POVERTY IN KYRGYZSTAN A MIXED PICTURE

UNCLAS SECTION 01 OF 02 BISHKEK 000094

SENSITIVE
SIPDIS

DEPT FOR SCA/CEN

E.O. 12958: N/A
TAGS: ECON EAID SOCI EAGR KG
SUBJECT: POVERTY IN KYRGYZSTAN A MIXED PICTURE

REF: BISHKEK 007


1. (SBU) Summary: High poverty rates remain a problem in
Kyrgyzstan, especially in rural areas. In 2008 about a third
of the population was under the official poverty line. The
poverty rate fell significantly over the past few years, due
in large part to growing remittances from Kyrgyz workers
abroad. In 2009, however, the amount of remittances fell by
approximately 20 percent due to the global economic crisis.
For the poorest Kyrgyz, food affordability remains a concern.
A good harvest last year improved the food situation, but a
portion of the population remains vulnerable to economic
shocks or poor harvests. End summary.

Poverty Rate High, But Falling
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2. (U) The number of people in Kyrgyzstan living under the
poverty line has fallen significantly over the past few
years. According to Kyrgyz Government statistics, the total
percentage of the population under the poverty line fell from
63 percent in 2000 to 32 percent in 2008. The rate of
extreme poverty fell from 33 percent of the population in
2000 to six percent in 2008. The poverty line is calculated
as the minimal amount of money needed to meet basic
consumption needs, while the extreme poverty line is defined
as the amount of money needed to meet basic food needs.


3. (U) The decrease in poverty was widespread, with all
regions of the country experiencing a decrease in both
poverty and extreme poverty between 2000 and 2008. Poverty
also decreased at a relatively equal rate in both rural and
urban areas. The poverty rate has been consistently higher
in rural areas compared to urban areas. In 2008, the poverty
rate in rural areas was 37 percent versus 23 percent in urban
areas.


4. (U) A World Bank analysis of poverty data through 2007
concluded that the direct and indirect impact of increased
remittances was the primary cause of reduced poverty rates
since 2000. Remittances from Kyrgyz working abroad,
primarily in Russia and Kazakhstan increased dramatically;
from about $150 million in 2003 to $1.1 billion in 2008.
The actual figure is probably even higher, since these
statistics likely miss some remittances that flow through
informal channels. Those who received remittances spent most
of their additional money on personal consumption and
construction, increasing the incomes of those working in the
service and construction sectors.

Lower Remittances - How Much Of A Hit?
--------------


5. (SBU) The world economic crisis, and falling remittances
to families in Kyrgyzstan, has impacted Kyrgyzstan's poverty
rate. According to the Kyrgyz Ministry of Labor, Employment
and Migration, remittances fell by about $220 million in 2009
compared to 2008, to $980 million. While there is no poverty
data available yet for 2009, some data indicates that
households have felt the economic impact and cut their
discretionary spending. During the first ten months of 2009
imports fell by 26 percent compared to 2008. Anecdotal
information from conversations with businesses also indicate
that sales of consumer goods fell significantly in 2009.

Food Affordability - Better But Still A Concern
-------------- --


6. (U) The decline in poverty rates from 2000 to 2008 also
led to an improvement in the caloric intake of the
population. The percent of the population consuming less
than 2,100 calories per day fell from 61 percent in 2000 to
49 percent in 2007. A closer look at the latest available
nutritional data from the first nine months of 2008 shows
that all but a small portion of the population consumed close

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to 2,100 calories/day. Although caloric consumption appears
to be relatively high for most, malnutrition is still a
concern. Only the wealthiest 20 percent of the population
consumed the recommended amount of protein and fat. This
leads to seeming contradictions in nutritional outcomes. For
example, according to a 2008 World Food Program study, the
percentage of children under 5 years old who are underweight
was only 2.4 percent, while 30 percent of children under 5
suffered from stunted growth.


7. (SBU) As in many countries at the time, food prices in
Kyrgyzstan rose steeply in 2007-2008 due to the world-wide
increase in food prices and a poor harvest in 2007. The
World Food Program estimated in 2008 that 34 of the
population was at risk of not being able to afford food, a
figure that closely matched the 32 percent of the population
living under the poverty rate. In 2009, a good harvest
lowered the prices for many food products and appears to have
lessened the immediate risk of food insecurity. However,
many Kyrgyz households remain vulnerable in the event of
future economic shocks or poor harvests.

Government Boosts Aid, Hikes Energy Costs
--------------


8. (U) The Government of Kyrgyzstan provides direct
assistance to the poorest households. In 2009, the Kyrgyz
Government provided social benefits to 422,000 residents, out
of a total population of about five million. The majority of
recipients, 362,000, received a welfare payment due to their
low income, while the remaining recipients had a special
need, such as disability. While the average payments are
low, only about five dollars a month, they are an important
income supplement for the poorest Kyrgyz.


9. (SBU) The Government's decision to double electricity
prices starting January 1 of this year (reftel) will be
especially difficult for the poorest households who already
spend a large portion of their income on food and energy. The
Government has decided to increase the amount it pays in
social benefits to help lessen the impact of the higher
energy costs. Still, increased social benefits will have a
limited impact on the poor's ability to cope with higher
electricity rates.

Crisis Weathered?
--------------


10. (SBU) It is likely that Kyrgyzstan's progress on poverty
reduction stalled in 2009, though definitive data is not yet
available. The country appears to have weathered the
economic shocks of the past couple years, including higher
food prices, decreasing remittances and slower economic
growth, without major social implications. However, poverty
rates remain high and the economy vulnerable to external
shocks. Kyrgyzstan's ability to advance in 2010 depends in
part upon the economic recovery of other countries in the
region, especially Russia and Kazakhstan.
GFOELLER

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