MICROSIMULATION THE IMPACT OF THE COVID-19 PANDEMIC AND WAR ON POVERTY IN UKRAINE

Abstract

The article presents the results of a scientific study and the development of the project “Rising Inequality and Poverty in Ukraine Due to the Covid-19 Pandemic” (registration number №2021.01/0295), carried out by the Institute for Demography and Social Studies of the National Academy of Sciences of Ukraine under Agreement №33/0295 dated March 1, 2024, with grant support from the National Research Foundation of Ukraine. The paper explores the socio-economic consequences of the Covid-19 pandemic for poverty rate in Ukraine. Analyzing poverty in Ukraine in the post- Covid-19 period is crucial given the deep s o cio-economic transformations caused by the pandemic. Until 2020, Ukraine demonstrated moderately positive trend of poverty reduction. However, the pandemic disrupted the trend of gradual poverty rate decline. The consequences of the Covid-19 crisis led to a significant increase in poverty, and in the absence of the pandemic, the gradual decline in poverty levels would likely have continued. The existing social protection system proved insufficiently effective in mitigating the effects of such a large-scale shock. As a result, the social profile of vulnerable groups changed, with even population segments previously not considered vulnerable falling below the poverty threshold. The aim of this article is to develop an alternative scenario of Ukraine’s socio-economic development in the absence of the Covid-19 pandemic and the war, and to assess losses through the simulation of basic poverty indicators. The primary method used in this study is microsimulation modeling, with all macroeconomic assumptions based on pre-pandemic official forecasts and statistical data. The counterfactual poverty forecast provides a basis for evaluating the actual impact of Covid-19 on poverty and illustrates the extent to which poverty rates in Ukraine could have decreased under a nopandemic scenario.

In 2020, the coronavirus crisis led to a sharp increase in absolute poverty in Ukraine — the first such rise since 2016. In the absence of the pandemic shock, poverty rate would have continued to decline — in particular, poverty based on expenditures below the actual subsistence minimum would have decreased by 6.8 percentage points. Counterfactual modeling of a no-pandemic scenario revealed that the Covid-19 pandemic caused an additional 1.8 million people to fall into poverty in 2020. In 2021, there was a notable improvement compared to 2020, with a significant reduction in absolute poverty. However, the overall poverty losses remained considerable, with approximately 1.4 million new poor individuals still recorded. The losses associated with the war were even more substantial: the russian war resulted in an additional 6.1 million people falling below the poverty threshold. The impact of the war on poverty rates after 2022 has been significantly more severe than the effects of the Covid-19 pandemic in 2020. The cumulative negative impact of both the pandemic and the war has made a return to pre- Covid poverty reduction trends considerably more difficult.

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