We have recently estimated that the COVID-19 pandemic is likely to push between 88 million and 115 million people into extreme poverty in 2020 (for further details see the recently published Poverty and Shared Prosperity report). This translates into a global poverty rate—the share of the world’s population living on less than $1.90 per day—between 9.1% and 9.4% this year. These estimates are close to the global poverty rate of 9.2% in 2017, implying a three-year setback in the poverty reduction goals. In this blog we project poverty further to 2030.
As in our recent blog (as well as the previous blog in June), we use the growth forecasts (both baseline and downside) from June 2020 Global Economic Prospects (GEP) to project COVID-19 affected poverty up to 2021. For the years after 2021, we use historical (2008-2018) average annual per capita growth rates for each country. It is important to stress that these projections represent hypothetical scenarios of what would happen if all countries from 2022 onwards grew in accordance to what has occurred in the past (and importantly, before COVID-19). Additionally, since there are differences between growth rates of GDP and growth rates in household surveys, we apply a pass-through rate—that is a discount factor—to adjust these growth rates. The pass-through rate, using all available comparable surveys, is estimated to be 0.85 for GDP. This implies that for every 1% growth captured by national accounts, 0.85% is available for personal consumption in surveys. We apply the pass-through rate uniformly to all countries for all the projected years, i.e. 2019-2030. Our projections here are based on distribution neutrality, meaning that this growth accrues to everyone equally.
Figure 1 presents the resulting share living in extreme poverty around the globe. We find that the pre-COVID-19 series (for which we use the January 2020 GEP growth forecasts until 2021, released before COVID spread globally, and historical growth thereafter) would have yielded a global poverty rate of 6.1% (or 521 million people living in extreme poverty) in 2030. That was already more than double the targeted goal of 3% (equivalent to 255 million) by 2030. The COVID-19 scenarios provide an even grimmer picture. For 2020, we have estimated the COVID-19-induced new poor to be between 88 and 115 million. Tallying the new poor for the whole decade (i.e. 2020-2030) would result in between 831 million and 1.16 billion additional years spent in poverty due to COVID-19.The pre-COVID-19 scenario predicts the latter poverty levels in 2024 and 2023 respectively.
Figure 1: Projection of Global Extreme Poverty (%), up to 2030
Note that even the pre-COVID-19 scenario is well short of the 3% target for 2030. In order to reach this target, each economy, starting in 2021, would have to grow at a much higher rate than their annual historical growth rates used for Figure 1.This would imply, for instance for Sub-Saharan Africa, growth rates that are more than five times the region’s historical growth rates.
The discussion so far assumes distribution-neutral growth. Lowering inequality could help reduce poverty. A 2% decrease in the Gini index per year, which is not uncommon year-to-year but rather uncommon to be sustained annually for 10 years, would bring the 2030 projected global poverty rate to between 4.7% and 5% (under the COVID-19 scenarios). However, if inequality increased within countries due to the pandemic, global poverty in 2030 could rise to between 8.2% and 8.6% (if Gini index increased by 1% annually) or between 11.3% and 11.8% (if Gini index increased by 2% annually).
Regions have grown at various speeds over the last few decades. This has impacted the level and the rate of reduction of poverty for these regions. In Figure 2, we show the breakdown of the global number of poor by region starting in 1990. Historical numbers are presented up to 2018 and projected numbers thereafter. While East Asia and Pacific had the highest number of poor in the 1990s, the region’s high growth rates contributed significantly to reducing extreme poverty for the world. By 2002, East Asia and Pacific had reduced their number of poor to below the level observed in South Asia. South Asia followed suit and by 2011, the region had decreased their 2002 poverty level by 39%. From then on, studying poverty in South Asia is challenging due to lack of recent data for India. With our current extrapolations for South Asia, in the same year, Sub-Saharan Africa became the region with the most extreme poor. Whereas poverty continued to fall in most regions, this was not the case in Sub-Saharan Africa. For this region, a combination of population growth and conflict have hindered poverty reduction goals. In 2018, the region had an estimated 433 million living in extreme poverty. If the lack of growth in the region over the past decade is replicated for the next decade, we expect the number of poor to increase in the region to between 443 million (baseline) and 477 million (downside). Regardless of the scenario,