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Human Development Eastern Europe and Central Asia The World Bank Washington, DC

Human Development Eastern Europe and Central Asia The World Bank Washington, DC. The Crisis Hits Home. The slowdown is sharpest in Eastern Europe and Central Asia. Growth is expected to fall more than in other emerging regions. GDP growth (annual percent change).

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Human Development Eastern Europe and Central Asia The World Bank Washington, DC

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  1. Human Development Eastern Europe and Central Asia The World Bank Washington, DC The Crisis Hits Home World Bank

  2. The slowdown is sharpest in Eastern Europe and Central Asia Growth is expected to fall more than in other emerging regions. GDP growth (annual percent change) World Bank

  3. The impact of the crisis has varied across countries in ECA GDP Growth Rates in ECA World Bank

  4. Households are affected by the crisis in multiple ways and at different times World Bank

  5. Unemployment The recent surge in unemployment caused by an adverse demand shock hit the labor markets hard. Between June 2008 and June 2009, in 27 ECA countries to 11.354 million, or around 34 percent. Number of registered unemployed increased in Estonia by 15 percent, in Lithuania by 14 percent, in Kazakhstan by 13 percent, in Latvia by 11 percent, in Romania by 7 percent, and in Bulgaria by 6 percent. World Bank

  6. A contraction in remittances will have both macro and household impacts Remittances as a share of GDP, 2007 (%) World Bank

  7. Forecasts of remittance flows for 2009 show a steep decline of 15% in ECA World Bank

  8. Micro-simulations show an increase in poverty World Bank

  9. Poverty is going up everywhere Share of households below national poverty lines World Bank Note: Estimates are not comparable across countries. Source: World Bank Staff

  10. Turkey: The poor are more likely to resort to coping mechanisms that divest from human capital. Food security is a problem for urban poor: close to half of poor households reported they had to “reduce the amount of food given to their children”. World Bank

  11. Fiscal constraints have led to strategic and not so strategic social sector responses • Not Strategic • Reduce spending across the board • Cut spending on critical inputs (operations and maintenance) to protect salaries • Postpone expansion of early childhood and preschool education and cut health prevention programs • Adjust second pillar contribution rates to raise revenue • Strategic • Achieve efficiency gains through structural reforms in social sectors (e.g. formula funding in general education – Latvia, Lithuania, Romania; school consolidation – Serbia) • Prepare workers for economic revival (Latvia, Russia) • Expand safety nets for those without social insurance (Latvia) • Change indexation/minimum and base pension (Hungary, Serbia) World Bank

  12. Social Benefits Response to Crisis • Safety net benefits protecting existing beneficiaries • Helping smooth consumption of those already receiving benefits • Some safety net benefits starting to respond only recently • In terms of increasing coverage (new beneficiaries: Croatia, Bulgaria)) • And/or topping up benefits (e.g., Latvia, Ukraine, Serbia, Kyrgyz Republic) • Some design features constrain crisis response: • Extremely low eligibility thresholds – not reaching those hit by crisis (e.g., Bulgaria, Croatia, Ukraine) • Additional restrictions: time limits; requiring period of unemployment prior to registering (Bulgaria) • Expect increasing demand for SSN benefits in winter • Especially as unemployment benefits run out (time limits) World Bank

  13. Safety Nets Beyond Crisis:Significant Reform Agenda • “Social policy” identity – 2nd generation: promoting links to: • Jobs, activation agenda (ALMP) • Human capital • ECD, social services • Consolidating benefits & improving administration • Targeting Agenda: Filtering out benefits to the rich • Broaden stance on targeting agenda • Less emphasis on narrow targeting only to poor (political support) • More on “filters” to reduce costs of benefits to top quintiles • Reversing falling coverage of well-targeted programs • Errors of exclusion • Concerns for vulnerable groups (including Roma) • Evaluating other impacts: • Work incentives • Fertility, child protection World Bank

  14. Reflections (case of Moldova) • The crisis can be viewed as an opportunity to accelerate reforms in the social sector, through financial redistribution of existing funds. They need to be used in a more targeted and efficient manner and offer greater gains for citizens. • Financial redistribution can be done through: • School optimization • Reform of the residential care system • Effectively roll-out the poverty-targeted social assistance program while scaling down non-targeted benefits. World Bank

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