Poverty and Shared Prosperity 2022: Correcting Course

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ISBN (paper): 978-1-4648-1893-6

ISBN (electronic): 978-1-4648-1894-3

DOI: 10.1596/978-1-4648-1893-6

Cover design: Bill Pragluski, Critical Stages, LLC

Interior design: Ricardo Echecopar, Beyond SAC

Library of Congress Control Number: 2022947109.

Contents

Boxes

Figures

Map

Tables

Foreword

COVID-19 marked the end of a phase of global progress in poverty reduction. During the three decades that preceded its arrival, more than 1 billion people escaped extreme poverty. The incomes of the poorest nations gained ground.

By 2015, the global extreme-poverty rate had been cut by more than half. Since then, poverty reduction has slowed in tandem with subdued global economic growth. The economic upheavals brought on by COVID-19 and later the war in Ukraine produced an outright reversal in progress. It became clear that the global goal of ending extreme poverty by 2030 would not be achieved. Given current trends, 574 million people—nearly 7 percent of the world’s population—will still be living on less than US$2.15 a day in 2030, with most in Africa.

In 2020 alone, the number of people living below the extreme poverty line rose by over 70 million. That is the largest one-year increase since global poverty monitoring began in 1990. Looking at poverty more broadly, nearly half the world—over 3 billion people—lives on less than US$6.85 per day, which is the average of the national poverty lines of upper-middle-income countries. Using that measure, poverty persists well beyond Africa. The prevalence and persistence of poverty darken the outlook for billions of people living around the world.

The data confirm that the income losses of the poorest 40 percent of world’s population were twice as high as those of the richest 20 percent. Global median income declined by 4 percent in 2020—the first decline since our measurements of median income began in 1990. This decline represents a major setback for the goal of shared prosperity. The poorest also suffered disproportionate setbacks in education and health, with massive learning losses and shortened lifespans. These setbacks, if left unaddressed by policy action, will have lasting consequences for people’s lifetime income prospects and for development more broadly.

This latest Poverty and Shared Prosperity report offers the first comprehensive look at the global landscape of poverty in the aftermath of COVID-19 and the war in Ukraine. It outlines the limits of current fiscal policies for poverty reduction in low- and lower-middle-income economies, and points to the importance of reviving economic growth. It also shows the potential of fiscal-policy reforms to help reduce poverty and support broad-based growth and development.

Strong fiscal policy measures made a notable difference in reducing COVID-19’s impact on poverty. In fact, the average poverty rate in developing economies would have been 2.4 percentage points higher without a fiscal response. Yet government spending proved far more beneficial to poverty reduction in the wealthiest countries, which generally managed to fully offset COVID-19’s impact on poverty through fiscal policy and other emergency support measures. Developing economies had fewer resources and therefore spent less and achieved less: upper-middle-income economies offset just 50 percent of the poverty impact, and low- and lower-middle-income economies offset barely a quarter of the impact.

The rise in poverty in poorer countries reflects economies that are more informal, social protection systems that are weaker, and financial systems that are less developed. Yet several developing economies achieved notable successes during COVID-19. Helped by digital cash transfers, India managed to provide food or cash support to a remarkable 85 percent of rural households and 69 percent of urban households. South Africa initiated its biggest expansion of the social safety net in a generation, spending US$6 billion on poverty relief that benefited nearly 29 million people. And Brazil managed to reduce extreme poverty in 2020 despite an economic contraction, primarily using a family-based digital cash-transfer system.

In short, fiscal policy—prudently used and considering the initial country conditions in terms of fiscal space—does offer opportunities for policy makers in developing economies to step up the fight against poverty and inequality. To realize the potential of fiscal measures, the report calls for action on three fronts:

•Choose targeted cash transfers instead of broad subsidies. Half of all spending on energy subsidies in low- and middle-income economies went to the richest 20 percent of the population, who also happen to consume more energy. Targeted cash transfers are a far more effective mechanism for supporting poor and vulnerable groups: more than 60 percent of spending on cash transfers goes to the bottom 40 percent. Cash transfers also have a larger impact on income growth than subsidies.

•Prioritize public spending for long-term growth. COVID-19 has underlined how progress achieved over decades can vanish suddenly. High-return investments in education, research and development, and infrastructure projects should be made now. Governments need to improve their preparation for the next crisis. They also should improve the efficiency of their spending. Better procurement processes and incentives for public sector managers can boost both the quality and efficiency of government spending.

•Mobilize tax revenues without hurting the poor. This can be done by introducing property taxes, broadening the base of personal and corporate income taxes, and reducing regressive tax exemptions. If indirect taxes need to be raised, their design should minimize economic distortions and negative distributional impacts, and they should be accompanied with targeted cash transfers protecting the incomes of the most vulnerable households.

Restoring progress in poverty reduction is possible when helped by strong and broad-based economic growth—not only in the poorest economies but in middle-income economies as well. The policy reforms outlined in this report can help in achieving the necessary course corrections, recognizing that it will likely require stronger global growth and focused policy adjustments.

David Malpass

President

World Bank Group

Acknowledgments

The preparation of this report was co-led by Jed Friedman and Ruth Hill. The core team included Jessica Adler, Pierre Bachas, Katy Bergstrom, Ben Brunckhorst, Benoit Decerf, Uche Ekhator-Mobayode, Yeon Soo Kim, Christoph Lakner, Daniel Gerszon Mahler, Marta Schoch, Mahvish Shaukat, Mariano Sosa, Samuel Kofi Tetteh-Baah, Matthew Wai-Poi, and Nishant Yonzan. The extended team included, Evie Calcutt, Andres Castaneda, Mark Conlon, Leif Jensen, Jose Ernesto Lopez-Cordova, Arthur Galego Mendes, Rose Mungai, Minh Cong Nguyen, Stephen Michael Pennings, Tatiana Skalon, Veronica Montalva Talledo, Marika Verulashvili, Martha Viveros, and Kushan Sanuka Weerakoon, all of whom provided key inputs. Jessica Adler was project coordinator, and Anna Regina Rillo Bonfield, Karem Edwards, and Claudia Gutierrez provided general support to the team.

The authors are especially appreciative of the Poverty and Inequality Data Team; the Data for Goals (D4G) Team, in particular Carolina Diaz-Bonilla, Minh Cong Nguyen, and Rose Mungai; and the regional statistical teams for their tireless work to ensure consistency and accuracy in global poverty monitoring and projections. The authors benefitted from discussions with the staff of the International Comparison Program Global Office at the World Bank, particularly Maurice Nsabimana, Marko Olavi Rissanen, and Mizuki Yamanaka.

This work was conducted under the general direction of Deon Filmer, Haishan Fu, and Carolina Sánchez-Páramo, with additional input from Benu Bidani, Luis Felipe Lopez-Calva, Berk Ozler, and Umar Serajuddin. The team is also grateful for the overall guidance received from Indermit Gill, Aart Kraay, and Carmen Reinhart.

The report would not have been possible without the communications, editorial, and publishing teams. Elizabeth Howton, Anugraha Palan, and Joe Rebello led the communications strategy and engagement, with support from Paul Blake, Paul Gallagher, Nicholas Nam, Inae Riveras, Shane Kimo Romig, Torie Smith, and Nina Vucenik. The report was edited by Gwenda Larsen, Catherine Lips, Sabra Ledent, Honora Mara, and Sara Proehl, and designed by Ricardo Echecopar and Bill Pragluski. Alberto Cairo and Divyanshi Wadhwa provided data visualization services. Mary Fisk, Amy Lynn Grossman, Patricia Katayama, and Yaneisy Martinez from the World Bank Group’s Publishing Program managed the editing, design, typesetting, translation, and printing of the report.

The team gratefully acknowledges the advice from peer reviewers and external advisers. Peer reviewers for this report included Paloma Anos Casero, Dean Jolliffe, Ambar Narayan, Norbert Schady, and Celine Thevenot. External advisers included Stefan Dercon, Nathan Hendren, and Nora Lustig. Patrick Heuveline also provided expert guidance. In addition, the team would like to thank the many World Bank colleagues who provided comments during the preparation of this report. In particular, the team is grateful for comments from Alan Fuchs, Ugo Gentilini, Alvaro Gonzalez, Chadi Bou Habib, Alaka Holla, Gabriela Inchauste, Maria Ana Lugo, Johan Mistiaen, Yuko Okamura, Pierella Paci, and Rinku Murgai. The team also benefited from many helpful discussions with teams across the World Bank Group, including the Office of the Chief Economist of the Human Development Global Practice.

The report is a joint project of the Development Data and Development Research Groups in the Development Economics Vice Presidency, and the Poverty and Equity Global Practice in the Equitable Growth, Finance and Institutions Vice Presidency of the World Bank. Financing from the government of the United Kingdom helped support analytical work through the Data and Evidence for Tackling Extreme Poverty Research Programme.

About the Team

Co-Leads of the Report

Jed Friedman is a lead economist in the Development Research Group (Poverty and Inequality Team) at the World Bank. His research interests include the measurement of well-being and poverty as well as the evaluation of health and social policies. His current work involves investigating the effectiveness of health financing reforms, assessing the nutritional and development gains from early life investment programs, and incorporating new approaches to survey-based well-being measurement. Jed’s previous work has appeared in the Journal of the European Economic Association, the Review of Economics and Statistics, the Journal of Development Economics, the Journal of Human Resources, The Lancet, and other outlets. Jed holds a BA in philosophy from Stanford University and a PhD in economics from the University of Michigan.

Ruth Hill is a lead economist in the Global Unit of the Poverty and Equity Global Practice at the World Bank. Previously, she worked in the Sub-Saharan Africa and South Asia units on rural income diagnostics, poverty assessments, systematic country diagnostics, and an urban safety net project. From 2019 to 2021, Ruth was on external service as the chief economist at the UK government’s Centre for Disaster Protection. Before joining the World Bank in 2013, she was a senior research fellow at the International Food Policy Research Institute, where she conducted impact evaluations on insurance, credit, and market interventions. Ruth has published in the Journal of Development Economics, World Bank Economic Review, Economic Development and Cultural Change, Experimental Economics, the American Journal of Agricultural Economics, and World Development. She has a DPhil in economics from the University of Oxford.

Core Team

Jessica Adler is a senior operations officer in the World Bank’s Global Unit of the Poverty and Equity Global Practice. She supports the delivery of the Poverty and Equity work program, including strategy and program design, operational advice, quality assurance, portfolio management, and results monitoring. Jessica also serves as the program manager for the Umbrella Facility for the Poverty and Equity trust fund. She holds a BA in international economics from George Washington University and an MPP from George Mason University.

Pierre Bachas is an economist in the Development Research Group (Macroeconomics and Growth Team) at the World Bank. His research focuses on public finance in developing countries, in particular, on optimal tax design and challenges to tax collection faced by low- and middle-income countries as a result of tax evasion, informality, and differences in economic structure. Prior to joining the World Bank, Pierre was a postdoctoral researcher at Princeton University. He holds a PhD in economics from the University of California, Berkeley.

Katy Bergstrom is an economist in the World Bank’s Development Research Group (Poverty and Inequality Team). Her research interests lie at the intersection of public and development economics, specifically in optimal taxation and redistribution in developing countries, the determinants of income inequality, and investment differentials among children. Katy holds a BS in economics and mathematics from the University of Canterbury, New Zealand, and a PhD in economics from Stanford University.

Ben Brunckhorst is a consultant in the Global Unit of the Poverty and Equity Global Practice at the World Bank. His research interests include climate change and poverty, disaster risk finance, and public infrastructure investment. Before joining the World Bank, he was a research assistant at the University of Oxford and the UK government’s Centre for Disaster Protection. Ben holds bachelor degrees in engineering and economics from the University of Queensland, and an MSc in economics for development from the University of Oxford.

Benoit Decerf is a research economist in the Development Research Group at the World Bank. He is an applied micro-theorist whose research interests include poverty measurement, welfare economics, and mechanism design. His current research on poverty measurement focuses on the design of poverty indicators aggregating different dimensions of deprivation, for example, combining subsistence and social participation, or combining poverty and mortality. Benoit holds an MS from the Katholieke Universiteit Leuven and a PhD from the Université Catholique de Louvain, both in Belgium.

Uche Ekhator-Mobayode is a World Bank Young Professional in the Global Unit of the Poverty and Equity Global Practice. She was previously an assistant professor of economics at the University of Pittsburgh at Bradford. Her previous World Bank experience includes one year with the pioneer cohort of the Forced Displacement Research Fellowship in 2018, and as a consultant on the Gender Dimensions of Forced Displacement project with the Global Gender Unit. Uche completed her PhD in economics at Northern Illinois University.

Yeon Soo Kim is a senior economist in the Global Unit of the Poverty and Equity Global Practice, where she co-leads the global program on the distributional impact of the COVID-19 crisis. She previously worked in the Europe and Central Asia and South Asia regions and was based in the Sri Lanka country office from 2018 to 2021. Yeon Soo has led and contributed to reports on a wide range of topics, including poverty, inequality, fiscal incidence, informality, and spatial disparities. Before joining the World Bank, she was an associate research fellow at the Korea Development Institute, where she worked on labor and health issues. She holds a PhD in economics from the University of Maryland, College Park.

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 of opportunity and growth, the implications of regional price differences for inequality, and the income composition of top incomes. He is also involved in the World Bank’s global poverty monitoring. Christoph leads the Poverty and Inequality Data Team, which publishes the Poverty and Inequality Platform, the home of the World Bank’s global poverty numbers. He holds a BA in economics, an MPhil, and a DPhil from the University of Oxford.

Daniel Gerszon Mahler is an economist in the Development Data Group, where he is part of the Sustainable Development Statistics Team and the team behind the Poverty and Inequality Platform. Prior to joining the World Bank, he was a visiting fellow at Harvard University’s Department of Government and worked for the Danish Ministry of Foreign Affairs. He holds a PhD in economics from the University of Copenhagen. Daniel conducts research related to the measurement of poverty, inequality, and well-being.

Marta Schoch is a consultant in the Development Data Group at the World Bank, contributing to the group’s work on global poverty and inequality measurement. Her research interests are in political economy, inequality, and poverty, with a focus on the formation of political preferences and its link with inequality. Since she joined the World Bank in 2020, she worked on the Poverty and Shared Prosperity Report 2020 and contributed to the Nigeria Poverty Assessment 2022. Previously, she worked for the University of Sussex, the Migrating out of Poverty Research consortium, and the Imperial College London. Marta holds a PhD in economics from the University of Sussex.

Mahvish Shaukat is an economist in the World Bank’s Development Research Group (Macroeconomics and Growth Team). Her research studies issues in governance, political economy, and public finance, with the goal of understanding how institutions and incentives shape state efficacy and citizen welfare. Mahvish holds a PhD in economics from the Massachusetts Institute of Technology.

Mariano Sosa is a consultant for the Global Unit of the Poverty and Equity Global Practice at the World Bank. His research interests include public finance and fiscal policy. His areas of expertise are fiscal incidence analysis, social policy, and the redistributive impact of fiscal policy in developing countries. Before joining the World Bank, Mariano was a research fellow for the Research Department of the Inter-American Development Bank. He holds an MPA in international development from Harvard Kennedy School.

Samuel Kofi Tetteh-Baah is a consultant in the Development Data Group at the World Bank, Washington, DC. He generally works on the empirical analysis of poverty and inequality. He has primarily been assessing the impact of purchasing power parity data on global poverty estimates. He holds a PhD in development economics from the Swiss Federal Institute of Technology, Zürich, Switzerland.

Matthew Wai-Poi is a lead economist in the World Bank’s Poverty and Equity Global Practice, where he supports the regional work program in East Asia and Pacific on understanding and addressing poverty and inequality, as well as on topics such as the middle class, top incomes, female labor force participation, and the distributional impacts of climate change. He is also global lead for the Distributional Impacts of Fiscal and Social Policies. Previously, also at the World Bank, he worked on poverty and inequality issues in the Middle East and North Africa, including the role of gender and displacement, and was based in Jakarta for eight years. He was co-editor of the recent flagship report on Targeting in Social Assistance and has published in the Journal of Political Economy and American Economic Association Papers and Proceedings, among others. Matthew has a PhD in economics from Columbia University and degrees in law and business. He worked in management consulting before joining the World Bank.

Nishant Yonzan is a consultant for the Development Data Group (Poverty and Inequality Data Team) at the World Bank, contributing to the group’s global agenda on measuring poverty and inequality. His research interests include the measurement and the causes and consequences of economic poverty and inequality. Some of his work has highlighted the role of institutions in shaping economic distributions and civil conflict, the impact of COVID-19 on poverty and inequality, the effect of cash transfers on fertility, and the differences in top incomes captured in survey and tax data. Nishant holds a PhD in economics from the Graduate Center of the City University of New York.