How the Pandemic Will Throw Millions into Poverty
Author: Daan Schrage
November 6, 2020
The COVID-19 pandemic creates problems for everybody. Perhaps you lost your job, or perhaps your study is not going well due to the subpar quality of online education, or maybe you are just bummed out that you cannot go out and party with your friends as you did before. Whatever the case is, it would be difficult to find somebody that would describe the current pandemic as enjoyable. But what if you live in poverty or are just barely able to make ends meet? What does the coronavirus mean for you then? According to a recent report by the World Bank, the outlook is not good.
According to current projections, it looks like the economic and social impacts of the pandemic are going to be massive. In 2020 alone, an expected 71 million people are going to fall into extreme poverty, which the World Bank defines as living on less than $1.90 a day, as a result of COVID-19. In the worst-case scenario, this number could even reach 100 million. This would cause global poverty levels to rise from 8.23% to 8.92% and 9.18% respectively. This will effectively wipe out all progress made in global poverty reduction since 2017, meaning global poverty would increase for the first time since 1998. Countries that are already struggling with high levels of poverty are predicted to be hit the hardest. Almost half of the expected new extreme poor will live in South Asia, and more that a third will live in Sub-Saharan Africa.
Moreover, poverty in middle- and high-income countries is also predicted to increase. Under the baseline scenario, there is an expected increase of 176 million poor in middle-income countries, where the poverty line is set at $3.30 a day, and an expected increase of 177 million poor in high-income countries, where the poverty line is set at $5.50 a day. These numbers would represent an increase in the poverty rate by about 2.3 percentage points for those countries.
However, these are of course predictions. This means that if the situation changes somehow, so could the number of people living below the poverty level. For example, if GDP were to drop by about 2 percentage points more than expected, the expected number of extreme poor under the worst-case scenario would rise to about 124 million. Perhaps more importantly, if inequality increases in the wake of the corona crisis, this is expected to have severely negative consequences for the global poverty rate. An increase of 1% in the Gini coefficient, which is a measure used to analyze the income distribution within countries, would lead to 19 million additional people falling into extreme poverty under the baseline scenario, to a grand total of 90 million people.
This has important implications for policy making. Governments should not only focus on keeping the economy afloat during these difficult times, but should also implement redistributive policies, in an effort to reduce income inequality, both now and in the months following the pandemic. Should they not succeed in this, the most vulnerable groups in society will bear the burden of their failings. Unfortunately, it has become clear that everybody will have to suffer losses due to this crisis, be they poor or rich, employee or business owner. It is now up to governments to ensure that this burden is equally shared and does not fall upon the shoulders of the poor.
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