How to Ensure Sustainable Poverty Reduction in the South Caucasus?

Mariam Baratashvili lives with her family in the Mtskheta-Mtianeti region of Georgia. Before 2008, Mariam’s family was able to get by on a modest income. However, the impacts of the global financial crisis meant they were suddenly plunged into poverty. In the Gegharkunik region of Armenia, Tigran Grigoryan’s family underwent a very similar experience. Across the South Caucasus countries of Georgia, Armenia and Azerbaijan, many families faced poverty and destitution following the crisis.

Ten years later, the Baratashvili and Grigoryan families have managed to pull themselves out of poverty, but it was a long, difficult road.

According to official statistics, the poverty rate in Georgia and Armenia, measured by the $3.2 dollar/day poverty line, was reduced by more than half from 2005 to 2017. In Azerbaijan, poverty also declined dramatically, mainly propelled by impressive economic growth: poverty declined from almost 50% of the population in the early 2000s to about 5% in 2013.

But statistics don’t tell the whole story.

Despite moving out of poverty, many families in the South Caucasus still feel financially insecure. They know they are living just above the poverty line, vulnerable to risks from various shocks such as a job loss, crop failure, illness or natural disaster. Extreme rainfall and drought are also a threat to communities across the region, endangering crops, livestock, and food security. Major shocks can pose a significant financial burden on households, often forcing them to cut back on critical expenditures such as food and healthcare.

The national poverty rate accounts for the share of the population living below the poverty line at any given moment in time. As such, when the poverty rate declines, it is possible that the composition of people below the line changes at different times. In other words, some people could fall into poverty between two time periods, while others could escape poverty. Data in the South Caucasus in Motion report confirms considerable churning, upward and downward shifts, around the poverty line.

In Georgia, almost 10% of the population managed to escape poverty between 2009 and 2015, but a significant share has since fallen back, especially in secondary cities. In Armenia, for every three people that moved out of poverty between 2010 and 2016, one person fell back.

To better understand the underlying factors that cause persistent poverty, we must look beneath the surface – and beyond the national poverty figure. Only then, can we design policies that will help alleviate poverty in a truly sustainable way.

We know that inadequate risk management is responsible for many of the negative impacts and development setbacks arising from economic shocks. And such shocks tend to affect the poor and vulnerable the most. The costs of inaction are substantial for society and the family.

How can countries in the South Caucasus mitigate the risks from shocks and ensure sustainable poverty reduction?

For Georgia, it is especially important to build resilience to shocks by improving macro-fiscal management, promoting responsible financial access, strengthening household resilience, and enhancing management of natural resources and climate risks. 

Greater investment in human capital is critical for Armenia. As such, the country should ensure better economic opportunities for poor and vulnerable populations, and wider access to social protection services. To this end, Armenia is increasing the share of poor people covered by social protection programs, such as the Family Benefit Program, and enhancing information systems that provide access to the full range of employment services.

Azerbaijan has made remarkable progress reducing poverty over the last decade. However, the country could face strong headwinds going forward, caused by the dual challenges of lower oil prices and an uncertain regional economic environment. Azerbaijan should invest more in improving human development outcomes and increasing opportunities for its citizens. This means ensuring better access to water and sanitation, and improving environmental and health infrastructure and services, all of which can have a positive impact on health and social welfare outcomes.

To ensure that families like the Baratashvilis and the Grigoryans are able to live safe, healthy, productive lives – without fear of falling into poverty – the World Bank is helping the South Caucasus countries to mitigate risks from financial shocks and build more resilient economies.

By Sebastian Molineus, World Bank Regional Director for the South Caucasus