Global poverty grows again for the first time in 30 years
One of humanity's greatest success stories has quietly come to an end. After around one billion people escaped extreme poverty over three decades, the Covid pandemic reversed the trend. That's according to the now-published World Bank report Poverty and Shared Prosperity. In 2020, 70 million people slipped into extreme poverty. That was the largest increase since global poverty has been measured. More than 9 percent of the global population, or 700 million people, now live in extreme poverty. That means they have less than $2.15 a day. That's where the World Bank set the new poverty line, after it had long been $1.90.
The turning point is a consequence of the Covid pandemic: The poorest people bore the greatest burden. Incomes in developing countries fell more sharply than in rich countries - with the consequence that global inequality rose again for the first time in decades.
The poor not only lost income, they also suffered the most severe non-material consequences. They died earlier, were sick longer and more severely, and had less education. If politicians did not take decisive countermeasures, many people would have to accept income losses over their entire lives because they entered working life less well educated.
Naturally, poor and rich countries have recovered differently from the pandemic. The industrialized nations succeeded in preventing the spread of poverty through major spending programs, poorer emerging economies succeeded at least in part, but developing countries did not succeed at all. The recent price increases for food and energy have made economic recovery even more difficult.
The shocks of war and pandemic hit the global economy at a time when growth and gains in poverty reduction had shrunk. Since 2015, for example, global poverty has been slow to reduce. The authors of the World Bank report expect that the major Millennium Development Goal of eradicating extreme poverty by 2030 will no longer be achievable, at which point more than half a billion people will instead eke out such an existence. "If we had to make a projection now, we would not reach the goal by 2030. We wouldn't reach it by 2100," said Indermit Gill, the World Bank's chief economist.
The World Bank urged governments to do what they can to spur economic growth. "The need for economic growth that raises the incomes of the poorest could not be greater than it is now," the report said.
Extreme poverty is now concentrated in areas where it is particularly difficult to eradicate: Conflict zones, rural areas and sub-Saharan deserts. The sub-Saharan zone is where 60 percent of the poorest people are concentrated. Countries would need to achieve 9 percent economic growth per capita by 2030 to end abject poverty. In the last decade, it just recorded 1.3 percent growth per capita.
The World Bank believes a turnaround in fiscal policy is inevitable, given the limited fiscal space many countries have, and calls it a "heroic effort" that would be needed. It advocates reducing subsidies and replacing them with targeted transfers to the poor. Subsidies, for example of energy, often predominantly benefit high earners, she says. Taxes on greenhouse gases and on land could improve the situation of public budgets without harming the poor.
The World Bank report is one of a series of recent gloomy forecasts: The World Trade Organization (WTO) had previously announced stagnation in world trade, with particularly severe consequences for poor countries. The United Nations had recently warned that central banks, with their almost synchronous tightening of monetary policy, could trigger a global recession, placing a particular burden on poor countries.
Image by Wolfgang van de Rydt