ADB: Broader View of Poverty Underscores Critical Long-Term Challenge

Extreme poverty, when measured as income or expenditure of less than USD $1.25 per person per day in 2005 purchasing power parity terms, could fall to 1.4 percent by 2030, if current trends continue. A poverty rate below 3 percent is interpreted as poverty having been eradicated. But the new report says the USD $1.25 per day measure does not fully capture the extent of extreme poverty.

“USD $1.25 a day is not enough to maintain minimum welfare in many parts of our region,” said ADB Chief Economist Shang-Jin Wei in launching the report. “A fuller understanding of poverty is needed to help policymakers develop effective approaches to address this daunting challenge.”

Three additional elements should be factored into the poverty picture: cost of consumption specific to Asia’s poor; food costs that rise faster than the general price level; and vulnerability to natural disasters, climate change, economic crises, and other shocks.

The new report explores how including these elements in poverty assessments changes the region’s poverty landscape. Key findings include:

• Broadly following the procedure used to determine the conventional USD $1.25 poverty line - but focusing on data from Asia - produces an estimated Asia-specific extreme poverty line of USD $1.51 per person per day. Using this poverty line would raise Asia’s poverty rate in 2010 by 9.8 percentage points - from 20.7 percent to 30.5 percent. The number of extreme poor would increase by 343 million people.

• Rapidly rising food prices increase food insecurity. The poor spend far more of their income on food than the non-poor. So food insecurity must be accounted for when measuring poverty. Taking into account the fact that the increase in food prices is greater than the increase in the general consumer price index, Asia’s 2010 poverty rate would increase by four percentage points, an addition of 141 million poor.

• Many low income households living just above extreme poverty can easily fall into extreme poverty due to natural disasters, financial crises, illness or other negative shocks. A vulnerability-adjusted poverty line adds about 11.9 percentage points to Asia’s poverty rate in 2010, adding 418 million poor.

While these factors are not necessarily mutually exclusive, the report finds the combined impact would increase Asia’s estimated extreme poverty rate for 2010 by 28.8 percentage points to 49.5 percent. This increases the number of poor by about 1.02 billion to 1.75 billion people.

The report projects that if recent economic growth trends continue, the overall poverty rate would fall to 17.1 percent in 2030, with most of the poor living in middle income countries.

“To confront this challenge, the report urges a stronger focus on efforts to enhance food security and reduce vulnerability in addition to promoting growth,” said Mr. Wei.

Food security can be improved by enhancing food availability through, for example, more rapid productivity and technological development, expanding affordability and access through targeted food aid for the poor and upgrading farm-to-fork infrastructure, and stabilizing food supply through steps such as the creation of national or regional emergency reserve stocks.

To manage increasing vulnerability, governments can invest in risk-mapping and disaster risk reduction efforts such as early warning systems and livelihood diversification. Fostering the development of insurance products accessible to the poor, making infrastructure more resilient, and strengthening social safety nets are also important components of a poverty reduction strategy.

Further Reading:

• Download the report Key Indicators for Asia and the Pacific 2014
• Poverty in Indonesia

This article was first published by the Asian Development Bank

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