Crises and Social Programs

Vinod Thomas and Xubei LuoIndependent Evaluation Group

Istanbul, TurkeyOctober 6, 2009

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1. The Current Economic Crisis

Global GDP Growth (percent, quarter-to-quarter, annualized)

Source: WEO, July 2009

3

Turkey’s Decline in Industrial Production Growth

2007M

01

2007M

02

2007M

03

2007M

04

2007M

05

2007M

06

2007M

07

2007M

08

2007M

09

2007M

10

2007M

11

2007M

12

2008M

01

2008M

02

2008M

03

2008M

04

2008M

05

2008M

06

2008M

07

2008M

08

2008M

09

2008M

10

2008M

11

2008M

12

2009M

01

2009M

02

2009M

03

2009M

04

2009M

05

-30

-20

-10

0

10

20

30

Industrial Production Growth (y-o-y)

Sources: World Bank (DECPG), Datastream, IMF

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Turkey’s Increase in Unemployment

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2. Shocks and the Poor

Limited coping methods ► Low human capital► Few assets► Limited access to financial markets► Precarious living conditions► Fragile health/nutrition

Impact► Sharp decline in consumption► Sharp decline in health and education

expenditures

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Poverty Impact of Current Crisis

By end-2010, 90 million more people are expected to be living in extreme poverty, less than $1.25 per day, than would have been the case without the crisis.

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Natural Disasters, a Growing Threat

► The reported number of disaster has been increasing, growing from fewer than 100 in 1975 to more than 400 in 2005 (IEG, 2006).

► The cost of disaster damages has been exploding: the economic costs of major disasters in constant dollars are now estimated to be 15 times higher than they were in the 1950s - $652 billion in material losses in the 1990s (IMF 2003).

► Human cost is also high and increasing: more than 1.6 billion people were affected by natural disasters in 1984-93; and 2.6 billion in 1994-2003 (IEG, 2006).

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3. Inclusiveness and Poverty Reduction

A one standard deviation improvement in the income distribution could reduce poverty by 67% in Sub-Saharan Africa, close to half Latin America and Caribbean and Europe and Central Asia, one-third in Middle East and North Africa and East Asia and Pacific, and 17% South Asia.

Inequality, Growth and Poverty

-15

-10

-5

0

5

10

15

BurkinaFaso

China-Urban

Peru Sri Lanka China-Rural

DominicanRepublic

Turkey Brazil Honduras Bolivia Uruguay Pakistan

Cha

nge

in p

over

ty r

ate

Change in poverty due to growth in household income Change in poverty due to change in distribution

Source: Annual Review of Development Effectiveness 2006

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Growth and Distribution Jointly Affect Changes in Poverty

0.1 1 poverty line

10 100

Source: Bourguignon (2003)

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Pro-cyclical Declines in Health Spending after Crisis

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Social Protection in Previous Crises

► Mexico: implementation of a one-time top up payment to Opportunidades participants to address the adverse welfare impacts of the recent food crisis. Payment to the poorest families increased by 24.3% in 2008. (Ravallion, 2008)

► Indonesia: introduction of Health Care Subsidies program as an important component of the social safety net in response to the crisis in 1997. (Sparrow, 2008)

► Thailand: expansion of existing social insurance program to provide support to low-income family in response to the crisis in 1997. (Pongsappich and Brimble, 1999)

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WBG’s Vulnerability Framework

“Protect the most vulnerable” is a theme of World Bank Group’s operational crisis response:• Protecting the most vulnerable from the

fallout of the crisis• Maintaining long-term infrastructure

investment programs• Sustaining the potential for private sector-led

economic growth and employment creation

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4. Poverty Programs, Not as an After-Thought

► Social and poverty impact of crises should be anticipated• 1% reduction in GDP traps another 20 million people in

poverty• 100 million more people in poverty with the global

recession

► Millions live very close to the poverty line, so even small GDP changes produce vast swings in poverty

► Past responses to crises ignored poverty impact in the early stages

► More attention needed to vulnerable groups—potential area for the World Bank Group to contribute

► Impact on immigrant labor: foreign and domestic migration, remittances

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Crisis Response Lessons from Research

► Early, rapid and sizeable responses are key

► Social safety-net and pro-poor policies need support from the outset

► Policies need to account for behavior and the political economy

► Immediate responses cannot ignore implications for development

► Global crisis needs a global solution—target stimuli where the marginal impact will be the greatest*

* How to Solve the Global Economic Crisis—Justin Yifu Lin, Senior Vice President and Chief Economist, World Bank

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Crisis Response Lessons from Evaluation

► Emphasize not only volume, but also quality

► Focus on poverty from the outset

►Build in the environment and climate change

► Seek selectivity and adaptability of response

► Stress coordination among partners

► Focus on monitoring and evaluation

►Organize for early warning

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Concluding Remarks

► Protecting the most vulnerable is of critical importance during the crisis time and for driving equitable growth and reducing social exclusion in the long run.

► Social protection is important for promoting inclusive growth with equality of opportunities.

► Inclusive growth is part of the long-term solution for the global financial crisis.

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Teşekkür ederim!Thank You!

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