The Impact of COVID-19 on Global Poverty:

Submission to International Development Committee Enquiry

Andy Sumner, Professor of International Development, King’s College London

Email: andrew.sumner@kcl.ac.uk

16 April 2020

Key Points

a)      The impacts of COVID-19 are starting to be felt in developing countries. The IDC enquiry is welcome as the impact on poorer countries has received less attention to date;

b)     Global poverty could increase for the first time since 1990. In some regions – such as sub-Saharan Africa, the adverse impacts could result in poverty levels similar to those recorded 30 years ago;

c)      We find that: 5% economic contraction of mean consumption could raise global poverty headcounts by 80–140 million people; 10% contraction by 180–280 million people; and 20% contraction by 420-580 million people. 

What Should Be Done?

a)       In the immediate term, there is an overwhelming need for the full range of safety nets and social protection policies – to be initiated, expanded, and multiplied in all middle-income and low-income countries as soon as possible;

b)       Medium-term questions emerge about prioritising the financing and provision of basic healthcare, including the funding of public health agencies across developing countries as part of the Sustainable Development Goals (SDG) package;

c)       The COVID-19-related impacts demonstrate the ongoing need for the UK to maintain a strong international development role with a separate and poverty-focused government department at the centre of that effort. DFID could prioritise public health care support during the crisis period. COVID-19 underlines an ongoing need for the transfer of concessional resources.

The Impact of COVID-19 on Global Poverty

The impacts of COVID-19 are starting to be felt in developing countries. The IDC enquiry is welcome as the impact on poorer countries has received less attention to date. Our estimates show that, regardless of the scenario, global poverty could increase for the first time since 1990. Depending on the poverty line, such increase could represent a reversal of approximately 10 years in the world’s progress in reducing poverty. In some regions the adverse impacts could result in poverty levels similar to those recorded 30 years ago.

We made new estimates of the short-term impact that COVID-19 could have on global poverty due to direct consumption shocks (see Sumner et al., 2020). We use the World Bank’s PovcalNet dataset, which has the advantage of a higher coverage both in terms of the number of countries (about 160) and individuals included (countries’ entire population). We considered a set of contractions to household per capita consumption and asked what these could mean for global poverty at the World Bank’s three global poverty lines of US$1.90, US$3.20, and US$5.50 per day.

Startlingly, we found that global poverty could rise by half a billion people. Our estimates (see figures) show that a 5% contraction of mean consumption could raise global poverty headcounts at US$1.90, US$3.20, and US$5.50 per day by 80–140 million people. However, a 10% contraction could raise global poverty by 180–280 million people. A 20% contraction could raise global poverty by 420-580 million.

Global poverty headcount ratio, 1990–2018 and projections. Source: Sumner et al., 2020.

Our estimates have limitations of course. First, we have a set of consumption contractions applied to all countries. We do not know which of our three scenarios is closest to the final version, and consumption changes may differ across countries. Furthermore, we are assuming that such contractions are distribution-neutral. Secondly, we should not forget that there are other transmission channels from the pandemic to poverty beyond changes in consumption. Thirdly, there are other types of poverty that we are not measuring, such as deprivations in health itself that cannot be captured in consumption losses. Finally, as Gentilini et al.’s (2020) recent review of global policy responses to COVID-19 has shown, many governments in middle-income developing countries have already introduced or adapted social protection and jobs programmes, most notably cash transfer initiatives. Thus, to some extent the full impacts might be mitigated.

What Questions Arise and What Should Be Done?
 

In the immediate term, there is an overwhelming need for the kinds of programmes Gentilini et al. (2020) identify (the full range of safety nets and social protection) to be initiated, expanded, and multiplied in all middle-income and low-income countries as soon as possible. In the longer term, questions emerge about how to provide basic healthcare for all as part of the SDG package and how that is to be financed. On the UK front COVID-19-related impacts demonstrate the ongoing need to maintain a separate and strong international development ministry. Hence, it would seem prudent to retain DFID as an independent and poverty-focused ministry in light of potentially large increases in global poverty. Additionally, COVID-19 underlines the continuous need for concessional resources transfers.

References

Gentilini, U., Almenfi, M., & Orton, I. (2020). Social Protection and Jobs Responses to COVID-19: A Real-Time Review of Country Measures. Available at: http://www.ugogentilini.net/wp-content/uploads/2020/03/global-review-of-social-protection-responses-to-COVID-19-2.pdf.

Sumner, A., Hoy, C., & Ortiz-Juarez, E. (2020). Estimates of the Impact of COVID-19 on Global Poverty. UNU-WIDER Working Paper 2020/43. Helsinki: UNU-WIDER. Available at: https://www.wider.unu.edu/publication/estimates-impact-covid-19-global-poverty.