The World Bank’s Poverty and Shared Prosperity report provides
the first comprehensive look at global poverty in the aftermathof an extraordinary series of shocks to the global economy.
Correcting course is both urgent and difficult, but it is now time
for policy makers to put everything they can into the effort.

The COVID-19 pandemic dealt the biggest setback
to global poverty in decades. The pandemic increased
the global extreme poverty rate to an estimated 9.3%
in 2020—up from 8.4% in 2019. That indicates that
more than 70 million people were pushed into extreme
poverty by the end of 2020, increasing the global total
to over 700 million.
2020 marked a historic turning point—an era ofglobal income convergence gave way to global
divergence. The world’s poorest people bore thesteepest costs of the pandemic. Incomes in the poorest
countries fell much more than incomes in richcountries. As a result, the income losses of the world’s
poorest were twice as high as the world’s richest, andglobal inequality rose for the first time in decades.

Poverty reduction resumed slowly in 2021,
but may stall in 2022

Number of poor (millions)810

Historical ←
data

760
710

685

660

667

610

596

560
2015

2016

2017

2018

2019

2020

2021

2022

Pre-COVID-19 projection
Current projection
Current projection (allowing for food price impacts on poor)

The poorest also suffered disproportionately in many other areas that
directly affect their well-being. For example, they faced large setbacks
in health and education, with devastating consequences, includingpremature mortality and pronounced learning losses. These setbacks,
if left unaddressed by policy action, will have lasting consequences forpeople’s lifetime income prospects.
The economic recovery from the COVID-19 pandemic has been
uneven. The richest economies have recovered from the pandemic at amuch faster pace than low- and middle-income economies. Rising foodand energy prices—fueled by climate shocks and conflict among theworld’s biggest food producers—have hindered a swift recovery.
By the end of 2022, as many as 685 million people could still be livingin extreme poverty. This would make 2022 the second-worst year forpoverty reduction in the past two decades (after 2020).
These setbacks occurred when the speed of progress toward poverty
reduction was already slowing. In the five years leading up to thepandemic, poverty reduction had slowed to 0.6 percentage point peryear. Before 2020, the world was already significantly off course on theglobal goal of ending extreme poverty by 2030. This report projects that
7 percent of the world’s population—roughly 574 million people—willstill struggle in extreme poverty in 2030. That is far short of the global
goal of 3 percent in 2030. Further, the report shows that in 2019 nearly
half of the world’s population (47 percent) lives in poverty when this ismeasured as living on less than US$6.85 a day.
These setbacks call for a major course correction. Despite difficult
global and domestic circumstances, policy makers must redouble theirefforts to grow their economies in the coming years—while paying carefulattention to who benefits from that growth. The need for growth that
boosts the incomes of the poorest could not be greater than it is today.

In general, low- andmiddle-income economies
tend to be less successful
than high-income onesin ensuring that taxes,transfers, and subsidies
benefit the poor.
Subsidies are expensive in many developing economies,often exceeding social protection budgets
6.5
65.5

Share of GDP (%)

54.5
43.5

Resilient recovery will depend on a wide range of policies. This reportfocuses on fiscal policy—a key area at the center of pandemic andpost-pandemic responses. Fiscal policy concerns how governments
raise revenue and spend public resources. This report offers new analysis
on how fiscal policy was used during the first year of the pandemic.
It also sheds light on the impact of taxes, transfers, and subsidies onpoverty and inequality in 94 countries before 2020, providing important
new insights into the impacts of fiscal policy—not only during crises but
also during normal conditions.
Fiscal policy made a noticeable difference in reducing the pandemic’s
impact on poverty. Without it, the average poverty rate in developing
economies, assessed at national poverty lines, would have been 2.4
percentage points higher than it was. Yet fiscal policy was much lessprotective in poorer economies than in richer ones. Most high-income
economies fully offset the pandemic’s impacts on poverty through the useof fiscal policy, and upper-middle-income economies offset one-half ofthe impact. However, low- and lower-middle-income economies offset
only one-quarter of the impact. The differences in effectiveness reflected
more limited access to finance, weaker delivery systems, and higher levels
of informality, which made protecting jobs much more challenging.

32.5
2
1.5
10.5
0HICs

UMICs

LMICs

LICs

Energy and agricultural subsidies
Social protection (excluding pensions)

In general, low- and middle-income economies tend to be lesssuccessful than high-income ones in ensuring that the combination oftaxes, transfers, and subsidies benefit the poor. Taxes finance spending
on core services and investments, and transfers and subsidies can offset
their impact on household incomes. But in two-thirds of low- andmiddle-income economies, the income of poor households falls by thetime taxes have been paid and transfers and subsidies have been received.
This divergence is due in part to the larger share of the informal sector inthose economies. As a consequence, taxes are predominantly collectedindirectly—through sales and excise taxes—and income transfers areoften too low to compensate.

Given these structural challenges, this report identifies three key priority actions
for fiscal policy in the coming years, as countries work to correct course:

1.

Reorient spending away fromsubsidies toward support targeted topoor and vulnerable groups.
Subsidies are often poorly targeted.
For example, one-half of all spending
on energy subsidies in low- andmiddle-income economies goes to therichest 20 percent of the population,
who consume more energy. In
contrast, programs like targeted cashtransfers are far more likely to reachpoor and vulnerable groups. More than
60 percent of spending on cashtransfers goes to the bottom 40percent. Cash transfers also tend tohave a larger impact on income growththan subsidies.

2.

Increase public investment that
supports long-run development.
Some of the highest-value public
spending—such as investments in thehuman capital of young people orinvestments in infrastructure andresearch and development—can havea beneficial impact on growth,inequality, or poverty decades later.
Amid crises, it is difficult to protect
such investments, but it is essential to
do so. The COVID-19 pandemic has
shown that hard-won progressachieved over decades can suddenly
vanish. Designing forward-looking
fiscal policies today can help countries
to be better prepared and protectedagainst future crises.

3.

Mobilize revenue without hurting
the poor. This can be accomplishedthrough property and carbon taxes
and by making personal and corporate
income taxes more progressive.
If indirect taxes need to be raised, cashtransfers can be simultaneously used
to offset their effects on the mostvulnerable households.

Reforming fiscal policy will be an essential element ofcorrecting course, but we must be realistic about how much
we can expect it to do. Despite the promise of fiscal reforms,
simulations suggest it will take heroic efforts toward more
effective fiscal policy choices to restore the pandemic-related
losses in the next four to five years. Successful fiscal reform will
require the support of sufficiently powerful domestic coalitions
interested in pursuing these types of policy goals, as well as
stepped-up global cooperation.
Accelerating global poverty reduction, and progress toward
the Sustainable Development Goals, will require morecomprehensive policy action. This will involve a broader set ofpolicies to stimulate the kind of growth that can benefit people
across all income levels—but particularly those at the bottom.
Correcting course is both urgent and difficult. Even if the course
correction proves insufficient to end extreme poverty by 2030, it
must begin now—for the sake of a lasting recovery from theoverlapping crises of today.

Download the report
Poverty and Shared Prosperity 2022