The World Bank is changing the $1.25-a-day measure of extreme poverty

What does this mean for poverty data and will it help us in the goal to end extreme poverty by 2030?

What is changing and what does it mean?

The long-standing global benchmark indicator of $1.25 a day used for measuring and monitoring progress on extreme poverty is set to be updated on 4 October to around $1.90 a day.

What is the benchmark?

Global poverty estimates are not based on direct knowledge of where poor people live and their situation. They are arrived at using hundreds of surveys, long chains of transformations and several assumptions. This inherently difficult task rests on being able to compare data on national incomes between countries.

The standard approach is ‘purchasing power parity’ (PPP), which uses the cost of a common basket of goods to compare prices internationally. The process behind this is extensive and takes several years. Until now, our best understanding of extreme poverty was based on the $1.25-a-day poverty line, which used PPPs dating from 2005, but a new set of figures is now available using 2011 PPPs.

What’s changing and why?

A ‘minor earthquake‘ was seen in 2008 when the $1.25-a-day line replaced the previous $1.08 line, which was based on 1993 prices, as it led to an additional 400 million people being estimated to be in extreme poverty in 2005 than previously thought.

The benchmark is about to be adjusted again to further improve its accuracy and timeliness. The new 2011 PPPs have much wider coverage, of 199 countries compared with 146 in 2005, and improvements in data for large countries such as China and India.

The poverty line is expected to be set at “around $1.90” in 2011 prices. While this might appear to be a 50% increase from the $1.25 line, that was based on 2005 prices so cannot be directly compared. This change is partly down to adjusting for price rises over the last six years and partly because inflation for the poorest countries is to be used, leading to a slightly higher line.

What do the new figures mean?

A change to the global extreme poverty line inevitably leads to changes in estimates of the scale and distribution of extreme poverty. Individuals’ incomes will not have changed, only our understanding of how they compare globally.

Previous work by World Bank researchers on an extreme poverty line of $1.92 in 2011 prices provides an insight into what this might mean, ahead of the publication of the new data.

Overall, the number of extremely poor people was estimated to be 148 million higher than on the old measure, much less than in the last revision in 2008, but still represents a change in our understanding of recent poverty trends. Regionally, the East Asia & Pacific region sees the largest shift, with an additional 136 million people in extreme poverty in 2011. Smaller increases are seen in some regions, no change from 416 million people in sub-Saharan Africa, and a slight reduction in numbers in the Middle East & North Africa.

2011 extreme poverty estimates, millions

Source: Jolliffe & Prydz, “Global poverty goals and prices: how purchasing power parity matters”, World Bank Policy Research working paper 7256, May 2015, table 3

While this sets the starting point a little higher for the goal to end poverty by 2030, it was already clear that current patterns of economic growth would not be enough to achieve that goal, with millions of people expected to remain in poverty by 2030. Crucially, projections for the number of people in extreme poverty by 2030 using the $1.92-a-day line are only marginally higher than those based on the $1.25-a-day line: 399 million compared with 389 million previously, with the vast majority of people living in sub-Saharan Africa in both cases. This affirms the case for targeted interventions to help the people furthest from the poverty line.

Better data is needed for ending poverty by 2030

While our global poverty snapshot gets a little clearer, persistent issues cloud our full understanding of who the poorest people are, where they live and the depth of their poverty. Measures of aggregate national progress may have been sufficient to monitor and achieve the Millennium Development Goal to halve global poverty rates, but ending poverty by 2030 means leaving no-one behind – demanding much better and disaggregated data both for understanding the challenge and assessing the impact of efforts to address it. Good data is a fundamental requirement for accurately identifying the poorest and most vulnerable people, tracking their progress and driving resource allocation.

DI’s Investments to End Poverty report explores data issues in detail, but urgent improvements at national and international levels are needed if the world is to reach the ambitious, but achievable, goal of ending extreme poverty by 2030. These include:

More regular and more transparent global poverty data updates: While the World Bank has started to publish annual updates to its comprehensive global poverty estimates, these remain out-of-date: the most recent comprehensive country-level information is for 2011. More regular international price comparison exercises would help to minimise the periodic shifts in the extreme poverty line. Also, while the World Bank’s tool for calculating poverty levels, PovcalNet, is helpful, clearer information on the provenance of data and the methods and transformations used to convert countries’ household survey data into global poverty statistics is needed. For example, country data currently mixes surveys asking about people’s consumption with others (particularly in Latin America) enquiring about people’s income, which is harder to measure and tends to be under reported.

A focus on closing country-level poverty data gaps: The World Bank was forced to draw on surveys for 17 countries that pre-dated 2005 for its 2011 global poverty estimates, adding to inaccuracies. Some 28 countries have no data collected that can be used. These are currently assigned the average poverty rate of each of these countries’ region, even though many – Myanmar, Somalia, South Sudan and Zimbabwe – have suffered from recent conflict and instability and so might in reality have much higher poverty rates.

Agreed benchmarks for judging the end of poverty by 2030: Crossing such a low income threshold does not mean efforts can cease: being slightly above a single line provides no insurance against falling back into poverty, nor against wider forms of poverty and deprivation. Countries such as Uganda have seen income poverty fall yet a lack of development progress in areas such as maternal and child mortality. The World Bank has established the Commission on Global Poverty to consider whether wider measures of poverty – at different income levels and for other forms of deprivation – are needed.

Investment in national statistical systems: Countries’ own statistics are the bedrock on which good global poverty data will be built. Systems taken for granted in developed countries produce weak or little data in developing countries, even on basic issues; for example, only 12 of 55 African countries have comprehensive birth registration. Immediate investment in national statistical systems is needed to allow regular and comprehensive censuses and timely and accurate surveys; long-term investment in civil registration and administrative systems is vital, including support for potential best practice such as Uganda’s Community Information System. Ultimately, to make poor people count, we need to count poor people.

A greater focus on poor people with more sub-national data: Understanding within-country trends is essential for ending poverty and leaving no-one behind, and focusing efforts on poverty below the national average.