Transcript The Latest Forecasts from the World Bank Show

The Crisis Hits Home
Human Development
Eastern Europe and Central Asia
The World Bank
Washington, DC
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The slowdown is sharpest in Eastern
Europe and Central Asia
Growth is expected to fall more than in other emerging regions.
GDP growth (annual percent change)
8.0
6.0
2009
2010
4.0
2.0
0.0
LAC
CEE
-2.0
-4.0
-6.0
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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
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2010
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.
Number of registered unemployed increased in Estonia by 15 percent, in Lithuania by 14 percent, in
Kazakhstan by 13 percent, in Latvia by 11 percent, in Romania by 7 percent, and in Bulgaria by 6
percent.
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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%
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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
2007
2008e
-10%
2010f
Sub-Saharan Africa
-20%
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2009f
World Bank
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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Poverty is going up everywhere
Share of households below national poverty lines
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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Note: Estimates are not comparable across countries.
Source: World Bank Staff
Turkey: The poor are more likely to resort to coping mechanisms that
divest from human capital. Food security is a problem for urban poor:
close to half of poor households reported they had to “reduce the amount
of food given to their children”.
% of households that use the following coping mechanisms
80%
75%
60%
40%
29%
32%
20%
14%
14%
5%
0%
Poorest 20%
Middle 20%
Richest 20%
Asset Quintile
Decreased the amount of food consumption
Reduced education expenditures
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Reduced the use of health services
Fiscal constraints have led to 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; school consolidation –
Serbia)
 Prepare workers for economic revival (Latvia, Russia)
 Expand safety nets for those without social insurance (Latvia)
 Change indexation/minimum and base pension (Hungary, Serbia)
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Social Benefits Response to Crisis
 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)
 Expect increasing demand for SSN benefits in winter
 Especially as unemployment benefits run out (time limits)
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Safety Nets Beyond Crisis:
Significant Reform Agenda
 “Social policy” identity – 2nd generation: promoting links to:
 Jobs, activation agenda (ALMP)
 Human capital
 ECD, social services
 Consolidating benefits & improving administration
 Targeting Agenda: Filtering out benefits to the rich
 Broaden stance on targeting agenda
 Less emphasis on narrow targeting only to poor (political support)
 More on “filters” to reduce costs of benefits to top quintiles
 Reversing falling coverage of well-targeted programs
 Errors of exclusion
 Concerns for vulnerable groups (including Roma)
 Evaluating other impacts:
 Work incentives
 Fertility, child protection
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Reflections (case of Moldova)
 The crisis can be viewed as an opportunity to accelerate reforms in the
social sector, through financial redistribution of existing funds. They
need to be used in a more targeted and efficient manner and offer
greater gains for citizens.
 Financial redistribution can be done through:
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•
School optimization
•
Reform of the residential care system
•
Effectively roll-out the poverty-targeted social assistance program while
scaling down non-targeted benefits.
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