Poverty and Inequality Reduction Strategy in Colombia. How is it measured? La noche de los pobres. Diego Rivera

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2 Poverty and Inequality Reduction Strategy in Colombia. How is it measured? La noche de los pobres. Diego Rivera

3 Colombia is the most unequal country in Latin America and its poverty level is also high

4 Comparison with countries in Latin America 50 Monetary Poverty Gini Index Colombia Perú Brasil Chile Colombia América Latina Source: Eclac Colombia Brasil Chile Perú A. Latina Source: SEDLAC

5 % de población Population (%) According to the Multidimensional Poverty Index, recently published by the Oxford Poverty and Human Development Initiative (OPHI), measured in a multidimensional way, 9,2 % of the Colombian population was poor Percentage of poor people for Multidimensional Poverty Index, Oxford (H) Latin America Source: Fuente: Alkire, Sabina & Maria Emma Santos

6 If the reduction of poverty and inequality are a public policy objective What is the strategy to achieve it? Jagdish Bhagwati

7 THE NATIONAL DEVELOPMENT PLAN Prosperity for all Growth and competitiveness Equal opportunities More employment DEMOCRATIC PROSPERITY Democratic prosperity Peace consolidation Less poverty More security

8 Two channels for poverty reduction Indirect channel Direct channel Growth (Locomotive Sectors) Increased income Ensuring basic services (Social Protection) Health, education, housing, etc.. Income poverty Income extreme poverty- Gini Multidimentional Poverty Index - Source: Bhagwati

9 Indirect Channel Increased Income Potential GDP growth Effects of Locomotive Sectors

10 Indirect channel: Economic growth How much does an average growth of 4.5% reduce poverty and inequality? (Current scenario of potential GDP)

11 Indirect channel: Economic growth Indicator (income) Poverty Ext. poverty Gini Impact of Potential GDP ,4 p.p -3,4 p.p -1.5 points Microsimulation Analysis using the Colombian Quality Life Survey

12 Indirect channel: Economic growth How much does the locomotive sectors reduce poverty and inequality?

13 Agriculture (1, 5 million Ha. returned and securitized, restitution of land to families, families with comprehensive land grant) Housing (1 million new homes, 2.8 million people benefited from new pipeline, 4.5 million people benefited from new sewage) Infrastructure (2,000 km of dual carriageway, 4,000 km of roads in the rehabilitation program and comprehensive maintenance, 75,000 km of tertiary) Mining and energy sector (oil production to 1.4 MMBOE *, and coal to 124 million tonnes) Innovation-based sectors (from 37% to 50% coverage of higher education, from 0.16% to 0.5% GDP GDP investment in R & D / of 14,300 million to 21,000 million in value-added manufactured exports LOCOMOTIVE SECTORS FOR GROWTH AND EMPLOYMENT *MMBOE (Million barrels of oil equivalent)- includes oil and gas

14 Indirect channel: Economic growth Indicator (income) Poverty Ext. poverty Gini Cumulative locomotive effect ,4 p.p -0,9 p.p -0,1 points Microsimulation Analysis using the Colombian Quality Life Survey

15 Indirect channel: Economic growth What is the total effect of the growth and competitiveness component of the NDP in poverty and inequality?

16 Indirect channel: Economic growth Impact of Potential GDP Locomotive Sectors TOTAL effect Indirect Channel Additional effect Needed Direct Channel NDP Goal* Poverty -5,4 p.p -1,4 p.p -6.8 p.p p.p -8.2 p.p. Ext. poverty -3,4 p.p -0,9 p.p -4.3 p.p p.p -4.9 p.p. Gini -1,5-0,1-1,6 points -0.1 points -1.7 points * There are expected additional effects in poverty, extreme poverty and Gini measurements that are not captured by the model, which is why goals are taken as described in the last column of this table (-8.2, -4.9 and -1.7)

17 How do we measured poverty reduction due to Indirect channel?

18 The Monetary Poverty Index In 2009 it was established a Commission of experts (MESEP) to define, among other issues, a new methodology for measuring monetary poverty. In 2011 the Government adopted the methodology proposed by the MESEP Poverty lines were updated as well as the estimation process of the household income The results were shared with the Colombian academy and policy makers

19 PPP Dollars Per capita poverty line in PPP dollars (Daily Value) Source: DNP-DDS-SPSCV based on WB. Data: Colombia Most of the countries 2006.

20 How many people fall within the poor by income category in Colombia and how we hope to overcome this situation by 2014?

21 National Poverty Headcount Ratio (H) Source: MESEP Projected data DNP INDICATOR (NM) VARIATION ( ) Total population(a) 44,977,758 47,661,368 2,683,610 Poor population (B) 18,081,059 15,251,638-2,829,421 Non poor population (A-B) 26,896,699 32,409,730 5,513,031 Notes: 1. The absolute values were calculated for the whole country including national territories 2. It assumes a rate of population growth of 1.2% annually until 2013 and 1.1% annually in Source: DANE

22 National Extreme Poverty Headcount Ratio Source: MESEP Projected data DNP INDICATOR (NM) VARIATION ( ) Total population(a) 44,977,758 47,661,368 2,683,610 Poor population (B) 6,476,797 4,527,830-1,948,967 Non poor population (A-B) 38,500,961 43,133,538 4,632,577 Notes: 1. The absolute values were calculated for the whole country including national territories 2. It assumes a rate of population growth of 1.2% annually until 2013 and 1.1% annually in Source: DANE

23 Gini Index Source: MESEP Projected data DNP

24 Direct Channel Mutidimentional Poverty Index and Families promoted from UNIDOS I P M

25 100% of the population Poor and vulnerable people Direct channel Social Security Access to assets Human Capital Formation Crisis Risk Management Health Pensions Credit Securitization Education/ Cer0 a 5iempre SOCIAL PROMOTION SYSTEM Displaced people weather events Social Mobility Income generation, access financial services

26 How do we measured poverty reduction due to Direct channel?

27 1 Multidimensional Poverty Index I P M

28 The MPI-Colombia: Is a poverty measure proposed by the National Planning Department based on the Alkire&Foster methodology Was developed as an instrument for design and monitoring public policy Complements the income poverty measure Was socialized with the Colombian academy and policy makers

29 Dimensions and Variables: I P M

30 Choosing dimensions and variables Criteria for selecting variables 1. Political Constitution and current public policy 2. Frequent usage (national or international). Literature review, discussion with experts and inclusion in other indices IPM-OPHI International, BNI, LCI y Sisbén III. 3. Variables sensitive to public policy implementation 4. Availability of data within the Living Standards Measurement Surveys (LSMS)

31 Dimensions and variables Education Childhood & youth Labor Health Public utilities & housing conditions

32 Dimensions (5) & variables (15) Education Childhood & youth conditions Labor Health Public utilities & housing conditions Educational achievement Literacy School attendance No school lag Access to child care services Absence of long-term unemployment Formal employment Health insurance Access to health care services when needed Access to improved drinking water Adequate elimination of sewer waste Adequate flooring Adequate walls Absence of child employment No critical overcrowding

33 Weighting scheme Weighting scheme and cut-off point k Nested weighting structure: Each dimension has the same weight (0.2) Each variable has the same weight within each dimension Cut-off point k To determine the cut-off point it was used a methodology that combines elements of measuring objective and subjective poverty Chosen cut-off k=5/15, that is 33% of deprivations

34 How many people are in multidimensional poverty in Colombia and how we hope to overcome this situation by 2014?

35 MPI goal NDP Poverty headcount ratio (H) INDICATOR Total popultaion (A) 39,201,321 41,847,421 44,450,260 45,508,205 47,661,368 Poor population MPI (B) 23,697,489 20,619,329 15,539,429 13,957,039 10,723,808 Non-poor population (A-B) Source: DNP, DDS, SPSCV VARIATION ( ) 2,153,163-3,233,231 15,503,832 21,228,092 28,910,831 31,551,166 36,937,560 5,386,394 Notes: 1. The absolute values were calculated for the whole country including national territories 2. It assumes a rate of population growth of 1.2% annually until 2013 and 1.1% annually in Source: DANE

36 Deprivation rates Poor vs. non-poor FUENTE: DNP-DDS-SPSCV 41

37 Municipal MPI Colombia Headcount ratio, urban-rural areas, 2005 Municipal poverty headcount ratio for urban areas, k=5/15, 2005 Municipal poverty headcount ratio for rural areas, k=5/15, 2005 MPI proxy based on Census Data 2005

38 Headcount ratio (H) urban-rural K=5/15 Poverty decreases notably, but urban-rural differences increase

39 2 Families promoted

40 Direct channel

41 A family is promoted from if: Sufficient condition: & I P M Not in extreme income poverty Not multidimensionally poor

42 FAMILIES PROMOTED FROM UNIDOS Indicator 2014 Promoted from Families Note: for the fulfillment of this goal are necessary 1) Targeting of public spending, 2) design and integration of income generation programs and 3) habitability policy for the extreme poor.

43 Summary Poverty Goals Indirect and Direct Channel

44 The effect of the indirect channel is summarized in: Poverty (PL) Potential GDP Employment and formalization Locomotive Sectors Income generation and cash transfers Extreme poverty (EPL) Gini

45 The Direct Channel Goals are summarized as: 15 Goals I P M 20 Achievements priority (Habitability and income)

46 Direct Indirect Channel Indicator Baseline (2009) Goals NDP (2014) POVERTY 40,2% 32% EXTREME POVERTY 14,4% 9,5% GINI 0,56 0,54 MPI 35.0%* 22,5% FAMILIES PROMOTED FROM UNIDOS Fuentes: MESEP con base en datos GEIH DANE 2009, * DNP con base en ECV 2008.

47 Finally Who will be in charge of the follow up and monitoring process to ensure compliance with the goals?

48 Poverty Committee: monitoring poverty reduction Leaders Counselor for the Presidency National Planning Department Permanent members Ministry of Health Ministry of Labor Ministry of Housing Ministry of Agriculture Ministry of Education Ministry of Finance MANDATORY PRESENCE The President of Colombia 54

49 Monitoring Level 1 0%-10% progress 10%-25% progress >25% progress Poverty Baseline 2009 Data 2010 Analysis Goal 2014 Pobres por ingresos (% LP) 40.2% 37.2% 32% Pobres extremos por ingresos (%LI) 14.4% 12.3% 9.5% IPM (Pobreza Multidim.) Línea base % 30.7% 22.5% Familias Graduadas de Unidos Gini Source: DNP-DDS-SPSCV One of the main responsibilities of the Committee will be make a periodic review of poverty indicators 55

50 Monitoring Level 2 0%-10% progress 10%-25% progress >25% progress Poverty Indicator Baseline NDP 2008 Data 2010 Analysis Goal 2014 MPI (Multidimentional Pov.) 35.0% 30.7% 22.5% A (1) B (2) C (3) D (4) E (5) Educational achievement Literacy ( 15 años) School attendance (6-16) No school lag (7-17) Access to child care services Absence of child employment 12-17) Absence of long-term unemployment Formal employment Health insurance Access to health care services when needed Access to improved drinking water Adequate elimination of sewer waste Adequate flooring Adequate walls No critical overcrowding 58.8% 55.4% 52.8% 14.2% 13.2% 12.0% 5.4% 4.6% 3.5% 33.4% 35.1% 33.1% 11.2% 10.8% 9.2% 8.2% 6.8% 5.6% 9.6% 9.9% 9.3% 80.6% 80.9% 74.7% 24.2% 21.0% 0.5% 8.9% 6.9% 2.4% 12.9% 11.6% 10.9% 14.1% 12.0% 11.3% 7.5% 6.3% 5.6% 3.1% 3.0% 2.1% 15.7% 15.1% 8.4% (1) household educational status, (2) Terms of children and youth (3) Work (4) Health, (5) Access to public services and housing conditions Source: DNP-DDS-SPSCV 56

51 If the Plan is accomplished, if every ministry does its job and spends the committed resources, the MPI decreases to 22% (more than 3 million people out of poverty).

52 CONCLUSIONS: Colombia adopts a concept of poverty from the monetary approach and multidimensional approach. (Monetary Index and MPI as complementary) Monetary Poverty Index Indirect effects of economic growth MPI- Direct effects of the social public action Colombia adopts a formal mechanism of accountability and monitoring the poverty reduction strategy through the Committee There are others indicators as HDI, IOH and those from the administrative records that are used also to monitoring poverty reduction

53 Gracias PBX: