# **Section 1: Introduction**

Many developing countries’ official poverty methodologies rely on non-standard poverty lines, which are neither absolute nor relative. Examples include the Arab Republic of Egypt, Indonesia and Kenya, among others. The use of non-standard lines may pose challenges to conduct poverty comparisons across space or time. However, not many analyses address these challenges. This paper aims at partially filling this gap using the case of Egypt.

Egypt’s official poverty lines find their foundation in the cost-of-basic needs (CBN) approach developed by Ravallion (1998). In a nutshell, the CBN method computes the poverty line to be the sum of two components: the food component and the non-food component. The food component is the cost of purchasing a given number of calories given local food consumption behavior. The non-food component is the typical non-food expenditures of individuals whose food expenditures correspond to the food poverty line. The CBN method has been shown to be superior in terms of welfare consistency (Ravallion and Bidani, 1994) to the alternative food-energy intake method, which was proposed by Dandekar and Rath (1971) and refined by Greer and Thorbecke (1986). As a result, the official poverty lines of many developing countries are derived from the CBN (Ravallion, 2015a).

Egypt’s official poverty lines are derived from a particular version of the CBN method. The Egyptian version has two “non-standard” characteristics, which distinguish it from the classical definition of absolute poverty lines. The first non-standard feature relates to the way in which these lines are updated over time. In line with the CBN method, their food component is computed from a reference number of calories multiplied by the prevailing price of purchasing one calorie. The non-standard characteristic is that the price of purchasing a calorie depends on the consumption patterns _observed in the survey period_ . Hence, instead of updating over time the price of a calorie for inflation, the Egyptian poverty lines update the price of a calorie as a function of the updated food consumption behavior. This implies that the price of a calorie, and thus the food component of the poverty line, is not necessarily kept fixed in real terms over time. When growth changes consumption possibilities, households may switch their food habits and consume calories of a different quality (say, substitute wheat for animal sourced proteins), thereby changing the real value of the price of a calorie. This feature implies that the Egyptian poverty lines are neither purely absolute nor purely relative.<sup>2</sup> Rather these lines are hybrid, or “weakly relative” (Ravallion and Chen, 2011). Egypt is not an exception in that regard, as the official poverty lines of other developing countries, such as Indonesia or Kenya, have the same feature. This feature considerably complicates poverty comparisons.

The second non-standard feature relates to the equivalence scale implicit in Egypt’s official poverty lines. In line with the CBN method, the non-food component of the poverty line is computed as a fraction of the food component. However, this fraction is not constant but rather depends on the household composition and the consumption patterns _observed in the survey period_ . This implies that the equivalence scale implicit in the official methodology is not fixed, but rather endogenous. In other words, the equivalence scale changes over time and across space. This non-standard feature again makes it challenging to interpret official poverty figures and trends. It is unclear to what extent the departure from more standard poverty lines impacts poverty trends and the distribution of poverty across regions. In this paper, we provide a conceptual and quantitative understanding of the two non-standard features inherent in the official poverty lines of Egypt. We study which of these two non-standard features has the largest impact on poverty figures. We also investigate how Egypt’s poverty methodology compares with more standard methodologies, both in terms of identifying disadvantaged households and in terms of poverty comparisons over space and time.

We start by studying the poverty trend over the period 2015 – 2017/18. Over the period, the fraction of poor individuals has increased due to a negative shock to consumption. However, we show that the use of a comparable poverty line leads to an increase in poverty rate over the period about twice as large as that documented by the official poverty lines. Indeed, the poverty increase over the period can be

> 2 See Decerf (2022) for a recent survey of absolute and relative poverty measurement.

2