ARMENIA'S POVERTY RATE FALLS TO 34.6

UNCLAS SECTION 01 OF 02 YEREVAN 000354 SIPDIS SENSITIVE SIPDIS DEPT FOR EUR/CARC, EUR/ACE E.O. 12958: N/A TAGS: ECON ELAB EAID PHUM AM SUBJECT: ARMENIA'S POVERTY RATE FALLS TO 34.6 PERCENT YEREVAN 00000354 001.2 OF 002 Sensitive but unclassified. Please protect accordingly. -------------- SUMMARY -------------- ¶1. (SBU) According to the National Statistical Service (NSS),Armenia's poverty rate was 34.6 percent in 2004, down from 56.1 percent in 1998- ¶1999. The rate of extreme poverty in 2004 was 6.4 percent, down from 21 percent. These findings were based on an NSS survey supported by the World Bank. The World Bank, the International Monetary Fund (IMF),and the NSS have said that the decrease in poverty rates was due to high rates of economic growth, improved social policies and increased remittances. While the number of children living in poverty decreased, young children remained one of the most affected groups with 41.9 percent of children under age five classified as poor. End Summary. -------------- POVERTY FALLS TO 34.6 PERCENT -------------- ¶2. (SBU) According to a National Statistical Service (NSS) survey, the poverty rate in Armenia fell to 34.6 percent in 2004 compared to 56.1 percent in 1998-1999. The rate of extreme poverty was 6.4 percent, down from 21 percent. The NSS survey covered the period from April 1, 2004 to March 31, 2005 and included 6,816 households in 43 towns and 216 villages. The last time such an extensive survey was done was in 1998-1999. The lowest poverty rate was in Yerevan at 29.2 percent, urban poverty outside of Yerevan was 43.9 percent, and rural poverty was 31.7 percent. The highest poverty rate was in the region effected the 1988 earthquake (48.8 percent overall poverty and 10.4 percent extreme poverty). Over the six-year period, the GOAM shifted the poverty line upward slightly to account for inflation. In 2004, the poverty line was AMD 19,373 (approximately USD 43) per month, compared to AMD 17,663 in 1998-1999 (approximately USD 33 at the average 1998-1999 exchange rate). The extreme poverty line in 2004 was AMD 12,467 (USD 23.40),versus AMD 11,210 in 1998-1999 (approximately USD 21.60 at the average 1998-1999 exchange rate). -------------- -------------- DIFFERENT METHODOLOGIES LEAD TO DIFFERENT RESULTS -------------- -------------- ¶3. (SBU) The NSS used a new methodology in 2004 which produced slightly different results than in previous years. The new methodology increased the use values allocated to long-life appliances and adjusted expected consumption rates to differentiate between children and adults. In order to facilitate comparison across years, the NSS also issued survey results using the old methodology under which the poverty rate in 2004 was 39 percent (down from 43 percent in 2003) and extreme poverty was 7.2 percent (down from 7.4 percent in 2003). The World Bank recommended introducing the new methodology in 2003. When the World Bank used its own methodology to analyze the 2003 data, it identified a poverty rate of 32 percent. World Bank Social Affairs expert Susanna Hairapetyan told us that it would be not appropriate to compare the Bank's 2003 findings with the NSS' 2004 results because the methodologies were dramatically different. She said that the most appropriate comparison data for the 2004 results was the 1998-1999 data, and that the Bank was satisfied with the methodology used by the NSS in 2004 and was not planning to do a parallel analysis of the data as it did in 2003. -------------- CHILDREN LIVING IN POVERTY -------------- YEREVAN 00000354 002.2 OF 002 ¶4. (SBU) The poverty rates for children under the age of 17 have decreased since 1998-1999, but still remain high. Approximately 31.6 percent of children under the age of 17 live in poverty. The most affected are children under the age of five, 41.9 percent of whom live in poverty, down from 63.3 percent six years ago. Eight percent of children under five live in extreme poverty. The majority of children living in poverty were ages 6 to 14 (181,359) accounting for 36.6 percent of Armenian children in that age group. -------------- --- OBJECTIVE VERSUS SUBJECTIVE ESTIMATES OF POVERTY -------------- --- ¶5. (SBU) The NSS report included both objective and subjective estimates of poverty. According to the survey, only 17 percent of the people surveyed thought they were poor and only 3.3 percent thought that they are extremely poor. Only 0.1 percent of those surveyed ranked themselves as rich and 3.2 percent said they have an above average living standard. Thirty-seven percent of those surveyed said that they had an average standard of living. -------------- -------------- WORKING POOR EMPLOYED PRIMARILY IN INFORMAL SECTOR -------------- -------------- ¶6. (SBU) The results of the survey show that 42.7 percent of the poor population are employed -- 14.6 percent in the formal sector and 28.1 percent in the informal sector. Fifty-one percent of the employed work in agriculture (informal sector),and 27.1 percent are involved in services (formal sector). Fifty-seven percent of poor people do not have jobs and are not currently looking for jobs. -------------- -------------- COMMENT: THOUGH DECLINING, POVERTY RATE STILL HIGH -------------- -------------- ¶7. (SBU) This survey points to the poor distribution of Armenia's recent economic growth. Since 1998- 1999, Armenia's GDP has more than doubled. The poverty line, which is adjusted for inflation, has increased by less than 10 percent during the same time period. While poverty and extreme poverty rates have fallen, this decrease pales in comparison to Armenia's impressive growth. The urban/rural (or in Armenia's case Yerevan/not Yerevan) divide can help explain a portion of this discrepancy. Economic growth has clearly benefited those living in the capital more than the rural poor and poor in other cities. The other extremely troubling result of this survey is the number of children living in poverty in Armenia (41.9 percent under age five). Armenia's middle class is still largely confined to Yerevan, and we expect little significant change in the short-term. EVANS