Income Poverty

Recent regional trends

Recent regional trends can be assessed based on new survey data, where available, and regional trends in GDP growth and inequality elsewhere (per capita GDP growth translates into declines in income poverty if inequality does not increase, that is, if the poor benefit from growth as much as the better off).

East Asia. There were further significant reductions of the numbers of people in poverty in East Asia prior to the crisis—from 432 million in 1993 to 265 million in 1996. The financial crisis put an end to a long period of rapid growth, and led to significant increases in poverty. But there are signs of recovery: all crisis countries have had at least one quarter of positive growth (Korea, Philippines have had two), and the transition economies have been remarkably resilient. Recovery is, however, still fragile.

• Survey results based on national poverty lines, not the $1/day lines, indicate increases in poverty in urban Korea (from 8.6 to nearly 23 percent at the peak of the crisis, and down to 15.7 percent by the end of 1998), but smaller increases than expected in Indonesia and Thailand, where the urban middle class seems to have been hit hardest.
• Long-term poverty reduction is continuing in Vietnam: recently released data show a decline in the incidence of poverty, defined on the basis of the national poverty line, from 58 percent in 1992/93 to 37 percent in 1997/98.
• In Indonesia, the conclusion that can be drawn from analyzing data from a variety of sources is that poverty at most doubled from its pre-crisis levels to the to worst point, which was around August/September 1998, when it began to decline. Consistent estimates based on data from the central bureau of statistics (BPS) indicate that poverty rose from 11.3 in Feb 1996 to 16.7 in December 1998, a 5.4 percentage point (or roughly 50 percent) increase.

Table 3. Impact of the East Asia crisis: share of the population living in poverty (using national poverty lines ^a)

Note: ^a Poverty lines of around $1/day in Indonesia, $1.5/day in Thailand and $8/day in Korea, using 1993 PPPs.
b Poverty incidence for Indonesia as of December 1998.

• China—which accounted for 79 percent of East Asia’s poor in terms of one dollar a day (210 million) in 1996—continued to grow through 1998 but without further reductions in poverty.
• In terms of a dollar a day (at 1993 PPP prices) the numbers of rural poor fell from an estimated 358 million in 1990 to 208 million in 1997. The decline of 150 million is very impressive and is probably the one major bright spot in terms of large numbers of poor people in the world at the end of the 1990s.
• Survey data for 1998 show a slight increase—from 211 to 213 million—between 1996 and 1998. This is the result of contrasting trends in rural and urban areas: a further decline in rural areas and an increase in urban areas.

South Asia. The picture for South Asia is mixed. Growth rates for the region have remained positive and significant — per capita GDP growth for 1998 for the region is expected to be 3.3 percent — but recent data on poverty suggest stagnation.

• In India, one of the largest countries in the world and home to the majority of the world's poor, evidence suggests that the rate of poverty reduction has slowed dramatically in the nineties, particularly in rural areas. In addition, the gap between some of India's largest and poorest states and the better performing states is growing. Many of India's poorest states suffer from slow progress in human development, low rates of growth, particularly in the agriculture sector, inadequate infrastructure, and weak and fragmented institutions.
• Bangladesh, which had been performing well, has been hit by devastating floods. However, due to a bumper post-flood rice crop, GDP growth in 1998-99 reached 4.5%, higher than expected in the immediate aftermath of the Bangladesh's worst flood in living memory. The concerted relief efforts by the government, NGOs, and donors, and the availability of a number of preexisting food-for-work safety nets helped greatly in limiting the loss of life and livelihood as a result of the floods.
• Performance has been poor in Pakistan: low growth rates throughout much of the nineties, a very weak human resource base, and a slowdown in poverty reduction. In Sri Lanka, there has been very slow progress in reducing poverty despite adequate GDP growth.

Africa. Prospects for Africa remain worrisome.

• Growth picked up, but stalled again following the financial crisis. The impact of the crisis has been felt through declining prices for many commodities, slower world trade growth and stiffer competition from countries with depreciated exchange rates.
• The combined effect of lower commodity prices, conflict and, in some cases, adverse weather has been to cut growth in Sub-Saharan Africa to a level insufficient to bring down the number of poor people.
• A small number of countries that are undertaking reform programs — for example Cote d'Ivoire, Ghana, Mauritania, Uganda — have experienced declines in income poverty, but others have experienced sharp increases (for example Nigeria and Zimbabwe). For many of the countries engulfed in conflict there are no data, but poverty has certainly increased.
• Security is a massive problem for the region. Internal conflict and civil war continue to threaten lives and livelihoods, and we have evidence from participatory assessments that the poor are particularly anxious about conflict and what it means for their lives and those of their children. Uncertainty due to lack of security only adds to uncertainties due to the vagaries of the weather—many households fear they will run out of food before the next harvest. The problem is exacerbated by the general absence of safety nets, such as workfare programs.
• There is a growing human development gap between Africa and the rest of the world. Educational achievement has not advanced in the region, and may even have taken a backward step in the 1990s. Gains in life expectancy (and reduced child mortality) are now threatened by the HIV AIDS epidemic (see the next section for more discussion of social indicators).
• These trends are leading to polarization in Africa. There is a group of good-news countries where civil order, political openness and sound economic management are associated with improved economic performance and better outcomes for the poor (Cote d'Ivoire, Ghana, Mauritania, Tanzania and Uganda). Others have slipped into disorder and a breakdown of the state and civil liberty, which has profound effects on the economy and society (Sierra Leone, Somalia, Burundi, Rwanda, Sudan etc.) The immediate challenge is to help direct the futures of countries in the middle of this divide -- countries like Ethiopia, Nigeria, Kenya, Cameroon, and Chad--so that they can achieve more secure and prosperous futures for their people.

Latin America and the Caribbean. Overall, the picture that emerges from the global numbers is one of stagnation: roughly constant share and increasing numbers.

• There is no clear evidence of progress in reducing poverty at the regional level.
• Income inequality increased between 1986 and 1989, but stabilized thereafter, at least until 1995.
• Even though income poverty has not decreased, social indicators have improved; adult literacy, life expectancy, access to safe water, infant mortality are at levels consistent with what would be expected given the region’s level of economic development, but secondary school enrollment is below such levels, in part because of high levels of income inequality which do not enable the poor to continue beyond primary school.
• In Brazil poverty fell by about 30 percent in the two years following economic stabilization in 1994. Poverty indicators then rose in the aftermath of the Asian crisis. This negative trend continued after the Russian crisis, and will almost certainly have worsened during 1999. The most recent poverty measurements available from the monthly employment survey show that the headcount rate in metropolitan areas in February 1999 was 10 percent higher than before the onset of the Asian crisis. One-third of the gains in poverty reduction achieved after the Real Plan have been undone. Brazil has a significant number of social protection programs that provide some compensation for many of those affected by the crisis, but many of the most vulnerable, especially those in the informal sector, are not protected. The unemployment rate showed a worrisome increase, reaching, and now leveling off at, historically high levels of 7 to 8 percent since 1998, compared with 3 to 4 percent in 1993-96. Real wages, however, did not decline significantly until the first quarter of 1999.

Eastern Europe, Central Asia. The increase in poverty appears to have stabilized in response to the leveling off of the downward trend in GDP:

• Growth in the region as a whole was positive in 1997, which contributed to reducing overall poverty levels. This effect was particularly strong in some of the better performing countries, such as Hungary, which saw a decline in the incidence of poverty as a result of sustained GDP growth. In some of the poorer countries, however, and despite good growth performance, the recovery has simply not been sustained long enough to ensure a substantial reduction in the number of poor. This is the case, for example, in Armenia, Georgia and the Kyrgyz Republic.
• Growth in 1997 was followed by a downturn in 1998, due in large part to the Russia crisis and its effect on other countries in the region. Real GDP per capita in Russia collapsed in the 1990s, declining by 41 percent from 1990 to 1999. Furthermore, inequality—as measured by the Gini index—increased sharply from 0.24 to 0.39 from the late 1980s to the mid-1990s. The number of people living in poverty rose dramatically as a result of these two forces. The profile of poverty also changed during the transition period, with large numbers of working and unemployed adults and their children joining the ranks of the "old poor" from before the transition.
• Chronic poverty is emerging as a increasing concern in the region, as evidence suggests that even in countries with a robust growth record there is a growing group of the chronically poor.

Middle East and North Africa. The region has not experienced major negative shocks over the past five years, and the share of people living in poverty remains relatively low.

• Poverty reduction in the region is strongly linked with economic growth: in the past, high growth has been accompanied by significant poverty reduction—and sharp downturns in GDP have been accompanied by sharp increases in poverty.
• Recent data from Tunisia, however, suggests the elasticity of poverty reduction to growth may be declining, meaning that faster growth will be needed to achieve similar reductions in poverty as in the past.

In sum, the global picture that emerges at the end of the 1990s is one of stalled progress and of rising numbers of poor people everywhere. Thanks to the gains made before the East Asian crisis, the number of people living below a dollar a day was estimated at 1.2 billion in 1998, below the figure for 1993 but above what it would have been had the pre-crisis trends continued.

Next: Income Poverty: Prospects for poverty reduction