SpecialArticle 5

Interview with Arturo Martinez, Jr., Kristine Faith Agtarap-Maningding & Rica Cynthia Maddawin,
ADB

Poverty & the Cost of Livingin Asia & the Pacific

By Japan SPOTLIGHT

The increasing cost of living crisis is threatening to push many back into poverty in Asia and the Pacific.
Asian Development Bank (ADB) statistician Arturo Martinez, Jr. and ADB consultants Kristine Faith
Agtarap-Maningding and Rica Cynthia Maddawin answer questions about how the rising cost of living
affects the most vulnerable in the region, based on findings from the ADB’s Key Indicators for Asia andthe Pacific 2023.
(Interviewed on Nov. 3, 2023)

Arturo Martinez, Jr.

Kristine Faith Agtarap-Maningding

Poverty Concerns in Asia & the Pacific
JS: Why do you think poverty remains an importantconcern for Asia and the Pacific, despite generally
remarkable economic growth in the region over thepast several decades?

ADB: Over the past six decades, Asia and the Pacific has gone
through an incredible journey from widespread poverty to generalprosperity. From being an agrarian, low-income region in the 1960s,
it has evolved into the world’s manufacturing powerhouse, withdiverse exports, expanding innovation capacity, rising megacities, agrowing skilled labor force, and a larger consumer base. Along withthese developments, it is worth noting that living conditions in theregion have substantially improved over time. A number ofdevelopment challenges, however, persist. These include economicinequality, climate change threats, and heightened risks of conflict,significantly impacting the most vulnerable segments of society, who
may be left behind if these issues are not addressed urgently.
66 Japan SPOTLIGHT • January / February 2024

Rica Cynthia Maddawin

In 2015, economies in Asia and the Pacific, along with the rest of
the world, made a pact to tackle these development challenges byadopting the 2030 Sustainable Development Agenda. The first
Sustainable Development Goal (SDG) aims to end poverty in all its
forms everywhere by 2030. It comprises multiple targets, including
eradicating extreme poverty, reducing multidimensional poverty, andchanneling resources to build a better social safety net.
Economic growth alone is not sufficient to eradicate all forms ofpoverty, as there is a need to ensure that the benefits trickle down toeveryone, especially the poor. Tackling poverty’s multiple
dimensions requires substantial resources that many governments indeveloping economies find challenging to address. A study by theUnited Nations Economic and Social Commission for Asia and thePacific (UNESCAP) suggests that the total spending required toachieve poverty eradication and other SDGs, such as SDG 2 (zerohunger) and building human capabilities (SDGs 3 and 4), exceeds$669 billion a year between 2016 and 2030, which is less than 2% ofthe average gross domestic product of developing economies in theregion. This amount is well beyond the capacity of manyhttps://www.jef.or.jp/journal/

governments, further highlighting the importance of directing
resources to those who need them most. However, estimatessuggest that there is still room for improvement for the amount ofofficial development assistance grants from all donors that focus onpoverty reduction.
JS: How many poor people are there in Asia and thePacific?

ADB: When it comes to poverty reduction, our region is one of thebest performers. In 2019, before the Covid-19 pandemic, about 4.8%of Asia and the Pacific’s population were considered extremely poor
– far below the 58.1% estimate in 1990. On the other hand, prepandemic estimates show that 19.2% of the region’s population lived
in moderate poverty (those consuming between $2.15 to $3.65 aday). A study published by the United Nations Development
Programme notes that from 2016 to 2021, the prevalence ofmultidimensional poverty was at least 20% in about one-third ofeconomies in Asia and the Pacific with available data.
By current estimates, about 22.7% of the population in Asia andthe Pacific are considered poor, with 3.9% considered to be living in
extreme poverty. A large share of the population still lacks access tobasic infrastructure and services. The latest estimates show that theprevalence of multidimensional poverty exceeds 10% in more than
40% of economies with available data.
Recent events have made poverty eradication even morechallenging. When Covid-19 hit, developing Asia experienced its firsteconomic contraction in nearly six decades, with millions in theregion driven into severe economic hardship. Previous estimates,
based on data available when the pandemic was unfolding,suggested that it set back the region’s progress on reducing extreme
poverty by at least two years. On the other hand, as the pandemic
began to recede, additional shocks unsettled the nascent economic
recovery, with cost-of-living pressures forcing low-income people toallocate a more substantial portion of their already meager resources
just to make ends meet. Compared with pre-pandemic poverty
forecasts for 2022 (under a counterfactual scenario in which thepandemic and increased cost of living did not happen), estimatesshow an additional 67.8 million people lived in extreme poverty indeveloping Asia last year.

Cost of Living & Poverty
JS: How does the cost of living affect the poor in Asiaand the Pacific?

ADB: We are now at a critical juncture as we reach the halfway pointof the implementation of SDGs. While the pandemic has wound
down, the world is still contending with an elevated cost of living.
Studies show that even minor fluctuations in prices can have asignificant impact on the underprivileged, given that they allocate asignificant portion of their resources toward basic, essential goods
and services. Poor people with tight household budgets are pushed
to disproportionately allocate their meager financial resources whenconfronted with higher costs of food, other basic commodities, andessential services. In effect, a high-inflation environment is evenmore arduous for the poor, who were already struggling to makeends meet in a low-inflation situation. These people are most likely tobe hit the 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 wealthiercounterparts.
High inflation also comes at a perilous period when the social
elevator has been damaged, with studies noting that learning losses
caused by school closures during the pandemic might undermine theeconomic mobility prospects of the current generation of learners.
With already tight budgets, a higher cost of living may divert lowerincome households’ resources away from initiatives that could undo
learning losses incurred during the pandemic. It could even amplify
risk-averting behavior, which make poor people less willing toundertake activities and investments that may have higher expectedsocioeconomic returns in the long run.
At the macro level, economic slowdowns may also constrain
national capacities to invest in poverty-reducing initiatives such asenhancement of health, education, and infrastructure.

Implications of “Poverty Premium”
JS: What is the poverty premium, and what are thefactors that make poverty expensive in developing
Asia? Does it affect poor people’s economic
behavior?

ADB: The concept of the poverty premium refers to instances wherepoor people pay more for buying goods and accessing services thanwhat non-poor people pay for the same goods and services. The
concept is not new. Even in the 1960s, there were alreadyhypotheses about the additional costs that people from low-income
backgrounds pay compared to the rest of the population. In a way,the existence of the poverty premium contributes to the paradox thatJapan SPOTLIGHT • January / February 202467

in some contexts, being poor can be expensive.
The notion that purchasing smaller quantities of goods may costmore in the long run is analogous to the concept of economies ofscale. With limited financial resources, a lot of poor people areunable to stock food or other goods and, therefore, they have toshop often and can’t maximize when such goods are on sale.
Location also matters. Consider a remote area with limited access tonecessary infrastructure. Prices of delivering a service could be quite
expensive, and that’s why we see examples where the cost ofelectricity or water is higher in some rural areas than in urban areas.
Studies also suggest that, although people with lower incomes
tend to prefer cheaper commuting options, transportation is alsoless affordable to them. Poor individuals may have to travel long
distances and spend significant amounts of time and money
commuting to work. In addition, inferior quality of roads in poorer
areas may also contribute to a transportation penalty or premium
through longer travel times and increased vehicle maintenance costs.
Access to financial services is also more expensive for the poor.
Poor people and families may not qualify for bank loans or otherforms of credit due to a lack of collateral or credit history. They also
may not have the necessary documents or identification to open abank account. An ADB study also suggests that small businesses indeveloping Asia often face challenges in accessing credit and may,therefore, have to rely on high-cost alternative lenders to meet theirfinancial needs.
This is especially true during periods of crisis and uncertainty.
Studies on multidimensional poverty indicate that people living withmultiple deprivations in poorer regions are at higher risks during
health crises and less likely to be able to afford professional medical
services, due to low income and lack of knowledge of the importanceof preventive health care. During the Covid-19 pandemic, poorer
communities exhibited lower compliance with mobility restrictions,largely because many low-wage individuals had no choice but toleave their homes to earn income. This increased the risk oftransmission of the virus and led to unexpected or additional healthrelated expenses.
While examples of manifestations of the poverty premium abound,some argue that addressing the issue of a “poor mindset” and thedecision-making of poor people when it comes to money andpurchases is more important. They contend that poor people mayprioritize non-essential items over necessities, leading to seemingly
counterproductive economic behavior. However, proponents of“poor economics” explain that poor people are actually rational withmoney, but the higher opportunity cost they face due to having tofocus on meeting basic needs limits their ability to invest in long68 Japan SPOTLIGHT • January / February 2024term benefits like education – which, in turn, perpetuates the cycle ofpoverty. Poverty can also impact mental bandwidth, leading to lesswillingness to invest in things that may have higher potential longterm returns, as immediate needs take precedence over long-term
outcomes.
JS: How do we measure the poverty premium?
ADB: Estimations of the poverty premium have a substantial datarequirement, as one needs access to information on prices paid by
the poor and non-poor for the same basket of commonly consumed
goods and services. If one is familiar with how the consumer priceindex is compiled, it is basically the same data, but it has to be
disaggregated for poor and non-poor people. However, the challenge
is that not a lot of statistical systems compile such price data fordifferent income segments. Because this data is not routinely
collected, it is challenging to assess whether things are improving
over time. On the other hand, in some economies with available data,
there is evidence suggesting that lower-income individuals generally
experienced slightly higher consumer price inflation from 2009 to2022, compared to the overall population, as illustrated in the Chart.
Nonetheless, given the price pressures that our region and the restof the world have experienced for more than a year now, it isimportant that we minimize the poverty premium as much as we can,if we are to draw closer to our commitment to meet the first SDG oferadicating poverty by 2030.

Policies Relevant to Address Poverty& the Cost of Living
JS: What can policymakers do to address poverty andthe cost of living in Asia and the Pacific? Whatmeasures could possibly address the perceived
additional costs for the poor?

ADB: Policymakers should boost agricultural development, invest
more in education and infrastructure, and expand access to financial
services through innovation. They should also investigate andaddress why the poor often pay more for everyday essentials thantheir wealthier counterparts, while minimizing the channels throughwhich poverty premiums manifest.
Social protection coverage is also critical in an era of increasingly
severe natural, epidemiological, and economic shocks (including thecost of living). Across Asia and the Pacific, there is diversity in social
protection systems. Some are mainly dependent on contributory

CHART

Inflation experienced by low-income people vs. general population
7.0
6.0
5.0
4.0%

3.0
2.0
1.00.0

HKG: Bottom 50% of the population

HKG: Overall population

PHI: Bottom 30% of the population

PHI: Overall population

TAP: Bottom 20% of the population

TAP: Overall population

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

-2.0

2009-1.0

CPI = consumer price index; HKG = Hong Kong, China; PHI = The Philippines; TAP = Taipei, China.

Sources: For CPI overall population: Asian Development Bank data presented in Table 2,3,1 of Key Indicators of Asia and the Pacific 2023.
For CPI bottom population, for TAP: Government of Taipei, China. Director-General Budget, Accounting and Statistics.
For HKG: The Government of the Hong Kong Special Administarative Region of the People’s Republic of China. Census and Statistics Department. https://www.censtad.gov.
hk/en/web=table.html&id=510-60003# (accessed July 24, 2023); For PHI: Philippine Statistics Authority. https://openstat.psa.gov.ph/Database/Prices?Price-Indices (accessedJuly 24, 2023).

social insurance and provident funds, while others provide additional
assistance for vulnerable groups in the form of food vouchers, childbenefits, caregiver allowances, and disability grants. Amid thisdiversity, however, data show that a substantial number ofeconomies have expanded social protection, especially in recentyears. There is a need to further strengthen social protection
systems and ensure that social protection coverage extends beyond
being a temporary response to pandemics and the cost of living
crisis, and target those who need it most. Boosting thesocioeconomic resilience of the underprivileged and the vulnerable
to better handle future crises should be a crucial component of antipoverty efforts.
In addition to social protection coverage, there is also evidence
from an ADB study (which examined the impact of a graduation
approach – an innovative and holistic approach to address povertyand inequality) to suggest that integrating behavioral coachingsessions into broader poverty reduction efforts can enhance
decision-making among those living in poverty. Women, inparticular, stand to benefit significantly from coaching sessions
focused on more efficient consumption patterns. Researchdemonstrates that women often hold the final decision-making

power when it comes to household expenditures, particularly dailypurchases.

Arturo Martinez Jr. manages the Key Indicators for Asia and the Pacific, theADB’s flagship statistical publication. He also specializes in compilation of social
statistics and other relevant SDG indicators, using a combination of conventional
and innovation data sources such as big data. Before joining the ADB, he was aResearch Fellow at the University of Queensland in Australia, where he also
received his PhD in Social Statistics.
Faith Agtarap-Maningding is an economics and statistics specialist at the ADB
providing technical assistance in compiling various indicators for the ADB’s Key
Indicators for Asia and the Pacific publication. Prior to joining the ADB, she
served in the government at the National Statistical Coordination Board (now thePhilippine Statistics Authority) where she worked on governance statistics,
poverty estimation, and statistical classifications.
Rica Cynthia Maddawin joined the team of Key Indicators for Asia and thePacific publication of the ADB from 2021 to 2023. She contributed to thecompilation of socioeconomic and financial statistics, and SDG indicators ofvarious DMCs of the ADB. She specializes in development economic researchand urban planning, and is currently pursuing a master’s degree in public policy
at the National Graduate Institute for Policy Studies in Tokyo, concentrating oninternational development policy.

Japan SPOTLIGHT • January / February 202469