GEORGIA: RECENT TRENDS AND DRIVERS OF POVERTY REDUCTION (FY16 GEORGIA POVERTY ASSESSMENT) POVERTY AND EQUITY GLOBAL PRACTICE AUGUST 17 2016
Summary Economic growth translated into improvements in living conditions for everyone in the country, especially for those at the bottom of the income distribution. Poverty decreased for the fourth consecutive year in 2014, but it still affects close to one third of the country (32 percent of population living at less than US$2.5/day 2005 PPP poverty line). Between 2010- 2014 households’ income from economic activities played a significant role in reducing poverty. This is in contrast to the pre-2010 period when income from economic activities played a limited role and income from social transfers were more important for poverty reduction. Government’s redistributive policies continue to play a significant role in lifting households out of poverty. Households with per capita spending above the $5/day line are better integrated into the services sector, especially in high-skilled jobs, than those households living on per capita spending of between $2.5/day and $5/day (“vulnerable households”). Context play a more important role than endowments (such as, education level) in explaining the inability of the persistently poor to escape poverty. 2
Outline • Recent poverty trends ($2.5/day) • Drivers of poverty reduction • Inclusive access to economic opportunities • A deeper look at the rural economy • The role of fiscal policy • Profile of labor market outcomes for those living above the poverty line • Poverty persistence in Georgia • Policy discussion 3
POVERTY TRENDS 2010-2014
Robust economic growth of 2010-2014 slowed down in 2015 due to external factors Georgia Real GDP growth 2006-2018f 14 12.6 12 9.4 10 8 7.2 Average Average 6.4 6.2 5.0 5.6 6 5 4.5 4.6 3.4 4 3 2.8 2.4 2 0 Note: 2016-2018 are -2 forecasts produced by the WB. -4 -3.7 -6 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016f 2017f 2018f Source: CPS 2014-2017, Macro Poverty Outlook – Spring 2016 edition 5
Economic growth accompanied by sustained poverty reduction... Georgia poverty rate, $2.5/day 2005 PPP line 60 WB simulations show that a price 55 increase of 6 percent (as observed between 2014Q3-2015Q3) would 50 46.7 have led to poverty increase. 45.8 45.1 44.8 However, positive trends in labor 43.0 42.6 42.5 42.8 45 earnings, agricultural income and social transfers are expected to 40 have offset these impacts. 36.0 35.7 32.3 35 29.4 27.5 30 31.0 25.5 25.4 25 Note: 2015-2018 poverty rates are forecasts based on the elasticity of GDP-poverty from the 20 17.2 2010-2014 period. These estimates will be updated as forecasted GDP is updated and 15 new IHS rounds are available. 10 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015f 2016f 2017f 2018f National Tbilisi Rest Urban Rural Source: WB staff calculations based on 2006-2014 IHS. 6
…and higher living standards across the distribution Poverty Gap (FGT1) and Poverty Severity (FGT2) Growth Incidence Curve shows a pro-poor growth show improvements below the poverty line pattern over 2010-2014 Georgia (2010-2014) 25 12 19.2 20 18.1 8 16.5 15 13.0 4 11.4 10.5 10.0 8.7 10 0 6.5 5.6 -4 5 Growth incidence 95% confidence bounds Growth in mean Growth at median Mean growth rate -8 0 2010 2011 2012 2013 2014 1 10 20 30 40 50 60 70 80 90 100 Consumption percentiles Gap Severity Source: WB staff calculations based on 2010-2014 IHS. Source: WB staff calculations based on 2010-2014 IHS. Note: Poverty gap measures the average distance to the poverty line Note: Growth incidence curves measure the change between the initial for the poor. It is expressed as a percentage of the poverty line. Poverty and ending period for each percentile of the welfare distribution. severity is the average of squared distance, thus giving more importance to the extreme poor. 7
Inspite of the recent decrease, the poverty rate is still high compared to countries with similar levels of GDP per capita… Poverty rate and GDP per capita, selected countries ECA (c. 2014) 35 Georgia (2014) Kyrgyz Republic 30 (2014) (US$2.5/day 2005 PPP) Armenia (2014) Poverty headcount 25 20 15 FYR Macedonia (2013) Romania (2012) 10 Albania (2012) 5 Turkey (2013) Moldova (2014) 0 0 5,000 10,000 15,000 20,000 25,000 GDP per capita (2005 PPP US$) Source: WB staff calculations based on data from the ECAPOV harmonization. 8
…and differences in living standards across regions persist Poverty Headcount by Regions ($2.5/day 2005 PPP) Georgia 2014 Source: WB staff calculations based on 2014 IHS. 9
Inequality also decreased likely driven by improved welfare among the less well-off. Shared prosperity indicator shows similar pattern. Georgia 2010-2014 Inequality Indicators Shared Prosperity Indicator 45 4.0 12 Annualized growth 2010-2014 (Percentage) 44 3.8 9.8 10 43 3.6 42.1 8.7 8.3 41.6 7.9 42 3.4 41.3 7.7 8 6.9 41 3.2 6.4 40.1 40.0 6 5.3 2.9 40 3.0 2.8 2.7 39 2.8 4 2.6 2.6 38 2.6 2 2.6 2.5 37 2.4 2.5 2.5 2.5 36 2.2 0 National Tbilisi Rest Urban Rural 35 2.0 2010 2011 2012 2013 2014 All population Bottom 40 percent Gini Ratio 90th/50th percentile Source: WB staff calculations based on 2010-2014 IHS. Ratio 50th/10th percentile Note: Shared prosperity measures annualized growth of mean per capita consumption expenditure of the bottom 40 percent of the population. This is compared to annualized Source: WB staff calculations based on 2010-2014 IHS. growth of mean consumption of the total population. World Bank standardized consumption expenditure is used. This differs from Geostat’s consumption expenditure. 10
Despite improvements, Georgia must pay attention to: (a) those who remain in poverty for long time (poverty persistence); (b) potential risk of poverty increase due to macro conditions (a) Poverty status 2009-2011-2013 (b) Welfare effects of 2015 Inflation WB simulations show that a price 31.8 increase of 6 percent (as observed Percentage of population 50 2.9 between 2014Q3-2015Q3) would -0.04 have led to poverty increase. 40 However, positive trends in labor 21.5 earnings, agricultural income and social transfers are expected to 30 16.5 16.1 have offset these impacts. 14.2 1.5 20 0.8 10 0 Rate Gap Severity Gini -10 Poverty Inequality Actual 2014 $2.5/day Adding 2015 inflation effect Adding 2015 inflation effect adjusted by consumption bundle Source: Welfare Monitoring Survey 2009-2011-2013 panel. Nationally Source: WB staff calculations based on 2014 IHS (Q3). Note: “Inflation effect” estimated deflating consumption by national average price representative household survey (See Annex slides for more information) Note: Persistent poverty is defined as being poor in 2009, 2011 and 2013. In increases 2014Q3-2015Q3 (estimated at 6 percent) and re-estimating poverty. “Inflation effects adjusted by consumption bundle” is estimated similarly but using a and out are households who escape poverty in 2011 and fall back in 2013, or that fall to poverty in 2011 and escape in 2013. household-level price increase which reflects the household consumption basket. See Cancho et al. (2016) for more details. 11
Share of vulnerable population is also growing (percentage of those who live just above the poverty line) Poverty and Vulnerable groups, 2010-2014 (percentage) 100 4 4 5 5 7 Middle-class 90 15 16 17 21 24 80 Vulnerable 70 34 35 60 35 37 Moderate 37 50 Poor 40 30 47 45 43 20 36 32 Poor 10 0 2010 2011 2012 2013 2014 <$2.5 $2.5 - $5 $5 - $10 $10+ Source: WB staff calculations based on 2010-2014 IHS. Note: All measures based on US$ 2005 PPP. $2.5/day is the ECA regional extreme poverty line, $5/day is the ECA regional moderate poverty line. Above $10/day is considered middle class. 12
DRIVERS OF POVERTY REDUCTION 2010-2014 13
Real incomes increased across rural and urban areas 2010-2014 Average monthly per capita income (bars, 2010-2014, 2014 GEL) and annualized growth (numbers in bold), by region National Tbilisi Rest Urban Rural 350 10% 8% 8% 8% 300.9 300 242.1 235.5 250 214.2 206.6 200 174.8 174.7 157.4 150 100 50 0 2010 2014 Source: WB staff calculations based on 2010-2014 IHS. Note: Income includes labor earnings, agricultural income, social protection, remittances, inter-household transfers and other minor sources. Numbers at the column base represent average annual growth 2010-2014. 14
Income increase was driven by income from economic activities (paid work and agriculture) and social transfers Drivers of income increases on average, Georgia 2010-2014 2006-2008 National Tbilisi Rest Urban Rural National* 50% 10% 4% 40% 6% 8% Total Income Growth 14% 11% 7% 30% 2006-2008 (National)* 8% 6% 21% 20% 11% 1% Economic 13% 16% activities 10% 18% 13% income 11% 6% 4% 2% 0% -10% Share adults Employment Labor income Agricultural income Social Protection Private transfers Property income Source: WB staff calculations based on 2010-2014 IHS. (*) Based on 2006-2008 IHS, per adult equivalent income. 15
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