What, Why and How of new International Poverty Line $1.90?

The World Bank in October 2015 raised the international poverty line to 1.90 US dollars per day from the existing 1.25 US dollars.

Against this backdrop, World Bank explained few pertinent questions related to the international poverty line and its revision.

Why did the World Bank decide to update the International Poverty Line, and why now?

As differences in the cost of living across the world evolve, the global poverty line has to be periodically updated to reflect these changes. Since 2008, the last update, 1.25 US dollars had been used as the global line. As of October 2015, the new global line will be updated to 1.90 US dollars per day.

What is the new poverty line, and based on this new measure, how many people are living in extreme poverty in the world?

The new global poverty line is set at 1.90 US dollars per day using 2011 prices. Just over 900 million people globally lived under this line in 2012 (based on the latest available data) and it is projected that just over 700 million are living in extreme poverty in 2015.

Why raise the poverty line? What was wrong with the 1.25 US dollar a day line that we are all used to?

As differences in the cost of living across the world evolve, the global poverty line has to be periodically updated to reflect these changes. The new global poverty line uses updated price data to paint a more accurate picture of the costs of basic food, clothing, and shelter needs around the world. In other words, the real value of 1.90 US dollars in today’s prices is the same as 1.25 US dollars in 2005.

How revision in global poverty line takes place?

In 1990, a group of independent researchers and the World Bank proposed to measure the world’s poor using the standards of the poorest countries in the World.  They examined national poverty lines from some of the poorest countries in the world, and converted the lines to a common currency by using purchasing power parity (PPP) exchange rates.

The PPP exchange rates are constructed to ensure that the same quantity of goods and services are priced equivalently across countries. Once converted into a common currency, they found that in six of these very poor countries the value of the national poverty line was about 1 US dollar per day per person, and this formed the basis for the first dollar-a-day international poverty line.

After a new round and larger volume of internationally comparable prices were collected in 2005, the international poverty line was revised based on 15 national poverty lines from some of the poorest countries in the World. The average of these 15 lines was 1.25 US dollars per person per day (again in PPP terms), and this became the revised international poverty line since 2008.

Similarly in 2015, poverty lines of those same 15 poorest countries from 2005 (holding steady the yardstick against which we measure) were used to determine the new global poverty line of 1.90 US dollars on the 2011 PPP basis.

What is Purchasing Power Parity (PPP) and how is it determined?

PPP allows us put each country’s income and consumption data in globally-comparable terms. The PPP is computed on the basis of price data from across the world, and the responsibility for determining a particular year’s PPP rests with the International Comparison Program (ICP), an independent statistical program with a Global Office housed within the World Bank’s Development Data Group.

What is the significance of revision in the international poverty line?

The global poverty line is used primarily to track global extreme poverty, and to measure progress on global goals set by the World Bank, the United Nations, and other development partners. A country’s national poverty line is far more appropriate for underpinning policy dialogue or targeting programs to reach the poorest. For example, in a middle-income country, where the national poverty line is at 4 US dollars a day, the global poverty threshold may be less relevant than in a poorer country where the national line is at 1.65 US dollars or similar.

When will the global poverty line be updated again?

The revision in the international poverty line once the Commission on Global Poverty provides its recommendations in April 2016.

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