Pro-Poor Economic Policies and Poverty in Eastern Europe and the CIS United Nations Economic Commission for Europe Pro-Poor Economic Policies and Poverty in Eastern Europe and the CIS Marek Belka Executive Secretary of the UN Economic Commission for Europe Under-Secretary-General of the United Nations July 2007 ECOSOC, Geneva

Economic Overview of the ECE Region: 56 countries of Europe, Central Asia and North America Rapid Economic Growth and Favourable Prospects Tremendous Diversity: Region Has the some of the Richest and Poorest Economies Future Growth Will Need to Be in Knowledge Intensive Industries-UNECE Has a New Program A Major Challenge from Globalization Is How to Preserve the Social Welfare State

Solid Real Growth in the ECE After a Difficult Decade (1990s) There Is Now Solid Growth in the Transition Economies especially since 2002

Per Capita Income in the UNECE Region:Significant Diversity

Poverty in the Transition Economies of the ECE The collapse of central planning and dissolution of the USSR and Yugoslavia resulted in a decade long transitional recession GDP fell by: 20% in central Europe 30% in southeast Europe 50% in much of the FSU In addition to the fall in income, much of the institutional structure supporting social services fell apart as well, resulting in rising unemployment, poverty, and inequality.

Inequality in the Transition ECE Above Western Europe, Below Latin America U.S. France Nordics

Inequality Increased during the Transition Two Different Patterns of Increasing Inequality: Poland Typical of NMS, Russia of CIS

Poverty in the ECE Region Highest in Central Asia, Caucasus 40 Million ($2.15PPP) and 150 million ($4.30PPP)

Central Asian and Caucasus As Poor as Many African Countries

Poverty: The Vulnerable Groups Rural Areas Unemployed Ethnic Minorities Retired, Elderly Unskilled Single Parent Households Health Problems

Poverty Varies Significantly Within Countries --Geographically Kyrgyzstan Note: Poverty is generally lowest in capital cities Source:UNDP

Poverty is Significantly Related to Unemployment in the Transition Economies Although unemployment has been declining; still very high in southeast Europe A significant percent of unemployed are long-term due to large structural changes in sectoral output (2 to 3 times western levels) Unemployment likely to result in poverty since weak safety nets, tight eligibility, limited funds for active labor market policies Large informal sectors with no benefits Women and youth have especially high unemployment Economic growth in the resource rich-CIS has not (until recently) produced much employment growth

Gender Pay Gap: Worsened During the Transition Percentage Women’s Pay Is Less than Men’s Red=Transition Economy

There Is an Ethnic Dimension to Poverty: The Roma of Southeast Europe Source: UNDP

By Some Measures the Transition Economies Appear to be Pro-Poor It is difficult to assess the overall policy environment of a country in addressing basic needs The UNDP human development index (HDI) may provide a reasonable overall measure (includes literacy, life expectancy, etc) Generally most of the transition economies rank significantly higher by the HDI than by per capita income Thus for their income level, they seem to be addressing basic needs reasonably well

Pro-Poor versus Pro-Growth Not all growth policies are pro-poor, and not all pro-poor policies are pro-growth The pro-poor growth agenda attempts to promote those that are both (such as broad-based education programs) But there are large policy areas where there is some trade-off; how do we assess policies where the benefits “trickle-down” only in the long-run Generally, donors favor poverty reduction while national governments favor growth

Just How Pro-Poor Are Some Current Economic Policies Just How Pro-Poor Are Some Current Economic Policies? Tax Competition Amongst the Middle-Income Countries In order to encourage investment (especially FDI) and improve competitiveness, taxes (especially on corporations) have been cut, made less progressive; and social benefits, and government’s role has been cut back Flat taxes in Baltics, Russia, Slovakia, Ukraine, Georgia, Romania, fYR of Macedonia, others considering There is tax competition throughout Europe, especially the lowering of corporate taxes Generally, the government sector is significantly lower in these low tax economies with less spent on social services, less investment in human capital & infrastructure Although some of these economies have grown quite rapidly, it is less clear if tax policy is the key

Just How Pro-Poor Are Some Current Economic Policies Just How Pro-Poor Are Some Current Economic Policies? PRSP/PRGF in Low-Income Economies Macroeconomic policy in the poorest ECE members is formulated under the IMF/WB Poverty Reduction Strategy Papers and Poverty Reduction Growth Facility (1999) Covers Albania, Caucasus, Kyrgyzstan, Moldova, Tajikistan, Uzbekistan Provides concessionary lending Definitely a positive development, but is this framework working effectively? There has been progress in terms of the MDGs, but not that rapid Are the country programs pro-poor enough or just the old Washington Consensus policies repackaged? Research, Assessment Is Needed

Policies for Promoting Pro-Poor Development Social Policies Improve the design of social safety nets Improve access to education and health resources Structural Policies Encourage creation of SMEs, self-employment Improve access to finance for the poor Macroeconomic Policies Reduce cyclical fluctuations by making fiscal policy more counter-cyclical Diversify out of resource-intensive sectors in order to stimulate employment growth Keep borders open; benefits of trade and migration; stick with economic reforms, don’t backtrack Political Policies Resolve political conflicts; ensure the disenfranchised have a voice; civil society has a role to play Address ethnic and gender discrimination

Summary: Pro-poor Development in the ECE Region The ECE region has solid economic growth This is having a major impact on poverty Policy reforms have also contributed but more is needed Economic policies should better target the vulnerable groups There are some broad macroeconomic policy trends in the region, however, that may not be pro-poor