Despite Conflict, Nepal Reduced Poverty Between 1996 and 2004

from One World South Asia

Poverty in Nepal fell from 42% to 31% between 1996 and 2004 despite a difficult political and conflict-ridden environment, according to a new World Bank report "Resilience Amidst Conflict."

The report, which examines reasons why poverty fell, shows that even during difficult times people found means to improve their situation.

"This large reduction of poverty was unexpected. While certain improvements in material wellbeing were felt in the country, many thought that because of conflict there wouldn’t be improvements across the board," says Elena Glinskaya, World Bank Senior Economist who authored the report.

The report, however, covers the time period until 2004 and doesn’t account for more recent political changes.

"It’s too early to tell what progress Nepal has made since the conflict abated earlier this year," Glinskaya says. "There is no data available as of now."

Five Drivers of Poverty Reduction

A significant increase in remittances, increase in wages, improved connectivity and access to markets, urbanization, and falling birth rates were behind this decline.

Remittances: In 2004, one million Nepalese (or every 11th adult male) worked abroad. Between 1996 and 2004, remittance inflows soared from 3% of GDP (US$203 million) to 12% of GDP (US$794 million), mainly driven by those migrating to the Persian Gulf or East Asia, where earnings are much higher than in India. The proportion of households receiving remittances also increased from 24% to 32%.

Wages Increased: As more people migrated abroad, local employers started competing for a shrinking pool of workers, which helped wages to increase. As a result, wages for farm workers, who tend to be the poorest, rose by 25%, wages for non-agricultural unskilled workers rose by 20%, while wages for skilled labor more than doubled.

Connectivity: The country’s road network grew 6.7% a year between 1996 and 2004, while rural and district roads grew 11% a year. Road improvements rural areas stimulated entrepreneurial activities raising incomes of those working in non-agricultural jobs. Access to schools and hospitals also improved.

Urbanization: Urban population doubled. In 2004, 15% of the Nepalese lives in urban areas compared to 7% in 1996. The change helped workers move from lower paid rural jobs to better paid jobs in urban areas. Also, urbanization has been important for changing social relations between advantaged and disadvantaged ethnic groups, as discrimination is less entrenched in urban areas.

Smaller Families: A decline in fertility rates which started in the 1980s is paying off now as the dependency ratio (the number of non-working family members per working adult) decreased.
Human Development Indicators Improved, But More Needs To Be Done

Cash inflow from remittances, improvements in roads, and declining fertility rates helped increase demand for education and health services. Public expenditure in social sectors also increased. As a result:

More children attended school than ever before. In 2004, 77% of 6 to 15 year-olds went to school, compared to 63% a decade earlier. The increase was highest for 6 to 10 year-old girls, whose school attendance increased from 50% to 73%. However, 50% of adult Nepalese remain illiterate. The percentage of illiterate women and ethnic minorities is even higher at 65%.
Child mortality for children under 5 fell from 40 to 29 deaths per 1,000 live births, while infant mortality decreased from 79% to 64%. However, infant and maternal mortality remain high compared to other countries in the region.
Stunting among children under 2 dropped from 48.4% to 42.7%. But no progress was made in reducing the number of underweight children.
Government Policies Helped as Well

Despite difficult circumstances, the government also enacted policies that helped enable growth, according to the report. For example, until 1995 only the national office was allowed to issue passports. Then the law changed allowing district offices to issue passports, which meant that many more people started applying for passports which made it easier to go abroad for work.

"As a result, their income became so much greater than it would have been had they been working in India or Nepal," Glinskaya says.

The report, however, covers the time period up until 2004 and doesn’t account for more recent political changes.

"It’s too early to tell what progress Nepal has made since the conflict abated earlier this year," Glinskaya says. "There is no data available as of now."
Challenges Ahead: Accelerating Growth and Sharing its Benefits

The report cautions, however, that growth and poverty reduction have been uneven, leaving some groups behind.

"The challenge now is to accelerate domestic growth and share this growth more broadly," Glinskaya says.

Nepal’s priority areas include:

Agriculture: Expand into high-value agriculture products, such as horticulture and livestock production, and involve the private sector in delivering services to farmers. These include post harvest systems, storage, collection centers, packaging, transport, and quality control.

Infrastructure: Continue expanding the road network, and bringing electricity and water to remote regions.
Financial Markets: Improve access to credit for the poor, facilitate transfer remittances to improve their development impact, and educate migrants in dealing with financing institutions.

Inclusion: The decline in poverty coupled with urbanization and increases in education have benefited all excluded groups, but Nepal needs to do more to bring prosperity to them and focus on building their human and social capital.
The report is primarily based on Nepal Living Standards Surveys collected in 1995-1996 and in 2003-2004. The World Bank worked closely with Nepal's Central Bureau of Statistics on the report.

Here is a link to the report.