The COVID-19 pandemic marked the end of an extraordinary era of progress in global poverty reduction. From 1990 to 2015, the global extreme-poverty rate fell by more than half, with more than one billion people escaping poverty. The incomes of the poorest nations gained ground.
Since then, poverty reduction has slowed, dragged by subdued economic growth. The economic upheavals brought on by COVID-19 and Russia’s invasion of Ukraine produced a significant reversal in progress.. This number, however, masks a grimmer reality: people who were already below the extreme poverty line have now become even poorer.
—absent a history-defying rate of progress over the next eight years. At the current rate, nearly 600 million people—nearly 7 percent of the world’s population—will still be living on less than $2.15 a day in 2030. That is only slightly fewer than the total in 2019, the latest year for which data are available.
Looking at poverty more broadly, nearly half the world—over 3 billion people—lives on less than $6.85 per day, which is the typical national poverty line of upper-middle income countries. The prevalence and persistence of poverty darken the outlook for billions of people living around the world. That should be a wake-up call for policymakers everywhere.
The current poverty-reduction trend is a danger to global economic and social stability. Yet poverty is not inevitable— history makes that clear.
The 2022 Poverty and Shared Prosperity report, published in early October, offers the first comprehensive look at the global landscape of poverty in the aftermath of COVID-19—showing what fiscal policies work best in a crisis and what policies should be avoided.
Developing economies spend a surprising amount on subsidies—roughly 3 percent of GDP on average. The benefits of subsidies, however, tend to accrue largely to the wealthiest segments of society. In low- and middle-income economies, just 20 percent of subsidy spending reaches the poorest people.
In contrast, spending on direct transfers—especially cash transfers—is much lower in poorer economies than in richer countries. Transfers of this kind are usually better targeted and also much more effective in helping the poor. For example, nearly two-thirds of the funds that developing economies spend on cash transfers actually benefit the poorest people. Such transfers also tend to better at supporting long-term growth, by enabling poor families to make the investments they need on education and health.
When additional resources are needed for human and capital investments, the goal should be mobilizing domestic revenues without hurting the poor. This can be accomplished by broadening the tax base and through property and carbon taxes while making personal and corporate income taxes more progressive.
Reducing poverty is also closely linked to climate action. Climate change is making weather-related disasters more frequent, hampering agriculture production, hurting the livelihoods of people across sectors of the economy, and prompting migration. The poor and the vulnerable are always the most affected.
Looking ahead, in the context of limited fiscal space, countries will need make their public spending more efficient across categories and prioritize resources in the programs that bring the highest development and poverty reduction dividends.
. Economy-wide policies to boost private sector activity will be critical to generate investment and jobs and reduce poverty, especially in these uncertain times.
If policies are designed and implemented properly, they can be a good start to achieve the necessary course correction. To avert the risk of more backsliding, policymakers must put everything they can into the effort to end extreme poverty.