Thursday, August 4, 2011

Absolute poverty declined to 13 percent in Nepal in six years

This is incredible. Prem Khanal writes that a forthcoming study based on Nepal Living Standard Survey (NLSS) 2010 shows that absolute poverty declined to 13 percent, a 18 percentage point decline in absolute poverty in the six years between 2003/04 and 2009/10. That is like three percentage point decline each year. The NLSS II conducted in 2003/04 showed 31.5 percent of the population was under absolute poverty. The first NLSS in 1995/96 showed 42 percent of the population under absolute poverty. The latest survey is based on 7,200 samples of households selected randomly nationwide.

Findings of NLSS III:

  • 13 percent Nepalis below the poverty line fixed at 2,200 calorie consumption per day per person and access to essential non-food items.
  • Based on current market prices, a person needs an income of at least Rs 14,430 per year to manage food items equivalent to 2,200 calorie per day and other essential non-food items.
  • Households receiving remittance increased to 55 pc from 31.9 percent reported in NLLS 2003/04 (24 percent households received remittance in FY95/96). Of this income, 79 percent is used for daily consumption while only 2.4 percent is invested for capital formation.
  • Sex ratio decreased to 85.6 from 92.6 in 2003/04.
  • Average household size decreased to 4.9 persons from an earlier 5.3 persons.
  • The Gini-coefficient has fallen to 0.35 from 0.41 recorded in the second NLSS. The nominal average per capita income of the poorest 20 percent of the population has increased nearly fourfold to Rs 15,888 from Rs 4,003 registered in the second NLLS. However, such income of the richest 20 percent of the population merely doubled, to Rs 94,419 from Rs 40,486 over the period.
  • Households headed by females has increased to 26.6 percent from 19.6 percent recorded in the second NLLS.
  • The per capita consumption share of the poorest 10 percent, according to the survey, is Rs 11,093 whereas the share for the richest 10 percent is Rs 102,772.
  • The nominal average household income has seen a 2.5-fold increment to Rs 202,374 from Rs 80,111 six years ago.
  • Households using cooking gas has doubled to 17.7 percent.
  • Households taking loans from banks have gone up to 20 percent from 15 percent whereas households taking loans from local money lenders has gone down to 15.1 percent from 26 percent six years ago.
  • More than 62 percent of households have outstanding loans as against 66.7 in 2003/04.
  • The expenditure on cereal food has declined by a whopping 16 percentage points to 52.3 percent whereas expenditures on meat and vegetables have increased considerably.
  • Kathmandu Valley has the lowest poverty incidence of less than 5 percent while Taplejung, Khotang and Sankhuwasabha have the highest -- up to 23 percent.


The survey showed everything positive happening at the household level right now. This has come about when the major macroeconomic variables are deteriorating and political uncertainty increasing. Something other than the economic variables are at play. The only exogenous factor I can think of are remittance and migration. It looks like it is a remittance- and migration-led decline in absolute poverty.

More households received more remittance money, increasing their income and consumption. The first two deciles household on the income scale got a bump in their income due to remittance money, decreasing income inequality. This also means that the marginal increase in growth of remittance received by poorest households is higher than the marginal increase in growth of income of richest households. I am surprised by this. Also, it means an increase in female headed households as men leave to sweat outside the country.

Sex ratio, the ratio of male to female, has decreased. It is like Nepal is having more females than males (just opposite in India—where the latest census showed 940 girls for every 1000 males)? Or am I reading the number incorrect?

About the astounding decrease in poverty, the impact is not only due to remittances. NLSS III shows that absolute poverty declined to 13 percent. If we account for the impact of remittances, the poverty incidence has declined to 21 percent. What accounts for the eight percentage point decline in absolute poverty? Increase in real wage in agriculture sector? Increase in the number of population moving from low productivity to high productivity sectors?? Decrease in fertility??

A three percentage point decline in poverty each year for six years is quite incredible. More incredible would be to know the reasons behind this. Also, compare this one with Multidimensional Poverty Index, which showed that the percentage of people who are MPI poor (headcount) is 84.7 percent. The World Bank estimated that 55.10 percent (15.59 million) of the population living below income poverty line of $1.25 a day (2005 PPP US$). Again, the 13 percent national poverty figure is very surprising. The National Planning Commission must have a good answer to this. Isn’t 2,200 calorie per day (Rs 14430 per year including food and access to basic non-food items) per person too low to sustain given high inflation?

The increase in remittances has led to a consumption binge. Since most the consumed goods are not produced in Nepal (for various reasons related to labor dispute, political instability, policy inconsistency, loss of competitiveness both in domestic as well as foreign markets), they are imported, leading to huge trade deficit. Interestingly, the increase in household income has led to consumption of more dietary goods like meat and vegetables.

The increase in average household income and remittance inflows has led to decline households in debt as well. But, loans from banks are increasing and from nonbank lenders decreasing. Is creditworthiness of Nepali households increasing?

At the policy level, it seems like without any substantive policy reform absolute poverty has declined in Nepal. We have dangerously outsourced the reform need of our economy to remittances. How long can it last? What’s up, Ministry of Finance and National Planning Commission? It comes amidst stagnation in manufacturing sector and even growth rate.

The all-positive results of NLSS III should not blind the MoF and NPC from enacting reforms. I would be reluctant to applaud the outcome shown by this survey unless the NPC comes up with good and convincing explanation. There are way too positive results amidst too many inconsistencies. Basking on the good results of NLSS III survey and doing nothing substantive to revive the economy like in previous years is going to be dangerous. For now, the remitters (not the policymakers and political leaders) should be applauded for brining about this change.

I am eagerly waiting for the full report (and possibly the raw data so that I can play with it and look for other stuff).