Social Snapshot and Poverty in Armenia - Main Outcomes of 2014 Household Integrated Living Conditions Survey

YEREVAN, November 23, 2015 - The report Social Snapshot and Poverty in Armenia - released by the National Statistical Service of the Republic of Armenia (NSS RA) -  focuses on living standards and social conditions in the country between 2008 and 2014.

This report is the 16-th among the series of the annual reports released by the  NSS RA under the same name. The main objective of the report is to provide public outreach on the poverty incidence and social conditions in the country based on the outcomes of 2014 Household Integrated Living Conditions Survey (ILCS). While the report is mainly prepared based on data from the ILCS, further information provided by the Ministries of Labor and Social Issues, Health, Education and Science was used as well. The report was developed with analytical and technical assistance from the  World Bank..

In order to assess the level of poverty in the country, the report uses a consumption aggregate to measure welfare. The literature on poverty measurement illustrates that consumption expenditure captures information on the welfare of households more accurately: for instance, when households report a lack of income, this does not necessarily indicate zero level of consumption because in such cases households consume  their own production of food or borrow through credit markets. Furthermore, in transition economies, to which Armenia belongs, the poor often derive income from various types of short-term income sources, and it is easier to estimate their welfare using household consumption expenditure which provide an accurate estimate of income from all types of activities.

The report presents a snapshot of poverty between 2008 and2014. The methodology of poverty measurement and analysis (based on 2009 data) was revised with technical assistance from the World Bank

The 2014 poverty lines were estimated based on the revised minimum food basket and estimated share of non-food products in 2009. Households whose consumption per adult equivalent was below the upper general poverty line were defined as poor; those whose consumption per adult equivalent was below the lower general poverty line were defined as very poor, whereas households whose consumption per adult equivalent was below food poverty line were defined as extremely poor.  In 2014 upper,  lower and extreme poverty lines per adult equivalent were estimated as AMD 40,264 (US$ 96.8), AMD 33,101 (US$ 79.6) and AMD 23,384 (US$ 56.2) respectively.

Poverty Lines and Their Changes, 2008-2014, per Adult Equivalent, per Month (in AMD)

Poverty and Inequality: Main Findings

• The report focuses on the negative impact  of the global crisis which hit Armenia since fourth quarter of 2008: findings illustrate that the crisis had a severe impact on the economic and financial situation,  debt, liquidity and trust in the country.
• Between 2008 and 2014, the most important determinants of poverty dynamics in Armenia was the deep economic recession observed in 2009 (14.1 percent). In 2010, a modest growth of 2.2% as compared with the previous year was observed, followed by further growth at 4.7% in 2011. In 2012, the growth level was rather notable totaling 7.2%, which still was insufficient to match with the 2008 level. However, in 2013¹, growth was half of the previous year level (only 3.3%[1]), which was not enough in order to significantly reduce the poverty at national level (in 2013, poverty dropped by 0.4 percentage points only, totaling 32.0 %). Compared to the previous year, in 2014¹, the economy in Armenia grew by 3.5%, and poverty decreased by 2 percentage points. As evidenced by 2014 ILCS figures, the average monthly household real consumption at national level grew by 11 percent over 2008, and  growth was noted in all quintiles of population. 
• Poverty in 2014 totaled 30%, which means that every three persons from ten lived in a household below the upper poverty line of 40,264 AMD/month. Compared to 2013, poverty incidence dropped by 2 percentage points.   
• The number of the poor in 2014 was around 900 thousand (per resident population[2]), the number of the very poor – 330 thousand, and that of the extremely poor – around 70 thousand. In 2014 both the poverty gap and poverty severity were at a lower level than in 2008.  
• The poverty gap calculated among the poor population, indicates poverty shortfall, i.e. it shows the extent to which the average consumption of the poor falls below the poverty line. The poverty gap (4.5% in 2014) also indicates that, if the country were to mobilize for each individual (both poor and non-poor) resources equivalent to 4.5% of the poverty line and these resources were allocated to the poor, poverty theoretically would be eliminated, assuming that the assistance aimed for the poor would fully reach them.
• The severity of poverty reflects inequality among the poor. It reflects the fact that in terms of consumption some poor people are further away from the poverty line, while some others are much closer to it. In 2014, the severity of poverty was 1.3%.

Armenia: Basic Poverty Indicators, 2008-2014 (percent)

Source: ILCS 2008-2014  Note: consumption is estimated per adult equivalent

• Extreme poverty rate in 2014 was still 0.7 percentage points higher and the total poverty rate  2.4 percentage points (8.7%) higher than the respective indicators in 2008. Meanwhile, for the first time after the crisis the incidence of very poor dropped by 1.7 percentage points against 2008.  The estimated poverty gap in 2014 was 4.5% as compared to 5.1% in 2008 (a decrease of 0.6 percentage points), and the estimated poverty severity was 1.3% as compared to 1.4% in 2008 (a decrease of 0.1 percentage point).
• The average shortfall of additional consumption needed for the poor relative to the poverty line, in percentage expression, constituted 15.2%.
• In 2014, poverty rate did not significantly differ between urban (30.0%) and rural (29.9%) locations. Over 2008-2014, poverty growth rate in urban and rural communities was the same (2.4 percentage points). The capital city Yerevan had the lowest poverty rate in the country (25.2%), which was 1.4 times lower if compared with other urban communities. In 2014, poverty in Yerevan as compared to 2008, grew by 5.1 percentage points, whereas poverty incidence in other urban communities, while still being the highest, dropped by 0.7 percentage points over 2008. In terms of urban/rural distinction of welfare, majority of the poor (63.6%) were urban residents: In 2014, the lowest rate of very poor was observed in Yerevan and the highest in other urban communities (9.0% and 13.6%, respectively). In terms of urban/rural locations, majority of the extremely poor (67.9%) were urban residents.
• Inequality indicators measured by the Gini coefficient indicate that the level of polarization is higher in terms of income distribution^[3] than in terms of consumption distribution. Consumption inequality measured by the Gini coefficient increased from 0.242 in 2008 to 0.277 in 2014. Aggregate income inequality, in turn, increased from 0.339 in 2008 to 0.373 in 2014.
• The report for the first time incorporates a subsection on Relative Poverty, prepared in cooperation between NSS RA and the World Bank. Other parts worked out by the World Bank include Poverty Rates in Countries of the Region and Multidimensional Poverty in Armenia.

Subjective Assessments of Poverty and Living Conditions by Households: Main Findings

• Under the ILCS 2014, members of the surveyed households aged 16 years and above were asked a series of questions designed to give insights into their primary concerns related to living conditions in Armenia.
• Compared to the objective assessment of living conditions based on consumption aggregate per adult equivalent, subjective assessments in Armenia appear to be lower.In 2014 the total poverty rate based on self-assessment constituted 17.0%, as compared to 30.0% estimate based on consumption per adult equivalent.
• 2.4% of the population considered themselves to be extremely poor, which is close to the extreme poverty rate measured by consumption per adult equivalent of 2.3%. The result of subjective poverty assessment in 2014 was the same as in 2008 ( 17.0 percent).

[1] Beginning from 2015, the NSS calculates GDP in accordance with the international standards 2008 System of National Accounts (2008 SNA) and 2012-2014 indicators were accordingly revised. 2013-2014 GDP and economic growth data in this report are calculated in accordance with 2008 SNA.

[2] By the number of the annual average resident population for 2014.

[3] Absolute data on income is less reliable, which can be explained by residents’ propensity to understate or hide the real level of their income (propensity of non-disclosure of income) and expressedly seasonal character of some types of income.