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The World Bank has warned that world poverty is much greater than previously thought. It has revised its previous estimate and now says that 1.4 billion people live in poverty, based on a new poverty line of $1.25 per day, reports Steve Schifferes.

29th August 08 - Steve Schifferes, BBC News

This is substantially more than its earlier estimate of 985 million people living in poverty in 2004.

The Bank has also revised upwards the number it said were poor in 1981, from 1.5 billion to 1.9 billion.

The new estimates suggest that poverty is both more persistent, and has fallen less sharply, than previously thought.

However, given the increase in world population, the poverty rate has still fallen from 50% to 25% over the past 25 years.

"This is pretty grim analysis coming from the World Bank," said Elizabeth Stuart, senior policy adviser at Oxfam.

"The urgency to act has never been greater, especially in sub-Saharan Africa where half the population of the continent lives in extreme poverty, a figure that hasn't changed for over 25 years."

Regional differences

The new figures confirm that Africa has been the least successful region of the world in reducing poverty.

The number of poor people in Africa doubled between 1981 and 2005 from 200 million to 380 million, and the depth of poverty is greater as well, with the average poor person living on just 70 cents per day.

The poverty rate is unchanged at 50% since 1981.

But in absolute numbers, it is South Asia which has the most poor people, with 595 million, of which 455 million live in India.

The poverty rate, however, has fallen from 60% to 40%.

China has been most successful in reducing poverty, with the numbers falling by more than 600 million, from 835 million in 1981 to 207 million in 2005.

The poverty rate in China has plummeted from 85% to 15.9%, with the biggest part of that drop coming in the past 15 years, when China opened up to Western investment and its coastal regions boomed.

In fact, in absolute terms, China accounts for nearly all the world's reduction in poverty. In percentage terms, world poverty excluding China fell from 40% to 30% over the past 25 years.

Millennium goals

The new figures still suggest that the world will reach its millennium development goal of halving the 1990 level of poverty by 2015, according to World Bank chief economist Justin Lin.

"Poverty has fallen by about 1% per year since 1981," he said.

"However the sobering news that poverty is more pervasive than we thought means we must redouble our efforts."

Oxfam, however, warns that another 100 million people may be forced into poverty by rising food prices, as well as the additional 400 million identified in the new report.

The Bank's findings come as the OECD has reported that many rich countries have cut back on their foreign aid budgets, with little sign that the pledge made at the G8 summit at Gleneagles in 2005 to double aid to Africa by 2010 is being met.

The World Bank's new poverty line of $1.25 per day in 2005 is equivalent to its $1 per day poverty line introduced in 1981 after adjustment for inflation. The new estimates are based on 675 household surveys for 116 countries, based on 1.2 million interviews. The data has also been revised on the basis of new data on inflation and prices from the 2005 ICP survey of world prices, which showed that the cost of living in developing countries was higher than previously thought. It does not take into account the recent increases in fuel and food prices.

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The bottom 1.4 billion

28th August - The Economist 

IN APRIL 2007 the World Bank announced that 986m people worldwide suffered from extreme poverty—the first time its count had dropped below 1 billion. On August 26th it had grim news to report. According to two of its leading researchers, Shaohua Chen and Martin Ravallion, the “developing world is poorer than we thought”. The number of poor was almost 1.4 billion in 2005.

This does not mean the plight of the poor had worsened—only that the plight is now better understood. The bank has improved its estimates of the cost of living around the world, thanks to a vast effort to compare the price of hundreds of products, from packaged rice to folding umbrellas, in 146 countries. In many poor countries the cost of living was steeper than previously thought, which meant more people fell short of the poverty line.

Ms Chen and Mr Ravallion have counted the world’s poor anew, using these freshly collected prices. They have also drawn a new poverty line. The bank used to count people who lived on less than “a dollar a day” (or $1.08 in 1993 prices, to be precise). This popular definition of poverty was first unveiled in the bank’s 1990 World Development Report and was later adopted by the United Nations (UN) when it resolved to cut poverty in half by 2015.

The researchers now prefer a yardstick more typical of the 15 poorest countries that have credible poverty lines. By this definition, people are poor if they cannot match the standard of living of someone living on $1.25 a day in America in 2005. Such people would be recognised as poor even in Nepal, Tajikistan and hard-pressed African countries such as Uganda. But for those who still think a “dollar a day” has a better ring to it, the authors also calculate the number of people living on less than that at 2005 prices (see table).

The discovery of another 400m poor people will not satisfy some of the bank’s critics, who think it still undercounts poverty. Its cost-of-living estimates are based on the prices faced by a “representative household”, whose consumption mirrors national spending. But the poor are not representative. In particular, they buy in smaller quantities—a cupful of rice, not a 10-kilogram bag; a single cigarette, not a packet. As a result, the “poor pay more”.

Such concerns prompted the Asian Development Bank (ADB) to carry out its own study of the prices faced by the poor in 16 of its member countries (not including China). Its results, released on August 27th, found that in nine of those countries the poor in fact pay less. Even though they buy in smaller quantities, they save money by buying cut-price goods from cheaper outlets: kerbside haircuts not salons; open-air stalls not supermarkets; toddy not wine.

This penny-pinching adds up. In Indonesia, for example, the poor’s cost of living is 21% below the World Bank’s estimate. The survey also shaved more than 10% off the cost of living in other populous countries, such as Bangladesh and India. The difference was narrower in smaller countries, such as Cambodia. This may be because in big countries, such as India, the rich are large in number, though a tiny part of the population. Perhaps their spending has an undue influence on the prices faced by the representative household.

The ADB’s findings face an obvious philosophical objection. In theory a poverty count is supposed to calculate how many people fail to meet a certain standard of living. A person eating coarse rice, not fine-grained basmati, dressed in polyester not cotton, has a lower standard of living, even if he eats the same amount of grain and owns the same number of shirts. And when a household buys fruit in a supermarket, its members are buying more than just an apple. They are also enjoying the comfort of air-conditioning, the convenience of a parking space, and the hygiene of airtight packaging. But until such comforts are within the poor’s reach, the ADB is right to track the prices the poor actually pay. It hopes the next global price survey, due in 2011 and led by the World Bank, will do the same. Then, perhaps, the number of poor will be back to nine digits.

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More people living below poverty line

28th August - Lesley Wroughton, The Washington Post

The World Bank said on Tuesday more people are living in extreme poverty in developing countries than previously thought as it adjusted the recognized yardstick for measuring global poverty to $1.25 a day from $1.

The poverty-fighting institution said there were 1.4 billion people -- a quarter of the developing world -- living in extreme poverty on less than $1.25 a day in 2005. Last year, the World Bank said there were 1 billion people living under the previous $1 a day poverty mark.

The new figures are likely to put fresh pressure on big donor countries to move more aggressively to combat global poverty, and on countries to introduce more-effective policies to help lift the poorest.

Even so, the new estimates show how progress has been made in helping the poor over the past 25 years. In 1981, 1.9 billion people were living below the new $1.25 a day poverty line.

The new estimates are based on updated global price data, and the revision to the poverty line shows the cost of living in the developing world is higher than had been thought. The data is based on 675 household surveys in 116 countries.

"These new estimates are a major advance in poverty measurements because they are based on far better price data for assuring that the poverty lines are comparable across countries," said Martin Ravallion, director of the World Bank's Development Research Group.

While the developing world has more poor people than previously believed, the World Bank's new chief economist, Justin Lin, said the world was still on target to meet a United Nations goal of halving the number of people in poverty by 2015.

However, excluding China from overall calculations, the world fails to meet the U.N. poverty targets, Lin said.

The World Bank data shows that the number of people living below the $1.25 a day poverty line fell over nearly 25 years to 26 percent in 2005 from 52 percent in 1981, a decline on average of about 1 percent a year, he said.

Lin said the new poverty data meant there was no room for complacency and added that rich donor nations need to keep their promises of stepped-up aid to poor countries.

"The sobering news that poverty is more pervasive than we thought means we must redouble our efforts, especially in sub-Saharan Africa," said Lin, a leading Chinese academic.

The new figures come ahead of an updated assessment of progress in meeting the U.N.'s Millennium Development Goals, which will released late next month at a meeting of the U.N. General Assembly.

While most of the developing world has managed to reduce poverty, the rate in sub-Saharan Africa, the world's poorest region, has not changed in nearly 25 years, according to data using the new $1.25 a day poverty line.

Half of the people in sub-Saharan Africa were living below the poverty line in 2005, the same as in 1981. That means about 380 million people lived under the poverty line in 2005, compared with 200 million in 1981.

China's poverty rate plunges

Elsewhere, poverty has declined.

In East Asia, which includes China, the poverty rate fell to 18 percent in 2005 from almost 80 percent in 1981, when it was the poorest region. In China, the number of people in poverty fell to 207 million from 835 million in 1981.

In South Asia, the poverty rate fell from 60 percent to 40 percent between 1981 and 2005, but that was not enough to bring down the total number of poor in the region, which stood at 600 million in 2005.

In India, the number of people below the $1.25 a day poverty line increased to 455 million in 2005 from 420 million people in 1981. But the share of the population in poverty fell to 42 percent from 60 percent.

The World Bank noted that better-off countries have higher poverty lines and said it was more appropriate in regions such as Latin America and Eastern Europe to use a $2 a day rate.

The bank has estimated that 100 million people could fall into extreme poverty due to soaring food and energy prices. But Ravallion said it will take up to two years before there is clarity on the impact that soaring costs have had on poverty.

However, he said early indications from survey data "are pretty convincing that we're going to see increases in poverty as a result of food and fuel prices."

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