Stylized Facts about Poverty and Inequality in Nepal (pdf here)

     Absolute Poverty

1. Absolute poverty decreased from 41.8 percent in 1995/96 to 25.2 percent in 2010/11(Source: NLSS Reports).
2. Decline in rural poverty is higher than the decline in urban poverty during the period (Figure 1).

Figure 1

3. As per the estimates of National Planning Commission, Nepal, absolute poverty in Nepal has reduced to 18.5 percent in 2018/19 (Economic Survey 2018/19).
4. In terms of absolute poverty across provinces, estimates from NLSS 2010/11 show that such poverty rate is lowest in Province 1(12.4 percent) and highest in province 7(33.9 percent) (Figure 2).

Figure 2

5. There is a widespread disparity across the districts in terms of poverty rates. There are five districts with absolute poverty rate below 10 percent and 5 districts with a poverty rate of 50 percent or more (figure 3).

Figure 3

 

5. Small area estimates of poverty rates based on NLSS 2010/11 data show that Bajura is the district with the highest poverty rate (64.1 percent) and Kaski is the district with the lowest rate (4.0 percent) (Figure 4).

Figure 4

7. The poverty headcount as per the World Bank $1.9 a day definition has reduced from 61.9 percent in 1995 to 46.1 percent in 2003 and further to 15.0 percent in 2010 (World Bank Database).
8. The multidimensional headcount poverty rate for Nepal is 28.62 percent as of 2014. 
9. Rural MPI poverty headcount ratio (33.2 percent) is much higher than for urban areas (7 percent).
10.  Province 6 has the highest MPI poverty rate (51.2 percent) whereas Province 3 has the lowest poverty (12.2 percent).

Figure 5

11. Province 2 has the largest number of multidimensionally poor people  (35 percent of the MPI poor) followed by Province 5 (20 percent). Province 4 has the lowest number of multidimensionally poor people (5 percent of the MPI poor). 
12. The MPI poverty has declined from 59.35 percent in 2006 to 39.13 percent in 2011 and further to 28.62 percent in 2014. 

Inequality

13. NLSS 2010/11 estimates show that consumption based Gini coefficient has reduced from 41.4 percent in 2003/04 to 32.8 percent in 2010/11. However, this is marginally above the 1995/96 level (figure 6).

Figure 6

14.  NLSS 2010/11 data show that almost 56 percent of the income in Nepal is held by the richest 20 percent of the population while only 4 percent of the income goes to the poorest 20 percent. The average per capita income of the richest 20 percent is almost 14 times the income per capital of the poorest 20 percent.

Figure 7

15. In terms of deciles, the richest 10 percent hold almost 40 percent of total income whereas the poorest 10 percent get only 1.5 percent.
16. The distribution of consumption shows somewhat a better picture. As per the estimates from NLSS 2010/11, 45.1 percent of the consumption expenditure is made by the richest 20 percent while such share for the richest 20 percent is 7.6 percent (figure 8).

Figure 8

17. In terms of decile groups, the richest 10 percent of the population hold 29.5 percent of the consumption where as only 3.2 percent of the consumption goes to the poorest 10 poorest.
18. Estimates from the World Bank show a similar picture. As per its estimates, Gini index showing the inequality of income distribution increased from 35.2 percent in 1995 to 43.8 percent and reduced to 32.8 percent in 2010.
19. The distribution of income among the income groups is very asymmetric. As per the world bank estimates, the poorest 20 percent of the population receive about 8.3 percent of total income while the richest 20 percent receive about 41.5 percent of the income.

Share of Income by Income Groups	1995	2003	2010
Poorest 20 %	7.80	6.50	8.30
Second 20 %	11.90	9.70	12.10
Third 20 %	15.60	13.40	16.20
Fourth 20 %	21.00	19.20	21.80
Richest 20 %	43.70	51.20	41.50
Source : World Bank

20. However, a study done by Oxfam shows that the level of inequality is worsening in Nepal over the years. In 2010/11, Nepal had one of the highest income Gini coefficients in the world at 49.42.
21. The study has shown that income inequality has widened considerably during 1995/96 to 2010/11.  

Figure 9

22. The Palma ratio, share of income by the top 10 percent and the bottom 40 percent shows that income of the richest 10percent of Nepalese is more than three times that of the poorest 40percent.
23. During the period from 1995/96 to 2010/11, only the richest 20 percent of Nepal’s population experienced an increase in income share. Such share decreased for all other groups.

Figure 10

24. Wealth inequality is substantially high in Nepal as shown by the wealth Gini coefficient of 0.74 (per capita).  The Wealth Palma ratio of 26.7 shows that the richest 10percent of the Nepalese people hold more than 26 times the wealth of the poorest 40percent.

Figure 11

25. Land inequality is the basic form of wealth inequality. The richest 7percent of households own around 31percent of agricultural land. More than half of Nepali farmers own less than 0.5 hectares of land and 29 percent of the population do not own any land at all (Oxfam Report).

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For Pdf version of this blog, visit herehttp://siddhabhatta.com/pdf/Stylized%20Facts%20about%20Poverty%20and%20Inequality%20in%20Nepal.pdf. 

References

https://blogs.worldbank.org/endpovertyinsouthasia/demystifying-economic-inequality-nepal

https://cbs.gov.np/poverty-in-nepal-2010-11/

https://oxfamilibrary.openrepository.com/bitstream/handle/10546/620607/bp-fighting-inequality-nepal-110119-en.pdf

https://www.nepalitimes.com/banner/nepals-great-income-divide/

World Bank Database available at https://data.worldbank.org/country/Nepal.

 

Macroeconomic Update of Nepal (Bhadra 2076/Mid-September 2019)

Macroeconomic Update of Nepal (Bhadra 2076/Mid-September 2019)

1. Consumer inflation stood at 6.16 percent on y-o-y basis.
2. Merchandise exports increased by 25.9 percent.
3. Merchandise imports decreased 1.2 percent.
4. Total trade deficit narrowed by 3.1 percent.
5. Net services income remained at a deficit of Rs.5.06 billion.
6. Remittance inflows decreased 0.3 percent to Rs.153.73 billion.
7. Number of Nepalese workers migrated for foreign employment increased 0.2 percent.
8. Current account registered a deficit of Rs.21.79 billion.
9. Balance of Payments (BOP) remained at a surplus of Rs.8.83 billion.
10. Gross foreign exchange reserves increased to Rs.1078.94 billion.
11. Foreign exchange reserves of the banking sector is sufficient to cover the prospective imports of 8.4 months.
12. Deposits at BFIs grew by 17 percent on y-o-y basis.
13. Credit to the private sector from BFIs increased 20 percent on y-o-y basis.
14. Base rate of commercial banks decreased to 9.53 percent.
15. Commercial banks extended their branches at 739 levels out of 753.
16. Total number of BFIs licensed by NRB is 168 of which 28 commercial banks, 28 development banks, 22 finance companies, 89 microfinance financial institutions and 1 infrastructure development bank are in operation.
17.  The number of branches of BFIs stood at 8970 .
18. The number of companies listed at NEPSE stood at 218 .

Can money supply be completely controlled by Central Bank ?

Traditionally, money supply is assumed to a completely exogenous variable and the Central Bank is assumed to have a complete control over it. However, in reality, money supply is not under such control. Since a part of money supply is created out of the deposits maintained at banks and financial institutions and credit disbursed by them, other players like financial institutions and the public influence the credit creation capacity of the banking system and thereby the supply of money in the economy. 

 1. Public as a Player in Determining Money Supply : 

To understand how public behavior affects money supply, assume that the public does not have much trust in the banking system. This affects deposit mobilization and credit creation of banks.  This, in technical term, reduces the creation of secondary deposits in the banking system which , in turn, reduces the supply of money. Thus, preference of the public for holding cash over bank deposits clearly reduces the supply of money in the economy. Preference for cash, in turn, depends on the income level, rate of interest, financial access and financial literacy, confidence in the banking system and size of the informal economy, among others. Furthermore, these factors determine the decision of the public to keep their cash balance in the form of current/saving deposits or fixed deposits. Such factors are not completely under the control of central bank as such the central bank can not control public behavior thereby controlling the supply of money. 

2. Commercial Banks as Another Player: 

Commercial banks keep reserves at Central Bank to maintain the regulatory cash reserve ratio  and other ratios like SLR. However, they keep extra reserves with themselves to smoothen their payments. The second one is barely under the control of the central bank but is determined by the bank rate on standing liquidity facility, status of inter-bank market, regularity of deposits and withdrawls in the banking system . There factors are also not under the perfect control of the central bank .   

3. Foreign Sources of Money Supply can not be Controlled. 

When foreign reserves in the form of remittances, foreign direct investment, foreign aid and others enter the country, it is ultimately translated into domestic currency and increases the supply of money in the economy.Central bank can not directly control these sources. For instance, export earnings depends on the income level of other countries, remittances depend on the expansion of economic activities in the destination countries. Central bank has a very little role with these flows.


Due to these, money supply is not a completely exogenous variable. Rather, it is partly endogenous. Central bank can partially control it through open market operations and foreign exchange market interventions. Further, it can control the credit creation power of the BFIs through different regulatory ratios like cash reserve ratio (CRR), statutory liquidity ratio(SLR), loan to value ratio(LTV), credit to deposit ratio(CD), among others. From the sources side, Central bank can control its lending to the government, lending to the government enterprises and lending to the banking system.

To sum up, money supply is not a complete exogenous variable as argued by the traditional macroeconomics. It is the joint behavior of the Central Bank, Commercial Banks and the public.
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Why supply side inflation is more harmful for the economy?

-In a less than fully employed economy, demand side inflation raises price level but at the same time output as well as employment level also rises. On the other hand, in supply side inflation, price level rises but employment and output falls due to decrease in supply.Thus, supply side inflation has two costs: fall in purchasing power and rise in unemployment. Thus, supply side inflation is more painful for the economy.