Future Development

The impact of COVID-19 on global extreme poverty

How has COVID-19 affected extreme income poverty across the world? We may never know the full answer. Poverty data is typically drawn from household surveys, and for obvious reasons it is nigh impossible to conduct proper surveys under current conditions in many countries. But we do know that the strongest driver of poverty is economic growth and for this indicator, the International Monetary Fund has just produced new estimates for 2020 and beyond from which inferences can be made as to the impact on poverty. Interested readers can access poverty estimates for every country in the world on the World Poverty Clock, a tool with which I am associated.

The results are sobering. Table 1 shows topline figures, built up from an analysis of 183 countries for which data is reported.

The first row of Table 1 shows a baseline of poverty estimates made in late 2019. A total of 650 million people were thought to be in extreme poverty in 2019 and, given likely growth trajectories, poverty was on a path of a steady reduction in most countries, as well as in the aggregate.

Today, the pattern is quite different. Some small data updates affect the historical record—2019 may have been a better year than previously believed, with slightly fewer poor people in the world. But in 2020, the impact of collapsing growth will be substantial.

Compared to 2019, poverty in 2020 could rise by 120 million people. Compared to the baseline path for poverty, the 2020 figure is 144 million people higher. Some of this will be offset as economies start to recover in 2021, but the longer-term scenario suggests that half of the rise in poverty could be permanent. By 2030, the poverty numbers could still be higher than the baseline by 60 million people.

Figure 1 shows the top 10 countries where extreme poverty is likely to rise the most. Far and away the biggest impact is likely to be felt in India. India is a particular case in having a large number of highly vulnerable people, only recently escaped from poverty, coupled with a very significant expected fall in economic growth. India’s per capita growth rate for 2020 has been revised downwards to about -11 percent this year, one of the deepest recessions in the world. This has sharply altered its poverty trajectory that had been trending downwards. India recently gave up its title as the country with the largest number of extreme poor to Nigeria but will reclaim its title this year, adding 85 million people to its poverty rolls in 2020.

COVID-19 is widely viewed as a temporary shock to economic growth, and indeed the experience of China, which has had a sharp V-shaped recession and recovery, shows this could be the case. For the majority of countries, however, the economic damage could be more long-lasting, and this is the real risk to families that have been pushed below the poverty line. The experience of living with poverty for short periods of time is harsh, but some families have coping mechanisms—assets they can sell, assistance from governments, relatives, and neighbors. But over longer periods of time, poverty leaves permanent scars—malnutrition, susceptibility to disease, missed schooling. For this reason, it is useful to look at the longer-term impact of COVID-19 on poverty, despite all the caveats associated with any decadelong economic forecasts.

Figure 2 provides an estimate of the countries that could have the deepest, long-lasting impact of COVID-19 on poverty. With the exception of Venezuela and Yemen, they are all in Africa. The Asian countries that appear in Figure 1—Bangladesh, India, and the Philippines—disappear from Figure 2 because trend growth rates in Asia are higher, so the impact of recession on poverty is quickly reversed. By contrast, in the African countries that are listed in Figure 2, trend economic growth is slow, so the impact of COVID-19 could set back development for several years. Indeed, for some of the countries with high levels of poverty, like Nigeria and the Democratic Republic of Congo, poverty numbers in 2030 could exceed those in 2020.

The countries listed in Figure 2 are those where the largest effort is needed to offset COVID-19’s impact on the poorest families, by international and domestic, official, and philanthropic actors.

The growing role of cash transfers

While the trajectories summarized above look grim, they are not set in stone. An important lesson from the response to COVID-19 is that cash transfers to poor households can be quickly and effectively deployed. Several countries now have digitized rolls of families eligible for social assistance, along with a capability of making cash payments directly into bank accounts or into mobile wallets from which cash can be extracted at registered dealers. For example, Pakistan introduced the Ehsaas Emergency Relief program in April 2020, designed to provide 12 million families with a cash equivalent of $75. Thanks to a national registration scheme, families could simply send an SMS message to a designated number with their ID number to find out if they were eligible to receive support or not. Simple criteria such as foreign travel, vehicle registration, and monthly phone bill were cross-checked against broader socioeconomic data to determine eligibility. Once eligibility was confirmed, a family member could use a previously issued biometric ID card to receive cash at any one of 18,000+ branches of two local banks.

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Not all countries have such systems in place. But they could. The largest digital ID system in the world is India’s Aadhar unique identification, with over 1.2 billion people registered. A similar approach could be used for a digital moonshot that would register all Africans within a decade at modest cost.

If such systems could be put in place, extreme poverty could be eradicated at a global cost of around $100 billion. This is the size of the poverty gap, post-COVID-19. Figure 3 shows that the number had already stabilized at around $90 billion before COVID-19, and has now been pushed higher.

The poverty gap can be filled by a combination of domestic and international resources. It can be compared to official aid of $105 billion in 2018 (net disbursements to developing countries). It is less than the $130 billion in debt service owed by developing countries in 2020, of which about half will go to private lenders. It is well under 1 percent of the $11 trillion being spent by advanced economies to protect their own citizens and businesses from the impact of COVID-19. It is a fraction of the $2.5 trillion that the IMF has indicated that developing countries should spend to respond appropriately to COVID-19.

There is no technological or financial reason to accept the reversals in global poverty being wrought by COVID-19. The damage is due to a lack of political will and international leadership on the issue.