Understanding poverty dynamics in Ethiopia: Implications for the likely impact of COVID‐19

We aim at identifying vulnerable groups that face a higher risk of falling into poverty due to the COVID‐19 pandemic. Applying a synthetic panel data approach, our analysis of poverty and vulnerability transitions during the pre‐COVID period shows not only a high rate of poverty persistence in Ethiopia but also a high probability of moving from vulnerable nonpoor status to poor status. Given the observed persistence of poverty and greater risk of downward mobility, even in the pre‐COVID period, it is highly likely that poverty persistence and downward mobility will be aggravated during the current pandemic. A detailed poverty profiling exercise shows that households where the household head is less educated, engaged in the service sector, self‐employed, and a domestic worker are population segments with a high rate of downward mobility. As the emerging evidence on the socioeconomic impact of COVID shows, these segments of the population are also the ones relatively more affected by the pandemic. Overall, the pandemic is likely to result in a serious setback to the progress made in poverty reduction in Ethiopia. Poverty reduction policies should thus target not only the existing poor but also the vulnerable nonpoor.