REVERSALS OF FORTUNE - World Bank

Much of the report was written as the full empirical and practical implications of COVID-19became apparent, which has meant (among other things) working from home while alsomanaging domestic commitments; the team thus wishes to thank the significant others intheir lives who have had to accommodate these additional and unexpected challenges.The report is a joint project of the Development Data and Research Groups in theDevelopment Economics Vice Presidency, and the Poverty and Equity Global Practice in theEquitable Growth, Finance and Institutions Vice Presidency of the World Bank. Financing fromthe government of the United Kingdom helped support analytical work on the global povertycounts and the COVID-19 simulations through the Data and Evidence for Tackling ExtremePoverty Research Programme.viiiPOVERTY AND SHARED PROSPERITY 2020

About the TeamCo-Leads of the ReportSamuel Freije-Rodríguez is a lead economist in the Poverty and Equity Global Practice atthe World Bank. He joined the World Bank in 2008, and his main areas of work include laboreconomics and the welfare impacts of public policy. He has participated in World Bank studieson labor markets, poverty, equality of opportunities, and the distributive impact of tax policy forseveral Latin American countries, China, Mongolia, and the Russian Federation. He is a memberof the team that produced World Development Report 2013: Jobs. Before joining the WorldBank, Samuel was an associate professor at Universidad de las Americas in Puebla, Mexico,and at Instituto de Estudios Superiores de Administración in Caracas, República Bolivariana deVenezuela. He was associate editor of Economía, Journal of the Latin American and CaribbeanEconomic Association. Samuel holds a PhD in labor economics from Cornell University.Michael Woolcock is the lead social scientist in the Development Research Group at the WorldBank, where he has worked since 1998. For 14 of these years, he has also taught (part-time)at Harvard Kennedy School, with periods of leave spent at the University of Cambridge (2002,as the Von Hügel Visiting Fellow) and the University of Manchester (2007–09, as the foundingresearch director of the Brooks World Poverty Institute). His current research focuses onstrategies for enhancing the effectiveness of policy implementation, extending work addressedin his recent book, Building State Capability: Evidence, Analysis, Action (with Matt Andrewsand Lant Pritchett; Oxford University Press, 2017). Michael is a co-recipient of the AmericanSociological Association’s awards for best book (2012) and best article (2014) on economicdevelopment. He holds undergraduate degrees from the University of Queensland (Australia)and a PhD in comparative-historical sociology from Brown University.Core TeamR. Andrés Castañeda is an economist and data scientist in the Development Data Group atthe World Bank. During the past 10 years, he has worked on socioeconomic analysis in topicsrelated to poverty, welfare distribution, inequality of opportunities, development economics,and conflict economics. In particular, he is interested in the analysis of data for policy dialogue,statistical and methodological research, and the development of computational tools in Stataand R to make socioeconomic analysis intuitive, easier, and faster. Andrés has an MSc ineconomics from Universidad el Rosario and an MA in apologetics and philosophy from BiolaUniversity.ix

Alexandru Cojocaru is a senior economist with the Global Unit of the World Bank’s Poverty andEquity Global Practice, where he co-leads the Systematic Country Diagnostic central supportteam. His research focuses primarily on issues related to poverty, inequality, and subjectivewell-being. Previously, he led the World Bank’s engagement on poverty and equity in a numberof countries in the Europe and Central Asia Region, including Belarus, Bosnia and Herzegovina,Kosovo, Moldova, and Ukraine. Alexandru is a co-author of Fair Progress: Economic Mobilityacross Generations around the World (World Bank, 2018). His research has also been publishedin academic journals including the Journal of Comparative Economics and the European Journalof Political Economy. Alexandru holds a master’s degree from Georgetown University and aPhD from the University of Maryland.Elizabeth Howton is the senior external affairs officer for the Poverty and Equity Global Practice.Previously, she worked with the infoDev program, which helps start-up entrepreneurs in developingcountries grow their businesses. Before that, she was the World Bank Group’s Global Web editor.She joined the World Bank in 2012 as an online communications officer for the South Asia Region.Before joining the World Bank, she was an editor at the San Jose Mercury News in California’sSilicon Valley for 10 years. She was a Knight Science Journalism Fellow at the MassachusettsInstitute of Technology and earned a bachelor’s degree from Stanford University and a master’sdegree from George Washington University.Christoph Lakner is a senior economist in the Development Data Group at the World Bank.His research interests include inequality, poverty, and labor markets in developing countries.In particular, he has been working on global inequality, the relationship between inequality ofopportunity and growth, the implications of regional price differences for inequality, and theincome composition of top incomes. He is also involved in the World Bank’s global povertymonitoring. He leads the PovcalNet team, the home of the World Bank’s global povertynumbers. He holds a DPhil, MPhil, and BA in economics from the University of Oxford.Minh Cong Nguyen is a senior data scientist in the Poverty and Equity Global Practice of theWorld Bank. His research interests include poverty, inequality, welfare measurement, smallarea estimations and imputation methods, and data systems. He currently leads the MiddleEast and North Africa Team for Statistical Development and also co-leads the Data for GoalsTeam. Previously, he worked for the Europe and Central Asia Team for Statistical Development,the Sub-Saharan Africa Region, the South Asia Region, the Human Development Network,and the Private Sector Development Network. Minh holds a PhD in economics (appliedmicroeconometrics) from American University.Marta Schoch is a consultant in the Development Data Group. Her research interestsinclude inequality, poverty, political economy, and migration, with a focus on the relationshipbetween economic inequality and political preferences. Marta worked for the ImperialCollege Business School, for the Migrating Out of Poverty research consortium, and for theUniversity of Sussex collaborating on several research projects on poverty and migrationand impact evaluations on development and gender-related policies. Marta holds a PhD ineconomics from the University of Sussex.xPOVERTY AND SHARED PROSPERITY 2020

JudyYang is a senior economist in the Poverty and Equity Global Practice, where she has worked onmultiple countries in the East Asia and Pacific and the Europe and Central Asia Regions. Previously,she worked for teams in the Middle East and North Africa Office of the Chief Economist, inprivate sector development in the Sub-Saharan Africa Region, and in the Enterprise Surveys group.Before joining the World Bank, she worked at the US Department of Labor. Her research interestsinclude migration, the business environment, household welfare, and inequality. Judy holds a PhDin economics from Georgetown University.Nishant Yonzan is a consultant to the Poverty and Inequality Data team in the DevelopmentData Group at the World Bank, contributing to the group’s global agenda on measuring povertyand inequality. His research focuses on the causes, consequences, and measurement ofpoverty and inequality. Nishant is a doctoral candidate at the Graduate Center of the CityUniversity of New York.ABOUT THE TEAMxiii

OverviewPoverty reduction has suffered its worstsetback in decades, after nearly a quarter century of steady global declines in extremepoverty. Poverty and Shared Prosperity 2020:Reversals of Fortune provides new data onand analysis of the causes and consequencesof this reversal and identifies policy principles that countries can use to counter it. Thereport presents new estimates of the impactsof COVID-19 (coronavirus) on global poverty and shared prosperity. Harnessing freshdata from frontline surveys and economicsimulations, it shows that pandemic-relatedjob losses and deprivation worldwide arehitting already-poor and vulnerable peoplehard, while also partly changing the profile of global poverty by creating millionsof “new poor.” Original analysis included inthe report shows that the new poor are moreurban, better educated, and less likely to workin agriculture than those living in extremepoverty before COVID-19. These results areimportant for targeting policies to safeguardlives and livelihoods. The report discussesearly evidence that the pandemic is deepening income inequality, threatening inclusive economic recovery and future growth.It shows how some countries are deployingagile, adaptive policies to reverse the crisis,protect the most v ulnerable, and promote aresilient recovery.The 2020 Poverty and Shared Prosperityreport breaks new ground by jointly analyzing three factors whose convergence isdriving the current crisis and will extend itsimpact into the future: a pandemic (COVID19 and the associated global economic recession, which are reversing poverty abatementtrends rapidly), a rmed conflict (whose effectshave been steadily building in recent years),and climate change (a slowly acceleratingrisk that will potentially drive millions intopoverty). According to updated estimatesincluded in the report, COVID-19 is expectedto push some 100 million people into extremepoverty during 2020 alone. Armed conflictis also driving increases in poverty in somecountries and regions. In the Middle East andNorth Africa, for example, extreme povertyrates nearly doubled between 2015 and 2018,from 3.8 percent to 7.2 percent, spurred bythe conflicts in the Syrian Arab Republic andthe Republic of Yemen. This report presentsnew research that helps explain the prolongedimpoverishing impact of conflict and suggestspriorities for prevention and mitigation. Newestimates commissioned for this report indicate that up to 132 million people may fall intopoverty by 2030 due to the manifold effects of climate change. Although the worst economicand welfare effects lie further in the future, insome settings, poverty is already intertwinedwith vulnerability to climate-related threatssuch as flooding and vector-borne diseases.New analysis featured in the report focuseson the convergence of poverty and flood risks,especially in Sub-Saharan Africa.Along with its direct cost in human lives,COVID-19 has unleashed a worldwide economic disaster whose shock waves continueto spread, putting still more lives at risk.Without an adequate global response, thecumulative effects of the pandemic and itseconomic fallout, armed conflict, and climatechange will exact high human and economiccosts well into the future. Poverty nowcasts1

commissioned for this report suggest that theeffects of the current crisis will almost certainly be felt in most countries through 2030.Under these conditions, the goal of bringingthe global absolute poverty rate to less than3 percent by 2030, which was already at riskbefore the crisis, is now harder than ever toreach. Advancing shared prosperity—byboosting the incomes of the poorest 40 percent of people in every country—will also bemuch more difficult now. Current projectionsindicate that shared prosperity will dropsharply in nearly all economies in 2020–21, asthe pandemic’s economic burden is felt acrossthe entire income distribution, and will dropeven more if impacts are disproportionatelyfelt by people whose incomes were alreadyrelatively low. This uneven impact means thecrisis is likely to increase inequality withincountries in the longer term, which, withoutpreemptive action, may trigger large humancapital losses among disadvantaged groupsand make it more difficult for countries togenerate inclusive growth in the future.This report appears at a moment of criticalchoices in most of the world. The powerfulreversal of fortune now striking the poorestpeople needs an even more powerful responsefrom countries and the global community.the 2018 Poverty and Shared Prosperity reportdocuments how some countries are takingbold action, learning as they go, and sharingresults as they emerge. Acting urgently, inconcert, and at the scale of the crisis itself, wecan halt the pandemic and counter its economic damage, which will save lives and livelihoods today; create conditions for a resilient,equitable recovery; and help draw lessons tobetter manage future emergencies.Poverty reduction wasslowing before the crisisThe world has made unprecedented progressin reducing poverty over the past quarter century, showing what collective global efforts canachieve (panel a of figure O.1). Major threats topoverty eradication goals emerged well beforeCOVID-19, however. This report presents newglobal poverty data showing that the sustaineddecline in extreme poverty that began in the1990s continued through 2017, but that progress was stalling. Between 2015 and 2017, thenumber of people worldwide living below theinternational poverty line fell from 741 millionto 689 million (panel b of figure O.1). Yet the2017 figures confirm the deceleration in therate of poverty reduction that was reportedin the 2018 Poverty and Shared Prosperityreport. Globally, extreme poverty droppedby an average of about 1 percentage point peryear over the quarter century from 1990 to2015, but the rate of decline slowed from 2013to 2015 to just 0.6 percentage point per year(World Bank 2018a). Between 2015 and 2017,the rate slowed further, to half a percentageFIGURE O.1 Global Poverty Rate and Number of Poor at the US 1.90-a-Day Poverty Line,1990–201740a. Global poverty rate2,500352,000201510501990 1993 1996 1999 2002 2005 2008 2011 2014 2017MillionsPercent3025b. Number of poor1,5001,00050001990 1993 1996 1999 2002 2005 2008 2011 2014 2017Source: PovcalNet (online analysis tool), World Bank, Washington, DC, http://iresearch . worldbank.org/PovcalNet/.Note: The global coverage rule is applied (see annex 1A in chapter 1 in this report).2POVERTY AND SHARED PROSPERITY 2020

FIGURE O.2 Trends in Poverty Rates at the US 1.90-a-Day PovertyLine, by Region, 1990–2018706050Percentpoint per year. Given this decelerating trend,the goal of bringing global extreme povertyto less than 3 percent by 2030 was alreadyat risk.In 2018, the World Bank introduced fouradditional poverty metrics to capture thechanging nature of global poverty. Higherpoverty lines at US 3.20 and US 5.50 a dayreflect national poverty lines in lower- middleincome and upper-middle-income economiesrespectively. The societal poverty line, whichadjusts to each country’s income, captures theincrease in basic needs that a person requiresto conduct a dignified life as a countrybecomes richer. The multidimensional povertymeasure incorporates deprivations in threeindicators of well-being (monetary poverty,access to education, and basic infrastructure),thus giving further insight into the complexnature of poverty.This report presents new data on andanalysis of poverty at these lines from 2015to 2017. The findings may help explain someof the impoverishing impacts of the currentcrisis and reveal entry points for policy. InSouth Asia and Sub-Saharan Africa, povertyreduction against the US 3.20 and US 5.50lines has been slower than against the extremepoverty line, suggesting that many millionsof people in these regions had only narrowlyescaped extreme poverty before COVID-19.Those who have just escaped extreme povertycan easily fall back; they are thus especiallyvulnerable to the impoverishing effects of thepandemic, conflict, and climate change. Jobcreation through inclusive growth and socialprotection measures targeting this populationmay yield strong benefits in reversing povertyincreases spurred by the current crisis andpreventing other vulnerable people fromfalling into extreme poverty.What caused the slowdown in global poverty reduction, which was happening evenbefore the pandemic hit? One explanation is theincreasing concentration of extreme povertyin Sub-Saharan Africa, which is experiencinga slower reduction in poverty than are otherregions. Figure O.2 shows the proportion ofthe extreme poor in each region for the period1990–2018. It underscores the concerns forSub-Saharan Africa, but also shows problemselsewhere. The Middle East and North Africahas recently seen its extreme poverty rate rise,4030201001990199419982002East Asia and PacificLatin America and the CarribeanSouth AsiaRest of the world2006201020142018Europe and Central AsiaMiddle East and North AfricaSub-Saharan AfricaSource: PovcalNet (online analysis tool), World Bank, Washington, DC, http://iresearch.worldbank.org /PovcalNet/.Note: Lined-up poverty estimates for South Asia are not reported for 1997–2001 and after 2014 becauseof a lack of population coverage (see box 1.2 on India and annex 1A in chapter 1 of this report). ForSouth Asia in 2017, a range [7.7; 10.0] is reported, as described in box 1.2 in chapter 1 of this report.from 2.3 percent in 2013 to 3.8 percent in 2015; oubled to 7.2 percent in 2018,it then almost dwith conflicts in Syria and the Republic ofYemen driving the increase (Corral et al. 2020).The ability to monitor global povertydepends on the availability of household survey data collected by national authorities.The number of recent household surveys hasimproved somewhat since the first edition ofthis report (World Bank 2016). In particular,the number of surveys and population coverage have improved in Sub-Saharan Africa,driven largely by a new survey that recentlybecame available for Nigeria. But the lackof recent data for India severely hinders theability to monitor global poverty (see box 1.2in chapter 1 of this report). Hence, the lastyear for which global poverty was reported is2017, and the series published for South Asiawas interrupted in 2014, whereas for all otherregions it extends to 2018. Data on countries experiencing fragility or conflict alsoremain severely limited, particularly affectingthe estimates for the Middle East and NorthAfrica. For poverty to be measured effectively, it is crucial that the current crisis notOverview3

prompt governments to reduce their investment in surveys and other forms of datacollection. Under crisis conditions, reliablepoverty data are

As countries work to address these converging shocks, the World Bank Group's new report, Poverty and Shared Prosperity 2020: Reversals of Fortune, presents new data, original . bringing the total number of new people living in extreme poverty to between 110 million and 150 million. Early evidence also suggests that the crisis is poised to .