Who’s poor? New estimates of PPPs led to halving of World Bank’s poverty numbers

6 August 2014

The International Comparison Project, a statistical operation led by the World Bank, released the latest estimates of purchasing power parities (PPPs) in May. The new PPPs were calculated using a new method that tries to correct for exchange rate distortions. PPPs, which are used to compare the real levels of expenditure in different countries, are used both to calculate poverty levels and as a GDP measure. The new method more than halved the estimated number of people living on below $1.25 per day (from 1.22 billion to 0.57 billion). The reduction was mostly due to large adjustments in the numbers for South Asia and in particular India. Sub-Saharan Africa experienced a smaller decline, but its relative share increased from 28 per cent to 41 per cent. In May, the Financial Times wrote that the Bank is projecting an increase in its official estimate of global poverty (from the current $1.25 a day in 2011 PPPs to $1.78 in 2011 PPPs).

The PPPs recalculation also led to an upwards adjustment of a number of countries’ GDP. China and India’s national income increased the most, but Nigeria and Bangladesh also experienced a rise. Although the recalculation did not bring changes to this years’ July revision of the country classification system, the Bank is considering revising its country classification system (see Update 78).  In this year’s review, Sudan was the only country to move down the country classification system, whilst Colombia, Cameroon, Kyrgyz Republic Solomon Islands, South Sudan and Yemen moved up.