Ukraine lacks an efficient system of social assistance. Most social benefits are provided either as in-kind benefits or on a universal basis. The urban population benefited more from the strong economic growth in recent years than the rural population. Poverty became more rural.
The only existing social program stated to be explicitly targeted to the poor - the so called payments to low income households - shows against any poverty threshold miserable results. The programs exclusion rate of poor households is at the level of 87% and above. The leakage to the non poor against the poverty line 60% e-median reaches more than 75% so that the program is highly regressive.
Given the fiscal constraints of the government it is important to improve the targeting of social assistance. Among the biggest challenges is the proper identification of the poor. We propose to introduce a mixed system based on a combination of self-selection through workfare and proxy means testing based on indicators, which co-vary with poverty.
Workfare would be a suitable approach especially for Ukraine’s rural areas. As regards proxy means testing a central agency should be set up with the task of developing the poverty indicator/ proxy means test. Proxy means testing will require continuous analysis of empirical data. The household budget survey of Derzhkomstat could be used for that.
