Update on Poverty in the Kyrgyz Republic

The Kyrgyz Republic was one of the poorest republics in the former Soviet Union. Since independence, the country has undergone enormous declines in production and GDP. While a stage of renewed growth had emerged in 1996-97, the recent regional financial crisis has taken a toll. As a result, the transition has carried with it a legacy of poverty.

Poverty measurement

The welfare of individuals is measured by total per capita consumption. Once per capita consumption is calculated for each household, the household, and all the people in it, is classified as poor if the level of per capita consumption is below the poverty line. Two poverty lines are constructed here. The first, or food poverty line, measures extreme poverty and is set at the level of consumption below which, even if all resources were devoted to food, the minimum caloric requirement could not be met. The second, or general poverty line, represents a minimum level of consumption taking into account both food and nonfood necessities. In 1996, the value of the extreme poverty line was 2177 Som, and the general poverty line was 4460 per capita per annum. In 1997, these were estimated at 2439 Som and 4647 Som, respectively.

Poverty

One-half of the population is poor and, overall, this poverty rate has held steady between 1996 and 1997. Extreme poverty did, however, decline in the period. In 1996, 19.1 percent of the population lived in extreme poverty, in 1997 this had fallen to 14.8 percent. Poverty is fundamentally a rural phenomenon: 80 percent of the poor live in rural areas, and the gap between urban and rural areas appears to be growing. The decline in extreme poverty between 1996 and 1997 appears to have benefited urban areas: the share of the extremely poor living in rural areas has increased. As expected, given historic patterns, Naryn oblast is the poorest in the country while Chui is the least poor.

Poverty trends

Due to changes in methodology between the pre- and post- independence years, as well as the economic transition in recent years, identifying trends in poverty is complex. Published poverty figures are not comparable and, without further analysis, cannot be used for establishing trends in poverty. The enormous decline in GDP and the contraction of the economy in the years following independence, coupled with declining spending on social welfare programs, does, however, suggest that poverty has increased since independence. Poverty does appear to have leveled off in the 1996-97 period, reflecting the positive economic growth occurring in these years. But the distribution of growth is not uniform, and inequality is increasing.

Consumption patterns

More than half of total consumption of poor households is food consumption. One-fifth of food consumption comes from home production. Home production is less important for the non-poor in general, but in urban areas such production may be a significant factor in maintaining consumption levels among this group. The shift from publicly provided, essentially free, services to services for which fees are charged, whether publicly or privately provided, can be seen in the share of consumption going to items such as utilities and education. By 1997, education expenditures represented 10.2 percent of the total consumption of the poor.

Characteristics of households

Poor households are much larger than non-poor households (by almost two members). In 1997, the average ratio of dependents per working adult was 2.3 for the whole country, significantly lower than in 1996. Such dependency rates fell for both the poor and the non-poor during 1996-1997, but the poor still have higher rates. For every working adult in poor households, 2.5 people depend on this income, compared with 2.1 among non-poor households. Thus, even if poor and non-poor workers receive the same pay for their labor, poor households would have fewer resources available per person. The education of the household head is strongly linked to the poverty level of the household, as are the head's gender (female-headed households are less poor), age (younger ones are less poor) and ethnicity (Kyrgyz headed households are poorer).

Education

Enrollment rates are high for children ages 6-15, regardless of poverty level and/or geographic area. Rates drop sharply at age 16 and, at this age, poor children become less likely to attend school than non-poor children. The costs to households of sending children to school are high, and they represent a greater share of the poor households' budgets than those of the non-poor.

Labor force participation and unemployment

The contraction in the economy is reflected in the significantly lower participation rates seen in 1996 compared with 1993 (51.1 percent and 70.3 percent, respectively) and in the higher unemployment rates (10.2 percent and 6.3 percent, respectively). Nonetheless, economic growth does seem to be having a positive impact on the labor market: in 1997, labor force participation rates increased to 65 percent, and unemployment fell to 7.3 percent. Underemployment, and not just unemployment, appears to be an increasingly important explanation of poverty. In 1997, labor force participation rates were fairly similar across the poverty groups and, while unemployment was highest in the poor oblast, this rate was practically the same in the two least poor oblasts. Unemployment is also lowest among the extreme poor.

Changes in female labor patterns are emerging: the labor force participation rate for women in 1997 is further from its 1993 levels than the male rate is. In other words, the reversal of the negative changes in labor has been lower among women than among men. Also, reversing the pattern found in 1993 and 1996, women have higher unemployment rates than men.

Housing and services

Social infrastructure is seriously lacking in rural areas and in many parts of urban areas. Only 56.8 percent of the rural population have access to running water: even in urban areas, 15 percent are not connected to piped water. Sanitation facilities are even more limited with 94 percent of the rural population and a surprising 47 percent of the urban population using latrines. Centralized systems of heat, water, and gas are practically exclusive to urban areas. The limited access to basic water and sanitation is expected to have serious implications for health. And the greater reliance on centralized services by the non-poor means that the subsidies for these services disproportionately benefit the non-poor. Electricity is the only universally provided service; still, there are sharp differences in the quality of service received by the poor and the non-poor, and by urban and rural areas.

Rural Poverty

In rural areas, households exhibit a fair degree of diversification in terms of income-generating activities. Agriculture is an important economic activity, but it is not the only one, nor is it restricted to own-farm work. In 1996, less than half of all rural households relied solely on own-farm activities. Households were engaged in wage labor (agricultural and non-agricultural), as well as own-farm activities. In 1997, almost all households engaged in agriculture were involved in both livestock and crop production. Reliance on agricultural wage earnings, however, is associated with greater poverty.

The overall picture of agriculture that emerges is one of subsistence farming. More than one-third of all persons growing crops in 1997 did so purely for home consumption; they sold no part of their harvest. The average size of land available to the population is 1.4 hectares. However, the average land available for the many with access only to garden plots (and orchards) was one-fifth of an hectare.

Consistent patterns relating types of agriculture to poverty groups are hard to find due to a proliferation of recent reforms in the agricultural sector. The poor appear to have equal access to land and, indeed, appear to have more land than the non-poor (although no data on land quality was available). The poor seem to be more likely to be growing cash crops than the non-poor. It will take several years before it becomes clear what activities are profitable, what the remaining barriers to growth are, and how household characteristics affect this.

Determinants of poverty

A multivariate analysis was carried out to identify the effects of household, economic, and location characteristics, while holding all other characteristics constant. The results generally underlined the findings in the rest of the study. They also show that households relying heavily on agriculture are poorer, while those relying on self-employment have higher consumption levels.

Poverty alleviation

The magnitude of the poverty problem requires a variety of approaches. Economic growth is key; by itself, it can lower poverty substantially. In the short run, social assistance programs are needed to keep people out of abject poverty. To make these programs feasible and/or sustainable, a variety of targeting mechanisms will be needed. Targeting in urban areas will be more costly, but relatively inexpensive geographic or self-selection targeting mechanisms may be feasible in rural areas. In the medium run, attention needs to be paid to improving the human capital of the country.

Agenda

Further investigations tightly related to the social and economic policies under discussion could significantly add to the effectiveness of such programs. Key areas of investigation include: (i) identifying the causes of the increasing disparity between urban and rural areas; (ii) determining the effects of education and gender on labor market outcomes; (iii) estimating willingness to pay for utilities, as well as the impact of changes in utility rates on the use of services and welfare; (iv) determining the main barriers to increased productivity in agriculture; and (vi) evaluating the effectiveness of the present (and previous) targeting mechanisms for social assistance.