Wednesday, May 25, 2005

Poverty Profile in Nepal
Linking aid flows with other non-poverty factors will only condemn poor to their poverty for a long period

-Prof. Dr. Bishwa Keshar Maskay, Nepal

Poverty is widespread in Nepal and the level of absolute poverty is among the highest in Asia with some 10 million people living below the national poverty line set at NRs 4,400 ($77) per capita per annum based on calorie intake, housing and other non-food standards. Poverty in Nepal is more prevalent, intense and severe in rural areas with poverty incidence almost double that of urban areas. Social exclusion, gender exclusion and ethnic minority exclusions are pervasive and deep rooted. Factors underlying poverty in Nepal include slow growth in the face of rapid population growth, weak redistributive and institutional capacity, low productivity in agriculture, inadequate non-agricultural growth with minimum spillover effects on the rural poor, and weak social and economic infrastructure (education, health, drinking water, energy).

Escape from poverty world require improving poor’s access to resources, removing institutional constraints and discriminations that currently bar the poor from accessing these resources, aiming and achieving strong economic growth that outpaces population growth. The country needs all these. There is no single magic bullet to the emancipation from poverty.

It is encouraging to note that the country’s current Tenth Plan like the preceding Ninth Plan has adopted poverty reduction as the sole development objective. The Ninth Plan had targeted to reduce the poverty from 42% to 32% (by 2% each year) but could bring poverty incidence down to only 38% (i.e. 0.8 per cent poverty reduction each year).

The Tenth Plan’s target is to reduce poverty incidence from 38% to between 30-33% (i.e. between 1% to 1.6% poverty reduction each year). In line with the global requirements, the country has prepared the Poverty Reduction Strategy paper (PRSP). In developing this strategy, all the steps emphasized by the multilateral institutions have been duly followed in terms of wide across the sector consultations and debates within the country and with the development partners abroad. Appropriate focus is given to the importance of broad-base growth (with strong rural-bias), social inclusion (to accommodate the marginalized groups and sectors), well-defined targeted programs for the urban poor, and good governance.

The plan estimates that required growth rate during the Tenth Plan to be around 6.2% per annum if the poverty is to reduce by 1.6% each year. During the Ninth Plan period, the country could manage to achieve only 3.6% annual growth. Considering the growth of 3.5% to 4% during the first two years of the Tenth Plan, the remaining years during the Tenth Plan will need to achieve annual growth rate between 7.5% to 8%, a task that will be extremely difficult if not outright impossible. This is particularly so in the context of ongoing conflict in the country requiring increasingly more resource diversion from development expenditure to the current expenditure. The proportion of regular expenditure to GDP has increased from 9.4% during 1988-2001 to 11.4% in 2002 and 12.8% in 2003 indicating increased used of resources for security purposes which otherwise could have been devoted to pro-poor development activities.

Achieving MDGs – Is this going to be more difficult to Nepal than to others?

In the above context and given the country’s geographical, social and institutional weaknesses, achieving the MDGs by 2015 is going to be a Herculean task. Public development expenditure programs play critical role in most developing countries in igniting pro-poor economic growth thereby helping reduce poverty incidence. However, in Nepal, there has been considerable decline in the development expenditure in the recent years. The ratio of development expenditure to GDP has declined from 8.8% during 1998-2001 to 7.3% in 2003 and further down to 6.3% in 2003.

Notwithstanding the above difficulties, some of the development results are noteworthy to show, particularly in terms of the increase in rural roads, microhydropower expansion and areas brought under irrigation in the recent years. The rural credit flows similarly have shown upward increase from Rs. 11.97 billion in 2002/03 to Rs. 17.7 billion in 2003/04. The net enrollment ratio during the same period has gone up from 82.4% to 84%, the immunization (DPT 3) from 86.2% to 90.3% and the access to drinking water from 72.8% to 73%. The expenditures in social sectors have shown sustained upward trend during 2001/02 to 2004/05 in education, health and local developments.

Under the Millennium Declaration, Nepal is committed to the MDGs. Indeed under the United Nations’ Millennium Plan (UNMP) (which is still under discussion) Nepal is identified as a probable fast-track MDG status country with this potential for much more ambitious investment programs. Nepal’s candidacy was based on the strength of its well thought out Tenth Plan. This highlights the correctness in the country’s basic development plan. The countries with such status could be provided with increased access to resources including grants.

For the reason cited above, achieving MDGs for Nepal would require increased efforts, more so in the context of conflict in this country. An estimation from the National Planning Commission and the UNDP (2003) shows a fairly large resource gap if the MDGs target are to be met:

Million

Source: NPC/UNDP (2003)

In meeting MDG’s, it needs to recognize that some poor countries are more poorer than others and have more constraints than others. It is appreciated that Nepal ’s handicap as a land-locked small country is recognized in the Millennium Declaration. However, the added constraints of the country also need to be taken into consideration in helping support Nepal in its effort towards achieving MDGs. Any decline in foreign assistance to Nepal will severely affect the country’s growth as well as MDGs targets.

Aid flows to the developing countries need to be strictly aimed at poverty reduction. Linking aid flows with other non-poverty factors will only condemn poor to their poverty for a long period. The MDGs target are intended for halving the global poverty by 2015 and need to be treated as such without distorting their goals and targets with non-poverty factors. The per dollar external assistance for poverty reduction can be expected to yield much higher positive result in Nepal than in many other poor countries in Asia .

The other area needing crucial and sustained support will be towards strengthening the redistributive institutional capacity of the country. The institutional vehicle to rechannel to growth-benefits to the poor is extremely important but severely lacking in Nepal . Such capacity build up support in Nepal need to be supported in both the public sector, private sectors as well as the civil society at large.

Good governance and the efficiency in resource utilization is important to all the countries and more so to the resource-deficit countries. There seems to be a growing tendency to take the good governance as the sole factor causing the destitute of the poor countries implying that if only poor countries achieve good governance, all the rest with fall in place. The poor countries will be lucky if their problems were that simple. They are not. While the merit of good governance is never under dispute, it’s positive linkage with this growth is not well established. Jeffrey Sachs, in his recently published book “The end of Poverty” shows several case citing transparency Interactive and Global Competition Report 2004, that these relatively well governed countries have experienced consecutively less growth rates and countries perceived to have less good governance have registered consistently high growth rates and subsequent poverty reduction. Prof. Sachs observes that “good governance and market reforms (while important) are not sufficient to guarantee growth if the country is in a poverty trap.” The flow of assistance, therefore, should not be slowed because the governance happened to be poor. Increasing number of studies indicate that one major cause of poor governance in poor countries is attributed to poverty.

Several other factors have also been blamed for poverty of the poor country such as lacking modern values and being “democracy deficit”. When foreigners first arrived in Japan in the 1870s, they had considered Japan as a society “doomed to poverty” and that “economic reforms were bound to fail because of the deep corruption found in Japanese society.” Similarly Max Weber believed that “The East Asia Societies with Confucian values, notably China , would be unable to achieve economic progress…. India ’s poverty – was explained on the basis of Hindu social rigidities until India became one of the fastest growing economies in the World.”

Without de-emphasizing virtues of democracy, Prof. Sachs notes that “democratization, alas, does not reliably translate into faster economic growth at least in the short urn. The links from democracy and economic performance is relatively weak.” The temptation to link aid flows for MDGs with the above factors need to be resisted.

The performance record of DAC countries as pointed by Secretary General Kofi Annan, in his recent report show that only five countries ( Denmark , Luxembourg , Netherlands , Norway , and Sweden ) have met or exceeded 0.7 target of the national income dedicated to ODA. Of the remaining 17 DAC countries. Belgium , Finland , France and Ireland have set precise dates for meeting the target. Spain and Britain have targeted to do so by 2012 and 2013 respectively. Other 11 DAC countries have not still made any commitment to meet this target. The 22 DAC countries’ collective ODA has increased from around $55 to $60 billion in the late 1990s to $69 billion in 2003 to $79 billion in 2004. However, when the increased assistance is adjusted to the dollar depreciation, world wide price inflation and concentration of most of these ODA flows to certain countries in the middle east, the net resources available to meet the MDGs, have been quite modest.

Finally, a country like Nepal , to double its per capita income in a decade by 2015 would require an annual growth of around 8% (higher than what is envisaged in the Tenth Plan). This clearly is not going to be an easy task.. In this daunting task of meeting MDGs (compounded by the existing difficulties in the country and rising international oil prices), Nepal needs global support not only in terms of capital resources (which is very important), but also in terms of institutional capital, human capital, knowledge capital, and infrastructure build-up. Such international support needs to be aimed at poverty reduction and should not be influenced by non-poverty-factors.

"The United Nations, though under stress at times, continues to remain as a major institution in shaping the poverty-free world. This organization still remains as the most suitable vehicle to take up the challenge of ensuring success to the global MDG project. The project is considered by Nepal and many other similar poor countries as their social contract with the poor sprinkling stardust to the eyes of the poverty-stricken masses. For a project such as this, which is giving hope to the poor to unlock themselves free from their poverty trap, two supports are critically essential, namely, (i) DAC countries' increase in ODA assistance commensurate with their pledge to match 0.7% of their GNP, and (ii) encouraging support to Nepal and other poor countries as they engage relentlessly in their fight to flight from poverty gridlock. In its support to Nepal in terms of MDGs and other assistance, the UN may have been in Nepal for 50 years, but 50 years is a youthful age in the development relations between a country and an international organization such as the United Nations.