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The global financial crisis: identifying the chronically poor in low income countries

Written by Caroline Harper


While there are initial signs that the global downturn has started to stabilise in Europe and Asia, the effects of the crisis, particularly coming on top of the food and fuel crisis, are likely to reverberate for some time, especially in many poorer countries and regions; and with considerable impacts upon poor families and children. It is apt that this year’s World Poverty Day should focus on the plight of children and their families, given the scale of the global financial crisis and its likely impact on this often overlooked group. 

The ‘contagion effects’ of the crisis are increasingly obvious and its macro-economic impacts on low income countries (LICs) are now apparent.  The human impact, through the rise in the percentage of those living below the poverty line ($1.25 per day) is significant, but the nature of this additional poverty has been less well documented. Not only has the crisis increased poverty levels, it seems likely that people are not simply being pushed into temporary poverty but into chronic poverty, from which it is hard to escape. The likelihood of increased chronic poverty is evident in the harmful coping strategies being taken to survive the crisis by those who are already vulnerable.

UN secretary general Ban Ki-moon recently stated ‘It is not the chronic poor who are most affected, but the near and working poor whose lives had improved significantly over the past decade’. This can be seen in the rise in unemployment of those working in low-paid industries, the declines in global remittances and the selling of household assets. While this may be the most immediate impact, there is evidence that the effects of the crisis will also affect chronic poverty.

One sign of the relationship between the crisis and a potential rise in chronic poverty is the impact on children, young people and women in low-income countries through the effects on human capital and socio-economic development. These effects are translated through reduced household incomes and purchasing power, as well as increased household stresses and pressures on the dynamics of the household itself. These affect people’s general health and development; their labour demands, the time available for care and support and their daily consumption. One of the symptoms of this crisis has been rising prices for commodities, such as food. This could lower household consumption and, therefore, induce poorer health; in Zambia it was predicted that average consumption could decrease by 17% among households as a result of increased maize prices.

In times of crisis, many poor and disempowered households resort to coping mechanisms that will have a negative  affect on the well-being of their children  such as reduced spending  on food, taking children out of school, and even reduced protection, nurture and care. The impact is compounded if governments cannot protect core spending on public services.  Proven impacts of previous comparable crises on children  include increases in child mortality and morbidity, child labour, child exploitation, violence and other forms of abuse, alongside falling school attendance and in the quality of education, care, nurture and emotional wellbeing.  This could jeopardise the future capabilities of children from poor households to rise above the poverty level, contributing to a lifetime of poverty and potentially its inter-generational transmission.

Women are particularly vulnerable to economic shocks, with many already juggling a mass of domestic and work-related responsibilities.  Competing priorities, compounded by economic shocks, can intensify their poverty; particularly when a woman is the sole breadwinner and/or the head of the household. As employers tighten their own belts, women’s wages (often lower than men’s) are often the first to be reduced and they are often the first to lose their jobs; though this is tied closely to the sectors in which women and men work, and the formality or informality of their employment.

Job losses and lower wages can result in women taking on longer working hours for less pay, increasing their ill health and time poverty, with knock-on effects on their households and children. In its labour market predictions for 2009, the ILO has cited an increase of between 24 to 52 million people becoming unemployed, of whom 10 to 22 million will be women. Significantly this figure represents losses only in formal employment, failing to capture gendered dynamics in the informal market that may be more potent.  Other ways in which women are affected relate to intra-household dynamics around, for example, food consumption. There is ample evidence of gender disparities in consumption during food shortages, but reduced food intake affects not only general well-being, but maternal and infant health. Other effects include increases in domestic violence, which is known to correspond to household economic stress.  Taken together, these factors expose many women to increased vulnerability, pushing them and their households further into poverty.

Youth are likely to suffer from the impact of a crisis; economic strain often results in their withdrawal from school and a rise in their unemployment rates.   US President Obama’s statement that ‘We could lose a generation of potential as more young [people] are forced to forgo college terms or a chance to train for the jobs of the future’ reflects a universal phenomenon.  Cohort studies reveal that these experiences can have lifelong implications, and for those thrown into poverty, recovery may take a very long time.

It is not surprising that those who are already vulnerable in low income countries may be those worst hit by the crisis, but what is unknown is the depth of chronic poverty into which some people may fall, which needs, therefore, specific attention. It is clearly too soon to measure chronic poverty in the context of the current crisis, but  previous research identifies early warning signs and individual factors that can come together to produce ‘poverty traps’ or conditions which keep people in a position of sustained poverty; identifying and targeting these early will be essential. As the global economy starts to recover, the trickle down effects should begin to be felt at a national level with net poverty levels slowly on the decline. However these effects are unlikely to benefit those forced into a situation of chronic poverty unless specific action is taken to target such populations. Such actions should include;

  • A commitment to retain (even in times of crisis) a policy focus on the chronic poor and the most vulnerable. This will be particularly important in current crisis responses, such as fiscal stimulus packages.  Disaggregated monitoring will be required that not only identifies those suffering from the most acute household poverty in income terms, but also identifies multidimensional poverty indicators, from asset levels to gender and other identity status  and the formality of employment.
  • Governments need to ensure that they do not give with one hand and take away with the other by, for example, increasing short-term safety nets while reducing essential core social spending.
  • Existing protection systems need strengthening, and expenditure must be oriented to services for those in need, to stop them withdrawing from the service (because of the cost) and, in the case of health, neglecting themselves and their children. Complementary practical interventions include greater investment in nutritional supplementation for children to compensate for negative coping strategies; sensitive, protection-related social services to which women and children can turn if there is family violence; and the waiving of education and health service fees or the lessening of their associated costs by using innovative strategies like providing free public transport to essential services for mothers and children or other vulnerable groups.
  • These measures will undoubtedly incur costs and securing the political will is always hard. But investments in such areas should be seen as an opportunity to re-orient existing safety nets and services to promote greater equity across the population, and to address the inequities in growth that existed before the crisis. The support and advocacy of key high-level development players, like the UN and World Bank, as well as national NGOs and CSOs, will be vital for a sustained commitment.