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Economic Growth, Government
Pro-Poor Policies and Poverty
Reduction in Armenia
Poverty and Extreme Poverty
Rates in Armenia
Poverty
1999
2004
56%
34.6%
Extreme 21%
Poverty
6.4%
Source: National Statistical Service of RA, 2006
Distribution of Income
1999
2003
Gini
0.59
Coefficient
0.44
--Zero represents perfect equality and 1.0 perfect
inequality
--Source: The IMF Book, p. 19
Explanations for gap between
poverty rates and public perception
1) Certain segments of the population aren’t
benefiting from positive economic results
2) There are regional disparities:
– Lowest poverty rates: Yerevan, Vayots Dzor
– Poorest: Shirak, Aragatsotn, Gegharkunik,
Kotayk and Armavir
3) Official poverty line underestimates the
true amount of poverty.
Poverty and Extreme poverty lines
in 2004
• Extreme poverty line: AMD12,467
or $28 per month
• Poverty line: AMD 19,373 or
$43/month
STEPS TO CALCULATE THE
EXTREME POVERTY LINE
1) Estimate per person per day
calories needed: 2,232
2) Estimate the amount of money
required to purchase 2,232
calories per day for one month:
AMD 12,467 or $28.
STEPS TO CALCULATE THE
POVERTY LINE
1) Estimate the amount of money required to
purchase food: AMD 12,467 or $28
2) Estimate the non-food share of the budget of
a person earning an income equal to the
poverty line. This number is 36%.
3) Based on these estimated numbers, calculate
the total budget or the poverty line: AMD
19,373 or $43
--The non-food part of this budget is just AMD
6,906 or $15 per month.
Pro-poor Government economic
policies
1) Build public infrastructure in agriculture:
roads and water resources
2) Improve education, health care & housing
3) Provide easy access to credit by the poor
4) Improve pensions and safety nets for the
poor
5) Reduce of corruption
6) Redistribute assets
Government Expenditures
• From 2000 to 2004 Government
expenditures/GDP declined from 26.7% to
20.4%
• In 2003 Government social expenditures,
(pension, social assistance, health and
education) were low: 8.7% of the GDP.
Poverty Reduction Strategy Paper expects
that number to be 12% of the GDP in 2015
Feasible ways of increasing
government expenditures on propoor economic policies
• 1) Increasing government budget
deficits
• 2) Increasing tax revenues
1) Government budget deficits
• During 2003, 04, 05, budget
deficits/GDP were 1.4%, 1.5%
and 2.5%
• For 2010, 2015, and 2020 the
deficits/GDP are estimated to be,
1.9%, 1.6% and 3.3%
Government Debt
• In 2005 government debt/GDP
was 31%.
• For years 2010, 2015, and 2020
the government debt/GDP are
estimated to be, 29.1%, 29,8%
and 37.9%.
2) Tax revenues and rates
• In 2004 government tax revenue/GDP
was 17.4%.
• After year 2000, annual taxable
income of less than about $2,500 is
taxed at 10% and above that amount
is taxed at 20%.
• After year 2000, income tax collection
fell by 28%.
Armenia: Poverty measures by age
Groups, 1998/99 and 2004 (in %)
Poor
Extremely poor
1998/99 2004 1998/99
2004
Aged 61 +
58.3
31.2
22.5
5.5
Total
Population
56.1
34.6
21.0
6.4
Source: National Statistical Service of RA, 2006
The effect of elimination of pension
system on poverty rates
• If in 2004 pensions were eliminated:
–Poverty rate would have jumped
from 34.6% to 42.7%.
–Extreme poverty rate would have
jumped from 6.4% to 12.3%
Source: National Statistical Service of RA, 2006