“An Urgent Need to Correct Course”

Poverty is a phenomenon that determines the entirety of human existence. Below a minimum subsistence level no development is possible and humanity is condemned to the basic struggle for survival. The former President of Ireland, Mary Robinson, once summed up the all-encompassing dimension of what it means to be poor: “When I am asked, ‘What, in your view, is the worst human rights problem in the world today?’, I reply: ‘Absolute poverty’.” 

So, when the international community convened and agreed on the SDGs in 2015 there was mutual agreement that “No Poverty” had to be first. It came with a firm commitment “to leave no one behind” and the acknowledgement that poverty is more than the lack of income or resources. People live in poverty if they lack basic services such as healthcare, security and education; they also experience hunger, social discrimination and exclusion from decision-making processes. 

The commitment to eradicate poverty was made before the background of significant progress. The proportion of the world’s population living in extreme poverty fell from close to 60 percent in 1950 to 8.4 percent in 2019. Similarly, the UN’s Human Development Index also shows a substantial and steady rise from 1990-2019. 

Progress in fighting poverty significantly accelerated with the (almost) universal acceptance of the market economy and free trade as the unchallenged growth and development model: Since 1990, the number of people living in extreme poverty decreased from 1.8 billion to 776 million in 2013. 

Yet a closer look could have shown us even then that the development was by no means uniform or equal: According to the World Bank, almost 800 million of the one billion people lifted out of extreme poverty lived in China, while India slashed its corresponding rate by more than 50 percent. This means that most of the global poverty reduction was ultimately achieved by those two giant nations. In the World Bank’s assessment in both cases progress was “driven by decades of sustained high economic growth, fueled by a massive shift of workers from low-productivity agriculture to higher-productivity industry and, more recently, services.” 

In other words: globalization. As China became the factory of the world and India the global business service center the idea that an improved economy will benefit all participants (yet not to the same extent) was captured in the aphorism: “A rising tide lifts all boats”. As Ian Goldin, Professor of Globalisation and Development at Oxford University, put it: “Globalisation has been the source of the greatest improvements in livelihoods in the history of humanity.” 

The global financial and economic crisis of 2007-2009 inflicted a first massive blow to the development model of unfettered capitalism as the new economic orthodoxy. That crash necessitated massive state bailouts of systemic banks and industries, financed on the back of taxpayers and leading to falling living standards, steep rises in equality in some of the world’s richest nations and dramatic political consequences with the triumph of right-wing populism. 

Correspondingly, as funds became scarce efforts in poverty reduction were scaled back. Between 2015 and 2020, poverty reduction slowed to 0.6 percent per year, "the slowest rate over the past three decades", according to the World Bank. As a result, "the world was already significantly off course on the global goal of ending extreme poverty.” 

The consequences of that crisis were far from over (they still are not) when the COVID-19 pandemic, first registered in China in December 2019, further exposed the fragility and vulnerability of the globalization model. The worldwide public health crisis plunged the global economy into the deepest recession since World War II with a fall in output of 5.2 percent in 2020, according to the World Bank. The closure of borders led to unprecedented supply disruptions memorably symbolized by the giant container ship Ever Given, which ran aground in the Suez Canal in March 2021, blocking this vital route of global trade and causing worldwide disruption. 

However, the means to combat the crisis were very unevenly distributed: While, for instance, Germany was able to respond to the pandemic with three fiscal packages totaling 10.3 percent of GDP, Gabon only found funds equaling 0.83 percent of GDP for COVID-19 related spending (with additional plans for 1.2 percent GDP), according to IMF data. 

The pandemic also dealt the hardest blow in decades to the fight against poverty. According to the UN SDG Report 2022, for the first time in a generation the number of people in extreme poverty is increasing. Between 2015 and 2018, global poverty continued its historical decline, with the extreme poverty rate falling from 10.1 percent to 8.6 percent. The number of people living on less than US$1.90 a day dropped from 740 million to 656 million over this period. 

COVID-19 has made a severe dent in that progress. Nowcasts suggest that the global poverty rate increased sharply from 2019 to 2020, from 8.3 percent to 9.2 percent, the first rise in extreme poverty since 1998 and the largest since 1990. This erased more than four years of steady gains. It also means that an additional 93 million people worldwide were pushed into extreme poverty during the pandemic. The year 2020 marked a historic turning point – an era of global income convergence gave way to global divergence. 

Little progress has been made since then in catching up to the pre-COVID trend. Forecasts for 2022 estimate that 75 million more people than expected prior to the pandemic will be living in extreme poverty. This is the largest one-year increase since global poverty monitoring began in 1980. 

Rising food prices and the broader impacts of the war in Ukraine, sluggish global growth and China’s weak performance as well as the deepening impacts of climate change could push that number even higher, to 95 million, leaving the world even further from meeting the target of ending extreme poverty by 2030. While the projected number of people living in extreme poverty in 2022 before the pandemic was 581.3 million, it now stands at 676.5 million. This places 2022 as the second-worst year for poverty reduction in the last 22 years after 2020. Several years of progress have been lost. 

Given these trends the World Bank is clear in its assessment: “The global goal of ending extreme poverty by 2030 [will] not be achieved”, it says in its Poverty and Shared Prosperity Report 2022. According to the Bank’s calculations 574 million people – nearly 7 percent of the world’s population – will still be living in extreme poverty (now calculated at US$2.15 a day as opposed to US$1.90 when the SDGs where agreed in 2015) in 2030. While the UN has a zero target, the World Bank – perhaps more realistically – had aimed for a 3 percent target. Today neither seems attainable. 

But the world is not only off course when it comes to ending extreme poverty. The World Bank report shows that in 2019 nearly half of the world’s population (47 percent or over 3 billion people) lived in poverty when measured as living on less than US$6.85 a day. Available data points to an increase in poverty that is large by historic standards. The incomes of the poorest 40 percent of the world’s population fell by 4 percent in 2020. The World Bank speaks of the “largest shock since 1945”. 

The pandemic also increased global inequality. In terms of lost income, the world’s poor paid the highest price: The percentage income losses of the poorest were estimated to be double those of the richest. The global Gini coefficient representing income inequality (from 0 for complete equality to 1 for complete inequality) increased by a little over 0.5 points during the pandemic, from 62 points in 2019 to an estimated 62.6 points in 2020. By contrast, earlier years had seen a shrinking gap between the global poor and others. 

The pathways countries have followed since the pandemic have exacerbated global inequality, with richer countries recovering more quickly than poorer countries. Extreme poverty is projected to become increasingly concentrated in sub-Saharan Africa, where high population growth is coupled with stubbornly high extreme poverty rates. Eight of the 10 countries with the highest number of people living in extreme poverty are in sub-Saharan Africa, accounting for 389 million people or 60 percent of the world’s poor. Delivering the World Bank’s 3 percent goal by 2030 would require the regionto achieve growth rates about eight times higher than historical rates between 2010 and 2019. 

While the available data makes for grim reading, projections do not provide much respite. Especially the war in Ukraine has enormous repercussions. The country was one of the biggest exporters of grain, fertilizers, sunflower oil and other essential commodities in the world. Shipments have resumed but only after prices skyrocketed – leaving 345 million people in 82 countries facing acute food insecurity, according to the World Food Programme. 

The situation is equally precarious when it comes to energy supplies. A recent scientific paper by researchers from the University of Groningen, Netherlands, says that the war has triggered an energy crisis that directly affected household energy costs for heating, cooling and mobility and indirectly pushed up the costs of other goods and services throughout global supply chains. Calculations by the research team show that the increase in household energy costs will result in cost-of-living pressures that could push an additional 78-141 million people into extreme poverty. 

Can the world still attain SDG 1 or at least reverse the recent setbacks and return to a path of progressive poverty reduction? The World Bank report does not provide much comfort: “The target [is] nearly out of reach – and there is an urgent need to correct course.” UN Secretary-General António Guterres in February 2023 called for a massive increase of US$500 billion each year in extra financing from the world’s most developed nations to meet the 2030 Sustainability Agenda. The World Bank argues that strong fiscal measures can make a noticeable difference. 

Yet while this has allowed wealthy nations to weather the shock of the COVID-19 pandemic, developing economies have fewer resources and can spend less: Low- and lower-middle income countries were able to offset barely a quarter of the impact of the pandemic. To make the most efficient use of limited resources the World Bank recommends targeted cash transfers instead of broad subsidies, the prioritization of public spending for long-term growth and the mobilization of tax revenues without hurting the poor. 

Have recent developments buried the hope that countries can grow their way out of poverty? Stefan Dercon, Professor of Economic Policy at Oxford University, says: “It is hard to think of escaping from extreme high levels of poverty in a country unless we actually get the economy to grow. Economic growth is a part of it, but that doesn’t define the escape from poverty. So you also talk about progress in health, progress in education, progress in a number of different indicators. And I would say take-off means that you get your country to grow, but you also make sure that what happens to the poorest groups in your society, their lot is actually improving as well.”