A quick review of the new reduced poverty estimates of NPC at 25.4 percent for 2009/10 shows that they were based on a mechanistic approach or technique. It seems such an estimate was made from the extrapolated poverty estimate of Nepal Living Standards Survey (NLSS) at a particular point of time and trends in the Gross Domestic Product in the corresponding period. This means, NPC neither followed any robust technique to derive reduced poverty level nor did that capture the developments in the economy after 2003/04. One fundamental question is that despite added thrust on inclusive development and equity, how such a technique could embrace those aspects in the overall development.
Since last year, the World Bank has also recommended that because of the price escalating effect, the benchmark for poverty estimates should be US$1.25 per day. This indicated on the necessity of deriving new poverty threshold level. This was not considered at all. It should be recalled that in the neighboring country, the Planning Commission estimates were challenged on the same ground. The planning body readily confessed and new poverty estimates were made in consultation with experts and development practitioners. In Nepal, after 2004, price rise has been phenomenal, more so in recent years, in food-related items. This has had very pervasive effect on the vulnerable groups of society. Some studies in case of least developed countries even show that 1 percent increase in food prices would have almost 1.6 percent incremental effect on poverty among such groups who consume mostly agricultural items.
New estimates made in Oxford University have shown an extremely frightening poverty situation in Nepal. The Oxford estimates indeed have generated a new debate on the reliability of both methodology and poverty estimates made so far.
An Asian Development Bank study shows that increase in income inequality has been highest in Nepal among countries in Asia and Pacific Region in recent years. Similarly, there is some sort of stagnating trend in growth rate since the last few years, with deceleration more recently. There is also a tendency of more capital intensive nature of investment in unproductive areas. Truly, remittances have had some positive impact on poverty reduction as shown by NLSS of 2004. However, a deeper analysis, based on more recent Nepal Rastra Bank household data of 2008 and recently carried out field survey, show that the trickle-down effect at the household level has not been very positive in terms of health, education and even the level of consumption. There has been siphoning of money from migrant workers to money lenders and business people at the villages, and above all from rural to real estate and housing business of the urban areas resulting in wealth being concentrated in the cities and towns. Definitely, increased commercialization, more in the road corridors, has had a very positive poverty reduction impact across the country. But there are fears that the net effect due to the reasons noted above could have been negative rather than positive even strictly considering from the income or consumption approach of poverty estimates.
On the other hand, the new estimates of Oxford University experts are based on the multidimensional approach of poverty in which incidence of poverty and average intensity of deprivation faced by the poor have been covered. In the estimates, 10 variables including education, heath, electricity, drinking water, assets, etc are treated as deprivation indices. Based on these, the multidimensional poverty index was derived at 0.350. Similarly, the incidence of poverty and average intensity of deprivation across the poor were estimated at 64.7 percent and 54 percent respectively. For comparison, poverty ratio estimate based on US$1.25 per day criteria has also been given, which was derived to be 55 percent. By all accounts, these estimates show that poverty in Nepal is extremely high.
Still, there are a number of questions with respect to robustness of the methodology, coverage and reliability of data that are yet to be verified. There are doubts on the 10 variables that could reflect the deprivation properly. Similarly, the weights are subject to verification or discussion. In addition, the used data of 2006 need reliability check. Despite all these, it has added a new dimension in the estimates of poverty. In recent years, there was increased realization that poverty is multidimensional and the roots are the deprivations perpetuated over time in political, economic and social fronts. In the Nepali context, this approach is critically important as, after the big political change, we have committed to embark on the path of inclusive development. This means, if we are determined to translate commitments into action, it is essential that poverty is redefined in terms of deprivation irrespective of whether the estimates are high or low.
It is surprising that instead of appreciating a new approach that has been followed, NPC has rejected the estimates entirely. This has raised a credibility problem as well. As we are in the process of formulating a detailed three-year plan, it is desirable that more robust deprivation-led method is developed followed by new poverty estimates that by built-in system could help to evolve poverty reduction strategies in a more meaningful way.
drkhanal3@gmail.com
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