Poverty and Shared Prosperity in Moldova: Progress and Prospects June 16, 2016
Overview Moldova experienced rapid economic growth, accompanied by significant progress in poverty reduction and shared prosperity. Growth driven mainly by remittances and pensions, to a lesser extent by higher wages in nonfarm sectors rather than employment growth. As one of the poorest countries in Europe and Central Asia, Moldova needs to continue the progress by addressing structural challenges: Inequalities in access to education, health and services; Weak labor markets, especially in the rural non-farm sectors; Aging demographics that undermine fiscal sustainability of pensions; Volatility in remittance and agriculture incomes due to economic and climatic shocks. 1
Objective Assess recent trends and drivers of poverty changes and shared prosperity performance (Twin Goals) and the potential challenges for further progress. Focus on Twin Goals: Poverty trends at the national poverty line Growth in consumption of the bottom 40 percent of population Derive results mainly from Household Budget Survey 2007-2014, combined with the Labor Force Survey and other background studies. 2
Progress in poverty reduction and shared prosperity in Moldova
Poverty has significantly declined in Moldova between 2007 and 2014 World Bank regional poverty lines (2005 PPP) and national poverty line 13% 12% 12% 11% 12% 12% 12% 12% 38% 36% 38% 40% 43% 42% 48% 47% 38% 39% 38% 26% 26% 26% 40% 22% 38% 40% 17% 17% 36% 38% 13% 11% 12% 13% 12% 9% 7% 6% 4% 3% 2007 2008 2009 2010 2011 2012 2013 2014 <$2.50 $2.50-$5.00 $5.00-$10 >$10 National pov line 4
as well as the depth and severity of poverty Poverty depth 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 2007 2008 2009 2010 2011 2012 2013 2014 Total Rural Urban Poverty severity 4% 3% 3% 2% 2% 1% 1% 0% 2007 2008 2009 2010 2011 2012 2013 2014 Total Rural Urban 5 Measured as the average distance between the welfare of the poor and the national poverty line. Measured as the average square of the distance between the welfare of the poor and the national poverty line.
Consumption growth among the less well-off supported inequality decline Consumption per capita growth Consumption per capita inequality 10% 0.32 4.0 8% 6% 4% 2% 0% -2% -4% -6% 2008 2009 2010 2011 2012 2013 2014 Total Bottom 40 Top 60 0.30 0.28 0.26 0.24 0.22 0.20 Gini (LHS) P90/P10 (RHS) 3.5 3.0 2.5 2.0 6
Croatia (2009-2012) Latvia (2007-2012) Montenegro (2009-2014) Estonia (2007-2012) Hungary (2007-2012) Lithuania (2007-2012) Serbia (2008-2013) Albania (2008-2012) Slovenia (2007-2012) Bosnia&Herzegovina (2007-2011) Kyrgyz Republic (2009-2014) Armenia (2009-2014) Bulgaria (2007-2012) Poland (2007-2012) Romania (200.7-2012) Turkey (2008-2013) Tajikistan (2012-2014) Ukraine (2009-2014) Georgia (2009-2014) Moldova (2009-2014) Macedonia, FYR (2009-2013) Slovak Republic (2007-2012) Russian Federation (2007-2012) Belarus (2009-2014) Kazakhstan (2009-2013) Progress in shared prosperity was also remarkable, compared to other countries in the region 10% 8% 6% 4% 2% 0% -2% -4% -6% Bottom 40% Total Population 7
Yet, regional disparities persist Poverty rates by urban/rural Poverty rates by region 40% 40% 35% 35% 30% 25% 20% 15% 10% 31.3% 30.3% 25.8% 21.9% 18.4% 10.4% 16.3% 11.4% 30% 25% 20% 15% 10% 5% 5% 0% 5.0% 2007 2008 2009 2010 2011 2012 2013 2014 Total Rural Urban 0% 20072008200920102011201220132014 Central North South Chisinau 8 Using national poverty line.
Tajikistan Kyrgyz Republic Moldova Armenia Kosovo Ukraine Georgia Albania Macedonia, FYR Serbia Montenegro Bulgaria Belarus Romania Turkey Croatia Latvia Hungary Kazakhstan Poland Russian Federation Lithuania Greece Estonia Slovak Republic Portugal Slovenia Malta Czech Republic GDP per capita (2011 PPP) Poverty rate (5 USD 2005 PPP) Moldova is still one of the poorest countries in Europe 30,000 25,000 20,000 15,000 10,000 5,000 0 GDP per capita (left axis) Poverty rate (right axis) 90 80 70 60 50 40 30 20 10 0 9
What drove poverty reduction and shared prosperity? Economic growth Labor markets Public transfers Remittances 10
What drove poverty reduction and shared prosperity? The role of economic growth
Economic growth was volatile, but positive GDP growth (%) Real GDP index (2007 = 100) 140 10 8 6 120 4 2 100 0-2 -4-6 -8 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 Moldova ECA 80 2007 2008 2009 2010 2011 2012 2013 2014 2015 Albania Bosnia & Herzegovina Georgia Croatia Moldova Macedonia, FYR Romania Serbia Slovak Republic Slovenia 12
Annualized growth rates (%) and pro-poor overall GDP and consumption growth Consumption growth by percentiles 10% 10 8% 8 6% 4% 2% 6 4 0% -2% -4% -6% -8% 2008 2009 2010 2011 2012 2013 2014 GDP per capita growth Income growth Consumption growth 2 0-2 -4 1 9 17 25 33 41 49 57 65 73 81 89 97 Consumption per capita percentiles 13
What drove poverty reduction and shared prosperity? The role of labor markets
Employment has declined in Moldova, driven by falling labor force participation Employment Labor force participation 50 48 46 44 42 40 38 36 34 32 30 2007 2008 2009 2010 2011 2012 2013 2014 50 48 46 44 42 40 38 36 34 32 30 2007 2008 2009 2010 2011 2012 2013 2014 urban rural men women urban rural men women 15
Thousand people This decline is partly explained by migration Reason for unemployment or inactivity, aged 15 64, 2014 Adult population abroad working or looking for work 6% 20% 47% 39% 22% 1% 18% 25% Female Male 350 340 330 320 310 300 290 280 270 260 250 10.0% 9.5% 9.0% 8.5% 8.0% 7.5% 7.0% Edcuation Disease Voluntary inactive Off season agriculture Family responsibilities Pensioner Abroad for work Other Population 15+, working or looking for work abroad (left) As share of population 15+ 16
and by moves to informality and lower quality employment Agriculture employment and lowintensity farming Share of low-intensity agriculture among adults (aged 15+) 35% 30% 25% 20% 15% 10% 5% 0% 30% 25% 20% 15% 10% Agriculture as % all employment 5% % adults working in agriculture for less than 20 hours a week 0% 2007 2008 2009 2010 2011 2012 2013 2014 Poor B40 Non-poor T60 17
Labor market outcomes are weaker for the poor, who are concentrated in agriculture sector Employment type by poverty status Employment sector by poverty status 60% 40% 20% 0% 18% 21% 22% 25% 38% 36% 26% 24% Non-poor Poor Non-poor Poor 2007 2014 Employee Self-employed 43% 18% 39% 22% 15% 64% 36% 13% 51% 15% 8% 77% Non-poor Poor Non-poor Poor 2007 2014 Services Mining & manufacturing Agriculture 18
The agricultural sector has a dual structure, and many farmers do not have the potential to commercialize Structure of the agricultural sector by farm size, 2011 (smallholder <3 ha.) 3-50 ha, 6.1% >50 ha, 0.3% Smallholder farms are three times more likely to switch to subsistence farming than to commercial farming, partly due to: 0.5-3 ha, 22.6% 0.5-1 ha, 20.0% <0.5 ha, 51.0% Underdeveloped land market that limits land sales or rentals; Demographic aging and emigration resulting in less labor supply; Limited support for market integration and mechanization or productivity improvement. 19
USD 2005 PPP However, wages have increased Average monthly salary earnings for employees 600 Real average wage growth index, %, 2007=1 1.4 500 400 300 1.3 1.2 200 100 0 Agriculture Industry Services 2007 2008 2009 2010 2011 2012 2013 2014 1.1 1 20
Agri employment Agri earnings Non-agri employment Non-agri earnings Pensions Social assistance Remittances Other Poverty declines related to the labor market were mostly from non-agricultural earnings 4 3 2 1 0-1 -2-3 -4-5 -6 Decomposition of changes in poverty, by income source 2007-2010 2010-2014 21
What drove poverty reduction and shared prosperity? The role of public transfers
Pensions also had an important role, while social assistance is targeted but small in coverage Income structure by poverty status 100% 80% 60% 40% 20% 0% 19 21 34 29 Non-poor Poor Non-poor Poor Labor income Pensions Remittances 2007 2014 Agriculture income Social assistance Other Income structure of the poor by areas 100% 80% 60% 40% 20% 0% 19 26 Rural poor Labor income Pensions Remittances Urban poor 27 38 Rural poor 2007 2014 Urban poor Agriculture income Social assistance Other 23
Agri employment Agri earnings Non-agri employment Non-agri earnings Pensions Social assistance Remittances Other Poverty declines related to public transfers clearly show the role of pensions 4 3 2 1 0-1 -2-3 -4-5 -6 Decomposition of changes in poverty, by income source 2007-2010 2010-2014 24
What drove poverty reduction and shared prosperity? The role of migration and remittances
Tajikistan Kyrgyz Republic Moldova Armenia Kosovo Georgia Bosnia and Herzegovina Uzbekistan Montenegro Albania Serbia Ukraine Macedonia, FYR Bulgaria Migration, especially from rural areas, resulted in a surge in remittances Remittances as a share of GDP, 2014 Remittances as a share of household disposable income, % 50% 30 40% 30% 20% 10% 0% 25 20 15 10 5 16 23 0 2014 2013 2012 2011 2010 2009 2008 2007 2006 urban rural 26
and helped lift people out of poverty Household welfare ranking before (left) and after (right) remittances, 2014 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1 2 3 4 5 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1 2 3 4 5 Consumption quintile before remittances Consumption quintile after remittances Non-remittance HH Remittance HH Non-remittance HH Remittance HH 27
Agri employment Agri earnings Non-agri employment Non-agri earnings Pensions Social assistance Remittances Other Poverty declines related to remittances show their role, particularly after the crisis 4 3 2 1 0-1 -2-3 -4-5 -6 Decomposition of changes in poverty, by income source 2007-2010 2010-2014 28
Can this progress be sustained? Challenges remain Spatial and cross-group inequalities Risks to sustainability 29
What challenges remain? Spatial and cross-group inequalities
Rural populations are poorer Location of the poor and nonpoor Monthly income per capita (2005 PPP) by location, 2014 27% 19% 54% 13% 17% 70% 26% 20% 54% 5% 14% 81% 240 200 160 120 80 40 0 Rural Urban Rural Urban Poor Non-poor Non-poor Poor Non-poor Poor 2007 2014 Rural Small towns Big cities Other Remittances Social assistance Pensions Agriculture income Non-agri labor income 31
Poverty is concentrated among larger households with children and elderly Poverty rate, by household composition 50% 40% 30% 20% 10% 0% 2007 2008 2009 2010 2011 2012 2013 2014 HH without children or elderly HH with children HH with elderly HH with children and elderly Elderly-only HH Dependency ratio by poverty status 50 45 40 35 30 25 20 15 10 5 0 Non-poor Poor Non-poor Poor Young dependency ratio Old-age dependency ratio 32
Non-poor Poor Non-poor Poor Non-poor Poor Non-poor Poor Non-poor Poor Non-poor Poor The less well-off have less access to services, related to their concentration in rural areas. 100% 80% 60% 40% 20% 0% Pumped water Hot water Sewage Toilet inside Heating Telephone 33
. and lower human capital (education and health) Level of education of among poor and non-poor adults 28% 21% 51% 48% 20% 32% 27% 19% 53% 51% 20% 28% Non-poor Poor Non-poor Poor 2007 2014 Tertiary Secondary Primary Healthcare access and spending are lower among the poor The bottom 20 utilize less health services and frequently forgo treatment when in need because of knowledge and financial barriers. The health care financing system fails to provide protection from catastrophic health payments, and out-of-pocket health spending can push the vulnerable into or deeper into poverty. 34
What challenges remain? Increasing risks to sustainability of growth and progress in poverty reduction
Thousand people Percent Demographics: the population of Moldova is shrinking and aging Population growth and composition Old age and child dependency ratio 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500-10% 66% 24% Children Working age Elderly 12% 71% 17% 67% 17% 15% 2000 2015 2030 60 50 40 30 20 10 0 Moldova Europe & Central Asia 1990 2015 2060 1990 2015 2060 Child dependency ratio Old age dependency ratio 36
Kazakhstan Kyrgyzstan Georgia Armenia Uzbekistan Lithuania Slovakia Czech Republic Poland Belarus Macedonia Serbia Croatia Turkey Moldova 2014 2019 2024 2029 2034 2039 2044 2049 2054 2059 2064 2069 which, combined with low labor force participation, put pressures on households and the pension system Adult (15+) inactive to active ratio, 2013 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Pensioners to contributor ratio 110% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 37
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Percent Million USD Remittances: unsustainable drivers of poverty reduction and shared prosperity 35 30 25 20 15 10 5 0 2500 2000 1500 1000 500 0 Remittances (RHS) Remittances as a share of GDP (LHS) 38
Percent Volatility: climate shocks, affecting agricultural sector where the poor are concentrated 45 35 25 15 5-5 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014-15 -25 GVA in Agriculture, y/y GDP growth, y/y 39
Moving forward
Addressing these challenges once and for all is critical for sustainable growth, poverty reduction, and shared prosperity Given the limited expected role of remittances and pensions in driving progress, strengthening domestic labor markets is critical. Enhancing the conditions in rural areas for development of the farm and non-farm sector, including access to services. Mitigating structural challenges: aging, regional disparities and vulnerability of the poor, through wider coverage of service delivery and public transfers. 41
Upcoming analytical work will look into some of these issues more in depth Moldova Systematic Country Diagnostic, aims at exploring the constraints, overall in the economy, to sustainable reductions in poverty and progress in shared prosperity (Fall 2016) Jobs Diagnostic, explores labor demand and supply constraints (Fall 2016) Economic Security of the Elderly, explores the aging challenges of Moldova and policy options (Fall 2016) 42
Thank you. María E. Dávalos Tu Chi Nguyen