Friday, June 13, 2014

World Bank Revises Pakistan Poverty Rate Sharply Down

Oops! The World Bank made a big mistake. The number of Pakistanis living below the 2005 $1.25 poverty line (set at $1.44 for 2011) is 4.8 million, less than one-seventh of the 35.1 million reported earlier.  It is a huge drop from about 20% of the population to 3% of the population living below the international poverty line.
World Bank's Revised Poverty Estimates (Source: CGD)

Poverty rates for many other nations, including India and Bangladesh,  have also seen dramatic downward revisions. As a result, India now has 102 million poor, just slightly above China's 99 million. In fact, the new report has cut the world poverty rate in half from 19.7% to 8.9%. Reduction from 21% to 3% for Pakistan poverty is much sharper than the rest of the world because ICP 2011 found it to be the second cheapest in the world.

The revision became necessary after the World Bank's International Comparison Program (ICP) completed a detailed study of a list of around 800 household and non-household products to compare real purchasing power for trans-national income comparison program (ICP). The 2011 ICP findings concluded that Pakistan's per capita income is US$4,450.00, just slightly below India's US$4,735.00

Here's how the Center for Global Development blog post by Sarah Dykstra, Charles Kenny and Justin Sandefur explains the reasons for the latest revisions:

"In checking our methodology (prompted by Laurence Chandy, to whom thanks), we realize that we underestimated the impact of the new PPP lines on poverty due to two mistakes in the computer code underlying the original version of this post: we used 2010 CPI figures where we meant to use 2011, and conversely, we used 2011 population figures where we meant to use 2010."

The CDG post explains the new poverty figures for Pakistan and many other developing countries as follows:

"What lies behind the dramatic changes in calculated GDP and poverty rates? A big factor may be that the national inflation rates used to convert incomes into 2005 PPP dollars in the last few years appear to be higher than the rate of inflation reflected in the baskets of goods and services measured by the two rounds of ICP surveys: Pakistan’s PPP conversion rate for GDP was 19.1 Rupees to the dollar in 2005 and 24.4 in 2011 — a gentle increase of 28 percent. The Consumer Price Index in Pakistan has gone up 102 percent over that same period. That might reflect changing or inadequate ICP commodity baskets or consumption data in one or both years, or mismeasurement of prices by Pakistan’s statistical agencies. But whatever the reason, it appears to apply to a lot of countries. Very few places saw PPP conversion rates climb close to or more than CPIs between 2005 and 2011, which is why poverty rates based on the 2011 PPP numbers tend to be lower."

The CDG staffers have offered the following apology to everyone who used their incorrect data: "We have egg on our faces. We're very sorry to those who quoted our original estimates and are contacting a number of them to notify them of the mistake and updated post".

Related Links:

Haq's Musings

Pakistan's Revised PPP GDP 2011

Pakistan Among Top 25 World Economies

Pakistan's Per Capita Income

Pakistan Fares Better Than Neighbors on World Misery Index

Pakistan's Underground Economy

India Pakistan Comparison 

Pakistan Economic History

Pakistan's Expected Demographic Dividend

1 comment:

Riaz Haq said...

Here's an except of a blog post from Global Policy blog on ICP poverty recalc:

The future of aid is related – to some extent – to trends in global poverty and where the poor live. But new price data is causing a rethink of the global poverty numbers (and which countries are absolutely or relatively poor, but I will save that for another blog).

This rethink needs some explanation so apologies for a longish and very wonkish blog. If you want the quick take away it’s this: poverty didn’t change in real life but how we measure it will as a result of the new data.

First, the statistical earthquake: the International Comparison Program (ICP) has released new data on prices around the world, known as purchasing power parity (PPP) rates.

Doesn’t sound too contentious? These data compare prices across countries for similar items in order to estimate what could be bought in the US with a country’s currency. These numbers matter for various reasons not least because they feed into the estimates of how many poor people there are and where they live.

The latest data really is an earthquake (as were the last set of revisions a few years ago) because the extent of the revision for a number of countries is very large.
First off the starting block were folks at the Centre for Global Development (CGD) who use US inflation to recalibrate the poverty line. So the CGD poverty line is US$1.25 in 2005 dollars, or US$1.44 in 2011 dollars.

So instead of 1.2bn poor people, that gives you about 550m poor, meaning about half the level of global poverty that was previously thought. In fact estimated global poverty halved largely because the number of poor people in a series of populous countries fell drastically (recall most of the world’s poor people live/lived in a small set of populous countries): estimated poverty in India fell from 400m people to 100m people. In Nigeria, the numbers of poor people almost halved from 90m to 50m people. Poverty more than halved in Bangladesh from 65m to less than 30m. In Pakistan, poverty fell from 35m to less than 5m.
A second approach is that of the Brookings folks who – more or less loyally – reproduce the existing World Bank method of calculating the global poverty line, (the national poverty lines in the world’s 15 poorest countries), to recalibrate the US$1.25 poverty line to US$1.55 in 2005 dollars (or $1.78 in 2011 dollars).

The Brookings folk looked at the average increase in the existing 15 national poverty lines used by the World Bank for these poorest countries in 2008 and then looked at the average increase in the national poverty lines for the current poorest 15 countries and took an average of the two averages (about 25 per cent) to adjust the global poverty line (thanks to the authors for these details).

That new poverty line means that there are 950m poor (or 870m poor if you change the survey data used in two populous countries – India and Nigeria). Global poverty, therefore, is quite a bit lower than we thought. For instance, in India poverty estimates halved from 400m to perhaps less than 200m poor (how much depends on whether one changes the data). In Nigeria, poverty estimates fell to about 65m (ditto). In Bangladesh they fell to 50m. And estimated poverty in Pakistan fell to less than 20m...