The countries of former socialist system
were severely affected by the collapse of
the system of central planning. As a consequence
of domestic and external factors, the countries
have experienced many negative impacts. These
include slow down of socio-economic development,
destruction of the social safety system, drastic
increase in unemployment, and worsening of
living standards. These negative trends imposed
sharp changes in starting from macro structure
to lives of individuals. Health and education
sectors fail to stand solidly on feet due
to current state budget shortages.
Poverty has become an acute social problem
in newly in transition countries. Prior 1990,
in those countries poverty was not reported
since basic needs were met and access to a
full range of social services guaranteed.
The extent of poverty and the choice of policies
to reduce poverty have become of interest
to governments in transitional economies.
Poverty measurement therefore became an urgent
task. The objectives of this paper are to
outline our practical steps we are taking
to address this problem and to stimulate the
exchange of ideas amongst participants of
Working Group of Statistical Experts, eleventh
CONCEPTS AND MEASURES OF POVERTY
In spite of the growing literature on poverty,
no specific consensus on a concept and definition
of poverty exists. However, the dominant concepts
of poverty are the absolute, relative and
subjective poverty. Absolute poverty identifies
the poor regardless of others and it refers
to the state of "inability to attain a minimal
standard of living. It therefore means the
lack of what is regarded as basic human needs,
the attainment of which is a necessary component
for a "decent living". In most of the transition
countries the absolute approach is adopted
for statistical measurement.
The Household surveys, national accounts
and consumer price indices give basic information
for assessing and determining poverty level
in the transition countries.
For the first time in 1991 NSO (National
Statistical Office) determined the poverty
line or population minimum subsistence level.
This was based on the value of a basket of
essential foodstuffs and other consumer goods
and service. The basic approach was application
of the primary consumption norms and lowest
prices as determined by the State Planning
Committee in the 1970's-1980's. Considering
variations in geographical location, active
businesses and consumption patterns, the consumer
basket was formed differently for urban and
rural areas. In addition, the foodstuff calorie
intake by the poor households was estimated
to be equal to two-thirds of the household
average calorie intake from the Household
Surveys conducted by the NSO for approximately
thirty years. The population minimum subsistence
level was fully complied with cabinet requirements.
The first living standards measurement survey
was conducted under World Bank assistance
in 1995 and the consumer basket approach was
utilized, but the government refused to grant
permission for most of the results of the
survey to be published, and vigorously attacked
the Bank's methodology. In 1997 the Government
of Mongolia revised the Law on Statistics.
According to the Law the statistical system
of Mongolia has being introduced more efficient
structural changes to produce impartial and
reliable statistics. In addition in 1998 the
Parliament of Mongolia was approved the Law
on "Population poverty line and its Determination
by the National Statistical Office". These
laws help to create a legal framework indispensable
for permitting to continue the estimation
of poverty line and release without any interference
coming from the politicians.
The Government of Mongolia recognizing the
value of the survey as a tool for monitoring
poverty, decided to repeat the Living Standards
Measurement Survey in 1998.
In June 1998 with the support of UNDP the
NSO conducted the survey for the second time
with a view of seeing what changes were made
in poverty of the population since 1995 as
well as poverty incidence, depth, profile
and causes. In addition it aimed at collecting
detailed information on housing, education,
health and employment of the population. Under
the survey adequate data and information were
collected on the population's living standard.
The estimation of the poor and other concerned
indicators was based on the poverty line determined
by the same methodology in the 1995 and 1998
surveys. Therefore, the results of the surveys
can be compared.
The consumer basket consists of food and
non-food consumption and the commodities have
been selected on the basis of the household
income and expenditure survey. The food consumption
value was determined as 40 per cent of households
with lowest consumption per capita as the
Household Survey shows. In other words, consumption
composition was selected on the basis of real
consumption (Table 1).
Table 1. Daily Required
Household Survey (Not Scaled)
Household Survey (Scaled)
Daily Kcal Intake Per Capita
Other meat, kg
Sub meat, kg
Vegetable oil, kg
This consumption pattern basket was then
scaled up and adjusted to represent a daily
average caloric intake of 2100 calories per
capita. This time the food basked was compiled
of the similar commodities without any urban
and rural variations.
Food poverty line: To
estimate the food poverty line, the daily
minimum-needs of food basket of an adult equivalent
is multiplied by market prices in local areas
(in each of the aimags). Consumer prices were
collected by rural and urban variations. For
the purpose of making data more detailed food
poverty line was determined by urban and rural
areas. As well in order to make consumption
data comparable, the conversion factor was
used thus enabling to reflect a person equivalent
to the average male adult.
The Food Research Institute under the Ministry
of Health and Social Welfare designated the
daily required calorie intake of a particular
age group and gender
The food share on the log of the ratio of
total consumer expenditures was regressed
to the food poverty line and other variables
related to household composition and geographic
Si = a + B Log (EXP/FP)
is the share of spending on food for the
EXP is total household
expenditures for the ith household
FP is the food
poverty line specific to the location
of a household
The intercept of the regression (a) represents
the average share of spending on food for
households whose total spending just equals
the food poverty line. A single regression
was run across all regions, and region specific
(urban/rural) total poverty lines were obtained
using regression results applied to the average
values of independent variables for each region.
The regions are determined based on petrol
Periodic revision of the poverty line in
Mongolia provides an opportunity to carry
out timely analysis of population wealth and
living standards and, to produce data to formulate
targeted programs. However, the periodic revision
of the poverty line limits direct comparisons
of the number of people below poverty line
over time because whenever the line is revised
income groups shift may have occurred.
The most commonly used poverty indicators
The head count
Index, % (H): This is simply the
proportion of the population with a standard
of living below the poverty line. This indicator
is only good in telling how many are poor.
Index (I): This is the percentage
that falls short of the average income of
the poor as indicated by the poverty line.
index (Foster, Greer and Thorbecke Index)
Px: This incorporates sensitivity
with regard to distribution within the poor
or unequal distribution of income/expenditure:
The Gini coefficient measures the inequality
in income and expenditures.
THE DIMENSIONS OF POVERTY
It is important to remember
that all poverty indicators are relative.
Statistics show as a relative judgement, that
around 40 per cent or 20 percent or 50 percent
of Mongolians are poor. They do not provide
any information about characteristics and
profile of the poverty. The living standard
varies over time and by geographical location.
The poverty profile depends on what is regarded
as a basic need. For instance, the basic need
of a person in a developed country is impossible
to be compared with that of a person in a
developing nation. Likewise safe water from
central delivery is a basic need in densely
populated urban areas whereas that might be
not the case for persons living in a vast
rural territory with very low density.
In the 1998 LSMS, the poverty of Mongolia
was studied in absolute and relative terms.
Absolute poverty defines the poverty line,
while relative poverty describes the distribution
of the poor in and around the poverty line.
Actually, Mongolian poverty is absolute, but
it was investigated in terms of relative measures.
During the centrally planned economy the
government of Mongolia, as other former socialist
countries, was addressing social and economic
problems including education and health areas
with much reliance on assistance and cooperation
from former USSR and COMECON. In the previous
economic system, the government implemented
various programs whereby all people with working
capabilities were provided with employment,
disabled people were covered by basic social
safety nets, the population was given basic
education and total population had a free
access to health services. During the transition
period the social safety net underwent fundamental
changes and the opportunities for implementing
these programs by the government has become
limited. At the same time the lives of people
have deteriorated. Therefore, the government
began determining a poverty line since 1991
with a view of address this issue and take
appropriate actions. A program targeted at
those people who fell into poverty as a consequence
of economic changes is being undertaken.
CHARACTERISTICS OF POVERTY IN MONGOLIA IN 1998
1998 LSMS results show that
35.6 per cent of the population of Mongolia
are poor, of which 34.1 per cent belong to
Ulaanbaatar (capital) city and 32.6 per cent
to rural areas. This is a decrease of 0.5-1.0
point compared to the poverty incidence in
During the last three years, rural poor have
increased by 5.7 per cent and in urban areas
by 4.8 per cent.
Poverty is strongly correlated with employment
and unemployment. By the end of 1998, the
labor force participation rate was 68.4 per
cent, employment rate - 64.4 per cent and
unemployment rate - 5.8 per cent, of which
for female these ratios are 64.6, 60.5 and
6.4 per cent respectively. More than half
of all unemployed is female.
According to the 1998 LSMS poverty depth
(P1) ranges from 9.8 per cent to 13.9 per
cent and poverty severity (P2) increased by
0.8-2.9. These imply that there has been an
increase in the gap between average consumption
expenditure of the poor and the poverty line
and demonstrate that purchasing power of the
poor in urban and rural areas to buy basic
needs is falling. The average consumption
expenditure of the poor is 10 % below the
poverty line. This expresses that the number
of poor is increasing, and self-sustainability,
to obtain basic essentials, is worsening and
the results of government measures against
poverty alleviation are not clear. As well
as far the country goes into a market economy
structural reforms in the economy and society
are directly affecting the wealth and income
distribution of the population and household.
However, these results need to be interpreted
with some caution.
The Gini coefficient, showing the unequal
income distribution reached 0.35 per cent
in 1998 from 0.31 per cent in 1995.
The pattern of poverty in Mongolia is unusual.
In most countries, poverty is concentrated
in rural areas, and poor people in urban areas
live in better living conditions in many ways
than the poor in rural areas. In contrast
the living in rural areas in Mongolia is better
and as a result some people move to rural
areas. It might be the results of the many
measures on structural adjustments in the
economy and society, privatization, promotion
of private businesses and small to medium
enterprises. Livestock privatization has boosted
household business and a majority of herders-
households stay in rural areas. Most industries,
services and markets are concentrated in the
capital city while large scaled industries
and services in aimag centers have been replaced
by small services and trade units, which barely
sustain the needs of households. This has
contributed to increase in unemployment and
expansion in poverty in aimag centers. Therefore,
poverty alleviation program and measures should
be targeted at urban areas especially to aimag
The majority of Mongolian poor households
are headed by females. This can be partially
attributed to the implementation of pronatalist
population policy promoting high fertility
rates and provision of free childcare and
prenatal care at maternity homes. Due to the
transition, these incentives were reduced
or eliminated, which impacted heavily on urban
and rural female headed households.
Regardless of household location poor households
are big sized.
There is a tendency for increase of poverty
incidence among the employed population. This
is directly related to labor cost.
In order to study the nation's
living standards, the National Statistical
Agencies of the transition countries have
conducted a family budget survey for about
30 years. This survey was organized by the
sectorial selection method.
The system of continuous observation becomes
extremely burdensome for the families surveyed.
This circumstance obviously has an adverse
effect on the quality of the entries.
In the transition to a market economy, the
sectoral selection method does not guarantee
representativeness in the case of family budget
surveys. At present the statistical agencies
conduct household surveys by the snapshot
The World Bank, Asian Development Bank, UNDP
and TACIS give methodological and technical
support for conducting the sample survey of
households in transition countries.
As a result, most of the transition countries
are producing and releasing the basic indicators
of poverty according to internationally recommended
concepts and definitions.
However, there are more work needs to be
done to strengthen the analytical capacity
of National Statistical agencies in order
to utilize the survey data.