COVID-19, the war in Ukraine, and other crises have dealt the biggest setback to global poverty reduction in decades. 2020 alone saw the largest one-year increase in extreme poverty since global monitoring began. In this episode of The Development Podcast, we comb through the recent Poverty and Shared Prosperity Report (PSPR) to understand what’s happening, where and why.
Ruth Hill, a lead economist at the World Bank discusses the actions governments can take to help correct course. We also get a snapshot of just how hard the last few years have been for many people, such as Sonia Cifuentes in Bogota, Colombia, and how cash transfers helped her when she needed support to cover the basics for herself and her children. Listen now to this new episode of The Development Podcast.
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- Ruth Hill, Lead Economist, Global Unit of the Poverty and Equity Global Practice, World Bank.
- Sonia Cifuentes, Colombian citizen benefited from a cash transfer program.
[00:00] Raka Banerjee: Hello, and welcome to The Development Podcast from the World Bank Group, coming to you from Washington, DC and beyond. I'm Raka Banerjee.
Paul Blake: And I'm Paul Blake. Coming up on this episode, a massive slowdown in poverty reduction.
Raka Banerjee: Why COVID-19 dealt the biggest setback in decades and how 2020 alone saw the largest one year increase in extreme poverty since global monitoring began.
Ruth Hill: What we saw in 2020 was something that is very atypical. We saw a lot of people moving into poverty. 2021, we were back to the pre-COVID trend of people moving out of poverty. The problem with what happened in 2021 was that it wasn't nearly enough, or nearly fast enough recovery.
Paul Blake: Rising food, fuel, and energy prices, climate change and conflict have also played their role. So how has the World Bank been responding?
Raka Banerjee: We get a snapshot from Colombia.
Sonia Cifuentes: I have received cash transfers, money is deposited in my bank account. I use the money to buy food, buy more eggs or more milk. Almost everything I bought was food.
Paul Blake: It's all coming up here on The Development Podcast from the World Bank Group.
[01:37] Paul Blake: Okay, Raka. So a big topic for this episode, poverty. The team has this new report out, the 2022 Poverty and Shared Prosperity Report, one of the biggest ones that the World Bank publishes. Can you give us a little roundup of the data we should know about for context for the rest of this episode?
Raka Banerjee: Yeah, for sure. And in terms of context, I think the story actually starts back in 1990, which is when we started monitoring global poverty, and for most of those three decades, the whole poverty picture was, in general, a story of success. So over a billion people escaped poverty during that period, during those three decades. By 2015, the number of people living in extreme poverty dropped by more than half. So it was a really positive picture overall.
Paul Blake: Until the last few years.
Raka Banerjee: Exactly right. Yeah. So global median incomes declined by 4% in 2020, maybe that doesn't sound like a huge deal, but that was actually the first decline since measurements of median income began also in 1990. And in the same year 2020, the number of people living in extreme poverty rose by over 70 million. That is the single largest one year increase that we have seen since we started measuring global poverty a few decades ago.
Paul Blake: So just to understand, we saw in 2020 this increase in poverty of 70 million, incomes decline by 4%, all in that same year. It's the biggest decline in income since 1990 and the biggest uptick in poverty rates since 1990.
Raka Banerjee: That's right, yeah.
Paul Blake: That's very disheartening, and in 2020 you've got COVID, you've got the resulting economic stress from that. And then here this year you've got the war in Ukraine as well. A lot of different forces putting downward pressure on the global economy.
Raka Banerjee: And of course, it's the poorest and the most vulnerable who are suffering the most. And in 2019, 8.4% of the world was living in extreme poverty. In 2020, that number went up to 9.3%. That's more than 700 million people.
Paul Blake: 700 million people living in extreme poverty in 2020. It was an uptick from the year before. Walk us through that a bit. What's the definition of extreme poverty? How does that get calculated? I'm presuming there's some pretty precise definitions there.
Raka Banerjee: Yeah. Well, it originally started, again back in 1990 at a dollar a day, that's what extreme poverty was considered. You might remember hearing that being thrown around in the development discourse for a long time, a dollar a day. But now it's basically the median of the national poverty lines of low income countries. And then that is updated every now and then using something called purchasing power parodies, or PPPs, and those basically compare prices across countries so that we can make reasonable comparisons of living standards around the world. So using the most recent version of purchasing power parodies, which is from 2017, the extreme poverty line, currently, again, the median of all the poverty lines for low income countries that is currently set at US dollars $2.15 a day.
Paul Blake: So in other words, extreme poverty, you're spending less than $2.15 a day.
Raka Banerjee: It's really shocking to wrap your mind around. I mean, sometimes data can seem a little dry, but not when you hear a number like that.
Paul Blake: It's quite the number to wrap your head around it. But I want to clarify something. So we have this uptick in 2020. Is it fair to say that poverty is on the rise? Is poverty actually increasing? What's the sort of trend here? I know it was falling from 1990. Is it now going up? Is the situation worsening?
Raka Banerjee: Yeah, it's good to be really clear about that. So 2020 saw a reversal, and after nearly three decades of declines, we saw an uptick, but this is some good news. We are still expecting poverty to continue falling in the coming years, it's just more slowly than it has been in the past few decades.
Paul Blake: So overall uptick, but the trend continues declining, just to be clear.
Raka Banerjee: Exactly. Yeah, exactly.
Paul Blake: So you were mentioned this $2.15 poverty line, but my understanding, I've looked through the report, there's different poverty lines there that give us different information about the way that people live and the kind of global poverty picture. Can you explain some of the different poverty lines to us?
Raka Banerjee: Yeah. So the bank also looks at the median poverty lines for lower middle income countries and upper middle income countries. It started looking at those different poverty lines starting in 2018, and those are for lower middle income countries, it's $3.65 a day. For upper middle income countries, it's $6.85 a day, respectively.
Paul Blake: Okay. So meaning that generally in lower middle income countries, you're considered to be poor if you're living on less than $3.65 per day, and if you're on less than $6.85 a day and you live in an upper middle income country, then that person would consider to be poor as well. Is that... that's right?
Raka Banerjee: That's right. Yeah, exactly. And what is really interesting is that we were seeing a slowdown in the reduction of poverty for the extreme poor, those living under $2.15 a day, but for the higher poverty lines, actually, there was no similar slowdown in poverty reduction. Poverty continued to fall on a pretty constant rate. And even after the COVID shock in 2020, the pace of poverty reduction returned to similar pre-COVID levels in 2021. Unfortunately, the most recent projections that we're seeing, it seems that even this small recovery in 2021 came to a halt in 2022 this year.
Paul Blake: So the progress is certainly slowing down, if not stalling.
Raka Banerjee: That's right.
Paul Blake: All right. Well, so we've gone through the big numbers here. They're pretty stark to digest. It's clear that there's these different crises and it's left many people without the means to support themselves and their families. And so that leads me to ask the question, what has worked in mitigating the damage and bringing support to people amid all of these crises?
[07:28] Raka Banerjee: Let's head to Colombia now, where poverty rates increased during the pandemic as they did across Latin America and inequality rose in tandem. Sonia Cifuentes spoke to us about her experience of losing her job while trying to raise her children in the capital Bogota, and how cash transfer programs helped her when she needed it the most. Our producer, Sarah Treanor, explains.
Sarah Jane Treanor: Sounds of the steep streets of the busy urban neighborhood where Sonia lives with her three children. Local children are playing football while people run errands and chat outside kiosks. She says that the area is a little dangerous, especially if you don't know it, but she feels safer now. She's been here for seven years.
Sonia Cifuentes: My neighborhood is located in the center of Bogota. Low income people live in the neighborhood, but they get by as they work. They're friendly, the neighbors are friendly, the one from the bakers, the one from the supermarket, they're good people.
Sarah Jane Treanor: This isn't a wealthy neighborhood with many resources, says Sonia. But what happened to her came as a surprise. She used to work in transcriptions. She was a contractor and she earned what she felt was a decent amount. She didn't have lots of spare cash, but she could always cover the basics. During the pandemic, Sonia and her colleagues were sent home from their place of work. Working from home wasn't really an option and after six months or so of the COVID-19 pandemic and into lockdown, she was let go.
Sonia Cifuentes: Well, I never imagined we were going to be left without a job. Several colleagues were also left without a job. My contract was for an indefinite term. During the pandemic, I was in need of food and I had to ask my mother to help feed my children because I had no money to buy food.
Sarah Jane Treanor: Sonia says it's much harder to find work now than it was before COVID-19, and that she also finds the cost of living very high. She can't really afford to buy meat or chicken anymore. They eat it as a family maybe once every two weeks.
Sonia Cifuentes: It's just that right now everything has gone up. I don't know why they went up, but everything is extremely expensive. Before I used to buy two egg cartons, now I can only buy one.
Sarah Jane Treanor: Sonia has benefited from cash transfers, which she says have helped her afford the necessities.
Sonia Cifuentes: I have received cash transfers. Money is deposited in my bank account. It's not a lot, but it's helpful to buy certain things. I use the money to buy food, buy more eggs or more milk. Almost everything I bought was food. If I hadn't had access to those transfers, I would've had to have found someone to give me a donation because I had to feed my children.
Sarah Jane Treanor: Sonia's worried about the future, but she says that she's ambitious for her three children.
Sonia Cifuentes: I would like for them to finish their studies and be admitted to university. I would like them to take on two career paths at least, so their lives wouldn't be so difficult. I do try to instill that way of thinking in them.
Sarah Jane Treanor: Thanks very much to Sonia for sharing with us her story and giving us a snapshot of her life in Colombia.
[11:10] Paul Blake: Well, to make sense of the numbers, explain why it all matters and give us a view on what's ahead, we're joined here in Washington DC by Ruth Hill. She's the lead economist in the global unit of the Poverty and Equity Global Practice here at the World Bank.
Raka Banerjee: Ruth was one of the lead authors of the Poverty and Shared Prosperity Report. Ruth, welcome.
Paul Blake: So Ruth, we've just run through the headlines from the PSPR. So let's dig a little deeper now. When we talk about poverty, what exactly do we mean by that in a kind of World Bank sense, and international development sense?
Ruth Hill: It's a broad concept, but at the same time, we have very specific measures that we're using to try and monitor how things are improving or worsening. There's a number of measures we use, but I think a lot of the headline statistics are around a core set of measures which look at how much do people spend each day on meeting their basic needs? And are people spending enough to be able to meet their basic needs, or are they not able to spend enough to meet their basic needs? And obviously the cost of basic needs is different based on what country you live in.
Paul Blake: So you have $2.15 and $6.85. The kind of proportion of people living in extreme poverty, I mean, it grows pretty dramatically when you look at those higher bars. I mean, it becomes rather alarming. People might not be living on $2.15, but they're living on very little when you get above that.
Ruth Hill: That's exactly right. So this go to the $6.85 line, which is the average for upper mid income countries, and we have almost half of the world's population living underneath that line, so 47% of people are spending less than that each day to meet their basic needs.
Paul Blake: Wow.
[12:42] Raka Banerjee: So basically we're looking at half the world's population is under that line. And the headline here is that poverty progress has actually suffered its biggest setback since at least 1990, since we started measuring poverty, but it's actually one of the worst setbacks in seven decades, is that right?
Ruth Hill: We often start counting from 1990, because that's when we really had good coverage across a large part of the world in terms of what households were living on and what they were spending. But if you... and it's the worst setback back by far from looking from 1990, but we were interested as we were doing this report to see, okay, well what about before 1990? We do have some data on what was been happening before then and there's also methods that we can use to what we call, so using other data like on growth, try and look backwards and say, "Okay, how was poverty faring in previous years?"
Paul Blake: It's almost like in the way that you can forecast the weather, you're looking at kind of data now. How are things going to change? How could that affect the weather? You can also look at data backwards where you may not have actual poverty figures, but you can look at the other data and kind of go, "We're pretty sure it was in this neighborhood at that time."
Ruth Hill: Exactly. That's exactly what we do. So taking... and GDP growth is a good... when we don't have poverty data, that's something that we can use to sort of fill in the blanks as it were. And when we do that, we see that we get back to 1950, so sort of the end of the Second World War when this institution was established. It's the biggest increase that we've had since then. So we have less good data going further back, but for the data that we have, and as best we can tell us, has been the biggest increase since then.
Paul Blake: The pandemic has been?
Ruth Hill: Yeah. In 2020, yeah.
Paul Blake: Yeah. I mean that's incredible. So we can sort definitively say till 1990, but we can say with some level of confidence that it's at least one of the worst since the 1950s.
Ruth Hill: Exactly.
[14:36] Raka Banerjee: And Ruth, I'm wondering, can you get into a little more detail about how we're measuring poverty like the... I mean, we don't have to get all the way into the methodology, but how is the research conducted?
Ruth Hill: No, I think it's really good to get into those specifics, actually, because it makes it more real somehow as well. So each country collects household survey data where they survey a number of households in the country. These households are selected in order to represent the population of the country. So they'll go to places in different rural parts of the country, they'll go to different urban areas, and then they'll systematically ask each household, what did you spend on in the last few days or a few months before interview? And everything that was spent will be recorded, everything that was consumed will be recorded. And then this is valued. We add this value up to work out whether or not households are able to spend more than this cost of basic living that's estimated.
[15:33] Raka Banerjee: And I'm wondering if you can share a little more about... we've seen this historic setback right now, the worst since 1990 or 1950, but overall poverty has massively reduced over these recent decades. Can you tell us how much progress has been made in ending poverty over these last few decades?
Paul Blake: And can you go back to 1950 to do that?
Ruth Hill: Oh gosh. 1950.
Paul Blake: I mean, big trend.
Ruth Hill: Well, I'm going to speak about from 1990, because actually I think that's an incredible story of progress. So if we go back to even just to 1990, which doesn't really seem that... it's fairly recent history. Take 1990 to 2014, we saw more than a billion people move out of extreme poverty in that period. And that was largely thanks to really rapid growth in some regions that had really high poverty rates. So it might be hard to believe, but back in 1990, poverty was really high in East Asia and Pacific. We don't think of that now when we think of East Asia and Pacific, but 65% of the population in that region back in 1990 was living in extreme poverty.
Paul Blake: Just 32 years ago.
Ruth Hill: Yeah. Today it's 1%. So this is a massive story of incredible progress in the last few years. It was 38% in 1990.
Paul Blake: Of the global population living?
Ruth Hill: Of the global population. In 2019, which is the last year that we have the official data for, it was 8%.
Paul Blake: 38% to 8%, that's the movement from people in extreme poverty in 1990 to extreme poverty in 2019.
Ruth Hill: Yeah.
[17:05] Paul Blake: I mean that's incredible progress. So just to put a point on it, the pandemic has set back that progress by the biggest amount since 1990. It's not right to say that poverty's now increasing, right? It's not as if there's an ongoing reversal, there was a bump.
Ruth Hill: So what we saw in 2020 was something that is very atypical to see. So we've just described how there's in general this trend of progress where we are having more and more people moving out of poverty each year, but 2020 was a sharp contrast to that. We saw a lot of people moving into poverty. 2021, we were back to the pre-COVID trend of people moving out of poverty. The problem with what happened in 2021 was that it wasn't nearly enough or nearly fast enough recovery to offset the increase that we'd seen in 2020. So it was great that we again saw poverty falling, but we were still way above 2019 levels. So 2020, it was the lockdowns, it was the terms of trade shock that many low and lower middle income countries experienced as a result of lockdowns in better off countries.
Paul Blake: And that disrupted supply chains.
Ruth Hill: Disrupted supply chain, that already started to... some of the fiscal response as well, so it already started to contribute to inflation and higher food prices, and then that's been compounded with the war in Ukraine. So we just described there was this great progress in reducing poverty, and the bulk of that progress happened before 2014. From 2014 to 2019 yes, we still saw poverty fall, but the pace of poverty reduction was halved. And really what was behind that was the fact that, so you'd had this very dynamic region, East Asia and the Pacific, that had sort of eliminated extreme poverty, so it was no longer contributing to the global reduction in extreme poverty. In addition, so you had South Asia that was still experiencing dynamic growth and actually was driving all of the poverty reduction pretty much that we saw between 2014 and 2019. So we were still seeing strong reductions in poverty in that region.
But on its own, that wasn't enough to drive global poverty reduction and instead we saw poverty becoming more and more concentrated in Sub-Saharan Africa and really much, much slower progress in Sub-Saharan Africa. We've seen the extreme poor shift from being sort of split across a number of regions in the world and a number of regions where there's been quite dynamic growth to now being concentrated in a region, and often in countries, where there's very low growth. Sometimes growth doesn't keep up with population growth. These are often fragile and conflict affected places as well, so sometimes we see negative growth. I mean, yes, there is a COVID story for Sub-Saharan Africa, but a lot of the challenge was already there prior to prior 2020 and prior to recent crises.
[19:40] Paul Blake: And can you say, when we talk about this kind of setback, the biggest one since 1990, have there been regions that were affected more than others, or is it...?
Ruth Hill: Yeah, so the region that was most affected was South Asia. Well, when it comes to the global extreme poverty numbers, so we saw a number of regions where their income losses for the poorest were incredibly high, but they may... so for example, some countries in... I don't want to pick on any one region, but for example in Latin America and the Caribbean. What we saw in sub-Saharan Africa was much lower impact on income losses. So even though they have a lot of poor people, yes, there were income losses, but these were not as big as some of the income losses experienced by middle income countries. And then South Asia was sort of in this uncomfortable in between where it's had a middle income, country sized income shock and still has enough global extreme poor that it was also contributing to the extreme poverty numbers there.
[20:35] Raka Banerjee: What kinds of measures are you highlighting that governments should be putting in place to counteract these poverty trends?
Ruth Hill: Yeah, so we look at what happened during the pandemic. We also look at how was fiscal policy being used by countries prior to the pandemic, what was working for poverty and inequality reduction?
Paul Blake: And when we're talking about fiscal policies-
Ruth Hill: Fiscal policy.
Paul Blake: ... we're talking about government spending, how they spend the money-
Ruth Hill: Exactly.
Paul Blake: ... the revenues they collect.
Ruth Hill: How they tax and how they spend basically. And so from this, we sort of then say, "Okay, well what is needed in this current moment?" And this is a moment in which there is not a lot of fiscal space, there's not a lot of room to increase spending. So we really think about, "Okay, well what are some of the things that could be done that would help get us back on track in this current moment?" The first one is really about thinking about how to reprioritize, repurpose spending that goes to subsidies, which we know often doesn't get to the poorest households. The bulk of that spending often goes to richer households.
[21:37] Paul Blake: Can you explain what you mean by subsidies?
Ruth Hill: Yeah. So this would be things like reducing the cost of energy or fuel that households pay, or it could be the cost of a government intervention that reduces the cost of food. So something where the cost of something that households buy is reduced.
Paul Blake: So it's just across the board, we're going to put a 10% subsidy on fuel or 10% subsidy on bread. Doesn't matter who you are in the country, if you were at the supermarket, if you were at the gas station, it's going to be 10% cheaper than it would be if it was market rate.
Ruth Hill: Exactly.
Paul Blake: And the government's footing that bill for that 10% discount.
Ruth Hill: Exactly. For most things, not everything, but for most things we can think of, the richer you are, the more you're going to be spending on that.
Paul Blake: Meaning you're going to be buying more gas, more petrol.
Ruth Hill: You're going to be buying more gas, you're going to be buying more food. So yes, it does get to poorer households, definitely, but it gets to everybody else as well.
Paul Blake: And to the rich benefit actually more because they're spending more and if it's a percentage, yeah.
Ruth Hill: And some of the figures are quite striking in terms of who's really benefiting from these different types of subsidies. But we also look at, well, how do subsidies help households and how do they compare to an alternative, which is cash transfers, where you directly target a cash payment to certain types of households in a country, and usually to poorer households.
Paul Blake: And I'm presuming that when you say target, you're looking at, it can be things like what income did they report last year on their taxes? A lot of these countries don't necessarily have that. So you have to look for these proxy measures. So you could even say-
Ruth Hill: Exactly. That's exactly right.
Paul Blake: ... how much electricity was used at this address, or did this family use last year? And used that to say, "Okay, not a lot of electricity was used at that household. More than likely that's a poorer family that lives there and thus we need to make them eligible for this cash transfer scheme."
Ruth Hill: Exactly. Yeah, that's exactly right. And countries do that in different ways, but there's a number of ways where you can target these two households that are poorer. And when we look at the data we do and see that the bulk of spending on these types of transfers goes to poorer households. But what we also show in the report is that this type of spending can actually be more impactful for households in terms of thinking about how it affects them in the long run, the types of things that they're able to do as a result of receiving a cash transfer. For example, there's quite a lot of evidence showing that households that receive cash transfers are more likely to have their kids in school, and that has a long run impact on household welfare.
Raka Banerjee: So basically we're... yeah, moving less... getting away from subsidies, moving towards more targeted cash transfers.
Ruth Hill: I mean, that's, especially with fuel prices going up, there's incredible pressure in many countries to industry subsidies.
Paul Blake: And that's money going away from health systems and research and other development kind of objectives.
Ruth Hill: During a crisis, it's so important not to forget these other things you just mentioned that have these long run effects and are really important for growth and growth in the long run. So when we looked at... we looked at a lot of policies and said, "Okay, where does the evidence line up in terms of where there's the biggest bang for the buck as it were, in terms of growth and poverty reduction for different types of spending?" And it is these spending on things that have these long run benefits, so child health, child education, infrastructure investments that have long run growth impacts, spending on agricultural R and D, things like that. And it can be so hard to prioritize spending on those in a crisis because some of their effect is realized during the crisis, but a lot of it comes over many years. The current generation of children that have already lost a lot during COVID, often being out of school for a couple of years, that it's particularly important to make sure that we're prioritizing investments for their future, even in these crisis times.
Paul Blake: Well, Ruth, thank you so much. This was fantastic. Thank you so much for giving us the kind of backstory to the PSPR.
Ruth Hill: Thanks so much for interviewing me. It was great to talk to you.
Raka Banerjee: Ruth Hill, thank you so much.
[25:37] Paul Blake: A lot to take in there on such a crucial issue. We hope we've given you a good insight into these poverty statistics and undoubtedly we'll be returning to this issue in the future.
Paul Blake: We'll be back on with another episode of The Development Podcast very soon, so look out for that. Bye for now from me, Paul Blake, in Washington.
Raka Banerjee: And me, Raka Banerjee.
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