The economic recession in Europe and central Asia threatens to wipe out much of a decades worth of poverty reduction, international institutions have warned.
The crisis will push back into poverty and vulnerability almost 35 million people about one third of the number that have escaped from it over the last ten years, a World Bank report warned last month.
Ben Slay, senior economist (Europe and CIS) at the United Nations Development Programme (UNDP), told Emerging Markets: What is specific about the Europe and central Asia region is that many, many people have been lifted out of poverty in the last decade by economic growth rather than, say, changes in economic structure or by welfare programmes and, without that growth, they will fall back.
In this respect the region is more vulnerable in this economic crisis than regions such as Asia and Africa that are poorer overall.
The World Bank expects that the number of poor and vulnerable people in the region will rise by 5 million for every 1% decline in GDP which suggests, according to Bank economists, that by the end of 2009 almost 25 million more people will be poor and vulnerable, and by the end of 2010 a further 10 million.
Of the regions 480 million people, 192 million are considered poor or vulnerable by the Bank, and nearly 90 million have moved out of poverty and vulnerability since 1999. The reversal of the trend is a human crisis that is going largely unnoticed, Shigeo Katsu, the World Banks president for Europe and Central Asia, said in Washington late last month.
Slay at the UNDP said the Banks figures were based on the most thorough research available, but added that, if anything, the numbers are optimistic.
He said that former communist countries are often distinguished by spending a fair proportion of GDP higher than most African and Asian countries on social protection but that the systems are very inefficient and often dont necessarily provide support to the right people. These need to be reorganised.
Slay said that in Bosnia, for example, while aid is targeted to war veterans, child poverty is not dealt with. The crisis begs the question: Is it time to renegotiate the social contract?
Another challenge, Slay argued, is to envisage a new growth model for the region as it begins to recover.
It is an open question as to whether foreign investors will come in again, and foreign lenders will lend again, as they did in the 2000s. Countries in the region will need to consider how to move away from current account deficits of 15% of GDP.
Erik Berglof, chief economist at the EBRD, said that the Banks work went alongside poverty reduction work insofar as private sector development and [...] bringing [the poor] into productive work to mitigate the impact of the downturn.