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News & Blog > Blogs: "Perspectives, Provocations & Initiatives" > Covid-19 and the "New Poor"

Covid-19 and the "New Poor"

Jeniar Mooy (MADev15) tells us about the creation of the "New Poor" due to Covid-19 and discusses what countries can do to reverse the setbacks in poverty reduction progress.
Bangladeshi people queue for the bank desk during the Covid-19 pandemic. Image by IMF from Flickr.
Bangladeshi people queue for the bank desk during the Covid-19 pandemic. Image by IMF from Flickr.

In October 2020, the World Bank released a report titled “Reversals of Fortune, Poverty and Shared Prosperity” that presented the projected poverty level in the world post the Covid-19 pandemic. The report shows that from 2019 to 2020, the global extreme poverty rate increased dramatically, and is now in fact, higher than at any time since 1990 [1].  

From 1990 to 2019, the global extreme poverty rate decreased steadily at a rate of 0,5 - 1 percent per year. The number of extremely poor people fell by more than half, from 1.9 billion in 1990 to 689 million in 2017. However, the Covid-19 pandemic resulted in 97 million people becoming extremely poor in 2020 (see figure 1.) [2].

With an assumed similar rate of poverty reduction as prior to the Covid-19 pandemic (2,3 - 3,7 percent per year), the global extreme poverty rate in 2030 will be 6,7 – 7,0 percent. This is double the rate of 3 percent for 2030 predicted prior to the pandemic [3].

 

Figure 1. The World Bank: Global extreme poverty rate (2015-2021) Source: World Bank, 2021 [4].

 

The Emergence of the “New Poor”

Poverty has increased globally due to the pandemic, disturbing previously unaffected groups. Prior to Covid-19, most of the extremely poor resided in rural areas. However, the 97 million “new” extremely poor population reside in urban areas [5]. 

This new population works mainly in sectors that have been heavily affected by lockdowns, mobility restrictions, and social distancing rules. Many work as paid employees in the non-agriculture sector (manufacturing, service, commerce) and some are engaged in informal services (e.g., as contract workers, temporary office cleaners, casual labourers in construction, etc) [6]. Compared to the poor existing prior to Covid-19, the new poor participate in less precarious employment, have better access to education, infrastructure, and basic assets. Many of the new poor live in middle- income countries (mostly in South Asia and Sub-Saharan Africa). In November 2020, the World Bank predicted that India and Nigeria would host at least 75 percent of the new poor [7].

 

The Neglect of Covid-19: Consequences for Poverty

Recent research by the London School of Economics and Political Science (LSE), University of Oxford and World Bank (2021) titled “Death and Destitution: the global distribution of welfare losses from the Covid-19 pandemic” demonstrates that governments and policy makers across the world have tended to place a greater focus on the impact of Covid-19 on mortality rates, rather than a focus on increased extreme poverty rates.

While governments went to extraordinary lengths to suppress the mortality rate of Covid-19, attempts to anticipate long-term destructive impacts of increased extreme poverty and the emergence of the new poor were scant. According to the above research, in at least 70 countries, poverty become a more influential defining factor in the decline in people’s well-being rather than mortality. Increased extreme poverty levels can result in massive losses: of jobs, homes and food, which can create higher loss of life than the virus itself [8].

The conclusion of the aforementioned research paper by LSE, University of Oxford and World Bank (2021) notes:

“Our analysis does suggest that the poverty consequences of the pandemic should be given as much importance in the global policy conversation as its (horrendous) mortality consequences. For most poor and middle-income countries, greater economic deprivation has in fact been a more important source of loss in wellbeing than premature mortality.”

 

What Can Countries Do?

According to the “Reversals of Fortune, Poverty and Shared Prosperity” report by the World Bank (2021), there are several measures countries can take to address the new poor and reverse the pandemic-induced setbacks in poverty reduction progress. 

The first would be to focus on job regeneration and safety net programs. Those who work in the urban informal sectors must be the focus of Covid-19 recovery programmes, including seasonal migrants and refugees. Safety net programs must be designed innovatively to target the urban poor [9]. 

Some countries across the world have begun to do this. In 2020, the Afghanistan Government rolled out relief package (amounting 1,6 percent of GDP) to support poor households with incomes of $2 per day or lower. Those in urban areas received a combination of cash and in-kind support (amounting 100 USD) – twice the amount given to rural households. 

A second measure would see governments authorising the provision of grants and wage subsidies to companies to minimise layoffs and support micro and small enterprises (SMEs) through tax exemptions. 

In Indonesia, a fiscal policy package (amounting 4,2 percent of GDP) was launched in June 2020 to expand unemployment benefits, reduce taxes in the tourism sector (the hardest hit sector in urban areas), and reduce corporate income tax (to avoid workers being laid-off in big cities) [10].

In Bangladesh, the government allocated 2.3. billion USD as working capital for Small and Medium Enterprises (mostly concentrated in Dhaka) to sustain their businesses. The government also provided low-rate loan packages to the garment industries (mostly located urban areas) to pay workers’ wages [11].

Lastly, governments can leverage Covid-19 recovery programmes to expand investment in digital technology. Big data and machine learning can help governments identify the poor. 

In Togo, the government worked with researchers to use satellite data on population density and mobile phone usage data retrieved from Facebook to design cash transfers programme for the poor. This program has managed to deliver USD 25 million to over 820,000 poor people in the country [12].

 

Final thoughts…

In conclusion, although the Covid-19 pandemic brought many new challenges to the already-patchy road of poverty reduction progress in the world, countries should not only focus their attention on programs that reduce Covid-19 mortality rate, but also programs that anticipate the long-term and devastating impacts of an increased extreme poverty rate. 

Measures that focus on building innovative safety net programs, rebuilding jobs, protecting workers (especially in urban areas) and utilisation of digital technology should be prioritised to eliminate poverty among the new poor and increase the pace of poverty reduction progress globally.

 

Bibliography

[1] Bank, W. (2020). News. Retrieved from Reversing Setbacks to Poverty Reduction Requires Nations to Work Together for a Resilient Recovery: https://www.worldbank.org/en/news/immersive-story/2020/11/09/reversing-setbacks-to-poverty-reduction-requires-nations-to-work-together-for-a-resilient-recovery

[2] World Bank. (2020). Reversals of Fortune, Poverty and Shared Prosperity 2020. Washington: World Bank.

[3] Kharas, H., & Doolet, M. (2021). Brookings. Retrieved from Long run impacts of Covid-19 on extreme poverty: https://www.brookings.edu/blog/future-development/2021/06/02/long-run-impacts-of-covid-19-on-extreme-poverty/

[4] Mahler, D., Yonzan, N., Lanker, C., Aguilar, R. A., & Wu, H. (2021). World Bank Blog. Retrieved from Updated estimates of the impact of COVID-19 on global poverty: Turning the corner on the pandemic in 2021?: https://blogs.worldbank.org/opendata/updated-estimates-impact-covid-19-global-poverty-turning-corner-pandemic-2021

[5] World Bank. (2020). Reversals of Fortune, Poverty and Shared Prosperity 2020. Washington: 

World Bank.

[6] Ibid.

[7] Kharas, H., & Doolet, M. (2021). Brookings. Retrieved from Long run impacts of Covid-19 on extreme poverty: https://www.brookings.edu/blog/future-development/2021/06/02/long-run-impacts-of-covid-19-on-extreme-poverty/

[8] Ferreira, F., Sterck, O., Mahler, D., & Decerf, B. (2021). LSE News. Retrieved from Increases in 

extreme poverty neglected in Covid policy debate: https://www.lse.ac.uk/News/Latest-news-from-LSE/2021/f-June-21/Large-increases-in-extreme-poverty-have-been-neglected-in-the-Covid-policy-debate

[9] World Bank. (2020). Reversals of Fortune, Poverty and Shared Prosperity 2020. Washington: 

World Bank.

[10] Ibid.

[11] Ibid.

[12] Kharas, H., & Doolet, M. (2021). Brookings. Retrieved from Long run impacts of Covid-19 on extreme poverty: https://www.brookings.edu/blog/future-development/2021/06/02/long-run-impacts-of-covid-19-on-extreme-poverty/


This is one of a series of blogs supported by the IDS alumni office and written by current IDS students and PhD Researchers from academic year 2021-2022 Autumn Term. 

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