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COVID-19 and Vulnerability to Poverty

The COVID-19 pandemic has been accompanied by disrupted supply chains, increases in commodity prices and inflation, increased public and private debt, and reduced economic output. Despite secular tendencies to eliminate it, income poverty (see here and here) has increased in 2020 due to transitional conditions. Our most recent research shows an increase in “extreme poverty” of 115 million people in 2021 due to the impact of COVID-19 (Figure 1). In our COVID-19 counterfactual calculations, using different poverty lines and extending the forecast horizon from 2021 to 2030, we observe a dramatic increase in the number of employed people in poverty. The extreme poverty findings discussed here and here show a consensus on the direction and magnitude of the impact of COVID -19 on workers through 2021.

Figure 1. Poverty figures by poverty lineFigure 1. Poverty figures by poverty line

source: elaboration of the author.
Notes: SPL stands for Societal Poverty Line: , where is the daily median level of per capita income or consumption in the household survey. The SPL captures both absolute and relative characteristics of poverty. The global aggregate poverty statistics are derived from 5,000 country-specific annual random simulations from 2021 to 2040. Estimates are based on constant 2011 purchasing power parities. Baseline uses information from 2000–2020 collected before lockdown began. The COVID-19 counterfactual updates the 2020 information regarding growth rates with insights or predictions made in 2021 for the following four variables: country median income, global income, country absolute inequality, and global commodity prices.

Beyond Poverty: Vulnerability to Macro Poverty

COVID-19 had another impact on poverty. With uncertainty about the future of the pandemic and the global economy, COVID-19 has increased the number of people at risk of poverty. We have simulated the evolution of poverty in developing countries by accounting for uncertainty about global economic growth and commodity prices, as well as country-specific factors such as income distribution. Figure 2 shows the uncertainty associated with global extreme poverty across time horizons.

Figure 2. Global extreme poverty and the COVID-19 crisis

Figure 2. Global extreme poverty and the COVID-19 crisis

Source: Author’s Elaboration.
Notes: Results are based on the poverty line of US$1.90 per day in constant 2011 PPPs. Global aggregate poverty statistics are derived from 5,000 country-specific random simulations from 2021 to 2040. Panel A: By 2021 and 2030, the expected poverty rate is 8.3 percent and 5.9 percent with a standard deviation of 0.24 percent and 0.63 percent, and Panel B: By 2021 and 2030, the expected poverty rate is 9.8 percent and 7.3 percent, respectively, with a standard deviation of 0.32 percent and 0.73 percent, respectively.

We then define the population at risk of poverty as those living between the average and the 99.5. percentile of the simulated employment trajectories in poverty. The COVID-19 pandemic is increasing the population at risk of poverty across all poverty lines studied (Figure 3). We call our measure “macro-vulnerability to poverty” to distinguish it from other measures of poverty vulnerability – Dang and Lanjouw (2017) and Lopez-Calva and Ortiz-Juarez (2014).

Figure 3. Vulnerability to poverty by poverty line

Figure 3. Vulnerability to poverty by poverty line

Source: Author’s Elaboration.
Notes: SPL stands for Societal Poverty Line. Baseline and COVID-19 estimates use IMF GDP per capita growth rates reported in October 2019 and April 2021. The results come from 5,000 country-specific random draws per year.

Impact of COVID-19 on vulnerability to poverty

The COVID-19 shock has permanently increased vulnerability to poverty due to significant uncertainty about future global prospects. The short- and long-term impact of the pandemic, as measured by a COVID-19 counterfactual, suggests an increase in the number of people at risk of poverty of between 40 and 107 million people by 2021 and 2030, using the US1.90 poverty line -dollar (Figure 3 ).

Concavity of vulnerability to poverty and number of employees

How does vulnerability to macro-poverty vary across the poverty line? We find a concave relationship between the poverty rate and the risk of poverty (Figure 4). This concavity is shifted up and to the right after the pandemic, indicating that post-COVID-19 society faces more poverty and a greater risk of poverty. The highest macro-poverty risk – the maximum number of people potentially becoming poor beyond absolute poverty lines – in the global income distribution is found to be around the $5.5 mark in both 2021 and 2030 million, with a poverty line between 3, $20 and $5.50.

Figure 4. Global poverty vulnerability and workforce

Figure 4. Global poverty vulnerability and workforce

Source: Author’s Elaboration.
Notes: Baseline and COVID-19 estimates use IMF GDP per capita growth rates reported in October 2019 and April 2021. The results come from 5,000 country-specific random draws per year. Reported poverty figures are median estimates.

Regional vulnerability to extreme poverty

Since the pandemic began, developing regions have increased vulnerability to extreme poverty across all horizons (Figure 5). In 2021, South Asia (SAS) and Sub-Saharan Africa (SSA) were the regions with the most vulnerable populations. In 2030, both the baseline and the COVID-19 counterfactual study show that the East Asia and Pacific (EAP) and SSA regions would have the people most at risk of poverty: around 230 and 290 million people, respectively. The simulations show that Latin America and the Caribbean (LAC) and South Asia SAS will face the largest increases in population at risk of poverty by 2030: approximately 20 million and 55 million, respectively.

Figure 5. Regional poverty vulnerability

Figure 5. Regional poverty vulnerability

Source: Author’s Elaboration.
Notes: Results are based on the poverty line of $1.90 per day in constant 2011 PPPs. HIC stands for high-income countries. Development of regional names: ECA stands for Europe and Central Asia, MNA stands for Middle East and North Africa, SAS stands for South Asia, LAC stands for Latin America and the Caribbean, EAP stands for East Asia and the Pacific, and SSA stands for Sub-Saharan Africa.

The increase in the number of people at risk of extreme poverty is particularly relevant in LAK. By 2030, LAC’s proportion of the population at risk of poverty would be the highest of any region. It would increase from 22 in the baseline to 25 percent in the COVID-19 counterupdate. Likewise, the proportion of the population at risk of poverty in SSA would remain high: 21 percent both at the onset and post-COVID-19 through 2030.

Conclusion

The aggravation of the risk of poverty points to the need to establish or strengthen preventive mechanisms against global and idiosyncratic shocks affecting country and regional development. Safety nets, transfers and other poverty reduction programs should be planned and monitored, including the latency of people falling into poverty. Vulnerability metrics such as those described here should play a key role in diagnosing downside risks affecting poverty eradication.

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