• Wednesday, January 28, 2015

ADB suggests 'realistic' criteria to gauge poverty

Rejaul Karim Byron and Md Fazlur Rahman

The number of the poor in Asia would jump more than one billion if more realistic criteria are used for measuring poverty, the Asian Development Bank said in its latest report.
The report also termed the existing scale of gauging poverty outdated and inappropriate for the continent.
In its Key Indicators for Asia and the Pacific 2014, the Manila-based lender said fast growth has made Asia a role model in reducing extreme poverty—measured by the conventional $1.25 poverty line. However, that fast growth has been accompanied by rising food insecurity and vulnerability.
The number of the poor in Asia would rise from 473 million to 1.5 billion as of 2015 if the poverty threshold was raised to $1.51 a day and rapidly rising food prices and vulnerability to shocks were taken into account, it said.  
That would push the poverty rate in Asia, up from 12.7 percent to 41.2 percent.
As a result, the ADB said, poverty will remain a serious challenge for Asia including those already in the middle-income segment—well beyond 2030.
The report said measures of poverty failed to take account of food insecurity and vulnerability to economic shocks and natural disasters, which means many people move in and out of poverty from year to year.
The report said the existing poverty line of $1.25 a day was not enough to maintain minimum welfare in many parts of the region.
"To start with, the extreme poverty line of $1.25 no longer works for Asia. It was largely based on African data and is also outdated. More recent data is needed," the bank said.
"A fuller understanding of poverty is needed to help policymakers develop effective approaches to address this daunting challenge," said Shang-Jin Wei, the newly appointed chief economist of the ADB, according to a Financial Times article.  
The report finds that food insecurity-adjusted poverty line for Bangladesh was $1.32 per person per day in 2010 and vulnerability-adjusted poverty line was $1.38 per person per day.  
They correspond to 47.8 percent and 50.9 percent poverty rates for Bangladesh in 2010.  These rates are higher than the 43.5 percent poverty incidence in Bangladesh in 2010 based on the $1.25 per person per day line.  

Asia and the Pacific will likely see extreme poverty eradicated by 2025, when measured using the current conventional extreme poverty line of $1.25/ person/day.
However, the ADB said, this measure does not give a complete picture of extreme poverty in the region. First, the lender argued, the $1.25 poverty line is based on 1988-2005 data, highly weighted by Africa.
"Therefore, it is not just outdated, but inappropriate for measuring poverty in Asia. When updated Asian data is used, the result is a $1.51 regional poverty line."
Using this, an additional 343.20 million people in 2010 were identified as extremely poor, which resulted in the 2010 regional poverty rate climbing to 30.5 percent, instead of the 20.7 percent more commonly cited.
Second, the report said, food insecurity has become an emerging challenge for many countries in the region.
With food prices rising much faster in recent years than consumer prices generally—with price volatility up as well—the near-poor find it more difficult to meet basic nutritional needs.
"When factored in, food insecurity adds 4 percentage points to the region's poverty rate, increasing the number of Asia's extreme poor in 2010 by 140.52 million."
With urbanisation likely to divert more land and water resources away from food production, food insecurity will remain a key development challenge for years to come.
And third, the ADB said, low income households face increasing vulnerability from various risks or shocks such as those from frequent natural disasters and illness.
Using a vulnerability-adjusted poverty line adds another 417.99 million people to the number of extreme poor in 2010 identified under the $1.25 poverty line.
Combining these factors—notwithstanding possible overlaps—offers a more complete picture of extreme poverty in Asia and the Pacific. Thus, in 2010, 1,750.42 million Asians, or 49.5 percent, could be considered living in extreme poverty, instead of 733.06 million (20.7 percent).
The bank said economic growth, prudent macroeconomic management and good governance remain fundamental to confront these realities. Also, regional cooperation can be helpful.
Zahid Hussain, lead economist of World Bank in Dhaka, said the pace of poverty reduction between 2005 and 2010 is almost the same no matter which line is used.  
Based on the $1.25 a day line, the poverty rate declined from 49 percent in 2005 to 43.5 percent in 2010 -- a decline of 5.5 percentage points.  
Based on vulnerability-adjusted poverty line of $1.38 a day, poverty rate declined from 56.4 percent in 2005 to 50.9 percent in 2010 -- a decline of 5.5 percentage points, exactly the same as in the $1.25 a day line, Hussain said.
"The report is insightful, but the debate on what is an appropriate poverty line for a country, region and the globe is not new," he told The Daily Star.   
One has to appreciate the compulsion that global poverty reduction targets require a global poverty line. "We could set regional poverty reduction targets based on regional poverty lines. But then the poverty rates will cease to be comparable across regions and so it will not be possible to debate meaningfully how far we have succeeded in achieving global poverty reduction targets."
Hussain said, this report does not say anything about how to construct an international poverty line based on the adjustments made to reconstruct the Asian poverty line.  
These adjustments include using updated Asian data which raises the Asian poverty line to $1.51 per person per day, he said.
This is further adjusted to account for food insecurity and vulnerability to arrive at a combined poverty line which varies from region to region and country to country within a region and by geographic areas within a country.
"At the end of the day, what matters is what we learn about the trends and determinants of poverty and what we do about it."

Published: 12:00 am Monday, August 25, 2014

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