• The World Bank has updated the global poverty line. This follows the release of new purchasing power parities (PPPs) by the International Comparison Program (ICP) in May 2024. 

• The update results in a new international poverty line of $3 per person per day, which replaces the previous $2.15 poverty line based on 2017 PPPs.

• PPPs are the main data used to convert different currencies into a common, comparable unit, while accounting for price differences across countries. 

• According to the latest data, around one in 10 people globally are estimated to be living in extreme poverty, a significant share of whom are in Sub-Saharan Africa or fragile and conflict-affected situations.

• For lower-middle-income economies, the poverty line is currently set at $4.20 per person per day, and for upper-middle-income economies, it is $8.30. 

• Based on these lines, almost one in five people around the world today live on less than $4.20 per day, while nearly half the global population lives on less than $8.30 per day.

How is the international poverty line derived?

• The vantage points in estimating the poverty lines used by the World Bank are the national poverty lines defined by each country. This usually reflects the amount below which a person’s minimum nutritional, clothing, and shelter needs cannot be met in that specific country. These national poverty lines therefore increase with the overall level of income across countries.

• In 1990, a group of researchers examined national poverty lines from some of the poorest countries in the world and converted those lines into 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 around the 1980s the value of the national poverty line was about $1 per day per person (in 1985 prices). 

• This formed the basis for the first dollar-a-day international poverty line.

• The international poverty line was first introduced in 1990. 

• It gave us a global benchmark that captured the daily cost for a person to meet their basic needs in a low-income country, which at that time was $1. 

• At that time, around nine out of 10 people living in extreme poverty globally were in low-income countries. 

The need for updating international poverty line

• The world’s demographics have shifted considerably. In 1990, almost 60 per cent of people lived in low-income countries, while today it is less than 10 per cent. Meanwhile, middle-income countries are home now to around three quarters of the world’s population.

• To better capture poverty in middle-income countries, the World Bank introduced two additional global poverty lines in 2017 — one for lower-middle-income countries and another for upper-middle-income countries.

• All three global poverty lines are derived from the median national poverty lines of countries in their respective income groups. 

• Over the years, the global poverty lines have been periodically updated, with their values adjusted upward to reflect changes in costs of living, improved measures of household consumption, and changes to national poverty lines.

• To measure global poverty, the World Bank uses purchasing power parities (PPPs) — conversion factors that account for relative price differences across countries. 

• PPPs are used to convert national poverty lines, as well as the value of households’ income and consumption to a common currency across countries.

• Following the release in 2024 of a new set of PPPs based on prices collected in 2021 by the International Comparison Program, the Bank has now started using the 2021 PPPs for its global poverty numbers and has updated the values of the global poverty lines.

• The updated global lines also reflect updated national poverty lines for many developing countries, in part due to more accurate welfare measures and more comprehensive data collected in national household surveys.

• This poverty standard is based on how the poorest countries in the world define poverty, and typically covers basic needs such as food, clothing and shelter. These estimates have also been incorporated into the Sustainable Development Goals, as well as the earlier Millenium Development Goals. 

• While the global poverty lines provide us with a high-level view, they should only be used for cross-country analysis. To evaluate poverty rates in a particular country, its national poverty line is the most appropriate benchmark. 

• These are critical for governments in designing policies to improve the lives of their people and lift them out of poverty and destitution.

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