Albania - Income Distribution, Poverty, and Social Safety Nets in the Transition, 1991-1993

WP/94/123-EA
Albania: Income Distribution, Poverty, and Social Safety Nets in the
Transition, 1991-1993 by Caroline Van Rijckeghem

This paper describes changes in income distribution and poverty in
Albania during the transition period 1991-93, drawing particular attention
to the role of price liberalization and terms of trade shifts in favor of
agriculture, an increase in unemployment in the state sector, emigrant
remittances, and social safety nets. The study covers private agriculture,
state enterprises, the civil service, pensioners, the unemployed receiving
benefits, and those on social assistance. It presents estimates of average
agricultural incomes by district based on acreage, number of livestock,
yields, and urban household income distribution. As a check on the results,
developments in per capita consumption of food items are examined.

According to income and remittance data, real incomes in the rural
sector increased by about 50 percent between 1991 and 1993. Real urban
incomes, including government transfers, declined by 12 percent between the
first half of 1991 and the second half of 1993, and the share of the urban
population with incomes below subsistence levels increased from about
6 percent to 25-30 percent. The ratio of presumptive agricultural income to
public sector income increased from 1/2 to 1 between 1991 and 1993.
Consumption data indicate that per capita food consumption increased in
urban areas, implying that a large decline in urban real incomes and an
increase in poverty are implausible.

The incomes of the recipients of government transfers who also receive
remittances from abroad--that is, the incomes of half the government
transfer recipients--exceeded the poverty line. The incomes of the other
half fell below the poverty line.

The policy implications are that (1) targeting will be cost-effective
and (2) an increase in benefit levels is necessary for those with incomes
currently below subsistence levels. Recent government initiatives--block
grants to communities and self-targeted public works--are in line with these
prescriptions.