Impact of Crisis on Poverty in Asia and Millennium Development Goals (MDGs)

Historical experience gives us some insights into impact that the global recession will have on Asia. Experience during the Asian financial crisis of 1997 and 1998 provides some useful clues. The sharp downturn in the second half of 1997 and 1998 resulted in a downturn in growth and an increase in unemployment and the incidence of poverty. Fallon and Lucas (2002) estimate that the headcount ratio in Indonesia and Thailand rose by 11% and 9.8% in 1997 and a further 19.9% and 12.9% respectively in 1998. More generally, the World Bank (2000) and Ravallion and Chen (1997) conclude that on average 1% of growth will bring about a 2–3% reduction in the number of people living below the poverty line. In Asia, further work by Hasan et al (2009) suggests that the impact on poverty will be more likely to impact factory workers in export industries as well as overseas workers. In the earlier crisis it was the very poor construction workers in the cities as well as some farming communities that were affected. Rising unemployment increases the vulnerability of these groups to poverty and has knock on effects on the extremely poor as well. Hasan et al (2009) estimate that the current global recession will result in an increase in dollar a day poverty of over 60 million people in Asia, which could rise to nearly 100 million in 2010. These estimates presuppose that growth in the Asian region will slow from 6.3% in 2008 to 3.4% in 2009 before rising to 6% in 2010. Simulations made in ADB (2009 Table 1.4.2) suggest the 60 million additional poor in 2009 and close to 100 million in 2010 is in line with growth projections for the region. These forecasts were made in the spring of 2009 and more recent estimates suggest these growth forecasts for 2009 and 2010 may have been overly pessimistic (see Table 5.1). As a result the net impact on poverty may be smaller than earlier estimates. Nevertheless the full impact is hard to determine. Hasan et al (2009) estimate the impact on GDP growth by assuming three different scenarios. First, growth in 2008, 2009 and 2010 will be 1% lower than growth in 2007; second, growth will be 2% lower in 2008, 2009 and 2010; and finally, that growth will be 3% lower in 2008, 2009 and 2010.