World Bank updates poverty line with 2017 PPP

September 19, 2022September 20, 2022 Mary

The World Bank has updated the global poverty lines and is set to launch a series of new international poverty lines, in September 2022.

The global bank disclosed this on Thursday in via its official Twitter handle.

The decision, announced in May, follows the release in 2020 of new purchasing power parities (PPPs), the main data used to convert different currencies into a common, comparable unit and account for price differences across countries.

The new extreme poverty line of $2.15 per person per day, which replaces the $1.90 poverty line, is based on 2017 PPPs.

This has profound implications for poverty estimates in some countries, according to Jonathan Lain, economist and Tara Vishwanath, lead economist at the World Bank, in a report titled “What does moving to the 2017 PPPs and new international poverty lines mean for Nigeria?”

Nigeria’s poverty rate at the new extreme international poverty line of $2.15 in 2017 prices is about 8 percentage points lower than at the previous line of $1.90 in 2011 prices.

This represents a difference of more than 15 million people.

“Nigeria’s poverty estimates are hugely important for regional and global poverty measurement, as the country is the largest contributor to poverty in Sub-Saharan Africa, the world’s poorest region,” the World Bank said.

For many years, the report that the PPPs used for global poverty estimates were based on data collected in 2011, but this is changing. New PPP price data were collected from virtually all countries in 2017. From September 2022 onwards, these new 2017 PPPs will be used to adjust each country’s welfare metrics and hence calculate poverty numbers at the international poverty lines.

The international poverty lines themselves have to be updated, to be expressed in 2017 USD rather than 2011 USD. Previously the international extreme poverty line – the one most typically reported – was set at $1.90, in 2011 prices. Now the international extreme poverty line will be $2.15, in 2017 prices. This does not mean that the poverty line is being raised; it is simply being adjusted for the fact that prices change over time.

Updating the PPPs and international poverty line changes estimates of the poverty headcount rate little at the global level, yet the implications for specific countries are much larger, especially Nigeria.

About 41.4 percent of Nigerians were estimated to be living in extreme poverty in 2017, as per the $1.90, 2011 PPP poverty line; this is calculated using the 2018/19 Nigerian Living Standards Survey (NLSS) along with the standard interpolation methods applied by the Poverty and Inequality Platform (PIP) to produce poverty numbers in a given year. By contrast, Nigeria’s poverty headcount rate for 2017 is estimated to be much smaller – at 33.4 percent – if the $2.15, 2017 PPP line is used instead. This marks a difference of 8.0 percentage points, some 15.2 million Nigerians.

Yet this does not mean that poverty has gone down in Nigeria. Assuming the new 2017 PPP data are more accurate, this instead means that the previous 2011 PPP data were overestimating the cost of living in Nigeria as compared to other countries. In other words, the 2011 PPP data were giving the impression that goods and services were relatively more expensive in Nigeria, such that Nigerians’ purchasing power was lower and more Nigerians were living below the international poverty line. Relatedly, for Nigeria, this means that the $1.90, 2011 PPP poverty line is actually higher than the $2.15, 2017 PPP poverty line. The former corresponds to around 135,457 naira per person per year – or specifically, 2018/19 naira, to match the latest NLSS – while the latter corresponds to 117,342 naira per person per year.

According to the report, overall, poverty estimates at international poverty lines matter mainly for cross-country analysis, but for Nigeria’s policymakers it is the national poverty line that will remain the key yardstick. Nigeria is not alone in this regard; countries around the globe use their respective national lines for policy-relevant analysis. Given its high data quality, the 2018/19 NLSS was used to create a national poverty line, specific to Nigeria’s socio-economic conditions, based on the country’s demographic characteristics, the population’s caloric needs, and the food and non-food goods consumed by Nigerians. This national poverty line was set at 137,430 naira per person per year in 2018/19 prices and was launched alongside key poverty and inequality statistics by NBS in May 2020. According to this line, around 4 in 10 Nigerians (40.1 %) were living in poverty in 2018/19. The national poverty line has underpinned many policy-relevant reports in recent years – including Nigeria’s 2022 poverty assessment – and will continue to be the basis of new analysis going forward.

“Preparations are currently underway to collect a new round of the NLSS in 2022 and 2023. This will provide crucial insights into how both monetary and non-monetary indicators of welfare have moved in Nigeria, following the COVID-19 crisis and the ongoing acceleration in inflation. Regardless of the specific poverty lines applied, these new data will provide a unique opportunity to generate policy-relevant evidence for Nigeria’s policymakers, and help the country meet its ambitious target of lifting all Nigerians out of poverty by 2030,” the report stated.