Setting standards: Why updating poverty lines matters in East Asia

East Asia prides itself on rapid economic progress over the past few decades with millions lifted out of poverty. Between 2008 and 2018, real per capita GDP in the region grew at an average rate of 6.7 per cent per year, significantly above the global average of 1.5 per cent. Yet the extent of progress on poverty is exaggerated by the fact that poverty thresholds are set too low compared to other countries at similar income levels. This leads to policies which do not do justice to the scale of the problem. New numbers released by the World Bank using global benchmarks underscore this point.

The World Bank updated its global poverty lines last month and the number of poor is now significantly different in certain countries and regions. These periodic updates are carried out to reflect changes in prices and adjustments to national poverty lines. Global poverty lines are largely used to assess whether the world is on track to meet global goals such as the SDG goal of eradicating extreme poverty by 2030. In our view, they matter at the national level too, particularly in East Asia and Pacific (EAP) where several large countries have lagged behind in updating their own national lines. Keeping poverty lines at levels far below average incomes has in turn led to an under-emphasis on inclusive growth and social protection policies and a sense that the fight against poverty has been largely won. These new numbers remind us once again that there is no room for complacency.

The three global poverty lines, updated to $2.15, $3.65, and $6.85 per day, reflect the typical national poverty lines of low-income (LIC), lower-middle-income (LMIC), and upper-middle-income countries (UMIC), in 2017 prices and adjusting for purchasing power. For the EAP region, the global poverty line update changes our view of the number of people who fall below thresholds for middle-income countries. At the LMIC standard, an additional 33 million people are poor, primarily because compared to the 2011 PPP, the 2017 PPPs imply higher price levels.

At the UMIC poverty line, there are nearly 175 million more poor. One of the main reasons for the large jump in EAP numbers using the UMIC threshold is because many UMIC countries have raised their national poverty lines in real terms. This is neither surprising, nor unusual. Globally, we see that national poverty lines tend to increase with income levels, as countries raise the minimum standards by which they determine people to be poor (Jolliffe and Prydz, 2016). In addition to the price changes, the update to World Bank’s global UMIC line reflects that countries are holding themselves to these higher standards.

EAP countries should update their poverty benchmarks

World Bank Blog