World Bank draws a new-ish extreme poverty line

An employee drinks from a faucet at NUAC Farm in Northern Uganda. (Credit: USAID/Morgana Wingard)

The World Bank made recent headlines with a report showing the number of people living in extreme poverty will dip below 10 percent this year. It is a historic achievement, but one that comes alongside a very important shift in how the Bank defines extreme poverty. And it matters a lot when countries just formalized the goal of ending extreme poverty by 2030.

Gone is the $1.25 a day extreme-poverty line, replaced by $1.90 per day. The subtle change is meant to reflect the rate of inflation, according to the Bank. While it is higher than before, the amount someone can buy living on that much is the same as $1.25 a day in 2005 prices. The change is in purchasing power.

In simpler terms the poverty line didn’t go up, says the World Bank, it simply caught up with the times. And even with the higher number, extreme poverty is still falling.

Using the updated data, the number of people living in extreme poverty fell from 902 million (12.8 percent of the population) in 2012 to 702 million (9.6 percent) this year. But even looking just at incomes shows that while extreme poverty is falling, bad-but-not-quite-extreme poverty is decreasing slowly.

The extreme-poverty line exists as a measure for determining progress toward a set goal. Changing the line to adjust with purchasing power also transforms the once-steady line that was impossible to achieve to something that is attainable.

“Ultimately, picking a poverty line is pretty arbitrary,” explain Charles Kenny and Justin Sandefur, of the Center for Global Development, in Vox.

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“The main virtue of the line the World Bank has picked is political: It keeps the total number of global poor roughly where it was last month when world leaders at the U.N. signed up to eradicate poverty by 2030. But it did so by moving the line quite a bit. In the future, it’d be nice to have a measure of poverty that doesn’t swing wildly – or necessitate a change in methodology – every time exchange rates move.”

Still, better data are needed to know the incomes of the world’s poor and what that money gets them in their respective countries.

“When global organizations set global goals, we have to be able to compare progress across countries using a common measure, treating the absolute poor in one country the same as in another,“ said Ana Revenga, senior director of the World Bank’s poverty and equity global practice, in a news release.

The new line accomplishes that goal. Though it is burdened with the inability to truly capture the problems experienced by the world’s extreme poor. Income does not measure things like access to clean water, quality education and child mortality. There are strong connections with wealth, but getting a family across the $1.90-a-day line is not too helpful if the local health clinic is unable to treat their child with pneumonia.

One alternative is the Multidimensional Poverty Index, produced by the Oxford Poverty and Human Development Initiative and the United Nations Development Program. It uses 10 indicators, such as years of schooling and nutrition, to measure acute poverty. It finds that 1.6 billion people living in multidimensional poverty – more than twice the number living below the World Bank’s extreme-poverty line.

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And while the numbers differ, there are major points of convergence. Using both measures, the majority of the world’s poor now live in middle-income countries. Countries like China and India have the majority of the world’s poor and they are also places where the majority of poverty elimination has occurred in the past 20 years. Progress in Sub-Saharan Africa is much slower, but still heading to zero.

“Most of the very poorest worldwide are able to buy more of what they need than they could 10 or 20 years ago. Perhaps the extreme poverty line is fuzzier than we thought, but the progress against extreme poverty remains clear,” say Kenny and Sandefur.

And despite all this, the World Bank is just as optimistic about ending extreme poverty. And there is good reason. No matter how you look at it, there are increasingly fewer people living in extreme poverty.

“This is the best story in the world today – these projections show us that we are the first generation in human history that can end extreme poverty,” said World Bank head Jim Kim, in a news release.

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Tom Murphy

Tom Murphy is a New Hampshire-based reporter for Humanosphere. Before joining Humanosphere, Tom founded and edited the aid blog A View From the Cave. His work has appeared in Foreign Policy, the Huffington Post, the Guardian, GlobalPost and Christian Science Monitor. He tweets at @viewfromthecave. Contact him at tmurphy[at]humanosphere.org.