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					 Poverty and Social Assistance
System in Ukraine: Analysis and
   Policy Recommendations

      Liudmila Cherenko,
      Head, Department for Living Standards Assessment,
      Institute for Demography and Social Studies,
      National Academy of Science of Ukraine
            Current Social and Economic Trends

•   Slowdown of economic growth over the past few years (after the dropdown
    in 2005) and the first signs of a crisis in 2008. The beginning of 2009 marks
    the development of recession

•   Significant decrease in industrial output – in January-February 2009 67.2%
    compared to the same period in 2008. The biggest decrease in automotive
    industry, metallurgy, chemical industry, and light industry (automotive
    industry experienced twofold decrease in production)

•   Most hardly hit by the crisis are the cities where the main industry was
    among those affected the most

•   The labour market is shaky, but still relatively stable

•   The recession happens at the time of a difficult demographic situation –
    decrease in population and worsening of its age composition
         GDP and real incomes (% to previous year),
                         1999-2008
%   30

    25

    20

    15

    10

    5

    0

    -5   1999   2000   2001   2002      2003    2004      2005   2006   2007   2008
                                     Real GDP    Real Incomes
           Number of Unemployed by ILO methodology
             and Registered Unemployed, 1999-2009,
                           thousand
               3000
                                                                              by ILO methodology
               2500
                                                                              registered
               2000
    thousand




               1500

               1000

               500

                 0
                      1999   2000   2001   2002   2003   2004   2005   2006   2007   2008   2009



•        Data for 2009 are based on the forecast of the Cabinet of Ministers of Ukraine
   Impact of the Crisis on the Standards of Living of the
                         Population

• Reduction in real (and in some industries also nominal) wage. In
  2008 an average wage increased by 18.6%; taking into account
  inflation of 22.3% the real wage decreased by 3% over the year,
  which did not happen since 1998. (In November 2008 nominal wage
  fell below the wage level of June, and in December was hardly
  above the level of October. Meanwhile consumer prices were
  constantly going up.) In January-February 2009 the real wage was
  87% compared to the same period in 2008.
• In some regions wage reduction was even more significant – in
  Donetsk, Dnipropetrovsk, Zaporizhya oblasts the real wage in
  January-February 2009 was 82-83% compared to the same period
  in 2008. Western oblasts - Chenivtsi, Ternopil, Ivano-Frankivsk,
  Zakarpattya – were less affected (the indicator was above 90%).
• Increase in wage arrears – in the beginning of 2009 the indicator
  was 168% compared to the same period in 2008.
• Reduction in the purchasing power of the population (retail trade
  volume in January-February 2009 was 89.3% of that in the same
  period in 2008).
Impact of the Crisis on the Living Standards of the
           Population (sociological data)

• 90 % of Ukrainians have already felt the impact of the
  financial crisis, only 7% of respondents did not
  experience its influence. 80% referred to prices and
  house bills increase as the major consequence, 44%
  indicated the decrease in their income, 14% experienced
  delays with salaries and pensions payments, 11% lost
  their jobs
• The majority of those who lost jobs are people of 18-29
  (20%) and 40-49 (16%). The most vulnerable to loss of a
  job are people with secondary education (15%).

  (Sociological survey conducted on 6 - 15 February 2009)
        Forecast of the Impact of the Crisis on
                   Social Situation
• Ukrainians will feel the impact of the crisis to its full extent in
  the fall of 2009
• The deficit of resources to meet growing social commitments.
  For 2009 the size of minimal wage, pensions and social
  assistance benefits are fixed at their current level. This means
  that the incidence of absolute poverty will not decrease in
  2009 – every fifth person will have an income less than the
  subsistence minimum (626 UAH / 75 USD).
• Social insurance funds experience deficits. The most difficult
  situation is in the Pension Fund (according to some estimates
  its deficit amounts to 10 bln UAH/ 1.2 bln USD). Payments
  from these funds are very likely to be delayed.
• Most likely, unemployment rate by the end of the year will be
  less than the forecast figure (8.5-9%)
• There will be no massive return of labour migrants
 Forecast of the Impact of the Crisis on Household
                  Poverty in 2009
• Incidence of relative poverty by the end of the year will stay at 28%
  level, since there will be no significant changes in income
  distribution
• Compared to country averages, poverty risk will increase for the
  households with unemployed (especially in hholds with children);
  household with exclusively elderly people (older than 70); combined
  households both with children and elderly people.
• Households with working adults and households with working
  parents and one child will be relatively better off.
• Probably in 2009 the situation will be relatively better for families
  with children under 3 if birth grants are paid without delays.
• In 2009 the gap will be smaller between the poverty indicators for
  rural and urban areas, because the financial crisis will affect urban
  population much more than rural.
• Geographically, poverty indicators will reflect impact of the crisis on
  different branches of industry.
                                           Poverty Dynamics in 1999-2009


                                            71.2           72.5
                      70          70.6
Уровень бедности, %




                      60
                                                                     63.3
                                                                                                                                     за
                                                                                                                                     Absolute
                                                                               50.3
    Poverty Level




                      50                                                                                                             абсолютним
                                                                                      38.2                                           criterion
                      40                                                                       33                                    критерием
                           27.8     26.4 27.2       27.2 26.6 27.3 27.1 28.1                        27.3     27.5              28
                      30

                      20                                                                            26.4                      25
                                                                                                             25
                      10
                                                                                                                                     за
                                                                                                                                     Relative
                       0
                                                                                                                                     относительны
                                                                                                                                     criterion




                                                                                                           (estimate)
                           1999


                                    2000

                                             2001

                                                    2002


                                                              2003

                                                                        2004

                                                                                  2005


                                                                                             2006

                                                                                                    2007




                                                                                                                        (forecast)
                                                                                                                                     м критерием




                                                                                                                           2009
                                                                                                             2008
Poverty in Households with Children: concentration of
   monetary, structural and non-monetary criteria


                                                 Structural criterion –
                                                 percentage of expenditure for
                                                 food is more than 60%


                               22,8%      43,0

                34,7

                                9,5%

                                       14,9%
                       13,7%
National criterion –
75% of median
expenditure                     30,1
                                                 Non-monetary criterion
                                                 – 4 and more
                                                 deprivations
     Poverty Measurement Based on Two Criteria
            (monetary and non-monetary)

                Type of Household                      Poverty incidence, %

Households with 2 adults capable to work and 1 child           8,9
Households with 2 adults capable to work and 2
  children                                                     14,7

Households with 1 adult capable to work and 1 child            12,0

Households with incapable and capable to work adults
and 1 child                                                    11,9

Households with incapable and capable to work adults
and 2 children                                                 17,1

Families with many children                                    35,4
  Poverty Measurement Based on Two Criteria (monetary
                  and non-monetary)
                    (continuation)

                                                     Poverty incidence,
                Household Type                               %

Households with 2 working adults and 1 child                4,8
Households with 1 working and 1 not working adults
and 1 child                                                 15,0

Households with 2 working adults and 2 children             11,5
Households with 1 working and 1 not working adults
and 2 children                                              18,5

Households with 1 child and all non-working adults          17,0
Households with 2 children and all non-working
adults                                                      20,6
          Social benefits by function in 2007,
     % of total expenditure on social benefits and
                     as % of GDP

                                    % of total
                               expenditure on social
                                     benefits                           % of GDP

Old-age and survivors*                     69,4                            18,2

Sickness / Health care                     15,9                             4,2

Disability                                  3,6                             0,9

Family/ children                            5,2                             1,4

Unemployment                                2,0                             0,5
Housing and          social
exclusion                                   4,0                             1,0
 *Old-age and survivors - include pensions, privileges and social assistance to pensioners and
 veterans of war and labour
  Expenditure for social programmes in 2004-2007 in prices
                     of 2004, mln. UAH.

14000
12000
10000
8000
6000
4000
2000
   0
             2004 год       2005 год          2006 год        2007 год


        Social privileges      Housing subsidies         Social assistance
 Proportion of Social Transfers within Households
                      Income

                                    Targeted
                                      low
                          Child     income      Other     Housing      Social
              Pensions   benefits    benefit   benefits   subsidies   privileges

Households
  with
  children      9,46        2,75        0,26      0,47        0,07        0,72
Households
  without
  children    31,76         0,00        0,01      0,54        0,17        1,44

     All
 households   21,40         1,28        0,12      0,51        0,12        1,10
                      Impact of Social Assistance on Poverty (poverty
                           incidence before and after receiving assistance)
                      35
                                                                              29.5
                      30      28.2        26.5         26.5       27.4
                                                                                            До
Уровень бедности, %




                                                                                           Before
                      25
                              26.3         26.3        26.3       26.3        26.3          получения
                                                                                           receiving
    Poverty level




                                                                                            помощи
                                                                                           assistance
                      20

                      15
                                                                                            После
                                                                                           After
                      10                                                                    получения
                                                                                           receiving
                                                                                            помощи
                                                                                           assistance
                      5

                      0
                           Child
                           Пособия на    Адресная
                                        Targeted     Жилищная Социальные
                                                     Housing      Social    Все виды
                                                                            All types of
                           benefits     low income
                             детей        помощь     субсидия
                                                     subsidies    льготы
                                                               privileges    помощи
                                                                            assistance
                                        benefit
                                         бедным
     Incidence and depth of poverty of households with
       children before and after social assistance, %
                                                        32,9                                              23,3
              льготы                                     33,5
 Social                                                                                                   23,5
 privileges

                                                        32,9                                             23,3
жилищные субсидии
 Housing
                                                          33
 subsidies                                                                                                 23,4

  адресная помощь
Targeted low                                            32,9                                              23,3
      бедным
income benefit                                            33,1                                               23,9

                                                        32,9
  пособия на детей
 Child benefits                                                                                          23,3
                                                               36,3
                                                                                                                 26,6

                       0   5   10   15   20   25   30   35       40   45   50 0   5    10   15      20     25           30   35   40
                                     Уровень бедности, %
                                      Poverty                                         Poverty Depth %
                                                                                           Глубина бедности,
                                    incidence

          До социальной помощи После социальной помощи
          Before social assistance After social assistance
Poverty incidence among households with children
  before and after transfers for different types of
                 child benefits, %
  All все детские
      types of child
                                              32,9
        пособия
  benefits                                           36,3

                                                            После
                                                            After social
                                              32,9
                                                            социальной
                                                            transfers
    на рождение
  Birth grant
                                                            помощи
                                                 34,9


        одиноким                              32,9
   Benefits to                                              Before
                                                            До
         матерям
   single mothers                              33,3         social
                                                            социальной
                                                            transfers
                                                            помощи
                                              32,9
 на детей до 3-х
  Benefits for
        лет
  children under 3                              34,5


                       0   10   20       30           40
                                     %
Depth of poverty among households with children
 before and after transfers for different types of
                child benefits, %
                                                23,3
 Allвсе детские
    types of child
      пособия
 benefits                                              26,6

                                                                    Послеsocial
                                                                     After
                                                23,3
 Birth grant                                                        социальной
                                                                     transfers
   на роджение                                                      помощи
                                                     25


       одиноким                                 23,3                 Before
  Benefits to                                                       До
        матерям
  single mothers                                 23,6                social
                                                                    социальной
                                                                     transfers
                                                                    помощи
                                                23,3
на детей до 3-х
Benefits for
       лет
children under 3                                 23,9


                     0   5   10   15       20   25        30   35
                                       %
Number of recipients of the different types of child benefits
                 in 2003-2007, families

  1000000


   800000


   600000


   400000


   200000


       0
                   2003    2004               2005    2006              2007

            birth grant   benefit to single mothers   benefit to children under 3
     Recommendations on poverty reduction policies
  (improvement of a system of social assistance benefits)

• Determine benefits to low income families as the main type of the
  targeted social assistance
• Improve coverage of poor population by the program to support low
  income families (as a first step by 8%)
• Improve adequacy of the benefit by raising the size of the benefit to
  low income families; respective increase in the cost of the program
  can be covered by improving effectiveness of the program itself and
  savings possible within other programs (first of all at expense of the
  social privileges programme)
• Improve the methodology of calculation of the total household
  income to define eligibility for targeted assistance
• Save funds within the program of housing subsidies through
  reducing the number of non-poor recipients (from 696 to 205 mln.
  UAH. per year based on 2007 data)
• Improve targeting of the categorical benefits, free up funds for
  targeted social assistance
• Radical reform of the social privileges programme, transfer of the
  resources saved to fund targeted programmes
    Modelling based on the size of the low income benefit

                                      Children from
                   Adults able        hholds with 1-2        Children from hholds   Adults not able to
                      to work         children               with 3+ children       work
Scenario 0
(basic)*                     121*                     170*                  205*                 170*
Scenario 1                    121                      205                   205                  170
Scenario 2                    121                      420                   420                  170
Scenario 3                    121                      420                   420                  210
Scenario 4                    210                      420                   420                  210
Scenario 5                    210                      420                   420                  250
Scenario 6                    250                      420                   420                  420
Scenario 7                    420                      420                   420                  420

 *Scenario 0 – based on the social guarantees set in 2007
 420 UAH. – poverty line of extreme poverty in 2007
 250 UAH. – 50% of subsistence minimum of 2007
 Conditions of the model:
 •  All eligible will receive the benefit;
 •  Those not eligible will not receive the benefit.
Evaluation of the Programme of Social Assistance to Low
     Income Families based on the size of benefits.
             Search for the optimal solution
  mln. UAH                                                                                                   %
   7000                                                                                                          100    Стоимость
                                                                                                                       Cost of the
                                                                                                                        программы,
                                                                                                                       programme,
                                                                                                                 90    mln.
   6000                                                                                                                 thousand
                                                                                                                       UAH/month
                                                                                                                 80    UAH\month
                                                                                                                       Ошибка
   5000                                                                                                          70     Error of
                                                                                                                       включения, %
                                                                                                                       Error of
                                                                                                                        inclusion
                                                                                                                       inclusion
                                                                                                                 60
   4000
                                                                                                                 50     Ошибка
                                                                                                                       Error of
   3000                                                                                                                 исключения, %
                                                                                                                       exclusion
                                                                                                                 40

   2000                                                                                                          30
                                                                                                                       Эффективность,
                                                                                                                       Effectiveness,
                                                                                                                 20    %
                                                                                                                       %
   1000
                                                                                                                 10

     0                                                                                                           0     Действенность,
                                                                                                                       Efficiency
             Вариант 0




                                     Вариант 2


                                                 Варіант 3


                                                             Варіант 4


                                                                         Варіант 5


                                                                                     Варіант 6


                                                                                                 Варіант 7
                         Вариант 1




                                                                                                                       %
     Considering different size of the benefit to low income
                             families
1.   Under conditions of a very limited fiscal space and impossibility to
     reform quickly the system of social assistance it is possible to choose
     the Scenario 1, which presupposes increase of the size of benefit only
     for children from hholds with 1-2 children up to the level of the benefit
     to children from 3+ children hholds. Under this condition the cost of
     the programme increases only by 7 mln. UAH per year, which can be
     saved at expense of improvement of the mechanisms of provision. In
     this case effectiveness of the programme stays the same, exclusion
     error is decreased
2.   If more fiscal space becomes available or if the system of social
     assistance is reformed (and resources from other programmes are
     saved) it would be possible to proceed with Scenario 2, which
     presupposes increasing the size of benefit for all children up to the
     level of extreme poverty. The cost of the programme will increase to
     560-580 mln. UAH. Per year. Under this scenario poor population will
     be better targeted – exclusion error will decrease by 7 pp (from 99 to
     92%), whereas effectiveness will still be high – 75%.
    Recommendations for improvement of the social
           assistance benefits system

       Expand the programme to support low income families as the
       main poverty reduction instrument by:
•      Increase in the size of the benefit (as a first step only for children
       up to the level of extreme poverty)
•      Change differentiation of the size of the benefit for specific social
       and demographic groups, in particular, raise the size of the
       benefit for children compared to other population groups
•      Improve take up of the benefit by improving access to
       information about the programme for socially vulnerable groups
       of the population;
•      Lift restrictions on entry into the programme for vulnerable
       families with children;
•      Introduce differentiated size of the benefit depending on the
       regional differences in the cost of living.
Cost of the Programme of Social Assistance to Low Income
 Families Depending on Methodology of Calculation of the
              Total Family Income, mln. UAH
    2000

    1800                                                 1792,8

    1600
                                      1488,4
    1400

    1200

    1000

    800                                                                  575,4
                                                                                         666,4
    600

    400
             139,1
    200                   Income based on       Model income A    Model income B   Model income C
                          the methodology
      0    Real income


•     Options for calculating the total family income:
•     А – include net, not gross wage
•     В – include real income from land;
•     С – use net wage and income from land
 Recommendations for improvement of the social
        assistance benefits system

Improvement of the methodology to calculate the total income of
  a family to determine eligibility to targeted assistance:
• Use net income, free of tax and obligatory deductions (to
  insurance funds)
• Improve methodology to calculate income from land as a main
  source of income for rural people

Improvement of legislative basis and implementation mechanism
  in order to improve targeting and reduce error of inclusion.
• Develop strict criteria to determine eligibility to the social
  benefit
• Introduce new methods to determine incomes and limit entry
  into the programme of non-poor families.
 Modelling of options to limit eligibility to housing subsidies
                   for non-poor population
           Deciles                   Eligible to subsidies under the     Eligible to subsidies under the
                                   current rules, % of households in a     current rules, but with the
                                               decile group              limitation based on the income
                                                                         level, % households in a decile
                                                                                      group
                               1                                 11,14                               11,14
                               2                                  6,02                                6,02
                               3                                 11,87                                6,26
                               4                                 11,78
                               5                                 10,73
                               6                                  8,94
                               7                                  6,10
                               8                                  4,37
                               9                                  2,66
                              10                                  1,01
Total number of eligible to
subsidies, % of all
households                                                        7,13                                2,08
Programme cost, mln. UAH
per year                                                         696,5                               205,3
   Modelling coverage and cost of the housing subsidies
programme under condition of tariffs increase and eligibility
                        limitation
                                    4                                                                              4
                                   3.5                                                                            3.5
    Increase in coverage, times




                                                                                    Increase in the cost of the
                                    3




                                                                                        programme, times
                                                                                                                   3

                                   2.5                                                                            2.5
                                                                                                                                   A
                                    2                                                                              2                   B
                                                      A                                                                                 C
                                                          B
                                   1.5                        C                                                   1.5

                                    1                                                                              1

                                   0.5                                                                            0.5

                                    0                                                                              0

                                           Option 0           Option 1   Option 2                                       Option 0            Option 1   Option 2




•                                 Option 0 – current conditions of the programme
•                                 Option 1 – increase in housing tariffs with all other conditions staying the same
•                                 Option 2 – increase in housing tariffs with simultaneous limitation of eligibility
•                                 Scenario А – tariffs increase by 40%, Scenario В – by 30%; Scenario С – by 20%
 Recommendations for improvement of the social
     assistance benefits system (continued)

Narrow down the program of housing subsidies and reduce
  costs by:
• Limiting eligibility to the program by the income level (of
  the one equal to subsistence minimum);
• Making the rules stricter for entry into the program –
  elimination of the “system of exceptions”;
• Cancelling regional differences in the subsidies’ size
  based on standard living space;
Improve targeting and efficiency of the system of
  categorical benefits for children through better tracking of
  poverty profiles and taking into account the needs of
  different types of households with children.
The views expressed in this document are the views of the author
and do not necessarily reflect the views or policies of the UNICEF.
UNICEF does not guarantee the accuracy of the data included in
this document and accepts no responsibility for any consequence
of their use.

				
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