Poverty in Latin America and the Caribbean: A long and bumpy road ahead

 

Two and a half years have passed, and we are close to emerging from one of the worst nightmares the world has experienced this century: the Covid-19 pandemic. During this time, economic activity in Latin America and the Caribbean (LAC) has shown dramatic contractions and vigorous though uneven rebounds, all in a context of political change. And now countries are grappling with rising inflation, which is hitting the poor hardest through high food and fuel prices, in the context of an extraordinarily uncertain global environment. 

These developments are leading to increasing poverty and a more precarious situation for the most vulnerable. As the region struggles to get back on the path to inclusive, sustainable growth on this “End Poverty Day 2022”, we highlight four key challenges:

1. LAC continues to be off course in lifting people out of poverty and promoting shared prosperity. The last time the region saw an increase in poverty was between 1998 and 1999, after the global financial crisis. At that time, the percentage of Latin Americans and Caribbeans living on less than 6.85 dollars per person per day (2017 Purchasing Power Parity) rose from 52% to 53%. During the pandemic, between 2019 and 2021, we experienced a slightly greater increase in the poverty rate: from 28% to 30%. The number of poor people grew by 14 million, more than twice as much as the increase between 1998 and 1999  – massively disrupting millions of people’s livelihoods, aspirations, and plans. But let’s look at these developments over the longer term: between 1999 and 2019 poverty dropped 25 percentage points (from 53% to 28%) in LAC. We had two impressive decades, with labor income as the primary driver. Returning to that path of poverty reduction is possible and necessary. 

2. To compensate for labor income losses, poor households had to rely on assistance and solidarity. However, and very unfortunately, labor incomes have not yet recovered. During the most challenging days of the pandemic, social assistance and solidarity (remittances and other private transfers) mitigated the worst consequences for poor households. However, this was neither enough nor fiscally sustainable . Now more impoverished families rely less on labor and more on assistance for their subsistence. Labor income now accounts for 68% of total income among poor households, while before the pandemic it was 73% . The change has been even more dramatic for the extremely poor, as labor income dropped from 44% to 34% of total income. The revitalization of labor markets, fostering the creation of new and better jobs, and putting women’s labor reinsertion at the center of policy reform have become highly urgent.

3. Urban areas are increasingly home to destitute Latin Americans. Overall, rural poverty rates are still higher than those in urban areas but now the number of urban poor and extremely poor in cities surpasses those in rural areas. Before the pandemic, most Latin American and Caribbean impoverished households  (2.15 dollars per person per day, 2017 PPP) lived in rural areas (52%). Two years later, the situation has reversed; now most poor people live in urban areas (53%). The same trend applies to the poor (6.85 dollars per person per day, 2017 PPP) as almost two-thirds of them live in cities . Moreover, health mitigation strategies implemented during Covid-19 made goods and labor markets less accessible to the urban poor. Also, the prevalence of informality and their lower digital inclusion, worsened the shock among the poor. Moving forward, poverty alleviation responses should consider the growing importance of the urban dimension.
4. Post-pandemic intergenerational mobility will be even more difficult due to massive learning losses. Before the pandemic, our situation was already worrisome as learning poverty was high . During the crisis, our schools remained closed for too long and the estimated impact of these learning losses seems catastrophic. The statistics on short-term dropouts are alarming and preliminary estimates of learning losses are not only large but also disproportionately larger among children from poor households. With automatic promotion in most of our school systems, the new post-Covid classrooms have students with increased skill variability, making teachers’ jobs even more challenging.

With the pandemic — hopefully — receding, we must face an unfortunate reality:  The world is moving farther and farther away from meeting the goal of ending extreme poverty by 2030.  Urgent and determined action is needed to end extreme poverty, but now the challenge is more complex. The World Bank is working firmly with the region´s countries to identify programs and projects that curb poverty, address vulnerability, and reduce inequality in this more challenging environment . The LAC region has made good progress before, and can do it again.