The Impact of the COVID-19 Pandemic on Household Welfare in Ethiopia: Evidence from a Microsimulation Exercise

Abstract

Various studies have shown the detrimental effects the COVID-19 pandemic has had on the world economy. We examine the pandemic’s effects on Ethiopian households’ welfare using a microsimulation exercise and data from the 2018/19 Living Standards Measurement Study - Integrated Surveys on Agriculture (LSMS-ISA) survey. We also evaluate the role of the Productive Safety Net Program (PSNP) in cushioning the adverse impact of the pandemic. Our results suggest that the pandemic induced an increase of between 2 and 4 percentage points in the poverty rate in the first three months, which translates to between 2.38 and 4.12 million people slipping into poverty. This is a substantial loss in the poverty reduction gains Ethiopia recently made. Most of the pandemic’s effects are driven by changes in direct income and food prices. The pandemic has had different impacts on rural and urban as well as male- and female-headed households. The study reveals how the pandemic’s impact on inequality varies by socio-economic category. We also find that the PSNP prevented about 0.8 million people from sliding into poverty. Policy implications include the need to carefully design and target social protection programs to mitigate the pandemic’s adverse impacts.