Deep Palestinian Poverty in the Midst of Economic Crisis – World Bank report

Report No. 30150-WBZ

DEEP PALESTINIAN POVERTY IN THE MIDST OF ECONOMIC CRISIS

October 2003

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TABLE OF CONTENTS

Executive Summary – 1

Introduction – 4

After 3 Years of Intifada, How Large is the Poverty Problem? – 6

Poverty Lines and Poverty Definitions – 8

The Palestinian Poverty Profile in 2003:

What Are the Factors that Make Some People Poor But Not Others – 10

The Adequacy of Emergency Assistance: Is Emergency Assistance Sufficient?

Is there Scope to Improve its Allocation? – 20

To What Extent Could an Economic Recovery Reduce Poverty? – 28

What Can Be Done to Improve Our Knowledge of Poverty? – 32

Appendix I: Comparisons With Pre-Crisis Poverty Rates Must Be Treated With Caution – 33

Appendix II: Definition of the Subsistence Poverty Line – 35

Appendix III: Correlates of Poverty and Received Emergency Assistance – 38

Bibliography – 40

EXECUTIVE SUMMARY

More than three years of Intifada and closures have plunged the Palestinian economy into deep crisis, causing dramatic declines in living standards. This report – and indeed much of the attention of the donor community – focuses on the situation of the poorest of the poor. We have chosen this focus because the resources available for poverty reduction are insufficient to meet the needs of all individuals below the official poverty line. In the current context, donors and policy makers are naturally concerned that the resources available reach those who are most dependent on emergency assistance. Their concern is reinforced by two perceptions: (i) that the poorest have exhausted their savings and are increasingly vulnerable to malnutrition and permanent poverty traps should they face further economic shocks and (ii) the poorest will be unable to benefit from economic recovery because they tend to be unskilled or unable to work. Throughout the report, we use a subsistence definition of poverty, which includes individuals whose expenditures are less than 205 NIS per person per month. Using this definition of poverty, we find that 16 percent of the Palestinian population of the West Bank and Gaza cannot afford to consume the minimum caloric intake as established by the FAO and WHO.

Who are the poor?

A variety of factors are strongly related with poverty. As other studies have found, we find that the poor tend to have larger families and relatively low levels of education and that poverty is particularly common in Gaza. We also find that poverty is strongly related to unemployment and sporadic (as opposed to regular, permanent) jobs. Interestingly, we find that refugees and those in female-headed households are not significantly more likely to be poor than are others.

Has the crisis affected the poor disproportionately?

The poorest segments of the population do not appear to have suffered disproportionately from the crisis. Although the poor have become increasingly vulnerable and liquidityconstrained, they have also benefited more than other groups from emergency assistance.

In the early months of the crisis, the vast majority of the poor reduced their expenditures and also relied heavily on drawing down savings and selling jewelry as strategies to partially compensate for their reduced income. By the end of 2003, the savings of the poor seem to have been exhausted: the majority of the poor were no longer relying on these strategies, while the non-poor continued to do so.

While the exhaustion of savings and the resulting vulnerability has disproportionately affected the poor, emergency assistance has been reasonably successful in preventing widespread malnutrition and other types of humanitarian crises among the poorest. When we subtract out the value of emergency assistance received, we find that 22 percent of the population would fall below the (subsistence) poverty line. In other words, emergency assistance has served to lower the poverty rate from 22 percent to 16 percent – a reduction of almost a third.

Those who are poor or would be poor in the absence of emergency assistance – a group we refer to as the “needy” – have benefited disproportionately from emergency assistance. Whereas only 23 percent of the non-needy receive assistance, fully 68 percent of the needy receive assistance. Moreover, 55 percent of the total value of emergency assistance distributed is received by needy individuals.

How much of emergency assistance go to the non-needy?

How concerned should we be that some of the emergency assistance goes to the non-needy? Although some of the non-needy who receive assistance have consumption levels well above the poverty line, the majority has very low consumption levels. Because most of the non-needy who receive assistance are close to being needy, there is little cause for concern that they receive a portion of the assistance. Moreover, an examination of the observable characteristics of non-needy recipients of assistance, does not suggest any simple way to exclude them from benefits.

How serious is under-coverage of emergency assistance?

Whereas 68 percent of the needy receive assistance, a significant portion of the needy – 32 percent — do not. What are the characteristics of these 32 percent of the needy who are not covered? Needy individuals living in rural areas and in Gaza are much less likely to receive assistance than needy individuals living in other areas. In addition, controlling for other factors, the unemployed and the less educated tend to receive less aid than the employed and the better educated. Interestingly, needy refugees and individuals in female headed-households are more likely to receive assistance than are other needy individuals. This may reflect agencies using refugee status and the gender of the household head as a proxy for need. This is ill advised however, as these households do not have exceptionally high rates of poverty.

What can be done to reduce poverty?

Because economic hardship has increased with the crisis, it may be hoped that a resolution of the crisis would reduce poverty. Unfortunately, even lifting of closures and a return to pre-Intifada levels of unemployment would do little to reduce poverty i/. By contrast, structural policies aimed at lowering dependency ratios and improving labor productivity could have much larger impacts on poverty rates. In the short term, a significant portion of the Palestinian population is likely to remain poor – and increasingly vulnerable to further shocks as their savings are exhausted. Direct assistance will remain a crucial component of the consumption of the poor. While reducing leakage would be difficult and have limited benefits, increasing the volume of emergency assistance could be an effective solution to fight poverty, if it can reduce under-coverage and systematic biases. This would, in particular, require implementing new programs designed to reach people from Gaza and rural areas, as well as the inactive, unemployed and less educated.

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i. More precisely, lifting of closures and a return to pre-Intifada levels of unemployment would do little to reduce subsistence poverty, which is the focus of this report. Lifting of closures and a return to pre-Intifada levels of unemployment may, however, have a larger impact on rates of poverty defined on the basis of the official poverty line.

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