Why did the World Bank decide to update the International Poverty Line, and why now?
As differences in price levels across the world evolve, the global poverty line has to be periodically updated to reflect these changes. Since 2015, the last update, we have used $1.90 as the global line. As of fall 2022, the new global line will be updated to $2.15.
What is the new poverty line, and based on this new measure, how many people are living in extreme poverty in the world?
The new global poverty line is set at $2.15 using 2017 prices. This means that anyone living on less than $2.15 a day is considered to be living in extreme poverty. Just under 700 million people globally were in this situation in 2017.
Why raise the poverty line? What was wrong with the $1.90 a day line that we are all used to?
The global poverty line is periodically updated to reflect changes in prices across the world. The rise in the International Poverty Line reflects an increase in the costs of basic food, clothing, and shelter needs in low-income countries between 2011 and 2017, relative to the rest of the world. In other words, the real value of $2.15 in 2017 prices is the same as $1.90 was in 2011 prices.
What does this mean for previous estimates?
We have backcasted the estimates for previous years in order to assess the trends in poverty reduction over the last three decades. These trends continue to show that the world has made impressive progress in reducing poverty since 1990, but progress has been slow in recent years. With the new price data, extreme poverty increases slightly in all regions except Sub-Saharan Africa, where lower price levels result in a reduction in extreme poverty by 3.2 percentage points. However, Sub-Saharan Africa is still the region where extreme poverty is most prevalent. See this blog for more details. Much more needs to be done to ensure that people continue to move out of poverty in the years to come, especially since COVID-19 has reversed some of the progress made over the years.
What is Purchasing Power Parity (PPP) and how is it determined?
PPP allows us to put each country’s income and consumption data in globally comparable terms. The PPP is computed on the basis of price data from across the world, and the responsibility for determining a particular year’s PPP rests with the International Comparison Program, an independent statistical program with a Global Office housed within the World Bank’s Development Data Group.
Should I use this new poverty line to plan programs and policies in my country?
While the global extreme poverty rate may not be dramatically different after the adoption of the new PPP and poverty line, some regional and country rates may fluctuate considerably.
It is important to note, however, that the global poverty line is used primarily to track global extreme poverty and to measure progress on global goals set by the World Bank, the United Nations, and other development partners. A country’s national poverty line is far more appropriate for underpinning policy dialogue or targeting programs to reach the poorest.
Doesn’t this put too much emphasis on money? What about the other dimensions of poverty?
There are many non-monetary indicators — education, health, sanitation, water, electricity, etc. — that are extremely important for understanding the many dimensions of poverty that people may experience. These are complementary to monetary measures of poverty and must be considered as part of the efforts to improve the lives of the poorest.
To take these multiple dimensions of poverty into account, the World Bank also tracks multidimensional poverty, which includes several non-monetary dimensions of poverty.
Is it still possible for the World Bank to meet its goal to reduce extreme poverty to 3% (or less) by 2030?
In the face of the pandemic, it will be even more difficult for people to move out of extreme poverty and continue upward. To end extreme poverty by 2030, countries will need to make deliberate policy decisions that make growth more inclusive; that prioritize investments in education, health, clean water, sanitation, and smart infrastructure that benefit the poorest; and that help people protect their hard-won gains and assets to avoid falling back into poverty after a drought, disease, or economic shock.
How is the international poverty line derived?
We start with the poverty line defined by each country, which usually reflects the amount below which a person’s minimum nutritional, clothing, and shelter needs cannot be met in that country. Not surprisingly, richer countries tend to have higher poverty lines, while poorer countries have lower poverty lines.
However, when we want to identify how many people in the world live in extreme poverty across countries, we cannot simply add up the national poverty rates of each country. This would be the equivalent of using a different yardstick in each country to identify who is poor. That’s why we need a poverty line that measures poverty in all countries by the same standard.
In 1990, a group of independent researchers and the World Bank examined national poverty lines from some of the poorest countries in the world and converted those lines into a common currency by using purchasing power parity (PPP) exchange rates. The PPP exchange rates are constructed to ensure that the same quantity of goods and services are priced equivalently across countries. Once converted into a common currency, they found that in six of these very poor countries around the 1980s the value of the national poverty line was about $1 per day per person (in 1985 prices). This formed the basis for the first dollar-a-day international poverty line.
The IPL of $1.90, which is going to be used until fall 2022, was derived as the mean of the national poverty lines of 15 poor countries in the 1990s, expressed in 2011 PPPs. The selection of these 15 poor countries was based on limited data at the time. With the gathering and analysis of new data from other low-income countries, we have expanded the reference group. The IPL is now derived as the median of the national poverty lines of 28 of the world’s poorest countries, expressed in 2017 PPPs. For more details about the methodology used in deriving and updating the IPL, see this blog and working paper. For how the IPL has been updated in the past, see Ferreira et al. (2016) and Ravallion et al. (2009).
How do the 2017 PPPs change global, regional, country-level poverty estimates?
The 2017 PPPs do not change global poverty in a substantial way. Yet there are meaningful changes at the regional level. For example, extreme poverty is reduced in Sub-Saharan Africa and increased slightly in each of the other regions, which nets out to almost zero at the global level. Sub-Saharan Africa still has the highest levels of people living in extreme poverty.
With the 2017 PPPs, poverty estimates for a few countries change considerably, changing their relative rankings with other countries. Most of these country-level changes reflect improvements in the quality of price data. For more details about the changes in global, regional, and country-level poverty profiles, see this working paper, this blog and this blog.
Why has the international poverty line increased from $1.90 to $2.15, yet global poverty has remained virtually unchanged?
The nominal value of the international poverty line has increased from $1.90 in 2011 prices to $2.15 in 2017 prices. However, the real value of the international poverty line remains virtually unchanged. In other words, a basket of goods and services that would cost $1.90 in 2011 in a typical low-income country would cost $2.15 in 2017 on average.
What other poverty lines do the World Bank use in tracking progress against global poverty?
The World Bank has different poverty lines to measure monetary poverty. First, the international poverty line (IPL) is used to measure extreme poverty. This line is most relevant for measuring poverty in low-income countries. For richer countries, two higher lines are more relevant for measuring poverty. With 2017 PPPs, these lines are $3.65 for lower-middle-income countries and $6.85 for upper-middle-income countries. For more technical details, see Jolliffe and Prdyz (2016) and Jolliffe ⓡ al. (2022) for the derivation of the international poverty line and higher lines with the 2011 and 2017 PPPs, respectively.
The World Bank also uses a societal poverty line (SPL) that reflects a more relative concept of poverty. With 2011 PPPs, the SPL is defined as $1.00 plus half the median level of consumption in a country, or the international poverty line if $1.00 plus half the median level of consumption is lower than the international poverty line. This line increases as a country grows (and the median increases). The societal poverty line with the 2017 PPPs is $1.15 plus half the median level of consumption in a country, or the international poverty line if $1.15 plus half the median level of consumption is lower than the international poverty line.
What accounts for the changes in the number of poor people at the three poverty lines?
As a result of the PPP update, the global extreme poverty rate for 2017 (the last year for which we have global poverty data) will decrease marginally, from 9.3% to 9.1%, reducing the count of people who live in extreme poverty by 15 million and bringing the total to 680 million. At the $3.20 line (used for lower-middle-income countries), the number of people living in poverty will increase by 43 million in 2017. At $5.50 (used for upper-middle-income countries), the number of poor will increase by 321 million in 2017. The larger increase at $5.50 occurs because the upper-middle-income country poverty line increased in real terms. In other words, since we last updated the global lines, upper-middle-income countries raised the standards by which they determine people to be poor, and hence the global population that fails to meet the standard is higher.
You may wonder how the international poverty line can increase by a quarter of a dollar and yet the global number of poor can decrease marginally. The reason is that in some poor countries, individuals’ purchasing power has risen marginally. It is important to note though that the real value of the international poverty line is virtually unchanged – it is simply expressed in different prices now.
Will the UN’s Sustainable Development Goal (SDG) 1.1 target be monitored based on the World Bank’s updated international poverty line?
The World Bank is the custodian of SDG 1.1, which is to eradicate extreme poverty everywhere in all its forms. Once the World Bank switches to the $2.15 line, in fall 2022, this switch will also be adopted for monitoring SDG 1.1.
When will be the next update of PPP data?
The next update of PPP data is planned for the 2021 reference year, and the new PPPs are expected to be released in 2023.
With the adoption of the 2017 PPPs, will the 2011 PPPs no longer be used for measuring global poverty?
The World Bank has decided to adopt the 2017 PPPs as its headline poverty numbers starting in fall 2022 with the launch of the 2022 Poverty and Shared Prosperity Report. Poverty estimates with the 2011 PPPs will still be made available through the Poverty and Inequality Platform. This will allow users to compare the headline numbers with alternative PPPs.
What was the recommendation of the Commission on Global Poverty regarding the update of the international poverty line with new PPP data?
In 2015, the World Bank convened a group of eminent economists led by Prof. Sir Anthony Atkinson to advise the Bank on the best methodology to measure and monitor global poverty until 2030, the target date of the World Bank’s first corporate goal to end extreme poverty.
The Report of the Atkinson Commission on Global Poverty makes a number of recommendations concerning how to improve the data and methodology used in measuring global poverty. Recommendation 10 of the Report states that the Bank should not revise its global poverty estimates with future PPP rounds until 2030. Atkinson was motivated by methodological changes in previous PPP updates causing large swings in global poverty estimates.
In its response at the time, the World Bank stated it planned to follow this recommendation, but left open the possibility that future PPP rounds would be used before 2030, if International Comparison Program (ICP) methods stabilized, so that changes in PPPs reflected real changes in prices.
Researchers within and outside the Bank have broadly found stability in the ICP methods between the 2011 and 2017 rounds. Therefore, the Bank has decided to adopt the 2017 PPPs to monitor global poverty beginning in fall 2022. The decision to use the more recent 2017 PPP data is also consistent with a practice of using newer and higher-quality data when available.
What is the main source of change in the international poverty line from $1.90 to $2.15?
The change in the international poverty line is largely driven by changes in the purchasing power parities of low-income countries between 2011 and 2017 (i.e., the changes in prices in low-income countries between 2011 and 2017 relative to the rest of the world). The change in the international poverty line is not driven by real increases in the poverty lines of low-income countries nor the set of countries for which national poverty lines are available. See more details about the drivers of the changes in the international poverty line in this working paper.