Transcript The Latest Forecasts from the World Bank Show

Economic and Social Impacts of the
Crisis in Eastern Europe and Central
Asia
Emil D TESLIUC
The World Bank
Washington, DC
May 13, 2010
Sofia
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The slowdown is sharpest in ECA
GDP growth (annual percent change)
8.0
6.0
2009
2010
4.0
2.0
0.0
LAC
-2.0
-4.0
-6.0
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CEE
Easia
MENA
South Asia
SSA
The impact of the crisis has varied across
countries in ECA
GDP Growth Rates in ECA
2009
16
11
6
1
-4
-9
-14
-19
3
2010
Recession conditions (example: unemployment) will continue for several years
4
Households are affected by the crisis in multiple ways and at
different times
Financial Market
Product Market
Labor Market
Government Services
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Credit Market Shock
Relative Price Shock
Income/Employment
Shock
Education, Health, SP
Service Shocks
Unemployment
The recent surge in unemployment caused by an adverse demand shock hit the labor markets hard.
Between June 2008 and June 2009, in 27 ECA countries to 11.354 million, or around 34 percent.
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But these unemployment rates don’t tell the whole story
 Lags in impacts and data:
 Crisis is moving in waves with some countries hit before others
 Labor market effects often lag
 Data do not keep up with what is happening
 Shifts in work status




Administrative leave (in Russia, 1.1 million in QI 2009)
Reduced working hours (in Ukraine, 1.2 million in QI 2009)
Job sharing
Increasing informality
 Wage arrears (at the end of Q1), accumulated wage arrears doubled and
tripled in Ukraine and Russia respectively
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Registered unemployment rates don’t tell the whole
story
Unemployment, Part-time Work, Workers on
Administrative Leave, and Workers
having Wage Arrears First and Second Quarter of
2009
Unemployment, and Part-time Work in Belarus
and in Latvia
in the First and Second Quarter of 2009
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A contraction in remittances will have both macro
and household impacts
Remittances as a share of GDP, 2007 (%)
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
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46%
38%
19%
10% 9%
7%
6%
6%
4%
4%
4%
4%
Forecasts of remittance flows for 2009 show a steep decline
of 15% in ECA
50%
East Asia and Pacific
40%
30%
Europe and Central
Asia
20%
Latin America and
Caribbean
10%
Middle-East and North
Africa
South Asia
0%
2006
-10%
-20%
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2007
2008e
2009f
2010f
Sub-Saharan Africa
Micro-simulations show an increase in poverty
Most recent poverty estimate
Forecasted poverty in 2009
Armenia
23.8
(2007)
29.7
Azerbaijan
10.8
(2008)
11.8
Bulgaria
9.7
(2007)
11.3
Latvia
19.8
(2008)
26.9
Romania
5.7
(2008)
7.4
Russia
13.5
(2008)
15.5
Tajikistan
53.1
(2008)
57.9
Turkey
17.4
(2008)
21.9
Note: Estimates are not comparable across countries
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Fiscal constraints have to led strategic and not so strategic social
sector responses
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
Not Strategic
 Reduce spending across the board
 Cut spending on critical inputs (operations and maintenance) to protect salaries
 Postpone expansion of early childhood and preschool education and cut health
prevention programs
 Adjust second pillar contribution rates to raise revenue

Strategic
 Achieve efficiency gains through structural reforms in social sectors (e.g. formula
funding in general education – Latvia, Lithuania, Romania, Bulgaria; school
consolidation – Serbia)
 Prepare workers for economic revival (Latvia, Russia, Bulgaria)
 Expand safety nets for those without social insurance (Latvia)
 Change indexation/minimum and base pension (Hungary, Serbia, Bulgaria)
ECA countries have adjusted labor market policies and social
protection programs to respond to the crisis
Bulgaria
Increased
duration in
unemployment
benefits
X
Wage subsidies
X
Training
X
Public works
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Turkey
X
Increased amount
of unemployment
benefits
Exemptions from
paying
contributions
Romania
X
Kazakhstan
X
X
X
X
X
X
X
Latvia
X
X
Russia
Response to Crisis:
Unemployment Insurance and Social Assistance Benefits
 Unemployment insurance = first response
 Ukraine, Turkey, Croatia, Serbia, Bulgaria
 Safety net benefits protecting existing beneficiaries
 Helping smooth consumption of those already receiving benefits
 Some safety net benefits starting to respond only recently
 In terms of increasing coverage (new beneficiaries: Croatia, Bulgaria))
 And/or topping up benefits (e.g., Latvia, Ukraine, Serbia, Kyrgyz Republic)
 Some design features constrain crisis response:
 Extremely low eligibility thresholds – not reaching those hit by crisis (e.g.,
Bulgaria, Croatia, Ukraine)
 Additional restrictions: time limits; requiring period of unemployment prior
to registering (Bulgaria)
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Reflections
 The aggregate shocks fed through multiple channels: labor market; remittances;
credit; supply of health and education services; social protection.
 The policy responses to the crisis depend on:
•
•
•
•
•
depth and persistence of crisis
fiscal space today and magnitude of fiscal adjustment necessary in next years
transmission mechanism to households
availability of instruments that help households cope with the shock
adjustments at the household level (destructive for longer-term human development?)
 Public policies that protect households from poverty are important.
 Public policies that prepare households for post-crisis key for longer term
human capital formation and development.
 Public policies that protect jobs and create jobs to be handled with care if labor
demand remains sluggish because fiscal costs are high
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