unctad.org | EXTREME POVERTY IN LDCs WILL WORSEN IF CURRENT TRENDS PERSIST
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EXTREME POVERTY IN LDCs WILL WORSEN IF CURRENT TRENDS PERSIST
but can be slashed by doubling average household incomes, says new UNCTAD report

TAD/INF/PR/44
18 June 2002

The number of people living on less than $1 a day in the world´s least developed countries will reach at least 420 million by 2015 if current economic trends continue, warns UNCTAD´s Least Developed Countries Report 2002 (1), released today. The Report - the first analysis of poverty in all the LDCs - presents a new set of poverty estimates showing that extreme poverty in these countries, which is defined using the $1-a-day international poverty line, has doubled over the past 30 years, to 307 million. However, such poverty can be dramatically slashed by doubling average household living standards, the Report finds.

This is because of the poverty-reducing effects of economic growth in low-income countries where the majority of the population live at or below income levels sufficient to meet their basic needs. In fact, if real private consumption per capita in a given country doubled from $400 to $800 a year, the percentage of the population subsisting on less than $1 a day would shrink from 65% to less than 20% (see chart).

The precise way that poverty falls as consumption rises, and how this varies between $1-a-day and $2-a-day poverty, is an important discovery. The power of rising average consumption to reduce extreme poverty in low-income countries has not been apparent in currently used international poverty statistics owing to unreconciled discrepancies between national accounts and household survey estimates of private consumption. Advice on poverty reduction policies has been distracted by these discrepancies, focusing on the apparently large variations in the incidence of poverty in countries with similar GDP per capita indicated by currently used estimates. By anchoring the new poverty estimates in national accounts (see sidebar), the relationship between growth and poverty can be more properly identified.

Increases in overall GDP per capita, of course, do not necessarily mean increases in per capita private consumption. For example, when growth occurs through expansion of mining or oil exports in an isolated capital-intensive enclave development, rising GDP per capita does not often lead to poverty reduction. But although increasing inequality normally occurs in the early stages of development, the poverty curves show that a type of national economic growth which raises average household living standards will dramatically reduce poverty.

UNCTAD´s new poverty estimates differ significantly from current international poverty estimates which are not anchored in national accounts but rather based on sample surveys of household income and consumption. The new estimates indicate that whilst the proportion of the population living in extreme poverty is lower in other developing countries, the severity of poverty in the poorest countries, and particularly in Africa, has hitherto been underestimated. They have also enabled UNCTAD to establish a clear link between extreme poverty and commodity dependence and to propose a new design for future poverty reduction strategies (see TAD/INF/PR45 and 46).

According to the new estimates, the least developed countries have become the major locus for extreme poverty in the global economy. But this does not mean there is no poverty problem in other developing countries. What these countries also face is a high proportion of their population living on less than $2, $3 or $4 a day. The incidence of poverty is still unacceptably high in all developing countries, and even where living standards are rising, they are not always accompanied by better social conditions. Many poor people may have a television, for example, but still live in violence-ridden shantytowns and have little access to clean water, basic sanitation, rudimentary health care or education.

UNCTAD´s new poverty estimates underline the scale of the challenge of achieving the international development goal of halving the incidence of extreme poverty between 1990 and 2015. No matter which poverty estimates are used, LDCs are not on-track to meet the target, whilst other developing countries are. The challenge is particularly difficult in those LDCs that are highly dependent on primary commodity exports.

But the new estimates also point to the opportunity that can be grasped if better national and international policies are put in place. On the basis of present trends, the Report is predicting at the very minimum a 113-million increase in the extremely impoverished population of the LDCs by 2015. If, however, GDP grows by 7% -- which is a goal of the Programme of Action adopted by the Third United Nations Conference on the Least Developed Countries (Brussels, 2001) -- and private consumption rises commensurately, the number could actually drop by at least 89 million, thus achieving the international poverty reduction goal.

  • The poverty curves show how the proportion of a country´s population living on less than $1 a day or $2 a day will normally fall as the average annual private consumption per capita rises.
  • If real private consumption per capita in a country rises from $400 to $800 a year, the share of the population living on less than $2 a day will normally fall from 90% to about 60%. At the same time, the share of the population living on less than $1 a day will normally fall from 65% to under 20%.
  • Once the average private consumption per capita exceeds $1000, further increases have much smaller effects on extreme poverty and special programmes targeted at the extremely poor become necessary.
  • The data on which the poverty curves are based refer to a sample of LDCs and low-income and lower-income countries in Africa and Asia.The two poverty lines and the level of private consumption are estimated in constant 1985 dollars adjusted for purchasing power parity (PPP) to take account of the differences in the cost of living between countries.
  • Four out of every five people in the LDCs were living on less than $2 a day in 1995-1999, according to the new UNCTAD estimates, with their average private consumption just above the $1-a-day poverty line, at $1.03 a day.
  • Poverty is particularly severe in the African LDCs, which account for 34 of the 49 countries in this group. The share of the population living on less than $1 a day rose from 56% in the second half of the 1970s to 65% in the second half of the 1990s. Their average daily consumption fell from 66 cents to 59 cents a day over the same period.
  • In the second half of the 1990s, almost nine out of 10 people in African LDCs were living on less than $2 a day. Their average consumption was just 86 cents a day, as compared with $41 a day in the United States.
  • Asian LDCs have been doing better. Between the second half of the 1970s and the second half of the 1990s, the share of people living on less than $1 a day fell from 36% to 23% in 1995-1999. Their average daily consumption rose from 85 cents to 90 cents a day.
  • In the second half of the 1990s, two thirds of the population of Asian LDCs were living on less than $2 a day. Their average consumption was $1.42 a day.

Technical details on the new poverty estimates (sidebar)

The poverty estimates behind the poverty curves (see chart) are national-accounts-consistent poverty estimates. They differ from currently used international poverty statistics which are based on surveys that use questionnaires to estimate household income and household consumption expenditure for a representative sample of the national population. But few such surveys have been conducted in the LDCs for a long enough period of time to enable any meaningful international comparisons of changes in poverty.

National-accounts-consistent poverty estimates, in contrast, are anchored in economic data compiled by almost every country on the annual national level of private consumption. The method of calculating poverty is the same as for household-survey-based estimates. But whereas the latter combine the mean consumption level of the household sample survey with the distribution of consumption amongst households, national-accounts-consistent poverty estimates combine average private consumption per capita from the national accounts with the distribution of consumption from the household survey data.

Differences between the two types of poverty estimates arise because of discrepancies between national accounts and household survey estimates of private consumption. The latter are higher than the former in the poorest countries, which translates into a lower incidence of poverty.

National-accounts-consistent poverty estimates are more highly correlated with some non-monetary indicators of poverty than household-survey-based poverty estimates, and are more readily comparable between countries. For these reasons, national-accounts-consistent poverty estimates are at least as plausible as existing international poverty estimates, says UNCTAD´s Least Developed Countries 2002 Report .

Using the poverty curves, the level of poverty varies so predictably with consumption that expected levels of poverty can be accurately estimated on the basis of national accounts data, which is particularly useful for countries and years where there have been no household surveys. The Report uses this method to expand the number of LDCs for which the level of poverty can be calculated to obtain poverty estimates from as long ago as 1965 and to make projections up to 2015 in line with the target date of the international development goals.




Endnotes

1. The Least Developed Countries Report 2002 : Escaping the Poverty Trap (Sales No. E.02.II.D.13, ISBN 92-1-112562-6) is available for $30, and at a special price of $15 in developing countries and countries in transition, from United Nations Publications, Two UN Plaza, Room DC2-853, Dept. PRES, New York NY 10017, USA, Tel: +1-800-253-9646 or +1-212-963-8302, Fax: +1-212-963-3489, email: publications@un.org; or Section de Vente et Commercialisation des Publications, Palais des Nations, Bureau E-4, CH-1211, Geneva 10, Switzerland, Tel: +41-22-917-2614, Fax: +41-22-917-0027, email: unpubli@unog.ch; Internet: www.un.org.





For more information, please contact :
Senior Economic Affairs Officer, Charles Gore
Tel: +41 22 907 5944
E-mail: charles.gore@unctad.org
or
UNCTAD Press Officers, Erica Meltzer or Alessandra Vellucci
Tel: +41 22 907 5828/5365/4641
Fax: +41 22 907 0043
E-mail: press@unctad.org



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