Extreme poverty

What Is Extreme Poverty?

Extreme poverty describes a condition in which individuals lack the financial resources and essentials for a basic standard of living. It represents the most severe form of deprivation, characterized by insufficient income to meet fundamental human needs such as food, safe drinking water, sanitation facilities, health, shelter, and education. As a critical socioeconomic indicator, understanding extreme poverty is central to discussions in global economic development and humanitarian efforts. The World Bank, a leading international financial institution, defines extreme poverty by an international poverty line, currently set at an income of less than $3.00 per person per day (as of June 2025, using 2021 purchasing power parity or PPP).¹⁸ This measure helps track progress toward global development goals and informs strategies for poverty reduction.

History and Origin

The concept and measurement of extreme poverty gained significant global prominence in the late 20th century as international organizations sought to quantify and address global disparities. The World Bank began efforts to assess the extent of extreme poverty worldwide in 1979, with the formal introduction of an international poverty line in 1990.¹⁷,¹⁶ Initially set at $1.00 a day (1985 PPP), this line was periodically updated to reflect changes in living costs and improve measurement accuracy. For instance, it was $1.90 a day (2011 PPP) for many years before being revised to $2.15 (2017 PPP) and, most recently, $3.00 (2021 PPP) as of June 2025.¹⁵ These updates are crucial for accurately tracking the number of people living in extreme poverty globally.

A major milestone in the global commitment to eradicate extreme poverty was the adoption of the Millennium Development Goals (MDGs) in 2000, followed by the Sustainable Development Goals (SDGs) in 2015. SDG 1 explicitly calls for "No Poverty," with a primary target to eradicate extreme poverty for all people everywhere by 2030.¹⁴, This collective global agenda has driven significant efforts by governments, non-governmental organizations, and international bodies to develop and implement targeted poverty reduction strategies.

Key Takeaways

• Extreme poverty is defined by the World Bank as living on less than $3.00 per person per day (2021 PPP), indicating severe deprivation of basic needs.
• Global efforts, particularly through the UN Sustainable Development Goals, aim to eradicate extreme poverty by 2030.
• The measurement of extreme poverty relies on an international poverty line, which is regularly updated to account for inflation and cost-of-living differences.
• Significant progress has been made in reducing global extreme poverty rates over recent decades, though challenges remain, particularly in certain regions.
• Addressing extreme poverty often involves comprehensive strategies encompassing economic growth, social protection systems, and improved access to essential services.

Interpreting Extreme Poverty

Interpreting extreme poverty involves understanding the sheer scale of deprivation and the multi-faceted challenges faced by affected populations. The international poverty line, while a critical benchmark, represents a monetary threshold below which individuals struggle to afford even the most basic necessities for survival. When a large percentage of a country's population falls below this line, it signals profound deficiencies in economic development, infrastructure, and access to essential services.¹³

For example, if a country has a high proportion of its population living in extreme poverty, it suggests systemic issues that inhibit people from accumulating financial resources or participating meaningfully in the economy. This data is crucial for international organizations and governments to identify priority areas for intervention, assess the effectiveness of aid programs, and monitor progress towards global poverty reduction targets. It provides a stark measure of human well-being and a call to action for policy interventions aimed at improving the standard of living for the most vulnerable.

Hypothetical Example

Consider a remote village in a developing economy where the primary source of income is subsistence farming. A family of five in this village earns a combined average of $10 per week from selling surplus crops and occasional labor.

To determine if this family lives in extreme poverty, we convert their weekly income to a daily per capita amount:

1. Family's total weekly income: $10
2. Number of family members: 5
3. Family's total daily income: $10 / 7 days = $1.43 per day
4. Per capita daily income: $1.43 / 5 people = $0.286 per person per day

Comparing this to the World Bank's international poverty line of $3.00 per person per day:

Since the family's per capita daily income ($0.286) is significantly below the $3.00 extreme poverty line, this hypothetical family would be classified as living in extreme poverty. This scenario illustrates how even minimal income levels, when spread across multiple individuals, can quickly fall beneath the threshold, highlighting the severe challenge of accumulating adequate human capital and meeting basic needs.

Practical Applications

Understanding and measuring extreme poverty has several practical applications in global finance, policy, and humanitarian efforts. For international financial institutions like the World Bank and the International Monetary Fund (IMF), the data on extreme poverty guides the allocation of international aid and concessional lending to countries most in need.¹² These organizations often require countries to develop Poverty Reduction Strategy Papers (PRSPs) as a prerequisite for debt relief or financial assistance, explicitly linking aid to tangible poverty reduction goals.¹¹,

Furthermore, the prevalence of extreme poverty influences macroeconomic forecasts and investment decisions. Investors considering emerging markets often analyze poverty rates as part of a broader assessment of social stability, consumer base development, and long-term Gross Domestic Product (GDP) growth potential. High levels of extreme poverty can signal underlying structural issues that may impede sustained economic progress. For policymakers, especially in the context of the UN's Sustainable Development Goals, monitoring extreme poverty rates provides crucial feedback on the effectiveness of development programs, allowing for adjustments and prioritization of resources towards sectors like education, health, and infrastructure that have the greatest impact on lifting people out of deprivation.¹⁰

Limitations and Criticisms

Despite its widespread use, the concept and measurement of extreme poverty face several limitations and criticisms. One primary critique revolves around the reliance on a single, universal monetary poverty line. While designed for global comparability using purchasing power parity (PPP), this single line may not fully capture the diverse costs of living and varying social safety nets across different countries and regions. For instance, what constitutes basic needs in one climate or culture may differ significantly from another.⁹

Another limitation is that income-based measures of extreme poverty often do not fully account for the multidimensional nature of deprivation. Poverty is not solely about a lack of monetary income; it also encompasses deficiencies in access to essential services, education, healthcare, clean water, and adequate housing.⁸ An individual might be just above the income poverty line but still lack access to critical services, making their true living conditions precarious. The OECD, for example, explores measures of poverty that go "beyond income" to include aspects like wealth distribution and financial vulnerability.⁷,⁶ Additionally, data collection for extreme poverty can be challenging, particularly in fragile or conflict-affected regions, leading to potential inaccuracies or delays in reporting. The COVID-19 pandemic, for instance, demonstrated how global crises can significantly set back progress in poverty reduction, highlighting the fragility of gains made.⁵ These factors underscore the need for a holistic approach to understanding and combating extreme poverty, moving beyond purely income-based metrics.

Extreme Poverty vs. Relative Poverty

While both terms describe forms of deprivation, the distinction between extreme poverty and relative poverty is fundamental in economic and social analysis.

Extreme Poverty (also known as absolute poverty) is defined by a fixed, international monetary threshold below which an individual cannot meet their most basic physical needs for survival. As established by the World Bank, the current international poverty line for extreme poverty is $3.00 per person per day (2021 PPP). This measure aims to assess a universal standard of deprivation, regardless of a country's overall wealth.

Relative Poverty, on the other hand, defines poverty in relation to the average income or living standards within a specific society or country. It is typically set as a percentage of the median household income, often 50% or 60% of the median. For example, in a wealthy nation, someone might be considered relatively poor if their income is less than half of the national median, even if their actual income is well above the extreme poverty line. Relative poverty highlights income inequality and social exclusion within a society, reflecting whether individuals can participate fully in the economic and social life of their community.

The confusion between the two often arises because both describe insufficient resources. However, extreme poverty focuses on a lack of basic necessities for survival, whereas relative poverty focuses on a lack of resources compared to others in the same society, implying a struggle to maintain a socially acceptable standard of living.

FAQs

What is the current definition of extreme poverty?

Extreme poverty is currently defined by the World Bank as living on less than $3.00 per person per day, measured in 2021 purchasing power parity (PPP) dollars.⁴ This updated international poverty line aims to reflect the minimum income required to meet basic needs in the world's poorest countries.

What is the global goal related to extreme poverty?

The primary global goal related to extreme poverty is Sustainable Development Goal 1 (SDG 1) of the United Nations, which aims to eradicate extreme poverty for all people everywhere by 2030.³ This objective is a cornerstone of the broader sustainable development agenda.

How has the number of people in extreme poverty changed over time?

Globally, the number and proportion of people living in extreme poverty have declined significantly over the past few decades. For instance, the percentage of the world's population living in extreme poverty fell from over 80% in 1800 to around 10% by 2015. However, recent crises, such as the COVID-19 pandemic, have temporarily reversed some of this progress, highlighting the fragility of gains.²

Does extreme poverty only exist in developing countries?

While the vast majority of people living in extreme poverty reside in developing economies, particularly in South Asia and Sub-Saharan Africa, instances of extreme deprivation can also be found in developed countries. The international poverty line is designed to measure this absolute condition regardless of geographic location.

How do organizations like the IMF and World Bank address extreme poverty?

The IMF and World Bank address extreme poverty through various means, including providing concessional financial support, offering policy advice, and building capacity in low-income countries.¹ They often require countries to implement comprehensive poverty reduction strategies to ensure that financial assistance contributes effectively to improving the lives of the poorest populations.