• Poverty lines

Poverty lines

For the first time since 1993, the World Bank released new Purchasing Power Parity rates – calculated for 2005 – earlier this year. Accordingly, the new international poverty line is estimated at $1.25 suggesting that the number of poor people in the world is almost fifty percent more than previously thought. Influential as they are, the new poverty estimates will undoubtedly guide policy debate and formulation for some to come. But how accurate are the World Bank figures, and how valid is their message? A new briefing paper brought out by the International Poverty Centre of the United Nations Development Programme (UNDP) considers the limitations of the new poverty estimates and suggests ways they could be improved.

The note’s criticisms include the fact that:

• the new international poverty line is too low to cover the cost of purchasing basic necessities but since it is defined in terms of PPPs, this is difficult to verify
• the PPPs inappropriately convert poverty lines across currencies since market exchange rates do not consider the purpose to which a particular amount of money is to be put
• the PPPs are guided by global consumption patterns which may not accurately reflect consumption patterns in the developing countries in which price levels are being assessed
• since the new poverty line is an average of other World Bank-calculated poverty lines based also on PPPs, its accuracy is likewise questionable
• since the relative extent of poverty in different countries and years, and the estimated trend, is dependent on the base year chosen for the calculation, there is no reason why PPPs from 2005 reflect poverty estimates for other years
• PPPs merely reflect the relative costs for a worldwide pattern of consumption prevailing at only one moment in time, and this pattern is constantly changing
• the use of national consumer price indices to identify the local equivalent of the international poverty line in years other than the base year further diminishes comparability across country-years

Rather than updating PPP rates again in 2011, as is the current plan, the note suggests the World Bank consider alternative methods to calculate world poverty in future. In particular, it points to the possibility of coordinating household surveys and poverty line construction across developing countries along the lines of past United Nations’ national accounts coordination exercises.

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