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Five years ago the World Bank report, Making Transition Work for Everyone, helped focus public attention and debate on the urgent challenge of reducing poverty and inequality in the countries of Eastern Europe and Central Asia. The report found that one out of five people survived on less than $2.15 a day compared with fewer than one in twenty-five a decade earlier. The sharp increase in poverty was driven in large part by the collapse in incomes and the increase in inequality. The working poor, children, rural households, and specific groups
(such as the Roma in Eastern Europe) were at greatest poverty risk. Capabilities of the poor were being endangered from falling access to education, corruption (particularly in public service delivery), nutritional deficiencies, and communicable diseases. And prospects for
rapid poverty reduction seemed remote.
Much has changed in these countries since then. Growth has rebounded in the Commonwealth of Independent States (CIS) from the depths of the financial crisis of 1998. This was driven by several factors, in particular, the boost to the Russian Federation’s competitiveness provided by a large devaluation, the supply response from structural reforms that had been undertaken by many of the Region’s countries, and the income windfall from the large and unexpected increases in the prices of oil and other energy exports. At the same time, the process of European Union integration has helped broaden
xiv Growth, Poverty, and Inequality: Eastern Europe and the Former Soviet Union markets, lock in domestic reforms, and attract higher investment in acceding countries. The cessation of war in the western Balkans has also helped make the economic environment more conducive to investment and growth.
Growth, Poverty, and Inequality: Eastern Europe and the Former Soviet Union takes stock of the impact of growth on poverty and inequality during 1998–2003, provides systematic evidence-based analysis to understand the different outcomes, and suggests areas for further action. It is heartening to find that during this period growth has helped more than 40 million people move out of poverty. This has been aided by improved income distribution in many countries, especially in the CIS. But poverty and vulnerability still remain a significant
problem. More than 60 million are poor (that is, living on incomes less than $2.15 a day), and more than 150 million are vulnerable (that is, living on incomes between $2.15 and $4.30 a day). Most of them are in the middle-income countries even as the low income countries have higher rates of poverty. Working families constitute the largest group among the poor. Many others face deprivations in access and quality of public services. Regional inequalities,
both between and within countries, are large. The heterogeneity of countries in the Region suggests a differentiated approach across countries. But it is obvious that prospects for reducing poverty and vulnerability—and achieving the Millennium Development Goals—
will be crucially dependent on the ability of countries to accelerate growth and create well-paying jobs; improve the quality of education, health care, and public infrastructure; and strengthen social safety nets. Achieving these will require stepping up efforts to complete
the institutional and policy reform agendas and sustaining them.
This report—the first in a new series of regional studies—is an important contribution to our thinking about how the World Bank can work more effectively with clients and partners in the Region to reduce poverty and vulnerability in a rapidly changing world. Forthcoming reports on jobs, trade, infrastructure, migration, and demographics will look at the key economic and social opportunities and challenges. I hope that these reports will stimulate debate, promote
better understanding, and spur action to bring about prosperity for all.
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