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POVERTY and SHARED PROSPERITY in COLOMBIA BACKGROUND PAPER for POLICY NOTES Public Disclosure Authorized

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POVERTY and SHARED PROSPERITY in COLOMBIA BACKGROUND PAPER for POLICY NOTES Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized POVERTY AND SHARED PROSPERITY IN COLOMBIA BACKGROUND PAPER FOR POLICY NOTES Public Disclosure Authorized Contents I. Poverty, Inequality and Shared Prosperity ........................................................................................... 2 Poverty: recent trends .................................................................................................................................. 2 Profiling the poor: who and where are Colombia’s less well-off? ................................................... 8 Welfare dynamics: socioeconomic mobility of the Poor, Vulnerable and Middle-Class ....... 111 Shared Prosperity ...................................................................................................................................... 133 Inequality .................................................................................................................................................... 155 II. The drivers behind the changes in poverty and inequality .......................................................... 177 Understanding drivers of poverty reduction ........................................................................................ 177 Understanding the drivers of inequality changes ............................................................................... 211 Annex 1: Informality trends .......................................................................................................................... 233 Annex 2: Profile of the Poor, Vulnerable and Middle Class .................................................................. 244 Annex 3: Profile of the urban and rural population ................................................................................ 245 1 I. Poverty, Inequality and Shared Prosperity Poverty: recent trends Colombia’s solid economic growth since early 2000s has led to significant social improvements. Since the turn of the century, extreme poverty in Colombia almost halved, falling from 17.7 percent in 2002 to 7.4 percent in 2017. Similarly, moderate poverty fell from 49.7 percent to 26.9 percent over the same period (Figures 1 and 2). In absolute terms, the number of poor individuals in Colombia declined from about 20 million in 2002 to approximately 12.8 million in 2017. The downward trend in poverty was halted in 2016, however it went back to its downward trend on 2017. From 2016 to 2017 both moderate poverty and extreme poverty decrease in 1.1 percentage points (p.p.), moderate poverty went from 28 to 26.9 percent, while, extreme poverty was 8.5 percent in 2016 and 7.4 in 2017. Such decrease was primarily driven by a lower incidence of poverty in rural areas, where extreme and moderate poverty rates fell respectively by 2.7 and 2.6 p.p. Similarly, the urban areas saw a reduction of moderate poverty (from 24.9 to 24.2 percent), while extreme poverty rate has remained virtually flat since 2014, at around 5 percent. Figure 1: Extreme Poverty Figure 2: Moderate Poverty National Rural Urban National Rural Urban 33.1 35 32.6 70 61.7 27.8 56.4 56.6 30 60 49.7 22.8 46.8 25 50 45.0 42.0 17.7 36.0 20 16.4 40 15.4 45.5 32.7 41.1 13.8 26.9 15 30 37.4 10.4 Percentage (%) Percentage 7.4 (%) Percentage 28.4 10 12.2 20 11.2 24.2 5 9.1 6.6 10 5.0 0 0 2008 2017 2002 2003 2004 2005 2006 2007 2009 2010 2011 2012 2013 2014 2015 2016 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2002 Source: World Bank staff calculations based on GEIH, DANE Note: Poverty estimates are based on official poverty lines. Given the methodological changes that took place in 2006 and 2007, only the statistics reported for the 2002-05 and 2008-17 periods are comparable. 2 Colombia’s poverty reduction has mirrored that of the Latin America and Caribbean region (LAC) and the levels have been converging in the latest years (Figure 3). In 2002, Colombia’s poverty rate was 52.3 percent, about 7 p.p. higher than LAC, measured as the share of the population living on less than US$ 5.5 a day (2011 PPP). This gap shrank by less than 3 p.p. by 2015. Up to 2010, both Colombia and LAC reduced poverty at a similar pace (-1.7 percent annually). However, in most recent years, Colombia’s pace speeded up. After 2012 Colombia’s poverty fell at rate of -5.5 percent annually, contrasting that of the rest of the region (-2.0). Even though poverty levels are still high compared to other countries in the region, Colombia was among the countries in LAC that cut poverty by the largest amount since the early 2000s (over 30 p.p.). 1 Figure 3: Evolution of poverty in Colombia and LAC 60 12 50 10 40 8 30 6 Poverty rate (%) rate Poverty 20 4 GDP pc growth (%) growth pc GDP 10 2 0 0 2002 2003 2004 2005 2008 2009 2010 2011 2012 2013 2014 2015 GDP pc growth COL Colombia Poverty LAC Poverty Source: World Bank calculations based on the Socio-Economic Database for Latin America and the Caribbean (CEDLAS and The World Bank). Poverty is defined as the percentage of individuals living on less than $5.5 US dollars a day (2011 PPP). GDP per capita growth from World Development Indicators, The World Bank. At the same time, Colombia achieved a significant reduction in its official Multidimensional Poverty Index (MPI). The official MPI fell from 49 percent in 2003 to 17.0 percent in 2017 (see Box 1). This implies that 5.4 million Colombians have overcome the multidimensional poverty threshold. 1 By 2014 Colombia ranked 12th out of 18 Latin American and Caribbean countries for which data is available. 3 Box 1: Multidimensional Poverty in Colombia In Colombia, the Multidimensional Poverty Index (MPI) was adopted as a monitoring instrument for public policy based on the Plan Nacional de Desarrollo 2010-2013 “Prosperidad para todos”. Furthermore, in 2012, the CONPES 150 introduced the MPI as an official poverty measure, that would complement the existing monetary measures. The selection of indicators that compose the current MPI was based on data available through the Encuesta de Calidad de Vida (ECV), and their relationship with the national development plan. Since 2010, Colombia has been estimated the MPI following the methodology developed by Alkire and Foster (2007). Currently, the index is comprised of five dimensions (education, youth and children, labor, health and housing), each of them with several indicators. The official MPI fell from 30.4 percent in 2010 to 17.0 percent in 2017 (Figure B1), implying that over 5 million Colombians are today considered non-poor in multidimensional terms. Figure B1.1 Multidimensional Poverty Reduction 40.0 30.0 20.0 Percentage (%) Percentage 10.0 0.0 2010 2011 2012 2013 2014 2015 2016 2017 Source: World Bank calculations based on data of the Departamento Administrativo Nacional de Estadística (Colombia’s National Administrative Department of Statistics), DANE Colombia has experienced an improvement in 14 of the 15 indicators that composed the MPI (Figure B2). The main drivers of the official Multidimensional Poverty reduction have been the increase of educational attainment, the increase in the access to the health system and the reduction of the informal employment. Regarding the health dimension, an additional 10.7% of the population got access to the health system in the last 8 years mainly due to the expansion of the subsidized regime (SR), particularly after 2004. Though a progress regarding informal employment has been observed, the share of people working informally is still high (62.36% of Colombian in 2017).2 Long-term unemployment is the 2 World Bank estimates based on GEIH. Informality is defined as the share of total workers not contributing to retirement funds. See Annex 1 for informality trends based on this definition since 2008, by geographic area. 4 only indicator that presents a deterioration, especially during the period 2012-2017. These results are related to the weaker economic performance that the country faced after 2014.3 More importantly, out of the 15 indicators considered in Colombia´s MPI, universal coverage has almost been achieved on 4 of them: adequate walls, adequate floors, non-child labor and school attendance; with only a small portion of private households remaining deprived of these opportunities (2.2%, 3.7%, 2.7% and 3.2%, respectively). As a result, the Colombian government has decided to revisit and update the cutoffs and weights of the panel of indicators that compose the current MPI. The new measure should consider the improvements of welfare that Colombia had experienced in recent years. Figure B1.2. Evolution of Colombia’s Multidimensional Poverty by indicator, 2002-2012-2017 Long-Term Unemployment No Access to Healthcare Services when needed No Adequate External Walls Low School Attendance Child Labour No Acess to Sanitation No Adequate Floors No Access to Drinking Water Poor Access to Childcare Services Illiteracy Educational Gap Critical Overcrowding Informal Employment No Health Insurance Low Educational Achievement -14 -12 -10 -8 -6 -4 -2 0 2 4 Percentage points Progress 2010 - 2017 Progress 2010-2012 Progress 2012-2017 Source: World Bank calculations based on data from the Departamento Administrativo Nacional de Estadística (Colombia’s National Administrative Department of Statistics), DANE 3 In recent years Colombia has experienced macroeconomic shocks that include a drop-in oil prices and the devaluation of the peso. 5 The welfare gains in the last decade were experienced by Colombians throughout the income distribution.
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