The new poverty line: How poor are the extremely poor?

The new poverty line: How poor are the extremely poor?

(This is part two of our two-part poverty data update. Read part one here.)

The very first of the Global Goals for Sustainable Development launched at the U.N. last week aims to eradicate extreme poverty by 2030. We could be the first generation in history to put an end to this injustice, within just 15 years: that’s something we should make sure everyone in the world knows about! We have cut extreme poverty by 65% between 1990 and 2012. But maintaining this incredible progress and reaching every last person is going to be the toughest challenge yet. It can only be achieved if citizens in every country know what their leaders have promised and hold them to account for delivering it.

But what exactly is extreme poverty and how is it measured?

Until now, the “extreme poor” were defined as people living on just $1.25 a day. But from this week, that’s changing: from now on, you’ll hear us and others talking about a new extreme poverty line at $1.90 a day. So what happened? Did the extreme poor just get richer?

No, that’s not the case. Over time, prices tend to go up – this is called inflation. If you think about how much a loaf of bread used to cost 5, 10 or 20 years ago, compared to today, you can immediately see inflation in action. The extreme poverty line has been adjusted for inflation so that the real standard of living it represents remains the same. This change was necessary to provide an improved baseline for measuring future progress in fighting poverty. (Fun fact: a similar update to the poverty line has actually happened twice before – the original 1990 ‘dollar a day’ line was changed to $1.08 in 2000, and then in 2008 it was changed again to $1.25.)

Community health worker Agnes Apid (left) with Betty Akello (right) and Caroline Akunu (center). Agnes is providing the women with counseling information. The women are member of the Income generating activities Young Mothers Group that make fried cakes and sell them in the market in Apac, Uganda. (Photo credit: Jonathan Torgovnik/Reportage by Getty Images).

Community health worker Agnes Apid (left) with Betty Akello (right) and Caroline Akunu (center). Betty and Caroline are members of the income-generating Young Mothers Group that makes fried cakes and sells them in the market in Apac, Uganda. (Photo credit: Jonathan Torgovnik/Reportage by Getty Images).

Measuring and monitoring global extreme poverty is tricky for lots of reasons. One of those reasons is that we need to establish a common standard for every country in the world, including those with very different economies. We need to be able to compare accurately between, for instance, South Africa (one of the richest countries in Africa) and Niger (one of the poorest countries in Africa). Prices of goods such as food, housing and amenities are much higher in South Africa than they are in Niger. If you had $1.90 in US dollars in your pocket, you could buy less in South Africa than you could in Niger, meaning that you’d effectively be ‘poorer’ in South Africa than in Niger.

To overcome this problem, the World Bank (which is in charge of producing the official international poverty statistics) doesn’t use US dollars to quantify the poverty line; it uses something called “purchasing power parities” or “PPPs.” Purchasing power parities (PPP) are a standard measure of the real value of different currencies in relation to each other, based on the local prices of hundreds of types of goods and services that are consumed in each country. Whereas $1.90 US dollars in your pocket buys you a different amount of goods in South Africa compared to Niger, $1.90 PPP should theoretically buy you approximately an equivalent amount of goods in these two countries – and indeed, in India, Peru, France, or any country in the world.

We have a new poverty line thanks to the results from a new PPP survey conducted in 2011, which became available in 2014. Since then, the World Bank has been analysing this new data and figuring out how to apply it to the international poverty statistics and how the poverty line should be adjusted. The conclusion of this exercise to adjust the poverty line for inflation was released yesterday, with the decision that $1.90 in the new (2011) PPPs represents as close as possible to the same real standard of living that $1.25 in the old (2005) PPPs did.

So what difference does the new poverty line really make?

To people living in poverty, this statistical adjustment doesn’t make any difference: there is exactly the same number now as there was before. Rather, we’ve now got a better tool for gauging what the numbers really are, which means we have better information on which to make policies, invest financial resources and drive development efforts. No set of statistics are perfect – especially when it comes to international development, where we are missing so much vital data – but this is a step forward to establishing a more accurate baseline from which to monitor future progress in fighting poverty. We need a relentless focus on improving this and other data – making it accurate and reliable, timely, and disaggregated, so that we can understand progress for every group, including girls and women. To make this happen, ONE is part of the New Global Partnership for Sustainable Development Data.

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