Ukraine : Poverty Assessment, Poverty and Inequality in a Growing Economy

Abstract

This Poverty report is aimed at improving the understanding of poverty in Ukraine, and providing linkages between growth, the evolution of economic sectors, and poverty. The main findings can be summed up as follows: An absolute poverty line and a revised consumption aggregate -- jointly developed with Ukraine experts -- indicate that around 19 percent of the population lived in poverty by 2003. While in 1999 Ukraine had a poverty incidence higher than Poland, Russia, Lithuania, or Bulgaria, by 2003 it was the lowest compared with these countries. The overall improvement, however, has been paralleled by an increasing poverty gap between rural and urban households, reflecting the fast but unbalanced economic growth: The growth experience has not changed the rather stagnant level of employment. The improvement in labor markets are associated to gains in productivity and efficiency with resulting wage gains. There is also increased differentiation within workers since the fraction of underemployment has also increased, reflecting partly the subsistence agriculture, and precarious labor markets in some small towns. The combined effects of higher productivity but lower employment in commercial farms left real incomes in agriculture lagging behind other sectors. Rural areas had a slower reduction in poverty due to the combined effect of weather shocks, and restructuring in agriculture. The government has played a critical role in reducing poverty by increasing substantially the social insurance transfers. Other government transfers have become better targeted but still have very limited coverage. The reduction of poverty, however, provides a window of opportunity to reform the safety net system in order to effectively target the poor.