COVID-19 will hit the poor hardest. Here’s what we can do about it

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The coronavirus (COVID-19) is a crisis like no other the world has faced in recent decades in terms of its potential economic and social impacts. We estimate that the pandemic could push about 49 million people into extreme poverty in 2020.

A large share of the new poor will be concentrated in countries that are already struggling with high poverty rates, but middle-income countries will also be significantly affected. Almost half of the projected new poor (23 million) will be in Sub-Saharan Africa, with an additional 16 million in South Asia. The number of extreme poor in the poorest countries that are served by the World Bank’s International Development Association is projected to increase by 17 million. At the same time, 22 million of the projected new poor will be in middle-income countries. There are projected to be 10 million new extremely poor people in fragile and conflict-affected economies. 

"We estimate that the pandemic could push about 49 million people into extreme poverty in 2020."

The measures taken to contain COVID-19 will affect households in many ways, including job loss, loss of remittances, higher prices, rationing of food and other basic goods, and disruptions to health care services and education.

While the impacts will be felt by most households almost immediately, they will likely be deeper and longer-lasting among the poor, who are more vulnerable for several reasons:

  • Where they live. The poor live primarily in rural areas. While this could minimize their exposure to the disease, it also means they have limited access to health services. Moreover, since rural households tend to depend more on domestic remittances from urban migrants, economic shutdowns in urban areas will hurt them too. The poor in urban areas, on the other hand, live in congested settlements with low-quality services, which would significantly increase their risk of being infected by the contagion. Disruptions in food markets could be more severe in urban areas.
  • Where they work. The poor work largely in the agriculture and service sectors and are usually self-employed or informally employed, mainly in micro and family enterprises. Those employed in the informal service sector in urban areas are likely to bear the most severe initial impacts. In addition, many of the vulnerable non-poor, who are increasingly employed in the gig economy, particularly in middle-income countries, will also be at risk of slipping into poverty. Those engaged in agriculture may be able to cope, at least initially, with potential disruptions to food supplies or price spikes, but are likely to be affected by a decline in demand in urban areas over time.
  • High dependence on public services, particularly health and education. In the immediate term, limited access to high-quality and affordable health services can have devastating impacts in the event of an illness in the family, while school closures can lead to a decline in food intake among children of poor families who rely on school feeding programs. In the long term, the impacts of lost months of schooling, early childhood interventions, health check-ups, and nutrition can be particularly high for children in poor families, adversely affecting their human capital development and earning potential.
  • Limited savings and lack of access to insurance. This, in the absence of adequate safety nets, can force the poor to rely on coping strategies with potential long-lasting negative effects, such as the sale of productive assets or diminished investments in human capital.

The experience of affected countries suggests that the incidence and impacts of COVID-19 can vary significantly across space and over time, with urban areas being the hardest hit initially.  Stringent health containment measures have brought a large share of economic activity to a halt, leaving many urban poor and vulnerable without a way to make a living. The risk of disruptions to the food supply and markets could also be higher in urban areas, while and the ability of households to deal with potential shortages or prices hikes for food and other necessity items could be lower.

At the same time, governments’ capacity to quickly provide income support to affected households in these areas is limited. Existing safety net programs largely target rural areas, and support for businesses probably will only benefit those in the formal sector. As a result, many of the new poor will likely be found in cities, while rural areas, which tend to be poorer to start with, will experience a deterioration in living conditions and a deepening of poverty. 

"Emerging data from affected countries suggests that the poverty and distributional impacts of COVID-19 are materializing fast, with dire consequences."

Emerging data from affected countries suggests that the poverty and distributional impacts of COVID-19 are materializing fast, with dire consequences. One of the first available rapid phone surveys that assessed the impacts on livelihoods took place in China’s rural areas. It found that about half of the villages surveyed experienced income losses averaging 2000-5000 RMB ($282-$704) per family over the previous month. Villagers are reducing their spending on food as a result, with significant consequences for nutrition and long-term human capital development.

Similarly, phone surveys in Bangladesh in March show that 93 percent of individuals interviewed experienced income losses averaging 75 percent over the previous month, and around 72 percent lost their jobs or saw their economic opportunities reduced. As a consequence, the number of respondents living under the national poverty line has increased from 35% to 89%.

Policies needed to mitigate poverty and distributional impacts will have to respond to each country’s context and circumstances. Having said that, the numbers above suggest that across affected countries:

  • An effective response in support of poor and vulnerable households will require significant additional fiscal resources. A back-of-the-envelope calculation can illustrate this. Providing all the existing and new extreme poor with a cash transfer of $1/day (about half the value of the international extreme poverty line) for a month would amount to $20 billion —or $665 million per day over 30 days. Given that impacts are likely to be felt by many non-poor households as well and that many households are likely to need support for much longer than a month, the sum needed for effective protection could be far higher.
  • Any support package will need to quickly reach both the existing and new poor. While existing safety net programs can be mobilized to get cash into the pockets of some of the existing poor relatively quickly, this is not the case for the new poor. In fact, the new poor are likely to look different from the existing poor, particularly in their location (mostly urban) and employment (mostly informal services, construction, and manufacturing).
  • Decision-makers need timely and policy-relevant information on impacts and the effectiveness of policy responses. This can be done using existing, publicly available data to monitor the unfolding economic and social impacts of the crisis, including prices, service delivery, and economic activity, as well as social sentiment and behaviors. In addition, governments can use mobile technology to safely gather information from a representative sample of households or individuals. Phone surveys can collect information on health and employment status, food security, coping strategies, access to basic services and safety nets and other outcomes closely related to the risk of falling (further) into poverty.

The World Bank Group is helping countries respond in all these ways and more, by providing governments with data, policy advice, and financial resources so they can effectively protect households and firms from the social and economic impacts of COVID-19 and build resilience.

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Authors

Carolina Sánchez-Páramo

World Bank Group Global Director, Poverty

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