Growth, Poverty and
Inequality in ECA
Preliminary findings- for discussion only
Conference on Labor Markets, Growth and Poverty Reduction
Strategies
Thessaloniki, May 27, 2005
Eastern Europe and Central Asia Region,
The World Bank
Outline
I. ECA : Growth, Poverty and Inequality
during 1998-2005

Growth

Poverty

Labor market

Safety nets

Prospects
II. Western Balkans and SEE

Poverty profile

Labor market

Policy Challenges
2
ECA in the Global Context: Real GDP Growth
(In percent change, %)
15
East Asia
10
5
World
-5
ECA
Latin America and Carribean
-10
-15
3
2004p
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0
Growth worked to reduce poverty
EU-8
SEE
CIS Middle Income
CIS Low Income
+40%
Change in poverty
+20%
+0%
-20%
-20%
4
-10%
+0%
+10%
+20%
Change in real consumption per capita (surveys)
-40%
+30%
…but poverty and vulnerability
remain a problem
below $ 2.15 a day
above $2.15 but below $4.30
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
2003
1999
2003
2000
2003
1998/9
2002
1999
2003
2000/1
2002
1998
2003
2001
2002
1999
2002
1998
2004
2001
2002
1999
2002
1998
2003
1998
2002
1998
0%
Hungary Lithua- Poland Romania Bosnia Belarus Russia Kazakh Georgia Uzbeki- Moldova Armenia Kyrgyz Tajikistan
nia
-stan
stan
R.
EU-8
5
SEE
CIS Middle Income
CIS Low Income
40 mln. people moved out of
poverty in ECA
Population of ECA by poverty status 1998/92002/3 (mln.)
100%
90%
80%
Non-Poor: above $ 4.30
(2000 PPP)
215.1
264.2
70%
60%
Vulnerable:above $ 2.15
and below 4.30 a day
(2000 PPP)
50%
40%
160.7
30%
153.3
Poor below $ 2.15 a day
(2000 PPP)
20%
10%
102.0
61.2
0%
Around 1998-99
Around 2002-3
Note: based on extrapolation using data covering about 80% of the
population in ECA, Turkey is included.
6
Connecting the poor to growth
Growth
Opportunities
Growth
Opportunities
Country policies and
Country policies and
Conditions:
Education
Infrastructure
Political economy
New
Agricultural
Employment
Employment
Employment
Productivity
and wages
-- Agricultural
Non
Employment
Employment
Household and group
characteristics:
Public/Private
Public/Private
Public/Private
Redis`tribution of assets
transfers
transfers
transfers
Country policies and
Health, Education,
Conditions:
Gender, Dependency
Education
Social Policies
Labor Market Policies
Income
of
Poor
Outcomes
for the
Poor
Income Earnings
Earnings
of the
the
Poor
7
Factors contributing to
poverty reduction
Three key channels:
 Growth in Wages
 Growth in Employment
 Increasing Adequacy and Better
Targeting of Social Transfers
These differed across countries,
resulting in different pace of
poverty reduction
8
EU-8
employment index
SEE
real wage index
employment index
1.60
1.60
1.40
1.40
1.20
1.20
1.00
1.00
0.80
0.80
1997
1998
1999
2000
2001
2002
2003
1997
1998
Middle Income CIS
employment index
employment index
real wage index
1.60
1.40
1.40
1.20
1.20
1.00
1.00
0.80
0.80
1998
1999
2000
2001
2000
2001
2002
2003
Low Income CIS
1.60
1997
1999
real wage index
2002
2003
1997
9
1998
1999
2000
real wage index
2001
2002
2003
Employed gained
~2002 Poverty of Unemployed
~2002 Poverty of Employed
Poverty Change for Employed
Middle Income CIS
Low income CIS
Change in Poverty, %
Tajikistan
Georgia
Moldova
Kazakhstan
SEE
Russia
EU-8
Belarus
Romania
10
Poland
Percent Poor
~1998 Poverty of Unemployed
~1998 Poverty of Employed
Poverty Change for Unemployed
Most poor are still the working
poor
Children (<16 y.o.)
Working (Employed+self-e)
Unemployed
Inactive
Elderly (66 y.o.+)
100%
75%
50%
25%
0%
Poland Hungary Romania Bulgaria Kazakh- Russia Moldova Georgia Tajikistan
stan
EU-8
11
SEE
CIS Middle
Income
Note: * $ 4.30 at 2000 PPP as a poverty line, other 2.15 a day at 2000PPP
CIS Low Income
Turkey
Wages and poverty reduction
EU-8
SEE
CIS Middle Income
CIS Low Income
+40%
Change in poverty
+20%
+0%
-20%
-20%
12
-10%
+0%
+10%
Change in real wage
+20%
-40%
+30%
Increased public expenditures …
Changes in Real Public Expenditures by Groups of Countries,
1998=100
160
150
CEE
140
Middle Income CEE/SEE
CIS Middle income
130
CIS poor
120
110
100
90
80
1998
13
1999
2000
2001
2002
2003
… translated into the growth
of transfers…
Pension spending/GDP
Real Pension Index
Pension Spending, $*
EU-8
1998
2002
9.72
9.47
1.00
1.05
871
917
SEE
1998
2002
7.80
8.45
1.00
1.30
434
565
Middle Income CIS Low income CIS
1998
2002
1999
2002
6.85
6.90
4.50
3.34
1.00
1.40
1.00
1.04
241
339
59
61
Source: ECA Fiscal Database * Annual per capita in 2000 PPP Note: EU-8 is comprising Czech
Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovak Republic, SEE- Albania, Bulgaria and
Croatia, Middle Income CIS – Belarus, Kazakhstan, Russia and Ukraine, and Low income CIS –
Armenia, Azerbaijan, Georgia, Kyrgyz Republic and Moldova.
14
… and helped to reduce poverty
Country
EU-8
Poland
SEE
Bosnia & Herzegovina
Bulgaria
Romania
Serbia
Montenegro
Middle-Income CIS
Belarus
Kazakhstan
Russia
Low-Income CIS
Armenia
Azerbaijan
Kyrgyz Republic
Year
Increase in poverty in the absence of all social
transfers (percent)
2001
141
2001
2001
2002
2003
2002
68
156
49
41
34
2002
2002
2002
143
100
68
2001
2001
2001
12
12
10
Note: Simulations use national poverty lines. Some behavioral response is assumed in the case of Romania (50
percent of transfer income is replaced) and Serbia (72 percent of transfer income is replaced in rural areas, 87
percent in urban areas).
Source: World Bank, various poverty assessments.
15
Other factors pushed poverty up
(in most cases) or down
EU
Southeast
Europe
CIS Midincome
countries
Residential tarif f s (US cents / kWh)
16
CIS Low -income countries
ECA benchmark
Turkey
Uzbekistan
Tajikistan
Georgia
Kyrgyz
Republic
Moldova
Azerbaijan
Armenia
Ukraine
Kazakhstan
Belarus
Serbia
Romania
Croatia
FYR
Macedonia
Montenegro
Bulgaria
Poland
Slovak
Republic
Albania
Lithuania
Latvia
Hungary
10
9
8
7
6
5
4
3
2
1
0
Czech
Republic
Estonia
US Cents / kWh
Electricity tariffs in ECA countries remain well below the benchmark
of 7.5 - 8.5 cents/kWh
T
Relative prices

Energy tariffs

Agric. Prices

Taxes

Fees for social
services
(Health,
Education)
Depletion of
infrastructure
networks
Depletion of
social capital
Migration
Combined impact on the poor varied
Moldova 1999-2002
80
40
60
Growth, %
20
20
30
40
Growth, %
50
Median spline/Growth rate in mean
60
100
Russia 1999-2002
0
10
20
30
40
50
60
Percentiles
Median spline
70
80
90
0
100
10
20
40
Median spline
Grow th rate in mean
50
60
Percentiles
70
80
90
100
Grow th rate in mean
Romania 1999-2002
10
-10
0
5
0
-5
Growth, %
5
Median spline/Growth rate in mean
10
15
Poland 1999-2002
Growth, %
30
0
17
10
20
30
40
Median spline
50
60
Percentiles
70
80
90
Grow th rate in mean
100
0
10
20
30
40
Median spline
50
60
Percentiles
70
80
90
Grow th rate in mean
100
Prospects going forward
100%
90%
Non-Poor: Above
$ 4.30 a Day
80%
215.1
264.2
70%
329.2
60%
395.6
Vulnerable: Above
$ 2.15 and Below
$ 4.30 a Day
50%
40%
160.7
30%
153.3
20%
10%
0%
108.8
46.0
61.2
18.4
Around
1990
18
102.0
Around
1998-99
Around
2002-3
40.0
By 2007
Poor: Below $ 2.15
a Day
Issue 1: Sustainable poverty
reduction is not guaranteed



19
High growth rates are not guaranteed
 Poor CIS rising concerns over debt and dependence on a
few sectors
 Resource rich CIS –even more need for diversification
 CEE and SEE – fiscal vulnerabilities
Impact of growth in reducing poverty may fall
 Unique constellation of factors in CIS (rebound, clearance
of arrears)- inequality will not continue to decline
 Further increases in inequality in CEE and SEE due to
wage decompression
 Growing inter-sectoral differences in productivity (lagging
agriculture)
Progress in non-income dimensions has been mixed
 Quality deteriorated, affordability reduced and neglected
maintenance toll raising
Issue 2: Many people remain
vulnerable to economic
downturns
Russia
Romania
140
140
120
120
100
100
80
80
60
60
40
40
20
20
1997
1998
1999
2000
Povert y head-count (1999=100)
20
2001
2002
2003
Real GDP (1999=100)
1997
1998
1999
2000
Povert y head-count (1999=100)
2001
2002
2003
Real GDP (1999=100)
Issue 3: Jobless growth or low
productivity
Employment and self-employment rates
Wage employment
Self-employment
80%
70%
60%
50%
40%
30%
20%
10%
0%
1998 2002 2001 2002 1995 2003 1998 2002 1998 2002 1999 2002 1999 2002 1998 2002 1999 2003
Poland
Hungary
EU-8
20
Bulgaria
Romania
SEE
Belarus
Russia
Middle-Income CIS
Georgia
Moldova
Tajikistan
Low-Income CIS
Note: Employment and self-employment levels are derived from household survey data and may differ
from official statistics in some respects.
How to achieve accelerated
and shared growth?
By addressing causes of slow and unequal
growth
 Reduce vulnerability
 Foster productivity growth
 Improve public service delivery
 Address regional and spatial inequalities
and the needs of marginalized groups
 Call for increased reform effort
21
Key Messages:



About 40 million people moved out of poverty, but
60 million remain in poverty
Significant concerns on the non-income
dimensions
Much more needs to be done to
 consolidate
the gains for the poor, and
 make public services work better, especially for the
poor

This calls for
 continued
21
agenda of policy reforms,
 with varying emphasis by regional sub-group
II How different are the
Western Balkans?




22
Poverty
Growth
Labor market
Policy challenges
Poverty

Very limited data compared to other regions
Albania -2002 LSMS (only recently repeat)
 BiH – 2001 LSMS and 2004 panel survey, HBS only in
2004
 Serbia- 2002 and 2003 SLS, HBS 2003 onward
 Montenegro – 2002 and 2004 ISSP (topical)
 UNMIK – 2000 LSMS, HBS 2002 and 2003 are not
comparable
 FYROM – HBS1997-2000 not comparable to 2002-2003


Poverty profile: differs a lot
Children or non-working adults are the largest group
(Alb,UNMIK, FYROM)
 Working poor are the largest group (SaM, BiH)

23
Western Balkans data at-aglance
Poverty and unemployment (most recent survey)
%
Under US$ Under US$ Unemploy Popula
ment rate, tion,
4.30 in
2.15 in
National
mln
LFS
PPP
PPP
poverty
Western Balkans
3.2
16.8
71
24
25
Albania
4.2
16.4
30
6
17
BiH
2.1
30.5
24
4
20
Macedonia
8.3
14
40
5
11
SaM
2
44
n.a.
n.a.
37
Kosovo
Regional comparators
21.7
6.6
58
12
30
Romania
7.8
19.4
33
4
22
Bulgaria
4.4
15.8
4
0
8
Croatia
Notes: Poverty rates with national poverty lines taken from most recent publications; 2.15 and 4.30 poverty rates
23
from regional report, World Bank 2005, Unemployment rates – most recent, quoted in CEMs and/or PAs
Growth performance
15
Middle-Income
CIS
10
Low-Income
CIS
5
EU-8
Growth rate %
0
1990
-5
-10
-15
-20
24
-25
1991
1992
1993
1994
1995
1996
1997
1998
SEE
1999
2000
2001
2002
2003
Growth performance:
Western Balkans vs SEE
GDP Growth in ECA by Groups of Countries, 1990-2003
SAM
10
SEE
5
0
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
%
1990
-5
FYROM
Middle-Income CIS
-10
-15
25
2003
Labor market



26
Unemployment is the key concern: High open
unemployment (survey U rate above 15%, some
countries in 30s; registered unemployment even
higher, 30-40 percent); High duration of
unemployment; High youth unemployment
Lack of employment response and increasing duality:
Flat or decreasing employment in the formal sector;
Slow job creation in the economy in general; but
increasing informal sector employment; One-earner
model prevails in large parts; Importance of
agriculture and slow gains in productivity
Concerns about sustainability of recent wage
increases: Rising labor costs and rapid increases in
formal sector wages (in some countries outpacing
productivity)
Challenge
Political resistance / fear/ lack of support to
Little progress in poverty
reduction
Little formal job creation
Growing informal sector
Protective labor regulations
(formal sector)
High taxes /rigidities
Bad
Business
Environm
ent/invest
ment
climate
Protection of jobs/extended
safety nets
Potential for large lay-offs
High unemployment
27
Unfinished restructuring