Drivers of poverty
Examines drivers of poverty: the role of inequality alongside growth, structural conditions including informality, and the poverty implications of climate change, demographic shifts and digital transformation.
Understanding the drivers of poverty through a human rights-based approach is essential to address inequality, strengthen resilience and ensure everyone has access to the conditions necessary for a dignified life.
To address sluggish progress in human development and to accelerate last-mile efforts for poverty reduction, the focus must shift beyond economic growth toward approaches that reduce inequality. Poverty reduction depends on multiple factors, including initial levels of poverty, the nature of economic growth (for example, whether it is inclusive, pro-poor or jobless) and the extent of inequality.
Decomposing poverty in selected countries in the Asia-Pacific region corroborates the findings of this long-standing empirical literature. While poverty reduction has often been driven primarily by economic growth, its impact has been constrained by adverse distributional dynamics (figure 2.1). In Indonesia, Bangladesh and Kiribati, poverty declined largely as a result of growth, but growth was neither neutral nor pro-poor, thereby slowing down the net reduction in poverty. In Kyrgyzstan, poverty increased, reflecting adverse distributional effects that more than offset the gains from economic growth. By contrast, in Thailand, the decline in poverty was largely driven by improvements in distribution rather than by growth itself.
Note: The reference periods used for each country are as follows: Bangladesh (2016–2022), Indonesia (2017–2024), Kiribati (2018–2023), Kyrgyzstan (2018–2023), Mongolia (2018–2022), and Thailand (2018–2023). These periods were selected to capture both pre- and post-COVID periods, with some lagged years in between to avoid anomalies driven by the temporary spike in poverty observed during the pandemic.
Poverty trends in Asia and the Pacific are shaped by rapid and intersecting transitions. Climate change and environmental degradation, digital transformation and demographic change are fundamentally reshaping the region and influencing the pace and direction of poverty reduction.
Intensified risks present alarming challenges to poverty reduction. The Asia-Pacific region bears a double burden of climate hazards and multidimensional poverty, especially the South and South-West Asia subregion. Among the 383 million MPI-poor individuals in this subregion, 80.4% of people are exposed to heat, 7.2% to drought, 75.8% to floods and 86.7% to air pollution (figure 2.4). These exposures account for between 70% to 95% of exposed MPI-poor population in the region. Despite a smaller number in absolute terms, more than half of poor individuals in the East and North-East Asia subregion are exposed to floods and air pollution, while people living in poverty in South-East Asia are most affected by floods and heat exposure.
Within countries, poverty tends to be higher in regions exposed to at least one climate hazard (UNDP and OPHI, 2025). An analysis of hotspots of multi-hazard climate risks shows that gaps in access to basic services prevail and can sometimes be wider than the national level. This convergence of high exposure, high vulnerability and lack of coping capacity to climate risks can disproportionately affect the most disadvantaged groups, reinforcing poverty and inequality.
Structural drivers have shaped vulnerabilities and widened inequalities across generations. Limited fiscal space, rising debt distress, human capital deficits and informality reinforce disparities across income, gender, age, disabilities, geographic location and occupation.
Universal basic services, recognized as fundamental rights and enshrined in many national policy and international normative frameworks, provide affordable and accessible public goods that are available to all, irrespective of an individual’s purchasing power. When delivered at scale, investments in human capital generate broad societal impacts, empowering people and generations, and contributing to sustained reductions in poverty and inequality across generations. The resulting productivity accelerates growth and opportunities, which further expand the fiscal space for continued investment in human capital development. Figure 2.3 illustrates the correlation between labour productivity and the Human Capital Index across countries in the Asia-Pacific region.
In the context of child development and poverty, deficits that emerge in the early days of life are experienced chronically and compounded by repeated shocks that lead to irreversible forms of exclusion with intergenerational impacts. The first 1000 days of life – from conception to a child’s second birthday – offer an unparalleled window of opportunity for neurodevelopment. This period shapes the subsequent trajectory of human capital development and provides the foundation for children to achieve their full developmental potential. While early-life poverty can be considered as a state of deprivation, it is also an active biological process that reshapes a child’s developmental trajectory. Thus, exclusions and deprivations substantially undermine human capital development and perpetuate poverty, slowing social mobility and ultimately impacting economic growth.
Geopolitical conflicts are creating new uncertainties, shaping systemic inequalities and constraining the policy space needed to advance poverty reduction efforts. Volatile global trade and declining international development assistance leave countries with fewer options to reorient their macroeconomic and fiscal policies in support of poverty reduction efforts.
The 2026 crisis in Western Asia has sparked new concerns about the potential impacts on poverty across the wider region. Disruptions to energy and fertilizer markets, trade routes and remittance flows risk amplifying inflationary pressures and economic volatility. The disruptions occur against the backdrop of cumulative cost-of-living crisis driven by the COVID-19 pandemic, conflicts and natural disasters, which disproportionately affect low-income households. While domestic policy decisions are key to driving economic reforms and implementing inclusive policies for poverty reduction, structural poverty and inequalities are often reinforced by the dynamics of the global economic system.
The surge in public spending to finance life-saving COVID-19 response and recovery efforts to mitigate the socioeconomic impacts were necessary but also led to rising debt and interest payments that strained fiscal resources for poverty reduction and broader development priorities. Rising at a pace twice as fast in the developing countries compared to that of developed countries, the global share of public debt among developing countries increased from 16% in 2021 to 31%, reaching $31 trillion.1 Thirteen countries in the Asia Pacific region – with a total population of 2.5 billion – spent more than 10% of government revenues on debt repayment (figure 2.7).2 Prudent macro-fiscal planning and management would continue to be relevant to mitigate public resources from being diverted from key sectors, such as education and health, while maintaining the pace of human capital development and poverty reduction.
Strong institutional foundations are essential for inclusive growth and poverty reduction. Gaps in governance undermine the effectiveness of poverty reduction efforts and create conditions of exclusion, exposing societies to multiple risks, limiting participation and eroding trust in institutions.
Revisiting the drivers of poverty and adopting integrated policy approaches is a priority for the Asia-Pacific region. Aligning economic, social and environmental objectives while expanding choices that foster capabilities, opportunities and inclusion offers a path towards more resilient, equitable and sustainable poverty reduction across the region.