THE CHALLENGE OF POVERTY REDUCTION IN AFGHANISTAN ARTF Strategy Group Meeting Kabul, Nov 5th Silvia Redaelli and Pedro Olinto Monitoring Socio-Economic Outcomes in Afghanistan – The NRVA Significant progress over time in institutionalizing a monitoring system for socio-economic outcomes (including poverty!) in Afghanistan. SOURCE OF DATA: • NRVA (National Risk and Vulnerability Assessment); • 2 rounds of data currently available: 2007-08 and 2011-12 METHODOLOGY: • Ensure comparability over time (data, instruments and definition of indicators) • Security and data quality issues – two provinces excluded from analysis of poverty and food security (Helmand and Khost) due to data quality problems in 2011-12 OUTPUT: • Compilation of indicators at the National and subnational level. Development Trends: Key Facts (1) Significant progress in human development outcomes (health and education), access to services and infrastructure Education and Gender Heath and Access to Services 2007/08 2011/12 2007/08 2011/12 67.2 68.3 69.1 55.8 50.3 51.3 45.5 32.6 41.7 27.6 30.4 26.6 Literacy rate - 14+ Net attendance Girls to boys net (%) rate, primary school attendance rate, Access to skilled Safe drinking water Electricity (%) (%) primary (%) antenatal care (%) (%) Development Trends: Key Facts (2) Lack of significant progress in poverty reduction, increase in inequality and deterioration in food security. Poverty and Inequality Food Security 2007/08 2011/12 2007/08 2011/12 36.3 35.8 34.7 31.6 29.7 29.3 25.3 20.9 18.5 19.9 7.9 8.4 Poverty rate (%) Poverty gap (%) Gini index (%) Calorie deficiency (%) Protein deficiency (%) Inadequate dietary diversity (%) Poverty Trends in Afghanistan NO evidence of poverty reduction Survey year 95% CI in Afghanistan 2011-12 2007-08 2011-12 2007-08 “despite” Poverty headcount 35.77 36.27 [34.14, 37.40] [34.94, 37.60] - High economic growth ~ 7% annual Poverty Gap 8.44 7.86 [7.95, 8.94] [7.45, 8.27] - Substantial inflow Squared Poverty 2.91 2.55 [2.69, 3.13] [2.37, 2.73] of aid to the Gap economy ~ 10 billion annual i. Poverty Headcount & Poverty Gap unchanged (civilian and military) ii. Significant increase in Poverty Severity Scope of the poverty challenge The “cost” of eliminating Survey year poverty (if perfect targeting was possible) 2011-12 2007-08 is about 6 % of GDP; Number of poor 9.1 million 8.5 million - Same order of magnitude than other Low income Poverty Deficit(*) 5.5% GDP** 5.8% GDP** countries (Africa (*) Annual,. expressed in current prices, Afs. ~5%) (**) Non Opium GDP - …but Number of Afghans living below the poverty line has increased at an - High relative to the annual rate of 1.6 percent country’s revenue capacity Poverty Deficit, i.e. the additional annual income that would, in principle, bring every poor person exactly up to the poverty line Poverty in Afghanistan: Key Facts (1) Large and persistent urban-rural disparities: • Rural areas: higher poverty rates, lower level of wellbeing (pc consumption), lower level of inequality (gini) • Trends: no change in urban/rural poverty rates, but increase in the number of poor living in urban areas (urbanization; 18% increase in urban pop) • Profile 2011: 4 out of 5 poor people live in rural areas (rural areas account for 82% of the poor and 76% of the population) Poverty Headcount, by year – area of residence 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Urban Rural Total 2007-08 2011-12 Poverty in Afghanistan: Key Facts (2) • Large disparities at the subnational level: • Between Regions: North East, West Central and East – lagging regions: high poverty rates and low levels of wellbeing • Between Provinces: Poverty concentration the highest in more urbanized/densely populated provinces (Kabul, Nangarhar, Herat) and in the most populated amongst poorest (Takhar, Badakhshan). # of poor % of poor Kabul 1,033,730 11.37 50 Northeast 80 Nangarhar 663,455 7.3 Herat 660,397 7.26 WestCentral Takhar 45 ZabulLaghmanBadakhshan Takhar 610,028 6.71 East 60 Sar-I-Pul Badakhshan 588,060 6.47 Ghor Jawzjan 40 Urozgan Samangan Ghazni South Kunarha Bamyan Kunduz Wardak 40 BadghisNangarharDaykundi Parwan Herat 35 Paktika Panjsher BaghlanNooristan KapisaLogar North Paktya Kabul %population ispoorthat Nimroz Balkh Headcount Poverty Rate West 20 30 Faryab Southwest Central Kandahar Farah 25 0 1500 2000 2500 3000 Median per capita expenditure 1500 2000 2500 3000 3500 4000 Note: Area of symbol proportional to the size of poor population Average Per Capita Consumption Source: NRVA 2011-12 Note: Area of symbol proportional to the size of poor population Source: NRVA 2011-12 Why Growth did not contribute to poverty reduction? Because growth had an “un-equalizing effect” – had growth been equally distributed, poverty would have declined by 4.4 percentage points. Lack of pro-poor growth No “Shared Prosperity” 6 Annualized growth rate pc consumption, by quintiles 4 Growth rate of the 2.5 poor was negative 2.0 (-0.17). 2 1.5 1.0 0 0.5 Growth rateper of capita consumption 0.0 POOREST 2ND MIDDLE 2ND RICHEST TOTAL -2 -0.5 POOREST RICHEST 0 20 40 60 80 100 Bottom 40% Cumulative population share -1.0 Upper 95% confidence bound/Lower 95% confidence bound Growth rate in mean Why hasn't growth reduced poverty? 3 hypotheses: i. Was growth skill biased? Poor people do not have human capital endowments – an increase in returns to education over time could explain lack of poverty reduction and widening inequalities. NO ii. Did growth increase urban/rural gap? Poverty rates are higher in rural areas where most of population lives – an “urban” bias in growth could explain lack of poverty reduction and widening inequalities. NO iii. Did growth increase regional disparities? Poverty has a strong spatial connotation – poorest regions lagging behind/not growing could explain lack of poverty reduction and widening inequalities. YES Lagging regions, Poverty and Growth Growth in Afghanistan is highly volatile and vulnerable to high incidence of shocks (agriculture, security). As poor people are more vulnerable to shocks, lagging regions (NorthEast, WestCentral, East)– having the highest % of poor – are likely to be “left behind” 1. Annual growth rate lagging regions -1.11% (1.97% rest of country) 2. Incidence of Shocks: 2011/12 was a drought year, security incidents increased over time 3. Lagging regions seem most affected by the increase in shock incidence between the two survey years # Afghans killed or injured (civilian, military & AGE) % population affected by shock 18000 0.6 16000 0.5 14000 12000 0.4 10000 0.3 8000 0.2 6000 0.1 4000 0 2000 2007 2011 2007 2011 0 2007 2008 2009 2010 2011 2012 Agriculture Security Leading regions Lagging regions Lagging regions: the North East • Amongst the lagging regions, North East seems the region in which households are less able to cope with shocks: main evidence - • Average pc consumption dropped (no consumption smoothing) • Poverty increased from 36.3 to 49.7 while no change in poverty in East and West Central. Hypotheses to be further explored: role of geography and aid in explaining widening regional inequalities. • NE less connected than other lagging regions to the rest of the country • NE households are less resilient to shocks • NE receiving less aid than other regions Towards a poverty reduction strategy What do we know: 1. Lack of poverty reduction despite growth is due to widening inequalities across regions. 2. Lagging regions are not growing and poverty increased in the NE 3. High shocks incidence and volatility of growth What needs further analysis: 1. Role of aid in explaining poverty trends and regional disparities (Data constraints) • Main question: what would have been the evolution of poverty over time without aid? 2. Role of shocks vs geography in explaining existence of “lagging regions” • Main question: are some regions lagging behind because of transitory shocks or structural differences. .