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Protecting the Poor During Crises: Russia Daria Popova Black Sea Conference on Regional Integration and Inclusive Growth February 23-24, 2009 140 135 Poverty and GDP dynamics 130 125 33,5 31,5 28,3 29,0 27,5 24,7 22,4 22,0 120 GDP, % to previous year 115 110 24,6 23,3 20,7 105 100 20,3 Real GDP, % to 1991 17,6 17,7 15,2 13,4 13,2 95 90 85 80 75 5,9 70 5,3 3,8 3,3 3,1 3,5 2,8 5,0 4,8 4,5 3,7 2,6 2,1 2,1 1,6 1,3 65 07 08 * 20 20 06 20 05 20 04 20 03 20 02 20 01 20 00 20 99 19 98 19 97 19 96 19 95 19 94 19 93 19 19 92 60 Poverty headcount, per cent of the population Poverty gap, per cent of the total income of the population Poverty reduced by half in 2000-2007 following economic growth Dynamics of income and its components (1991 = 100%) 120,0 Real money incomes Real wages Real wages, including hidden wages Real pension 100,0 300 280 80,0 Dynamics of real wages, 2000=100% 260 on average 240 60,0 220 200 40,0 180 160 20,0 sectors with high share of budgetary organisations other sectors of economy 140 120 0,0 100 2000 2001 2002 2003 2004 2005 2006 2007 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 Data for December of each year 140,0 Factors of poverty reduction: restoration of incomes and wages to pre-reform level (in contrast to pensions). Higher growth rates in the budgetary sector. 24 22 Income inequality 20 Gini coefficient (right scale) 18 16 14 12 10 8 Funds ratio, times (left scale) 6 4 2 Growth of real income by income quintiles, 1991=100% 5th quintile (with the highest income) on average 1st quintile (with the lowest income) 0% 19 9 19 1 9 19 2 9 19 3 9 19 4 9 19 5 9 19 6 9 19 7 9 19 8 9 20 9 0 20 0 0 20 1 0 20 2 0 20 3 0 20 4 0 20 5 0 20 6 0 20 7 08 19 9 19 1 9 19 4 9 19 5 9 19 6 9 19 7 9 20 9 0 20 0 0 20 1 0 20 2 0 20 3 0 20 4 0 20 5 0 20 6 0 20 7 08 0 56 54 52 50 48 46 44 200% 42 40 38 36 34 32 30 150% 28 26 24 22 20 18 100% 16 14 12 10 8 6 4 50% 2 0 Average values hide growing income disparity: the economic growth was not pro-poor Poverty by population subgroups Structure of the households of the 1st income decile All non-working persons are pensioners Poverty profile, % Poverty risk, % 59,6 40,4 10,8 20,0 21,4 65,2 13,3 17,2 13,0 10,6 Economically active population, including: Employed, including working pensioners Unemployed Economically inactive population, including: not working pensioners 61,1 59,4 4,1 1,7 38,9 15,1 11,8 11,7 6,1 22,6 16,5 14,4 Total 100 13,3 By type of settlement Urban Rural By age group Children under 16 years People of active working age People of pension age All ablebodied persons work At least one ablebodied person neither works, nor studies and is not a pensioner At least one ablebodied person does not work, but studies or is a pensioner 45% By status of economic activity (people aged 15 years and more) 22% 4% 29% Rural population, children and unemployed have the highest poverty risks. The extreme poverty is caused by the exit from the labour market. Monetary social transfers 1992 All monetary social transfers share in GDP, % 5,3 share in income, % 14,3 share in social transfers, %: Pensions 85,3 Benefits 8,4 1998 2000 2001 2002 2003 2004 2005 2006 2007 8,7 13,4 7,5 13,8 9,0 15,2 9,6 15,2 9,5 14,1 8,3 12,8 8,1 12,7 7,7 12,0 7,5 11,6 75,3 17,2 65,9 14,5 65,8 11,8 69,1 10,5 70,2 11,3 75,8 10,1 72,5 18,1 69,2 22,5 67,4 25,8 Unified monthly payment (former priviledges) Share of the benefit in the total amount of benefits, 2006: Targeted social assistance (housing subsidies + monthly benefit for children under 16(18) years) 64,0 15,5 The growth in the amount of benefits was due to non-means-tested benefits (monetized privileges), which compensate the flaws in the pension system. Stagflation: recession (official forecast of GDP growth is 02%) and high inflation (official forecast is 13,5%, but the actual figure for January was 2,9%). Decrease in real incomes of the population (in December 2008 they have dropped by 3,3% compared to December 2007). Growing unemployment (in December 2008 the number of unemployed has increased by 1,2 million people compared to December 2007). Poverty rate forecast given the 0% GDP growth, 10% drop in real incomes compared to 2008 and stable inequality is 14,5%. What to expect in 2009? The problem of inflation is beyond the attention of the government, which has focused on the employment protection measures: new law to protect employees in case of voluntary dismissal; increase in the maximum size of the unemployment benefit since January 2009 (up to 107% of the poverty line); allocation of additional funding for active employment policy measures. There were no attempts to limit the violation of employee’s rights in the area of labour remuneration (e.g. wage arrears). Government has pledged to increase the retirement pension up to 130% of poverty line in 2009 in three stages. The fourth indexation has been promised in case of higher inflation rates. The government response to the crisis The economic growth in the 2000s was more pro-rich than pro-pro poor. The poverty has decreased by more than half between 2000 and 2007, but the poverty reduction potential has been practically worked out by 2008 given the existing system of social transfers. The latter is mainly used to compensate for the flaws in other institutions (the pension system) and does not provide adequate level of support to the poor. The future poverty reduction will be possible only due to the development of the programs of targeted social assistance, based on a combination of measures aimed at stimulating self-sufficiency and money benefits. The design of these programs should be tied to family life cycles. Given the government policy response to the crisis, we are likely to see the repetition of the 1990s scenario (drop in real wages, hidden unemployment, wage arrears, etc.). The working population, in particular those employed in the budgetary sector, which have left the numbers of the poor in 2000s are likely to return to these numbers again. The unemployed are at the highest risk of extreme poverty due to inadequate minimum size of the unemployment benefit. This creates the ground for a prolonged socio-economic crisis and the loss of the achievements in the area of poverty reduction in the 2000s, as well as destroys the ground for formation of the middle class. Conclusions