ADB: Current parameter unfit to measure poverty

The existing expenditure parameter for extreme poverty in Asia Pacific which stood at 1.25 U.S. dollars per person per day is not proper as the region has been seeing rapid growth that led to dramatic improvement of living standard, the Asian Development Bank (ADB) said in its latest report issued on Wednesday.
In its report entitled Key Indicators for Asia and the Pacific 2014, ADB said poverty will remain a critical challenge for Asia and the Pacific in the coming decades, requiring a greater focus on efforts to address food insecurity and economic vulnerability.
It said should the expenditure parameter was still set at 1.25 U.S. dollars per day, which has been applied since 2005, the extreme poverty could fall to 1.4 percent by 2030. A poverty rate below three percent is interpreted as poverty having been eradicated.
"1.25 U.S. dollars a day is not enough to maintain minimum welfare in many parts of our region," ADB Chief Economist Shang- Jin Wei said during the launching of the report.
"A more comprehensive understanding of poverty is needed to help policymakers develop effective approaches to address this daunting challenge," he said in a statement.
According to him, three additional elements should be factored into the poverty picture, comprised of cost of consumption specific to Asia's poor, food costs that rise faster than the general price level and vulnerability to natural disasters, climate change, economic crises, and other shocks.
The ADB's latest report explores how, including these elements in poverty assessments changes the region's poverty landscape.
Using the procedure used to determine the conventional 1.25 U.S. dollars poverty line and on data from Asia, the ADB estimated Asia- specific extreme poverty line is at 1.51 U.S. dollars per person per day.
Using this poverty line would raise Asia's poverty rate in 2010 by 9.8 percentage points from 20.7 percent to 30.5 percent. The number of extreme poor would increase by 343 million people.
The ADB also sees that rapidly rising food prices would increase food insecurity. The poor spend far more of their income on food than the non-poor. Taking into account the fact that the increase in food prices is greater than the increase in the general consumer price index, Asia's 2010 poverty rate would increase by four percentage points, an addition of 141 million poor.
Many low income households living just above extreme poverty can easily fall into extreme poverty due to natural disasters, financial crises, illness or other negative shocks.
A vulnerability-adjusted poverty line adds about 11.9 percentage points to Asia's poverty rate in 2010, adding 418 million poor.
The report also finds the combined impact would increase Asia's estimated extreme poverty rate for 2010 by 28.8 percentage points to 49.5 percent. This increases the number of poor by about 1.02 billion to 1.75 billion people.
The report projects that if recent economic growth trends continue, the overall poverty rate would fall to 17.1 percent in 2030, with most of the poor living in middle income countries.