ReportNo. 15698-ALB Albania Growing Out of Poverty May 30, 1997 Human ResourcesOperations Division Country Department II Europe and Central Asia Region Documentof the World Bank I. I I 1. II I I .1 I lI II , I 'I I1' ro 1, 1 II 11 I I I|1,,, . ,I,,,II I .I , I ,,1 I , IJ ' I Currency Unit: Albania - Lek Average Exchange Rates (Lek per US$1): 1990 1991 1992 1993 1994 1995 1996 8.0 14.4 75.0 102.1 94.7 93.3 104.5 Fiscal Year: January 1 - December 31 List of Acronyms and Abbreviations: ADF Albanian Development Fund CMEA Council For Mutual Economic Assistance GDP Gross Domestic Product IMR Infant Mortality Rate MOLSP Ministry of Labor and Social Policy PIP Public Investment Program INSTAT Albanian Institute for Statistics Acknowledgements This report was managed and written by Christine Allison (Senior Economist). The team that prepared the materials for the report included Robert Christiansen, Yvonne Ying and Sasoun Tsirounian (rural poverty), Janis Bernstein, Helen Garcia and Bulent Ozbilgin (urban poverty), Helena Tang (macroeconomic background), Melitta Jakab (demographics and health), Helen Shariari (gender issues), and Harold Alderman (food security and social assistance). Background studies were prepared by Rachel Wheeler (land issues), Ahmet Mancellari (labor market), Nora Dudwick (qualitative survey), Dennis Herschbach (historical overview) and UNICEF (education). Peter Szivos provided techncial assistance to INSTAT. A number of people provided invaluable assistance in Albania: Peter Schumanin and Sokol Kondi (UNDP), Gianfranco Rotigliano and Bertrand Bainvel (UNICEF). Mimoza and Nesti Dhamo (urban surveys) and the staff of the resident mission. The Netherlands Trust Fund lor Poverty Assessments provided funding for the social assessment and the gender study. Peer Reviewers arc Christiaan Grootaert, Jack van Holst Pellekaan and Lawrence Salmen. Luca Barbone is the responsible Lead Economist. The work was undertaken under the divisional responsibility of Ralph Harbison, and the departmental responsibility initially of Kemal Dervis and later of Jean-Michel Severino. Vice President: Johanies Linn, ECAVP Director: Hans J. Apitz, Acting Director, EC2DR Division Chief: Ralph W. Harbison, EC 1/2HR ALBANIA: GROWING OUT OF POVERTY Table of Contents FOREWORD ............................................................................ INTRODUCTION .......................................................................... iii EXECUTIVE SUMMARY .......................................................................... iv CHAPTER 1: POPULATION, LABOR, MACROECONOMIC AND SOCIAL DIMENSIONS ....................................... 1................................... Introduction .......................................................................... 1 Population Pressure and Movement .......................................................................... 3 Labor Market Developments -- The Emergence of Unemployment and Private Employment ..... 5 The Emergence of Private Sector Led Growth ............................................................. 9 The Challenges to Public Finance .......................................................................... 11 Maintaining Essential Services and Transfers for the Poor ............................................. 15 CHAPTER 2: POVERTY IN ALBANIA: THE RURAL AREAS ........................................... 23 An Overview of Agriculture and Rural Poverty ......................................................... 23 The Importance of Land .......................................................................... 24 Profile of Rural Households in 1994 ....................................................................... 27 Size and Fragmentationof Holdings .............................................................. 27 Levels and Composition of Gross Farm Income ............................................... 30 The Incidence of Poverty on the Basis of Gross Agricultural Income ...................... 31 A Household Typology Based on Land and Livestock Holdings...................................... 32 Non-Farm Sources of Income .......................................................................... 34 CHAPTER 3: POVERTY IN ALBANIA: THE URBAN AREAS........................................... 37 An Overview of Urban Poverty.......................................................................... 38 Urban Poverty in 1996.......................................................................... 39 Poverty Incidence and Poverty Gap ............................................................... 39 Poverty and Household Characteristics: the Poverty Profile ................................ 41 Poverty and Household Conditions .............................................................. 46 Priority Household Problems and Coping Mechanisms ....................................... 49 CHAPTER 4: PROSPECTS AND POLICIES FOR POVERTY REDUCTION ........................... 51 Promoting Economic Opportunities for the Poor ......................................... ..................52 Rural Development .................................. 53 Urban Development.................................. 54 Public Expenditure and Investment .................................. 55 Mobility and Migration .................................. 57 Reaching Out to the Poor .................................. 57 Social Assistance -- Ndhime Ekonomike .................................. 58 Helping the Unemployed .................................. 59 Pensions .................................. 59 ANNEX 1: The Urban Surveys ......................... 62 ANNEX 2: Tables for Chapter 2......................... 65 ANNEX 3: Tables for Chapter 3......................... 72 ANNEX 4: Developments in Health ......................... 79 TABLES 1.1 Population, Labor Force and Employment. 1980-1995 1.2 Distribution of Employment by Major Sectors, 1980-1994 1.3 Trends in Average Public Sector Wages and Prices, 1990-96 1.4 Labor Force, Employment and Unemployment, 1989-1995 1.5 Trends in GDP, 1990-95 1.6 Public Expenditure as a Share of GDP 1.7 Education and Health Expenditures as a Share of GDP 1.8 Gross Enrollment Ratios 1.9 Regional Differentials in Morbidity, Mortality, and Facility Utilization 1.10 Trends in Social Assistance 1.11 Regional Dimensions of Social Assistance, 1994 2.1 Profile of Agricultural Holdings, 1994 2.2 Gross Farm Income by Deciles, 1994 2.3 Poverty Incidence and Poverty Gap by Strata Based on Agricultural Income, 1994 2.4 Household Typology 2.5 Main Sources of Household Income in Selected Districts, 1995 3.1 Poverty Incidence and Poverty Gap for Tirana and Three Other Towns, 1996 3.2 Poverty Incidence, Poverty Gap and Household Characteristics, 1996 3.3 Poverty Incidence, Household Expenditure and Education and Household Head, 1996 3.4 Asset Ownership by Poverty Status and Remittances from Abroad 3.5 Household Services for the Poor and Non-poor BOXES 1.1 A Brief Historical Overview 1.2 Internal Migration 1.3 Labor Market Developments before 1990 1.3 Food Security in Albania 1.4 Prevalence of Low Anthropometric Measurement in Northern Albania 1.5 Health Care and the Urban Poor 2.1 Village Living Conditions 2.2 Data Sources and Methodology 2.3 Land Use Patterns 2.4 Remittances in the Rural Economy 3.1 Data Sources and the Urban Sites 3.2 Recent Migrants to Tirana 3.3 Borrowing to Supplement Income FIGURES 3.1 Income Sourcesof Poor and Non-poorHouseholds 3.2 MonthlyHousehold Expenditures Share 3.3 Priority Problemsin Elbasan, Fier and Lezha FOREWORD This report was prepared by a World Bank team working in collaboration with the Albanian Government during the first half of 1996. At the request of the Government, formal discussions of the findings and recommendation of the report were delayed until after the municipal elections of the fall of 1996. Discussions were scheduled, and partially held, in January 1997, when the report, in addition to the Government, was distributed to a number of NGOs and other members of civil society. Unfortunately, discussions with the Government could not take place satisfactorily, as the onset of the crisis provoked by the collapse of the pyramid schemes pre-empted the attention of the policy-makers. As well known, the Albanian crisis has degenerated beyond most observers' expectations, and the present is fraught with uncertainty. Many of the conclusions in this report are likely to have been made obsolete by the severity of the civil strife and the collapse of institutions witnessed over the past few months. The effects of the massive loss of wealth resulting from the collapse of the pyramid schemes must be substantial for large parts of the population; the destruction of productive and social assets, as well as the loss of jobs and the deep recession now evident in Albania must have increased in significant ways the number of those at risk for poverty, malnutrition and displacement. As conditions permit, an assessment of poverty trends, determinants and anti-poverty policies will have to be repeated with highest priority. Nevertheless, at a time when Albanian society and the international community are seeking to build a recovery strategy to overcome this tragic moment in Albanian history, some of the data and analysis in this report may be of great value. It is with these developments and prospects in mind that this report is being made available for wider circulation, virtually unedited from the July 1996 working draft. May 28, 1997 IBRD25912R J~~ >4 Lk. / Koplik,. -q' Shkodrsf Krume \