Status and Trend of Poverty in Nepal

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Understanding Poverty 

Poverty is a multidimensional, most challenging, and complex issue in the world. It is a problem of economic development of most of the developing countries like Nepal as poverty as an adverse effect on social, economic, cultural, environmental, political, physical, mental, educational, health, etc. sectors. Hence, the main objective of most of the developing countries in the world is to alleviate poverty through economic development. So, the government of every nation, NGOs, INGOs, multilateral, bilateral agencies are working in developing countries with the major objective of poverty alleviation. Therefore, poverty alleviation has become one of the major objectives of the economic development of most of the developing nations of the world including Nepal.

Poverty has different dimensions-poverty is a multidimensional aspect including income poverty, human poverty, and social exclusion, and empowerment. The very common measure of poverty is income poverty and that is determined most prominently by the poverty line. The World Bank has used a poverty line of $1.90 a day as a measurement of poverty. Income poverty or consumption-based poverty is confined only up to the income aspect of poverty.

The broader view of well-being includes sustainable human development (human capabilities as education and health). So, the concept of sustainable human development is related to the people-centric growth in which all individuals have opportunities in enlarging their capabilities and use them in different social, economic, cultural, and political development. Under such a new dimension, poverty can be defined as a state of deprivation in capabilities along with living below the international poverty line. This poverty is called multidimensional poverty.

Alleviation of poverty is therefore the process or situation of having or ability to have access to resources that would help the households to left out of its struggle for day-to-day subsistence. Here resources mean economic resources (like land and capital), human development resources (such as education and health), and social resources (such as political rights and influences). The trend and status of poverty in Nepal can be briefly discussed under the following headings;

The Trend of Poverty in Nepal

It has been almost 64 years since the planned development started in Nepal. During this time, Nepal has implemented fourteen five-year and three-year plans. There were also major political changes. Various constitutions and corresponding laws have also come into use. In Nepal, the federal republican system of governance has been established along with the experience of exercising the transition period, a multi-party system of governance, independent panchayat system, and restoration of a multiparty system of governance.

Currently, the Constitution of Nepal 2072 is being implemented. However, Nepal is still hindered by poverty and backwardness. The practice of planned development for the last six decades and the various efforts made at the center of the development plan with the sole objective of alleviating poverty from the Ninth Plan onwards have not gained much more significant improvement in the field of poverty alleviation. The disastrous earthquake of 2072 BS pushed about one million people below the poverty line and along with this about six million people are yet struggling their lives below the poverty line in the country.

Despite significant reductions in the population living below the absolute poverty line in the last 25 years, the gap between poverty and inequality between urban and rural areas and between different geographical areas and social groups seems to be widening. Such issues have made the poverty alleviation campaign even more challenging in Nepal.

With the end of the Rana rule in Nepal in 1951, a political change took place and democracy was established in Nepal. In 1956, the first plan was issued in Nepal and with that, the process of planned development began. With the end of the Rana rule and the beginning of planned development, various efforts were started to make to alleviate poverty in Nepal.

At that time, it was believed that poverty could be alleviated by increasing the output of the agricultural sector and expanding the infrastructure (road network). Inspired by the same thoughts and ideas, development plans were made in Nepal. Looking at the social and economic conditions of that time, the rulers believed that if people could be provided with two meals a day, they could be said to be freed from poverty.

Looking at the initial stage of planned development, there was a shortage of food in the hills and mountains due to geographical difficulties and ineffective distribution systems, even though there was a lot of grain production in the Terai. It is also said that agricultural products like paddy and wheat were exported from the Terai.

No employment from industry and service business was there and agriculture and animal husbandry were the prime occupations and the sole source of income.  Some people used to go to India for jobs other than farming and animal husbandry, some joined the Indian Army and some joined the British Army, adding to their sources of income. Seen in this light, agriculture was the main source of livelihood. Land ownership was considered as the main basis for measuring poverty.

By the 1990s, the idea that poverty should be eradicated by boosting domestic agriculture and production was gaining ground. However, due to unscientific ownership of land and inefficient distribution of food, poverty did not decrease significantly even after 35 years of planned development. (See figure-1-trend of poverty in Nepal)

Trend of Poverty Reduction in Nepal/Source: Economic Surveys
Trend of Poverty Reduction in Nepal/Source: Economic Surveys

Along with the wave of globalization in the 1990s, political changes in Nepal and the 10-year Nepalese Civil War (The Maoist Conflict) opened the way for Nepalese to enter the world labor market on the one hand and the migration of people from villages and remote areas to urban areas on the other. With increasing foreign employment (See figure-II), remittance income also increased and as a result, small business and service-oriented industries started to open in urban areas. This has contributed to the decreasing trend of poverty in Nepal.

Trend of Number of Nepalese Working going for Foreign Employment/Source: Economic Surveys
The trend of Number of Nepalese Working going for Foreign Employment/Source: Economic Surveys

At the same time, as the tourist arrival increased (See figure-III), informal employment opportunities began to be created in the urban areas and those who could not even go for foreign employment started moving from the villages to the urban areas to get internal employment. This has also contributed to the diminishing trend of poverty in Nepal.

Trend of Number of International Tourists Arriving in Nepal/Source: Economic Surveys
The trend of Number of International Tourists Arriving in Nepal/Source: Economic Surveys

Thus, the official statistics show that the prevailing poverty rate in Nepal is decreasing- the trend of poverty in Nepal is diminishing. About half of Nepal’s population was below the poverty line in 1990, but by 2019, the population has dropped to 18.7 percentages. Although statistics show that the percentage of the population living below the poverty line is declining, various reports show that poverty is still prevalent in various urban and rural areas of the country.

Causes of Poverty Reduction in Nepal

The main reasons for the decline in poverty in Nepal are as follows

Increase in Remittance Income

According to the data of NLSS (1995/96), about 23 percent of households used to receive remittance and that was increased to 32 percent in 2003/04. This percentage accounted for 56 percent in the Nepal Living Standard Survey of 2011. The 2011 Living Standards Survey also showed about 79 percent of remittance income is spent on consumption and remittance income contributes more than 30 percent in total revenue of the remittance-receiving families. 58 percent of total rural households are remittance recipients. Thus, the inflow of remittance has uplifted the living standard of many lower-income families in Nepal-has directly contributed to decreasing trend of poverty in Nepal.

Growing Establishment of Small Businesses and Service-oriented Industries

The establishment of service-oriented businesses and industries in cities and village areas of the country has increased with the increase in remittance income. Due to this, the poor and vulnerable people have been getting internal employment opportunities and have led to a gradual rise in the living standards of the poor.

According to a study, 10 percent of remittances inflow reduces poverty by 3.5 percent in Nepal.  A study related to elasticity between poverty and per capita Gross National Disposable Income (GNDI) covering the time between 2003/04 to 2009/10 calculated elasticity coefficient as 0.17 signifying that about a 6 percent increase in per capita GNDI reduces poverty on an average by 1 percent point. This also indicates that remittance induced massive consumption is proof of the contribution of remittance in the poverty reduction in Nepal.

Current Status of Poverty and its Measurement in Nepal

The recent poverty rate of Nepal shows that about 18.6 percent of people are living below the poverty line (Economic Survey, 2019/20). The multidimensional poverty positions at 28.6 percent. This poverty is still existed due to low economic growth, inadequate social and economic infrastructures, relatively high population growth rate, low access to land, low access to non-agricultural income, and deep-rooted historical and cultural practices. The institutional weakness in government, as well as the non-government level and lack of good governance, has also played a role in the existing poverty of Nepal.

According to the Poverty Alleviation Fund, the poor are the households that do not have enough food for a year with their regular crops and regular income. If the produced food is enough only for three months of consumption then those are called extremely poor, if the produced food is enough for 3 to 6 months then they are called moderate poor and if it if for 6 to 12 months then they are called poor.

The Nepal Living Standards Survey-III measures poverty based on calories and income. A 2220 calories per capita day and per capita income of Rs. 19261 is considered as the basis for measuring poverty in Nepal. People who are unable to meet 2220 calories intake per day is considered as the poor.

The intensity and incidence of poverty are measured by the poverty gap index. At the national level, this index was stood at 12 percent in 1996 this index accounted for 12.5 percent in rural Nepal and 7.0 percent in urban Nepal. In 2011 the national poverty gap index stood at 5.4 percent and the rural poverty gap index in 2011 accounted at 5.9 percent. This data also shows that on average more Nepalese poor are closer to rising above the poverty line over time.

Currently, the Fifteenth Plan is in execution. The plan has been started from the beginning of the Fiscal Year 2076/77 with a long-term vision of ‘Prosperous Nepal Happy Nepali’. The 15th plan has taken poverty alleviation and socio-economic equality as one of the major strategies to achieve long term vision of the nation.

The Fifteenth Plan aims to reduce absolute poverty and multidimensional poverty to 11 and 13 percent, respectively. The Poverty Alleviation Policy 2076 aims to reduce absolute poverty to 5 percent by 2087 BS and zero percent by 2100 BS.

Similarly, according to the Third Labor Force Survey 2074/75, out of the total 8 million labor force in Nepal, about 4.4 million workers are working in the informal sector. Similarly, there are about 2.9 million workers in the non-agricultural informal sector, 1.2 million in the business sector, 1 million in the construction sector, 0.3 million in the transport sector, and about 0.4 million in the hotel and hospitality sector. About 4.5 million workers are in foreign employment and about 0.5 million new workers are added to the labor market every year.

Speaking on province wise poverty rate, Sudurpaschim Pradesh is the poorest with 33.9 percent of the population below the poverty line, and in terms of multidimensional poverty; Karnali Pradesh is poorest with 51.2 percent people under multidimensional poverty.

According to the latest estimates of the National Planning Commission, absolute estimated poverty in the fiscal year 2076/77 is about 16.67pecent.

Institutional Efforts to Alleviate Poverty in Nepal

Poverty Alleviation Fund

Poverty Alleviation Fund (PAF) was established by ordinance and it is a special fund aiming at the lower group of the population living below the absolute poverty line; various programs have been implemented for social inclusion and participation of the very poor and vulnerable communities and classes in the society. Active participation of the poor and the marginalized is a preamble of PAV. Such programs are directly based on the demand of the extremely poor part of the societies. The mission of PAF is to reduce the extreme form of poverty through various programs. It has mainly four modalities to functioning its programs including commodity cost-sharing, demand-driven programs, community institution building, and facilitator organization along with other organization

The Programs of Poverty Alleviation Fund have been extended in 551 local levels of 64 districts to bring economically poor and deprived communities into the mainstream of the national development process (Economic Survey, 2018/19). So far, it has helped more than 0.8 million households through more than 3,000 community organizations. The fund has so far covered a total population of 5 million. So, this has helped significantly in the reduction of poverty in Nepal.

Youth and Small Entrepreneur Self-Employment Fund (YSEF)

YSEF is established in 2065 BS to provide self-employment opportunities to the educated and uneducated unemployed youth for the rapid development of the country by changing the traditional production system through maximum utilization of productive labor and development of entrepreneurship.

It has been providing an unsecured term loan up to a maximum of Rs 200,000 per person. The fund is targeted at young people between the ages of 18 and 50.

Till February 2020 loan agreements were signed with 20 banks and financial institutions and 1950 cooperatives from this fund, and a total of Rs. 9,492.68 million has been invested. As of February, of the current Fiscal Year, Rs. 700 million has been invested through 163 cooperatives. So far, 62,789 people have become self-employed through this program.

Tarai-Madhes Prosperity Program

The government has implemented the Tarai-Madhes Prosperity Program to run development projects including physical infrastructure in local levels of Tarai-Madhes, enlisted as backward in the human development index, in an integrated manner.

The program was announced in 2075 BS and the Ministry of Federal Affairs and General Administration has already issued the Terai-Madhesh Prosperity Program Operational Working Procedure-2075 to run it effectively. In the budget statement of FY 2075-76, the government had allocated Rs. 3.53 billion for the operation of the Terai-Madhes road infrastructure special program.

The program has been implemented in 2,671 wards of 276 local levels in 21 districts of Terai-Madhesh where the human development index is low and the overall rate and intensity of poverty are high.

Through this program, 450 collective housing buildings, 181 community infrastructures, construction of 44 km rural roads, 10 drinking water projects, and 2 KW of energy have been generated by the Fiscal Year 2077 BS.

Other programs

Many other programs have been implemented to alleviate poverty and raise the living standards of the poor and vulnerable. These include GariwasangaBisweswar, Rural Self-Reliance Fund, Rural Enterprises, and Remittance Projects, etc.

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