Poverty measurement in the Republic of Moldova 1

Poverty line evolution Ø 1993 – Minimal consumer budget Ø 2000 – Subsistence level Ø 2004 – first absolute poverty line approved by Strategy of economic growth and poverty reduction (SCERS) Ø 2006– revised absolute poverty line !!!Starting with 2005 MDG poverty indicators !!! The National Development Strategy “Moldova 2020” sets forth the major objective to escape 149 thousand of citizens from poverty by 2020, or over 20% of those who are currently in poverty. 2

Poverty rate evolution 2004 2005 2006 2007 2008 2009 2010 2011 Total 26, 5 29, 1 30, 2 25, 8 26, 4 26, 3 21, 9 17, 5 Urban 22, 7 22, 1 23, 7 17, 0 16, 4 12, 4 9, 4 7, 1 Rural 31, 2 36, 0 35, 9 33, 4 37, 6 38, 7 33, 0 27, 3 Extreme poverty rate 14, 7 16, 1 4, 5 2, 8 3, 2 2, 1 1, 4 0, 9 International line 4, 3$ PPP - - 34, 5 29, 8 30, 4 29, 5 26, 8 23, 4 Absolute poverty rate 3

Why poverty estimators has been revised in 2006? HBS was substantially modified in two main areas: Ø the way in which households are selected (sampling frame and sampling areas): better coverage and no substitution of hhs Ø data collection tools (questionnaires): better coverage of expenditures, reduction of recording period for food products, introduction of reference period for some goods (6 and 12 months), adjustment of occupation definitions, etc. 4

Computation of poverty line need” approach: - Food component - Non-food component l Food component is based on the need to meet certain minimum nutritional requirements (2282 calories per day). Based on HBS data all the items consumed in the food basket by a specified population group. Their relative weights are also based on actual consumption patterns observed in the data. The population of interest to be the lower part of the distribution, from the second to the fourth deciles. In fact focusing on the population located in the low end of the welfare distribution, we are more likely to reflect the preferences of the poor as well as the prices that they face. Ø Non- food component is computed as a mean multiplier among households whose expenditure lies within a small interval around the food poverty line. Ø “Basic 5

Computation of poverty line Ø Consumption expenditures are used as indicator of wellbeing The following adjustment were made: Ø for items, whose purchase is infrequent, but still more frequent than once a year, expenditure are captured through appropriate recall periods (6 and 12 months), Ø items, which generally are purchased within intervals longer than one year (namely durable items) are excluded from consumption aggregate, Ø imputation of actual consumption and use of services by correcting for subsidies that are not uniformly received by all households; Ø correction for price differences over time and across different areas of the country (namely urban and rural areas); Ø adjustment of expenditure measured at the household level to identify individual consumption levels. 6

Computation of consumption expenditure ØPoverty rate varies a lot depending on the items included in the consumption expenditure Total Urban Rural food 87, 7% 78, 2% 94, 7% plus beverages 85, 0% 74, 2% 92, 9% plus clothes 64, 5% 53, 2% 72, 9% plus dwelling 34, 6% 20, 3% 45, 1% plus equipment of dwellings 31, 1% 17, 7% 40, 9% plus health 25, 3% 14, 4% 33, 3% plus transport 22, 7% 12, 1% 30, 5% plus communication 19, 5% 10, 0% 26, 6% plus miscellaneous/Total poverty rate 16, 6% 8, 2% 22, 8% 7

Correction for price differences The official consumer price index properly corrects for inflation, but does not take into account regional price differences. Ø Based on HBS data is possible to construct a CPI for food products, as the survey provides information on budget shares for all households, but it does not collect information on prices themselves and the implicit prices is obtained by dividing expenditure by quantities purchased. Ø Combining HBS data and official CPI for services and nonfood items is possible to construct a Paasche price index at the level of each survey area and for each month of the survey, and it does correct both for price differences over time and across regions Ø 8

Correction for price differences Ø The index by month computed using HBS data and the official CPI are very similar 9

Correction for price differences Øcorrection for price differences had a significant impact on poverty rate, without correction to price differences there is an underestimation of urban poverty and an over estimation of rural ones. 10

Thank you for attention! 11