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Guatemala: Risk and Vulnerability Assessment

Guatemala: Risk and Vulnerability Assessment. Emil D Tesliuc, HNDSP Kathy Lindert, LCSHD October 17, 2002, Poverty Day. OUTLINE. Context & Data Sources of Vulnerability (Shocks Analysis) Characteristics of Shocks Effects of Shocks: Multi-Dimensionality, Severity, Duration

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Guatemala: Risk and Vulnerability Assessment

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  1. Guatemala: Risk and Vulnerability Assessment Emil D Tesliuc, HNDSP Kathy Lindert, LCSHD October 17, 2002, Poverty Day

  2. OUTLINE • Context & Data • Sources of Vulnerability (Shocks Analysis) • Characteristics of Shocks • Effects of Shocks: Multi-Dimensionality, Severity, Duration • Mitigation and Coping Strategies • Potential Impact of Shock on Household Welfare • Vulnerable Groups in Guatemala • Poverty and Vulnerability: Chronic or Transient? • Structurally Vulnerable Groups • Implications and Value Added of RVA

  3. Context for Vulnerability Analysis • Necessity / Demand: Government PRSP • Vulnerability: high on policy agenda • Hurricane Mitch, earthquakes and active volcanoes, severe fall in the terms of trade for coffee, reduced remittances from abroad • Opportunity: Guatemala Poverty Assessment (GUAPA) • Mainstreaming WDR 2000/01: • Opportunity • Vulnerability • Empowerment

  4. Combining Qualitative and Quantitative Data • Quantitative Data – LSMS/ENCOVI 2000 (new) • Cross-sectional data (panel data do not exist) • Risk and shock module: • Retrospective questions to get at “over time” (dynamic) issues with the cross-sectional data • Data include (last 12 months): • Information on 26 types of shocks (economic, social, life-cycle, natural) • Whether shocks triggered a loss in consumption, income or wealth • The main coping strategies used to compensate for these losses • Whether the households were able to compensate or resolve the welfare loss • The estimated time until successful resolution of the situation • Qualitative Data – QPES (new) • 10 Study Villages from LSMS (rural, 5 different ethnicities) • Module on perceptions of shocks • Open questions (not time bound) • Occurrence of shocks • Main Coping Strategies/Response • Any formal Assistance Received

  5. Sources of Vulnerability (Shocks Analysis) Characteristics of Shocks Effects of Shocks: Multi-Dimensionality, Severity, Duration Mitigation and Coping Strategies Potential Impact of Shock on Household Welfare

  6. Shock Characteristics • Guatemala spared any major “macro”shocks in 2000 (macro stability, no major natural disaster) • Nonetheless, households reported high incidence of shocks: • Over half reported one or more shocks, including natural shocks (23%), man-made (economic/political) shocks (17%) • Bunching: • Most HH experienced multiple shocks; • ¼ reported 2 shocks; another ¼ reported 3 or more • Impacts can be worse if affected household is hit by multiple shocks

  7. High Incidence of Reported Shocks, Despite the Absence of any Major Shock

  8. Effects of Shocks: Multidimensionality • QPES: Types of Impacts Cited • Economic: wealth, income, consumption • Psychological and social (e.g., fear, susto, demoralizing, loss of trust in community) • Community assets (e.g., damage to schools, roads) • Health (sickness, death) • Education (can’t go to school due to violence, disaster)

  9. Effects of Shocks: Duration (1) • QPES (not time bound): • Communities still affected by past shocks: • Earthquake of 1976 (houses still in disrepair), shock simply shifted already poor households to an even lower standard of living • Hurricane Mitch in 1998 (see photo) • Lasting effects of political and social violence of civil war (which ended in 1996) • LSMS (past year, past 5 years) • Most households able to resolve shocks and restore welfare within 12 months • But, <20% of those with worsening TOT, incomes losses, enterprise closure, etc. were able to restore welfare • Only 1/3 of those reporting pest infestation, harvest losses, lost remittances, job loss were able to restore welfare

  10. Effect of Shocks: Duration (2)

  11. Changes in the Distribution of Shocks over Time – Need longer time period for “larger,” less frequent shocks

  12. Effects of Shocks: Severity • In 2000 (LSMS): • Economic shocks had the highest negative impact on HH income, consumption and wealth • Relatively lower impact of natural shocks, however, could be due to fact that fewer were captured by 12 month reference period

  13. Shocks for Rich vs. Poor • The LSMS suggests that the poor are: • More likely to be exposed to natural disasters and agriculture-related shocks (makes sense – marginal rural areas, agric. dependent) • Less likely to be exposed to economic shocks related to formal economy (such as job loss) • Less resilient than the non-poor • Fewer assets • Reported shocks more likely to reduce welfare (poor less likely to resolve shock and restore welfare within a year)

  14. Coping with Shocks: Quantitative • Main coping strategies: • Reduced consumption (44% overall) • Self-help (39% for Q1, 33% for Q5) • Social capital as coping strategy • Help from friends/relatives/community • More common as coping strategy for poor (11% for Q1 vs. 5% for Q5) • Private insurance as response strategy • More for middle, upper quintiles: 12% for Q5, 15% for Q4 • Less for poor: 8% for Q1 • Very few receive formal assistance • 0.2% for Gov’t assistance • 0.5% for NGO/Int’l agency assistance

  15. Coping with Shocks, Qualitative

  16. The Impact of Shocks • The cost of shocks is significant • Two different methodologies used to estimate impact • Absolute impact greater for non-poor, but relative impact greater for poor • In absolute terms, most severe impacts due to economic shocks (job loss, etc.).

  17. Current and Future Sources of Vulnerability • Profile of shocks plus updated information hints at future sources of vulnerability: • Coffee shocks: severe and lasting impact likely • Lost remittances: severe and lasting impact likely • Natural disasters: high and lasting impact, particularly for the poor

  18. Analysis of Vulnerable Groups Poverty and Vulnerability: Chronic or Transient? Structurally Vulnerable Groups

  19. Poverty and Vulnerability: Chronic or Transient (1) • Using model developed by Chaudhuri and Datt (2001), we decompose poverty and vulnerability into different categories: • HV vulnerable: those who are vulnerable to poverty due to high volatility of consumption • LM vulnerable: those who are vulnerable to poverty due to low expected mean consumption

  20. Poverty and Vulnerability: Chronic or Transient (2) • Main result: poverty and vulnerability in Guatemala mainly due to low expected consumption rather than volatility: • Chronic poverty dominates: • 56% of population is poor • Majority of these (79%) were chronically poor (LM vulnerable; 44% of total pop) • Chronic vulnerability dominates: • 64% of population is vulnerable to poverty • Main reason for vulnerability is low expected mean consumption (LM), which accounted for 79% of vulnerable • Important policy implications: build assets!

  21. Poverty and Vulnerability (3)

  22. Structurally Vulnerable Groups (Life-Cycle Approach) • Other sources of vulnerability beyond basic consumption poverty • Adopt life-cycle approach to classify risks and groups • Calculate #s in each group • Identify possible interventions to contribute to risk management for each group • Analysis reveals risks of particular concern that are otherwise missed in RVA: • Emphasis on children within life-cycle: • Malnutrition (44% of all children!) • Low school enrollment (vicious cycle) • Late school entry and grade repetition • Child labor • Other groups/risks: • Seasonal migrants and their families (higher poverty, vulnerability) • Low health coverage of the elderly

  23. Implications & value added of RVA (1) • Chronic poverty and vulnerability • => Back to basics: Policy emphasis on building assets of the poor (WDR...) • => Less emphasis on using public resources to develop large social insurance or assistance schemes • => Conditional transfers could play an important role (ST alleviation; LT links to education) • Emphasis on children as key vulnerable group • => Interventions to reduce malnutrition and promote ECD • Crucial to avoid inter-generational transmission of poverty and vulnerability ... build future assets

  24. Implications & value added of RVA (2) • Poor are disproportionately more exposed to natural disasters and agricultural-related shocks • => Pro-poor disaster management and relief will be more effective in cushioning welfare losses for the poor than social insurance schemes (pensions or, if instituted, unemployment benefit). • Most HH smooth consumption using wide range of SRM instruments • Mainly through self-help and social capital • A counter-cyclical social risk management policy would help (strengthening the current disaster management programs and expanding the role of social assistance and social funds).

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