, allowing the establishments to add mark-ups
to their prices depending on the market situation. The move aims to boost the cafe
239
and restaurant sector, liberalizing entrepreneurial activities. The control will remain in
place, however, for prices charged by "socially oriented" eating establishments,
including canteens at factories, agricultural enterprises and educational institutions.
In Macedonia a project to open SOS supermarkets selling products at discounted
prices to recipients of social welfare started to function in December 2009. However
there has not been a follow-up evaluation to assess the extent to which the scheme
is used and whether it is administered correctly.
In 2010 the Government of Moldova approved subsidies for farmer, directing them
towards areas with potential for high value added production and to increase
agricultural productivity and competitiveness of agricultural products.
From 2010 there are specific government controls to stabilise pharmaceutical pricing
in Russia and, in view of the sharp rise in food prices in autumn 2010 due to
abnormal summer heat, the President has recommended that the leading national
political parties together with regional executive authorities should control food prices
and support agricultural producers and agriculture generally.
2.2.11 Measures to protect the vulnerable through access to credit
Access to credit for people starting up or expanding businesses has been improved
in Belarus, Serbia and Uzbekistan, largely aimed at helping young people and those
in rural areas. Loans to buy certain consumer goods are also mentioned by survey
respondents in Belarus and Serbia. Arrangements for housing related credit are
covered in section 2.1.9 above.
In Belarus the National Bank’s base refinance rate was cut six times in 2010 and the
lower interest rates make loans more accessible and cheaper for individuals and
legal entities. About 80% of the population now has the opportunity to borrow money
from banks for purchasing specified Belarusian-made consumer goods. These
include DVD players, TV sets, carpets, boilers, washing machines, furniture,
microwave ovens, mini tractors, PC monitor screens, motorbikes, motorcycles, gas
stoves, trailers, vacuum cleaners, woodworking machines, refrigerators and electric
engines. Consumers’ bank debts jumped by Br 300 billion from January to
September to Br 5.86 trillion ($1.9 billion) in October 2010.
240
Access to credit for start-up businesses and SMEs in Moldova has always been
difficult. Lack of credit history, proper collateral or both makes borrowing from
commercial banks highly problematic. These problems have exacerbated recently
due to the credit crunch. At the end of 2009, the total stock of lending to the real
economy decreased by 16% compared with the end of the previous year and the
Government has responded with a variety of policy instruments to increase access to
finance for start-ups and SMEs. Interest rate subsidies or partial guarantees for
credits provided to SMEs through the state Guarantee Fund are managed by the
Organization for Development of Small and Medium Enterprises (ODSME). At the
end of 2009 the ODSME was managing a portfolio of €335,000 in guarantees issued
in favour of 25 SMEs and triggering investment of €1 million. The Government’s plan
is to increase the capital of ODSME to €6 million in three years, reaching 100 new
enterprises and triggering investments of €18 million.
Matching grants for invested remittances (PARE 1+1). According to research, less
than 5% of remittances are invested. In order to boost this figure, the Government
started a national programme that includes information, communication, research,
training, consulting, and financing of businesses created with the help of invested
remittances. Through this programme, the state will match each invested Lei with a
granted Lei for investments up to 200,000 Lei (€11,300). It is planned to support the
creation of 240 new enterprises in rural areas of Moldova over the next 2 years.
Concessional loans for young people are available through the National Programme
for the Economic Empowerment of Youth (NPEEY). Around 300 projects received
access to concessional credit amounting to €5.7 million by the end of 2009. This
lending was backed by World Bank financing. The objective is to continue funding
400 new private projects of young beneficiaries, gender balanced, on concessional
terms.
Serbia state funding has been provided for banks to be able to allocate loans for
citizens to purchase cars and tractors, agricultural machinery, furniture and floor
coverings, building materials and home appliances. Companies will be granted with
credit for purchase of trucks and construction machinery. Loans are also available
for businesses on condition that they keeping the same number of employees during
the period of credit as in December 2009.
241
Within the anti-crisis programme the Uzbekistan government has encouraged rural
people to borrow micro-finance resources for growing cows. This has also had a
positive impact on rural people getting access to soft loans and some people have
used micro-financing to improve their retail or other businesses.
2.3 IMF and World Bank responses
Only Bulgaria, Montenegro, Russia and Turkmenistan have retained their
independence from the IMF and WB during the crisis. Croatia, Turkey and
Uzbekistan have no current IMF loan arrangements but the WB is involved in a
number of projects in each country (Table []).
Table []: Overview of the loan agreements of each country in the survey with the
International Monetary Fund (IMF) and the World Bank (WB).
Country
Albania
Armenia
Azerbajan
Belarus
BiH
IMF loans
outstanding 2011
EFF, ECF
SBA, EFF, ECF
2009 US$158.1
million
Increase economic
stability & protect
social programs
ECF
SBA US$2.51
billion extended to
US$3.52 billion
2009
Impose austerity
measures & freeze
public sector
wages
SBA €1.2 million
over 3 years
Bulgaria
Croatia
None
None
Georgia
SBA&ECF US$446
million
Kazakhstan
Kosovo
Kyrgyzstan
Macedonia
Conditions
2nd instalment
cond. on adoption
of laws on cash
transfers. Link
public pay to
performance
None
SBA US$139.6
million
ECF; ESF US$100
million (only US$25
million disbursed),
RCF (US$34
million)
PCL agreed up to
€400 million from
WB involvement
2008-2010
Conditions
Other assistance
2009 US$64.4
million
Increase economic
stability & protect
social programs
2009 Russian
Federation US$500
million + ADB
US$81.4 million
US$250 million a
year in long term
loans. 3 project
loans for
environmental
improvement
2010 DPL US$111
million + US$15
million project
support 2010 +
US$70 million
project 2009
None
US$297 million
DPL approved and
disbursed 2010
US$ 189 million
Accelerate pace of
structural reform &
avoid large social
fallout
DPL US$1 billion
2010
Raise revenues
and constrain
current expenditure
Control inflation,
reduce deficit,
reform tax
collection, develop
social protection
Top ups for energy
compensation
US$19 million a
year for 2009-2012
242
Budget support
loans cond. on
adoption of laws on
cash transfers
Decrease public
administration and
increase social
sector spending
US$287 miilion
multilateral organ
isations; US$ 252
million bilateral
partners
ADB CSL 2009
2010 and €80
million available
the following year
Moldova
EFF, ECF
US$574.4 million
2010-2012
Montenegro
Romania
None
€20 billion SBA
2009 (€13 billion
IMF, €5 billion
ECB, €1 billion
WB, €1 billion
EBRD)
None
Russia
Serbia
Tajikistan
Turkey
Turkmenistan
Ukraine
Uzbekistan
2/3 of most
vulnerable to
receive social aid
Increase economic
stability & protect
social safety net
spending
SBA €3 billion
2009; €1.46 billion
disbursed to 2010
Pensions & public
sector wages
frozen, decreased
in real terms
ECF US$100.59
million total 2010
Structural reforms
of governance of
public entities.
for social welfare
recipients with
children attending
school
ERDPL US$25
million 2010 +
US$37.7 million for
projects
Package with IMF
& others
Partnership
Agreement
Technical
assistance +
US$845.8 in 12
projects on-going
2010; 2009
US$100 million in 2
DPLs
PDPG 4 2010
US$25.4 million for
ring fencing health,
education and
social protection
spending at 2009
levels
SBA
None
SBA
No loans
7 projects
approved
No loans but
several projects
with ADB
Specific shares of
loans allocated to
social protection
Increase economic
stability & protect
social safety net
spending
PDPG 5-6 for
increasing
efficiency &
targeting of social
expenditure.
Expected to
emphasise
structural reform
Not mentioned
EAEC Anti-Crisis
Fund US$ 70
million
ADB general loan
2010 US$1 billion
Details of the types of lending facility used are shown in Box [], together with links to
the IMF and WB websites.
Box []: Glossary of terms used by the International Monetary Fund (IMF) and World
Bank (WB)
IMF MAIN LENDING FACILITIES
Standby Arrangements (SBA): the IMF’s workhorse lending instrument for emerging
market countries. Rates are non-concessional, although they are almost always
lower than what countries would pay to raise financing from private markets.
Precautionary Credit Line (PCL): a new facility designed for countries with sound
fundamentals and policies, and a track record of implementing such policies, to cope
with the global economic crisis. While they may face moderate vulnerabilities, they
do not require large-scale policy adjustments.
243
Extended Fund Facility (EFF): used to help countries address balance of payments
difficulties related partly to structural problems that may take longer to correct than
macroeconomic imbalances. A program supported by an extended arrangement
usually includes measures to improve the way markets and institutions function,
such as tax and financial sector reforms, privatization of public enterprises.
Extended Credit Facility (ECF): provides financial assistance to countries with
protracted balance of payments problems. The ECF succeeds the Poverty Reduction
and Growth Facility (PRGF) as the Fund’s main tool for providing medium-term
support Low Income Countries, with higher levels of access, more concessional
financing terms, more flexible program design features, as well as streamlined and
more focused conditionality.
Standby Credit Facility (SCF) provides financial assistance to low-income countries
(LICs) with short-term balance of payments needs. The SCF replaces the HighAccess Component of the Exogenous Shocks Facility. It provides support under a
wider range of circumstances, allows for higher access, carries a lower interest rate,
can be used on a precautionary basis, and places greater emphasis on the country’s
poverty reduction and growth objectives.
Rapid Credit Facility (RCF): provides rapid financial assistance with limited
conditionality to low-income countries (LICs) facing an urgent balance of payments
need. The RCF streamlines the Fund’s emergency assistance, provides significantly
higher levels of concessionality, can be used flexibly in a wide range of
circumstances, and places greater emphasis on the country’s poverty reduction and
growth objectives.
http://www.imf.org/external/about/lending.htm
World Bank
Development Policy operations provide untied, direct budget support to governments
for policy and institutional reforms aimed at achieving a set of specific development
results. Development policy lending (DPL) replaced "adjustment lending" in 2004.
The overhaul reflected the need for streamlining conditionality and the Bank's
acknowledgement that there is no single blueprint for reform that will work in all
countries.
http://go.worldbank.org/C4UAVZ7TK0
244
2.3.1 Loan arrangements by country
The government of Armenia applied to several donor institutions and foreign
governments to assist with deficit financing of the budget and securing funds for
macroeconomic stability and countercyclical measures. The donor community
responded in a synergetic mode and offered a significant financial support to cover
the financial gaps. In sum, the 4 main funding sources have agreed to support the
Armenian government with approximately US$1.5 billion package over the next few
years. In 2009 around US$800 million had been disbursed to the Armenian
government.
Table []: Government borrowing in Armenia
In thousands of AMD
In millions of USD
Share in total
Russian Federation
185,085,000
500.0
62%
IMF
57,380,587
158.1
19%
World Bank
24,826,407
64.4
8%
ADB
31,380,621
81.4
11%
Belarus requested a loan from the IMF in October 2008 for replenishing the country’s
gold and foreign exchange reserves amid the global financial crisis. The original
$2.51 billion SBA was approved in January 2009. In June 2009 the IMF Executive
Board increased the amount of the loan for Belarus to about $3.52 billion. The
revised arrangement had to support the government’s economic programme and
help Belarus contain the effects of a greater than expected impact of the global
financial crisis. Although the economic program supported by the SBA was
completed in March 2010, the IMF continues to cooperate with Belarus and hold
regular consultations on with the authorities on the country’s social and economic
development, monetary, tax and currency exchange policies. The IMF is also to
update its forecast for Belarus macroeconomic development in 2010 and draw up a
forecast for 2011 through 2013.
The World Bank’s Country Assistance Strategy for Belarus (2007-2011) is focused
on the country's mid-term priorities. In 2009 the Bank expanded the scope and size
of its financial assistance planned under the Strategy and included budget support
through the Development Policy lending in recognition of the significant changes in
the external environment and acceleration in the pace of structural reforms in
Belarus. The strategy provides for limited and selective presence in lending with
245
about US$250 million a year in long-term loans to accelerate the pace of structural
reforms and buttress the Government’s public investment program in improving
energy efficiency, water supply quality, waste management, road upgrading and
road safety, and developing infrastructure in Chernobyl-affected areas.
In 2009 a US$125 million loan was approved by the WB to improve energy efficiency
in heat and power generation. The project’s main objective is the conversion of six
existing heat-only-boiler plants to combined heat and power plants in different
locations across Belarus. In 2010 the Bank approved a US$ 42.5 million loan for the
Integrated Solid Waste Management to increase environmental benefits of integrated
solid waste management and reduce environmental and health risks associated with
the presence and release of the Persisted Organic Pollutants as well as a US$30
million Additional Financing Loan for the Post-Chernobyl Recovery Project.
The WB is supporting BiH’s budget under stress caused by the drop of revenues
during the global economic slow-down. A DPL was approved in April 2010 for
US$111 million in the first phase. The DPL program complements the approved IMF
stand-by arrangement. The main objective of this first phase is to strengthen the
support to the most vulnerable segments of the population by improving the targeting
of the various public programs of cash transfers to individuals (such as child support,
civilian invalids, and veteran benefit programs) on the poorest and those most in
need. A separate investment project, 'Social Safety Net and Employment Support'
approved In February 2010 (US$15 million) should strengthen institutional capacity
for the DPL-supported reforms and provide employment services for active jobseekers among vulnerable categories. A US$70 million line of credit for Small and
Medium Enterprises (SMEs) was approved by the World Bank Board in 2009, aiming
to support SMEs' access to finance, thus preserving and strengthening their market
position in the context of the global crisis, increasing their economic opportunities.
In Bulgaria the government has taken a debatable decision to not take any loans in
an effort to avoid the potential necessity to increase taxes in the future. This will have
to include an eventual rise in indirect taxes, which is both socially and economically
unfavourable. The other option would be to reintroduce progressive taxation, which
is against the government’s philosophy. Bulgaria has thus far not taken or requested
any crisis-related financial support from either the WB or the IMF. The WB has,
246
however, been informally involved in advising the government on crisis related
matters.
In January 2010 the WB approved a €200 million (US$297 million) Fiscal, Social,
and Financial Sector Development Policy Loan for the Republic of Croatia to support
and recognize the Government’s efforts in alleviating the impact of the global
economic crisis. These efforts include measures taken by the government that,
among others, have supported fiscal consolidation and improved public finance
management, strengthened the system of social protection to provide better safety
nets for vulnerable groups, and enhanced the efficiency and stability of the financial
sector. The loan has been drawn completely.
Both the IMF and World Bank have been constantly consulting with the Kazakhstan
government on measures to protect economy during the times of economic
downturn. In 2010 the World Bank approved a DPL of US$1 billion for Kazakhstan.
The new loan supports the Government's economic programme for ensuring
financial stability and sustainable growth, with a particular focus on fiscal policy,
budgetary management, and banking regulation.
In addition an ADB Countercyclical Support Loan for Kazakhstan (CSL) was
disbursed in a single tranche in 2009. This was intended to support a countercyclical
expenditure program for 200 helping to mitigate the impact of the global economic
crisis by implementing an Anti-Crisis Program and an employment generation
program supporting key sectors of the economy and generating additional jobs.
Kosovo became the 186th member of the IMF on June 29, 2009. In July 2010 the
IMF approved an 18-month SBA for Kosovo of US$139.6 million. An initial
disbursement equivalent to US$28.3 million was made available immediately, with
subsequent disbursements subject to quarterly reviews. The program seeks to raise
revenues and restrain current expenditures in order to limit the impact of large capital
spending on the fiscal deficit and on the government’s bank balances. The
authorities are committed to improving tax administration, refraining from unfunded
spending initiatives, and ensuring the credibility of the budget process by revising
future budgets exclusively in a deficit-neutral fashion. Disciplined implementation of
these policies will help ensure sound public finances over the medium term. An
important objective of the Fund-supported program is to shore up the government’s
247
bank balances to a prudent level in order to provide an adequate fiscal reserve and
funds for emergency liquidity assistance to the banking system, if this is needed.
The privatization of PTK, the post and telecoms operator, will help replenish bank
balances and ensure that deficit financing will not rely on short-term commercial
borrowing. To address quasi-fiscal risks effectively, the authorities intend to devise a
strategy to improve energy sector finances in order to phase out the need for
continued budget transfers. To further protect against contingent fiscal liabilities, the
authorities recognize the importance of safeguarding the fiduciary responsibilities of
the pension fund and of avoiding undue exposure by this fund to a single borrower.
Kosovo’s financial system has weathered the global financial crisis relatively well,
and will be further strengthened by improving crisis preparedness. In this context, the
revised central bank law allows for the extension of emergency liquidity assistance, if
needed, and the authorities intend to draw up regulations that will operationalise the
provision of such assistance, while limiting moral hazard.
Kyrgyzstan had an 18 month arrangement with the IMF in the framework of the
Exogenous Shocks Facility starting from December 2008. According to this
arrangement the government was eligible to receive about US$100 million in direct
budget support. The conditions for the program were that Kyrgyzstan should control
inflation, reduce its budget deficit and reform tax collection. The structural
benchmarks of the program required transparent management of public resources
including the Development Fund3 and some other requirements related to the
development of the financial sector and social protection system of the country. Only
first tranche of the program equivalent US$25 million has been disbursed. Later on,
the key requirement of the Development Fund management transparency had been
violated by the government. In the post-conflict environment in 2010 the IMF
approved a disbursement of an amount equivalent to about US$33.73 million under
the Rapid Credit Facility (RCF) for the Kyrgyz Republic to help manage the
3 Extra-budgetary fund created at the end of 2008 with a statutory goal to support
implementation of economic development projects in the country; this Fund
absorbed the larger part of the Russian US$300 million.
248
economic impact of recent political turmoil and ethnic conflict in the country. The
Board’s approval enabled the immediate disbursement of the full amount.
The World Bank did not have any crisis-related budget support program in
Kyrgyzstan in 2009-2010 apart from the funds for the top-ups for MBPFC and MSB.
The government of Macedonia is implementing the Conditional Cash Transfer
programme for which the World Bank has provided US$19 million for the next three
years. The requirements for the families to receive this benefit are that they are
receiving social welfare and the child regularly attends secondary education. The
official disbursement of payments are expected to start in December 2010. The
government has had discussions with the IMF regarding a budget support loan, but
to-date no arrangements have been made apart from the regular withdrawal to the
amount of US$76 million that Macedonia is entitled to as a member of IMF. In
October 2010 the IMF offered Macedonia a precautionary credit line (PCL) for the
maximum amount of €400 million at an average interest rate of 2%. The reluctance
on the part of the government to accept an IMF loan to date was born of fear that the
country would be subject to scrutiny by the IMF, and that it would be perceived as
instable by potential investors. The PCL has now been agreed on, but no withdrawal
has yet been made. For the first year, the PCL will amount to €400 million, with an
additional €80 million available in the second year. The average interest rate will be
around 2%.
An agreement between the Government of Moldova and the IMF has been approved
for 2010-2012. Financial assistance will be equivalent to some US$574.4 million. As
of July 2010 Moldova has received 2 instalments totalling US$180 million.
An Economic Recovery Development Policy Loan of US$25 million. USD was
implemented through the WB in 2010. It supports a reform minded Government
starting to implement measures to address the deep fiscal crisis brought on by the
global recession, pre-election spending and policy drift.
Another World Bank
program amounting to US$25.2 million (2010) is to support the implementation of the
national development strategy by empowering poor communities and vulnerable
population groups to manage their priority needs, and to contribute to employment
and wage incomes in selected poor rural communities during the current economic
contraction and during the recovery. A further program for regional development is
249
funded at US$12.5 million (2009-2011). A new WB project in the social sector is in
the pipeline, aiming to support further rolling out of social aid, building an efficient
monitoring system of the targeted social assistance and further development of
central and local capacity for dealing with the new system.
Romanian authorities have agreed with the IMF, the World Bank, EBRD and
European Central Bank a package of international loans to support an economic
programme to restore financial stability. The stand-by agreement totalized about 20
billion Euros, of which 13 billion Euros from the IMF, 5 billion from the ECB, 1 billion
from the EBRD and World Bank each, for a period of two years, starting with May
2009. The arrangement entailed exceptional access to IMF resources.
The main aims of the programme are to:

Restore the sustainability of the fiscal policy with expenditure cuts and
additional revenues;

Enhance the efficiency of tax collection;

Rationalise the structure of the civil service at all levels of government;

Recapitalise the banking system;

Strengthen bank supervision and resolution; and

Preserve capital and social safety net spending.
Because of continuous worsening of the economic indicators, the agreement has
been reviewed five times since May 2009, having considered modifications of the
performance criteria. The accord rolls on an agreed calendar and several tranches
were approved, although the economic performance did not evolve as described in
the programme. The fifth review, in September 2010 states that the indicative targets
have been met, except for the government arrears. To address the arrears problem,
the authorities have agreed to make a major repayment in the health sector. The
entire amount of the loan from the IMF was supposed to go to the NBR currency
reserve. The loans from the ECB were intended to cover the deficit of the current
spending, those from the EBRD were for investments and SMEs and the loan from
the World Bank for development policies and support of the reform spending.
€4.75 billion were made available upon Board approval of the arrangement in May
2009 and the subsequent three tranches amounting to €5.1 billion were disbursed
during September 2009- July 2010 with the completion of the first to the fourth
reviews. The sixth tranche was available after the fifth review and two subsequent
250
disbursements, are contingent upon completion of the sixth review (December 2010)
and seventh review (March 2011).
The World Bank is working in Russia under a partnership agreement providing
services to certain regions of the country. The IMF is not present in Russia
The IMF is providing support to Serbia through an augmented standby arrangement
(SBA). The IMF had initially approved a precautionary program, but in the following
months, the continued deterioration of the macroeconomic environment led the
authorities to seek a strengthened economic program. In May 2009, the IMF
approved an augmented arrangement for some €3 billion. The core of the program is
a large and balanced fiscal adjustment package to contain the 2009 deficit to
sustainable levels. Total disbursements under the program to 2010 were around
€1.46 billion, or around 273% of the Republic of Serbia’s quota in the IMF, which
falls within the boundaries of favorable financing terms for the country. According to
the SBA, every three months IMF staff conduct a review in the form of discussions
with officials of the Republic of Serbia, regarding carrying out reforms in accordance
to the Arrangement deal. Reviews are followed by IMF Country reports. Five such
reviews have been completed since the start of the Arrangement, with the last one
ended on August 31st, 2010, and five Country reports have since been published.
The latest country report, published in October 2010, focuses on four issues: (i) the
fiscal outlook for the remainder of 2010 and 2011; (ii) fiscal responsibility legislation;
(iii) appropriate monetary stance; and (iv) assessing the benefits and cost of and
desirable pace of exiting from the credit support programs.
The World Bank's current portfolio in Serbia includes 12 projects under
implementation with a total commitment value of US$845.8 million (including IDA,
IBRD, and GEF). Investment support is provided in the following areas: (i) transport
and energy infrastructure aimed at rehabilitating the road network, completing the
Corridor X highway and encouraging regional integration; (ii) agricultural,
environmental, and irrigation investments to improve production and help Serbia
meet EU standards; (iii) pension and health sector reform to strengthen the quality of
service and improve financial sustainability and social services; (iv) strengthened
land administration; (v) energy efficiency; (vi) regional development activities in the
depressed former mining region of Bor; (vii) improved delivery of local social
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services; and (viii) reducing pollution of waters connected to Danube River from
selected Serbian enterprises.
The World Bank in 2009 approved two Development Policy Loans (DPLs) of
USD$100 million for Serbia to improve the efficiency of the country’s public sector
and to further strengthen the environment for private sector led growth. The DPLs
are a concrete example of the Serbia Country Partnership Progress Report, which
provides for the three year allocation of World Bank funds for Serbia to be increased
from $600 million to $900 million to help the country respond to the economic crisis.
The WB was involved in providing technical assistance to Serbia in drafting new
pension law as well as new social assistance law. It also produced an analysis
'Doing More with Less' on reprioritizing public expenditures to increase efficiency.
The WB and the IMF have closely coordinated their policy dialogue and their support
programs to help the government in Tajikistan to mitigate the impact of the economic
crisis. In May 2010 the WB approved a US$ 25.4 million program grant to help
mitigate the impact of the global economic crisis and continue implementation of
mid-term reform program. These funds allowed the Government of Tajikistan to
support provision of health care, education and social protection services within a
sustainable fiscal framework, and to lay the foundation for post-crisis recovery and
growth. The grant (PDPG 4) focuses on protecting the gains made under PDPG 1–3
and hence includes budget allocations for the social sectors as prior actions.
However, PDPG 5–6 are expected (flexibly, since the duration of crisis impact is not
known) to increasingly emphasize structural reforms. Specifically, to protect basic
services, PDPG 4 is supporting the ring-fencing of expenditures for health,
education, and social protection services at no less than 2009 levels. PDPG 5 and 6
will support reforms to improve the efficiency and targeting of social expenditures. To
promote post-crisis recovery and growth, the series will support reforms to improve
the investment climate by reducing the regulatory burden on business, strengthen
the financial sector, liberalize the aviation sector to foster Tajikistan’s links to the
regional and global economies, and restructure farmland and promote farmer control
over management and agricultural diversification. In addition, the series will continue
the governance reforms initiated under the previous series to enhance public sector
effectiveness, strengthen public financial management, and enhance accountability
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and performance of state-owned energy utilities. The second and third operations
will provide US$10 million equivalent each.
In November 2010, the IMF completed its third review of Tajikistan’s economic
performance under a program supported by the Extended Credit Facility
arrangement. The Board’s decision enables the authorities to draw an additional
SDR 13.045 million (US$20.11 million), bringing total disbursements under the
arrangement to an amount equivalent to SDR 65.265 million (US$100.59 million).
IMF structural reforms are focusing on governance of public entities, in particular the
National Bank of Tajikistan (NBT), raising the revenue yield as well as the
effectiveness of government spending.
The Eurasian Economic Community (EAEC) Anti-Crisis Fund (ACF) provided a
US$70 million preferential loan to Tajikistan. The loan carrying annual interest of 1%
is repayable over 20 years with a five-year grace period. The loan is the first of a
series of financial credits to Tajikistan, planned for the coming three years. The
Government of Tajikistan intended to use the loan to support the country’s national
budget for 2010 in order to ensure financing of social sectors (education, health, and
social protection) at the planned level. The loan is also intended to support public
management reforms and state finances aimed at raising sustainability of the
budgetary system and efficient use of national resources.
The World Bank and IMF country evaluation missions frequently visit Uzbekistan and
share their evaluation findings with the government. However, no loan arrangements
have been made so far. The World Bank and Asian Development Bank have several
ongoing projects focused on developing the agriculture sector, education, health,
small and medium businesses and public finance. WB and ADB financed projects
are not necessarily pro-poor, rather target the quality of social services. The ADB
signed a general loan agreement (US$1 billion) with the Government of Uzbekistan
in 2010 for the reconstruction and rehabilitation of infrastructure facilities. This will
represent a huge investment in the economy over the next five to six years but it is
not considered to be an anti-crisis support measure.
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2.3.2 Conditionality and social impacts
When a country borrows from the IMF, its government agrees to adjust its economic
policies to overcome the problems that led it to seek financial aid from the
international community. These loan conditions also serve to ensure that the country
will be able to repay the Fund so that the resources can be made available to other
members in need. In recent years, the IMF has streamlined conditionality in order to
promote national ownership of strong and effective policies.
http://www.imf.org/external/np/exr/facts/conditio.htm
Conditions on funding from the IMF and World Bank focus mainly on fiscal
consolidation and the imposition of austerity measures in those survey countries with
loan arrangements. Concern for the impacts of austerity on the most vulnerable
people appears as something of an afterthought. In seven countries (Armenia,
Belarus, BiH, Kazakhstan, Moldova, Romania and Tajikistan) the loans contained
some conditions referring explicitly to social protection. Social programmes for the
most vulnerable are to be expanded or improved in Kazakhstan, Moldova and
Romania but the conditions for Armenia and Belarus focus only on maintaining
existing systems. In BiH and Tajikistan the focus is on more efficient targeting of
social expenditure. Though there are certainly positive points here. However, the
IMF and the WB continue to be focused only on the poorest and most vulnerable
('safety nets') so it is unlikely that the reforms promoted through these loans will
create more comprehensive and universal systems of social protection.
Requirements to freeze or cut public sector workers' salaries were imposed in
Belarus and Romania and to freeze both wages and pensions in Serbia. Nominal
freezes usually mean falls in real terms and recent increases in the minimum wage
in Belarus came in for criticism from the IMF (see Section 1.2.1). This is a concern,
given the importance of keeping motivated professionals in social services that
benefit children. Indeed, given the links between child poverty and low wages, it is of
even greater concern.
Beside the official IMF loans with their conditions, it is clear that the WB is
implementing in many countries a host of sectoral projects. The extent of Bank's
policy influence on social sector reform remains unclear.
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2.3.3Conditionality by country
The ADB, WB and IMF gave their financial assistance to Armenia with several
conditions, mostly related to macroeconomic stability and the prioritisation of social
protection programs. In particular, the ADB credit agreement made specific
reference to the IMF’s Stand-By Arrangement conditions on macroeconomic and
financial stability. In addition, it imposed specific conditions on minimum budget
allocations to social protection programs and job facilitation programs. The
government mainly followed and executed the conditions both in terms of
macroeconomic stability and social program protection.
The IMF advised the government of Belarus to make stronger efforts to liberalise the
economy and prepare for privatization; to maintain a balanced budget in 2009,
despite lower revenues; to keep monetary policy adequately tight; to allow more
exchange rate flexibility within a fluctuation band; and to deepen structural reforms,
freeze wages in the public sector and take other austerity measures.
The World Bank stands ready to assist with technical assistance and finance, and to
advise the government’s new growth model driven by greater innovation and
productivity, opportunities for all, and protection of the most vulnerable. According to
the WB recommendations it is important to avoid policy complacency and to
accelerate structural reforms to address the following three challenges: (i) expansion
of the private sector by liberalizing business entry (with a view to developing the
service economy and creating new sources of income and employment); (ii)
attracting FDI (with a view to bring in new technologies and access to new export
markets in sectors where Belarus has a comparative advantage); and (iii)
reformation of the system of state support and the state owned sector (in order to
help achievement of the first two objectives and to manage the reallocation of
resources from less competitive to more competitive sectors 'without causing a large
social fallout)'.
Although it is unclear how far 'social fallout' has been avoided, some people in
Belarus have benefitted from WB projects by saving energy costs. Two demand-side
energy efficiency projects – the Social Infrastructure Retrofitting Project and the Post
Chernobyl Recovery Project – have helped consumers lower their energy
consumption. Following on from these, the Energy Efficiency Project will help
Belarus by improving energy efficiency on the supply side of power and heat
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generation.
The adoption of the laws on reforming cash transfers was a condition for the release
of the second instalment of the IMF’s €1.2 million three-year loan for BiH and the
World Bank budget support loan of some €82 million.
The IMF stand-by arrangement signed in July 2009 remains on track. It includes a
commitment by the authorities to public sector reform, in particular in the FBH, as
well as continued implementation of some politically difficult cuts to benefits and
public sector wages as the government took on obligations to reduce public
spending. The reforms under the first phase of the reform program were aimed at all
programs of social and veteran assistance. These include for example non-war
people with disabilities as well as civil victims of war. The planned subsequent
phases will also address the reform of public salaries to better link performance and
responsibility to pay. Ultimately, this will improve performance of public sector staff
and also improve the overall sustainability of the public sector wage bill.
The reforms required by the WB are primarily aimed at addressing the needs of the
most vulnerable, making sure that public resources are effectively used to reach and
support this segment of the population. The current system of social protection in
BiH is seen by the WB as socially inequitable, with negative impacts on the labour
market, and also fiscally unsustainable. The current benefits system does not meet
the needs of the most vulnerable. 27% of veteran-related benefits go to the richest
fifth of them and those veterans in the poorest fifth receive less than 15% of the
funds. The new system under discussion will allow full provision of veteran benefits
to individuals with disability of 60% and above, and children of fallen soldiers, on a
regular basis and without any reductions. Civilian invalids with disability levels of
60% and above will also be eligible for cash benefits, subject to means testing. The
other categories of beneficiaries will be eligible to receive cash benefits only if they
satisfy the eligibility criteria. The new system would be adopted in 2010, but would
enter into force in 2011.
In February 2010, the Federation of BiH Parliament passed a set of laws reforming
and cutting cash transfers to war veterans and families of fallen soldiers, paving the
way for the release of much needed financial aid. The adoption of the laws was a
condition for the release of the second instalment of the IMF’s €1.2 million three-year
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loan for Bosnia and a World Bank budget support loan of some €82 million. The
Federation of BiH Government decided to introduce a property census to determine
the limits for welfare payments. This decision provoked several thousand war
veterans to violent protesting which resulted in a number of injured police officers
and demolished Government buildings.
In conforming to the conditions of the WB DPL Kazakhstan has enacted a law to
provide for decreases in the share of non-priority administrative expenditures and
capital transfers to state-owned enterprises in the budgetary allocation and increases
the share of social sector spending.
One of the conditions of the IMF agreement with Moldova is that two thirds of the
most vulnerable, according to the HBS, should benefit from social aid by the end of
2010. World Bank agreements with Moldova also identify the social sector for explicit
protection. Under the ERDPL, social safety nets are assigned 20% of funding. Under
the Social Investment Fund Project, the second tranche of additional financing
assigns 50% for social safety nets and 25% for social risk mitigation. The Moldova
Regional Development Programme assigns 30% of funding to social safety nets.
Conditions on the loans made to Romania involve meeting fixed criteria and targets.
These include the preservation of social safety net spending but otherwise the
emphasis is squarely on economic performance:
Quantitative Performance Criteria





A floor on the change in net foreign assets
A ceiling on general government domestic arrears (not met)
A floor on the overall general government cash balance
A ceiling on general government guarantees
Non-accumulation of external debt arrears
Quantitative Indicative Target



General government current primary spending
Operating balance of the 10 largest loss-making SOEs
A consultation band around the 12-month rate of inflation of consumer prices
Prior Actions


Repayment of RON 1.95 billion in arrears, most in the health sector
Parliamentary approval of pension reform legislation
Structural Benchmarks (Pending and Proposed)


Parliamentary ratification of the fiscal adjustment measures
Passage of pension legislation
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





Reform of the DGF’s funding and governance regimes
Passage of implementing legislation for the unified wage law
Reform tax administration methodology for high net wealth individuals
Parliamentary ratification of amendments to the bank resolution framework
Parliamentary approval of agreed 2011 budget
Integration of the accounting and Treasury payment systems
Reforming DGF’s governance regime
There has been no change in health care financing in Serbia, although it was
required by the WB (assessed by PER 2009 and made a condition of the WB DPL in
2009 and was part of discussion with IMF). However, as part of the IMF Stand-by
Arrangement, nominal salaries of medical personnel were frozen in 2009, and
remained so until January 2011. This means that in real terms, salaries were
decreased but there have been no large scale firings of medical personnel and no
hospitals or health centres were closed as the result of the crisis.
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PART 3: SYNTHESIS OF KEY FINDINGS
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