ADB on Asian poverty

The problem of poverty in Asia is much more serious than conventional statistics would show. This is the main message of the special chapter, “Poverty in Asia: A Deeper Look,” in Key Indicators for Asia and the Pacific 2014, published this month by the Asian Development Bank (ADB).

The poverty line of $1.25/person/day. This is the poverty line conventionally used in global poverty analysis.  The dollar amount is in terms of purchasing power parity (ppp) as of 2005.  (The value of one ppp dollar is what one dollar could buy in the United States in a given base year. The conversion rate from ppp dollars to local currency is not the ordinary foreign exchange rate.  For 2012, 1 ppp dollar equaled P28.23—i.e., what cost $1 in the United States generally cost only P28.23 in the Philippines, that year.)

The ADB says that extreme poverty in Asia, defined by the $1.25 norm, fell drastically in 1990-2010, from 54.7 percent to 20.7 percent, and could even be “eradicated”—i.e., go below 3 percent—before 2030. This would seem very good news.

But where did this $1.25 come from?  The special chapter tells us that it is the average value of official poverty lines of the 15 poorest countries of the world, of which 13 are African, and only two (Tajikistan and Nepal) are Asian.  Using African standards to assess Asian poverty is a questionable procedure.

For Southeast Asia in particular, the ADB cites the following as the official poverty lines, in 2005 ppp dollars/person/day: Malaysia, $3.02 (2010); Cambodia, $1.88 (2009); Philippines, $1.84 (2012); Thailand, $1.75 (2009); Lao PDR, $1.48 (2010); Indonesia, $1.43 (2012); and Vietnam, $1.29 (2011-2015). Thus, the Africa-based $1.25 norm is too low to be relevant for our region.

Note that the Philippines has the third largest official line among the seven cases. This tells me, not that the Philippine official line is relatively generous, but that most other official lines in Asean are even stingier than ours.

Let us recall that, in February 2011, the National Statistical Coordination Board lowered the Philippine official monthly poverty line from an original level of P7,953 to a so-called “refined” level of only P7,017 (see “The lowering of the official poverty line,” Opinion, 2/12/2011), for reference year 2009.  Since the original line was 13.3 percent above the new line, its counterpart ppp line would have been $1.84 x 1.133 = $2.08/person/day for 2012.  The Philippine official line should have been next to Malaysia’s, had the “refinement” not been done.

A new Asian regional poverty line of $1.51/person/day. National poverty lines are generally flat across a low range of consumption levels, and then rise upon reaching a certain threshold.  The Asian national lines below the threshold are those of its nine poorest countries, namely Afghanistan, Bangladesh, Bhutan, Cambodia, Lao PDR, Nepal, Pakistan, the Solomon Islands, and Tajikistan.

The ADB report says that averaging the lines of these nine countries gives a new norm of $1.51/person/day for Asia.  This norm is Asia-based rather than Africa-based. It is within the range of the official lines in Southeast Asia, but still below the Philippine official line of $1.84.

A “combined line” including food insecurity and vulnerability. The ADB report also constructs a “combined line” that adjusts further for (a) relatively high fluctuations of food prices, which discriminate against the poor, and (b) the greater vulnerability of the poor to various shocks.

“When the impact of food insecurity is considered, Asia’s extreme poverty rate rises by 4.0 percentage points. …Accounting for vulnerabilities in risks—such as natural disasters, climate change, illness and economic crises—raises the 2010 extreme poverty rate by 11.9 percentage points. …Considering these factors together, Asia’s extreme poverty rate is estimated at 49.8% in 2010, and will likely remain over 17.1% through 2030, with most of the poor living in middle income countries.  Despite the huge gains already made, alleviating poverty will continue to be a significant challenge in Asia for decades to come.” (p.xxxii)

For the group of seven Southeast Asian countries, here is a comparison of poverty rates with the $1.25 norm, with the $1.51 norm, and with the “combined line.”

POVERTY RATES IN SOUTHEAST ASIA (%)

Source: ADB, Key indicators for Asia and the Pacific 2014, pp.11, 32.

The ADB states (p.11): “Altering the poverty line did not change poverty trends for the region or individual countries, nor did it signify any change in people’s actual living standards.  It just raises recognition of how many people in the region remain impoverished.”  This may be so in general, but the table shows Southeast Asian poverty under the “combined line” with a changed trend, rising from 2005 to 2008, and not yet recovering by 2010; it is accounted for by Indonesia, which had a large rise in 2008 due to food insecurity.

Implications for the Philippines. Cross-country statistics about poverty are needed by institutions like the ADB, World Bank, United Nations, and others with cross-country interests.   A single country like the Philippines should worry more about fighting its own poverty than about competing with other countries. It will be helped by rapid and realistic statistics about Philippine poverty, whether or not other countries have comparable data.

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