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Country Poverty Analysis (Detailed) Nepal

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Country Poverty Analysis (Detailed) Nepal Country Poverty Analysis (Detailed) Nepal Country Partnership Strategy: Nepal, 2013–20172013-2017 COUNTRY POVERTY ANALYSIS: NEPAL A. Background 1. This country poverty analysis draws mainly on the National Living Standards Surveys (NLSS), which was first conducted in 1996, and carried out again in 2004 and 2011. 1 The NLSS estimates the national poverty line following the cost of basic needs approach, which is the expenditure value in local currency required to fulfill both food and non food basic needs. The NLSS III findings can be disaggregated into fourteen analytical domains (mountains, urban- Kathmandu, urban-hill, urban-terai, eastern rural hills, rural central hills, rural western hills, rural mid- and far-western hills, rural eastern terai, rural central terai, rural western terai, and rural mid- and far-western terai. This analysis also draws from the Nepal Demographic Health Survey (2011) and the Census (2011) for information on health and access to basic services. B. Income Poverty and its Distribution 2. Using the national poverty line, poverty incidence has been falling at an accelerated pace from 41.8% to 30.9% between 1996 and 2004 and further to 25.2% of the overall population in 2011. This remarkable decline occurred in the backdrop of a significant increase in the national poverty line from NRs7,696 per capita per year in 2004 to NRs19,261 per capita per year in 2011 to account for a higher quality consumption pattern . 3. Using international poverty line of $1.25 per day, the incidence of poverty has declined steadily from 68.0% in 1996 to 53.1% in 2004 and 24.8% in 2011. Poverty incidence at $2 per day has similarly declined from 89.0% in 1996 to 77.3% in 2004 and 57.3% in 2011 (Figure 1). 4. Despite the remarkable decline in overall poverty level, poverty in rural Nepal is still higher than urban Nepal, even though rural poverty is declining at a faster pace than urban poverty. While urban poverty fell from 21.6% in 1996 to 10.0% in 2004, it again rose to 15.5% in 2011. On the other hand, rural poverty has declined continuously from 43.3% to 35.0% and to 27.4% between 1996, 2004 and 2011. 5. Variation of poverty across the five development regions shows that poverty incidence in the far western development region is not only the highest but is also on the rise. The percentage of poor in the far western development region declined from 63.9% in 1996 to 41.0% in 2004, but risen again to 45.6% in 2011. In contrast, poverty incidence in the eastern development region is the lowest and has been steadily declining from 38.9% to 29.3% between 1996 and 2004 and further to 21.4% 2011. 1 Please note that data reported for 1996, 2004, and 2011 correspond to data covering the fiscal year of the government, which would be 1995/96, 2003/04, and 2010/11. The World Bank reports the same data corresponding to 1995, 2003 and 2010. 2 6. In 2011, poverty in the mountains was most prevalent at 42.3% in contrast to an average of 8.7% in the urban hills. Similarly, the mountains not only have the highest percentage of poverty on average, but it is also increasing. Poverty incidence in the mountains decreased considerably from 57.0% to 32.6% between 1996 and 2004, but has since increased to 42.3% in 2011. It is comparatively lower in the other ecological zones—24.3% in the hills and 23.4% in the Terai. 7. The poverty gap index shows that on average, more Nepalese poor are closer to rising above the poverty line than they were 7 years ago. The poverty gap index measures the severity of poverty by considering how far, on average, the poor are from the poverty line. It can be interpreted as the average percentage shortfall in income of the poor, from the poverty line. Nepal’s poverty gap (as per the national poverty line) has steadily declined from 11.8% in 1996 to 7.6% in 2004 and further to 5.4% in 2011. Similarly, the rural poverty gap index has also been steadily declining from 12.1% in 1996 to 8.5% in 2004 and 5.9% in 2011— indicating that the average rural poor’s probability of escaping out of poverty has improved. 8. Corresponding to the highest incidence of poverty in the far western development region, the poverty gap index was also the highest at 10.74% in 2011, indicating the region’s relative backwardness both in terms of poverty incidence and its severity. On the other hand, not only is the eastern development region lowest in prevalence of poverty, but the region also had the lowest poverty gap index at 3.8% in 2011. Geographically, besides having the highest poverty incidence, the severity of poverty is also the worst in the mountain districts, where the poverty gap index is at 10.1%. 9. Overall, the squared poverty gap has been decreasing, indicating a decline in severity of poverty amongst the poor. The squared poverty gap shows the severity of inequality amongst the poor. It has steadily decreased from 4.6 to 2.70 between 1996 and 2004 and further to 1.81 in 2011. 10. The different subgroups of poor in urban Nepal have a lower poverty variation and are therefore more at convergence compared to the poor in rural Nepal. In FY2011, the squared poverty index for urban Nepal was 1.01, while the squared poverty index for rural Nepal was 2.00. However, inequality amongst the poor in urban Nepal has increased since the last NLSS survey—urban squared poverty index decreased from 2.65 to 0.70 and then rose to 1.01 in FY1996, FY2004 and FY2011 correspondingly. Conversely, rural inequality amongst the poor has been continuously declining from 4.83 to 3.10 and further to 2.00 in FY1996, FY2004 and FY2011 respectively. 11. In FY2011, the far western development region had the highest rates of poverty and the region’s poor were most unlikely to escape out of poverty. Correspondingly, inequality amongst the poor in this region is also the highest with the squared poverty gap index at 3.77 in FY2011. On the other hand, inequality amongst the poor is lowest in the eastern development region with a comparatively lower square poverty gap index at 1.01. 12. Corresponding to its highest incidence of poverty and relative backwardness in its ability to escape out of poverty, inequality amongst the mountain poor under the ecological zone category is also the highest—in FY2011, squared poverty index of the mountains was 3.54, compared to a lower index at 2.09 of the hills and 1.31 of the tarai. 13. Even though under the analytical domain category, the mountain area has the highest poverty incidence and the poor there are least likely to escape out of poverty, inequality amongst the poor was highest in the rural central hills of Nepal in FY2011. 3 14. The above poverty estimates are based on the current official poverty line of NRs.19,261 per capita per year. As per the international poverty line of US$1.25 per day, a level often used for making international comparisons, poverty incidence was 24.8% in 2011. Thus, as per the international poverty line estimates, poverty was reduced almost by half from 53.1% in 2004. 15. As per the head count index, poverty is declining, overall. Although rural poverty is declining at a faster pace than urban poverty, poverty incidence is still predominantly a rural phenomena. Amongst the five development regions, poverty is highest and rising in the far- western development region, and in the mountains. 16. Similarly, as per the poverty gap index, the ability of Nepal’s poor to rise above the poverty line is increasing. Even though the urban poor is closer to the poverty line, the urban poor is escaping out of poverty at a slower pace while the rural poor’s poverty intensity is declining. The poor from the far-western development region and the mountains are furthest away from the poverty line. 17. Findings from the squared poverty gap index show that inequality amongst different subgroups of the poor is declining. While inequality amongst the rural poor is higher than inequality amongst the urban poor, inequality amongst the rural poor is declining in contrast to an increasing trend for inequality amongst the urban poor. Inequality is highest amongst the poor of the far western development region and amongst the mountain poor under the development region and ecological zone category respectively; and (iv) inequality amongst the poor of the central hills is highest under the analytical domain category. C. Changes in Income Distribution over Time 18. Just as the estimates presented thus far indicate an improvement in average national prevalence, intensity and severity of poverty, inequality in Nepal is also improving, even though urban inequality is wider than rural inequality. 19. Inequality in Nepal widened between 1996 and 2004, but then narrowed in 2011. The Gini coefficient, which increased from 0.34 to 0.41 between 1996 and 2004 has since declined to 0.33 in 2011. Inequality in urban Nepal is wider than inequality in the nation as a whole, even though it is akin to the national trend. Inequality in the urban area widened from 0.43 in FY1996 to 0.44 in FY2004 only to narrow to 0.35 in FY2011. Furthermore, gini coefficient estimates also measure a similar trend for rural Nepal: inequality increased from 0.31 to 0.35 and then decreased to 0.31 in FY1996, FY2004 and FY2011 respectively.
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