Your Questions Answered: Poverty and Cost of Living in Asia and the Pacific

With already tight budgets, higher costs of food may divert lower income households’ resources away from other vital expenses. Photo: Quang Nguyen Vinh
With already tight budgets, higher costs of food may divert lower income households’ resources away from other vital expenses. Photo: Quang Nguyen Vinh

By Arturo Martinez, Joseph Bulan

ADB statisticians Arturo Martinez Jr. and Joseph Albert Nino Bulan answer questions on how the increased cost of living crisis threatens to push many back into poverty in Asia and the Pacific, based on their research for Key Indicators for Asia and the Pacific 2023.

In 2022, Asia and the Pacific, and much of the rest of the world, were on the verge of economic resurgence as the COVID-19 pandemic began to recede. However, unexpected challenges have since arisen. Disruptions caused by the Russian invasion of Ukraine and the increased cost of living crisis have shown that our socioeconomic recovery is fragile and poverty remains a serious problem in the region. 

 Poverty remains a problem in Asia and the Pacific because economic growth alone is not sufficient to eradicate it. Over the past six decades, Asia and the Pacific has gone through an incredible journey from widespread poverty to wider prosperity. From being an agrarian, low-income region in the 1960s, the region has evolved into the world’s manufacturing powerhouse, with diverse export, expanding innovation capacity, rising megacities, a growing skilled labor force, and a larger consumer base. Despite the region’s economic growth, several development challenges persist which threaten the most vulnerable segments of societies to be left behind if they are not addressed urgently.

In 2015, economies of Asia and the Pacific along with the rest of the world made a pact to tackle these development challenges by adopting the 2030 Sustainable Development Agenda. The first Sustainable Development Goal aims to end poverty in all its forms everywhere by 2030. It comprises multiple targets including eradication of extreme poverty, reduction of multidimensional poverty, and channeling resources to build a better social safety net.  

However, tackling the multiple dimensions of poverty requires substantial resources that many governments in developing economies find challenging to afford. A study conducted by UNESCAP hints that the total spending required to achieve poverty eradication and other SDGs such as SDG 2 (zero hunger) and building human capabilities (SDGs 3 and 4) exceeds $669 billion per year between 2016-2030, or the equivalent of 2% of the average GDP of developing economies in the region. The fact that such amount is well beyond reach for many governments underscores the need to efficiently channel the resources that are available to help those most in need.

By current estimates, about 22.7% of the population of Asia and the Pacific are considered poor, with 3.9% considered to be living in extreme poverty. On the other hand, prevalence of multidimensional poverty exceeded 10% in more than 40% of economies with available data.

Decades of rapid economic growth have resulted in dramatic improvements in broad development indicators, including a sharp reduction in prevalence of extreme poverty (currently defined as those living with less than $2.15 (expressed in 2017 purchasing power parities) a day. Before the COVID-19 pandemic, about 4.8% of Asia and the Pacific’s population was considered extremely poor in 2019, far below the 58.1% estimate in 1990. On the other hand, pre-pandemic estimates show 19.2% of the region’s population lived in moderate poverty (those consuming between $2.15 to $3.65 a day). Furthermore, in one-third of Asia and the Pacific economies with available data, prevalence of multidimensional poverty is at least 20%.

The COVID-19 pandemic pushed Asia and the Pacific into its first regional recession in 60 years and millions of Asians were pushed into severe economic hardship. Poverty reduction in Asia and the Pacific was derailed by at least two years due to the pandemic.       
Now, we are at a critical juncture as we reach the halfway point of the implementation of SDGs. While the pandemic is winding down, the world still contends with elevated cost of living and lower economic growth prospects.  Compared to pre-pandemic numbers, estimates show an additional 67.8 million more people in extreme poverty in developing Asia in 2022.

The cost-of-living crisis is forcing children out of school, causing families to go hungry and pushing those who escaped poverty back into hardship. The crisis comes at a time when lower income households were just starting to recover from prolonged loss of employment and reduced income flows due to economic restrictions amid the pandemic. Globally, there are studies hinting that the estimated number of additional people living in extreme poverty in 2022 (compared to pre-pandemic and pre-increased cost of living crisis projections) could be between 75 million to 95 million.

In Asia and the Pacific, near record high inflation levels also come at a perilous period when the social elevator had been damaged, with previous studies noting that learning losses might undermine the prospects of the current generation of learners. With already tight budgets, higher costs of food, as well as other basic commodities and essential services, may divert lower-income households’ resources away from initiatives that could undo learning losses incurred during the pandemic, and subsequently increase time discounting and risk aversion.

A high inflation-environment is even more arduous for the poor who were already struggling to make ends meet even during a lower inflation regime. These people are most likely to be hit hardest due to their higher energy and food budget share which are key drivers of the cost of living crisis. High inflation may also exacerbate economic inequalities because high prices hit income and savings harder for the poor than their wealthier counterparts. Economic slowdowns may also constrain national capacities to invest on poverty-reducing initiatives such as enhancement of health, education, and infrastructure systems.

Policymakers should bolster social programs and boost agricultural development to get help quickly to the poor. They should also investigate and address why the poor often pay more for everyday essentials than their wealthier counterparts.

Social protection coverage is also critical in an era of increasingly severe natural, epidemiological, and economic shocks (including the cost of living). Across Asia and the Pacific, there is diversity in social protection systems: some are mainly dependent on contributory social insurance and provident funds, while others provide additional assistance for vulnerable demographic groups in the form of food vouchers, child benefits, caregiver allowances, and disability grants.

Amid this diversity, however, data show that a substantial number of economies had expanded social protection especially in recent years.  There is a need to further strengthen social protection systems and ensure that social protection coverage extends beyond being a temporary response to pandemic and cost of living crisis, and target those who need it most.

 Data analyses suggest that boosting agricultural development, investing more in finance infrastructure, leveraging on innovation, and supply chain efficiency can help cut poverty and create opportunities for the poor.

Forecasts from the Key Indicators 2023 report suggest that by 2030, around 1.0% of Asia and the Pacific’s population will be living in extreme poverty, but there will still be 8.1% in moderate poverty and 30.3% will remain economically vulnerable. The region’s poorest people, who are also the most vulnerable, are dealing with multiple challenges at once, grappling with high inflation and other long-term development challenges such as climate change. Tackling the multiple dimensions of poverty requires long-term and holistic approaches that leave no one behind.  

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