Nepal: Rocky road to success

Nepal: Rocky road to success

“It is the grass cutter who opened my eyes. I realized, It does not worth living without doing something for the society.” 

Bhanubhakta Acharya, Adikavi of Nepalese literature, 1814 – 1868

Nepal wants to leave behind its status as a Least Developed Country (LDC) by 2022. With this target in mind, we estimate that it will also overcome extreme poverty two years later.

Promising regional development

South Asia’s moment has arrived. Over the last decade, poverty reduction in the region has gained considerable momentum with the share of the population living on less than $1.90 a day (in 2011 PPP) falling sharply from 281 million in 2010 (or 17.2% of the region’s total population) to some 71.5 million (3.9% of the total population) today. By 2030, we forecast that this number could be as low as 18 million or just 0.9% of the total population of South Asia. In other words, over the course of just twenty years, the entire region will have “eradicated” poverty. This level of achievement is unprecedented in history. While most of this success can be attributed to India, which in the words of global press outlets has passed the title of “world poverty capital” on to Nigeria, the story of South Asia’s rise out of poverty won’t stop with India. The rest of the region is also expected to perform astonishingly well, and if conditions remain unchanged, by 2030, Bangladesh’s share will have fallen by 22.5 percentage points to 0.14%, and Nepal’s by almost 21 percentage points to 0.65%.

News from the top of the world

In 2015 and 2018, Nepal was found to have met two out of three LDC Graduation Criteria (Economic Vulnerability Index and Human Assets Index), but fell short by some 40% of the third criteria (a Gross National Income (GNI) per capita above $1,230). This level is the 2014-2016 average as defined by World Bank and UN. According to the UN’s 2018 assessment, Nepal had a GNI of $745 per capita. The country has affirmed its commitment to “graduate meaningfully, smoothly, sustainably and irreversibly”, which is also included in the country’ Ninth Five-Year plan where poverty alleviation is identified as the government’s single most important objective. Currently, Nepal is behind countries like Mali (GNI per capita of $801) and Haiti ($814).

Our data shows that Nepal will eventually achieve SDG 1 and alleviate poverty in due time. Taking the current World Economic Outlook of the IMF as a base, we calculate that Nepal currently has a poverty escape rate of 50.7 people per hour, which according to our models, is twice as fast as necessary to achieve SDG 1. With unchanged conditions, Nepal will have reduced its number of poor people from 6.4 million people in 2010 (21.5% of total population) to 270,000 in 2030 (0.6%). We predict that Nepal will fulfill SDG 1 (share of people in extreme poverty below 3% of total population, as defined by World Bank) by the end of 2024.

All this notwithstanding, apart from war-torn Afghanistan, Nepal will be the last country in the region to eradicate extreme poverty. Bangladesh, which started from a much worse position, is expected to achieve SDG 1 two years before Nepal and is on a path to eradicate poverty by the end of 2022.

Nepal’s rocky road ahead

Our data indicates that Nepal’s achievement of SDG 1 will come one year later than previously estimated due to a variety of reasons. One of these reasons is its economic vulnerability index score, which has worsened in the newest assessment as it accounts for the country’s high vulnerability to natural disasters, the negative consequences of which can impact its growth trajectory. Agricultural production and infrastructure are especially at a high risk of being affected by erratic monsoons which can lead to drought, floods, and landslides. The Global Climate Risk Index ranks Nepal as the 11th most affected country in the world over the last 20 years. The country was hit by two earthquakes in the spring of 2015, heavy flooding in 2017, and by the country’s first tornado in March 2019.

Since between 2/3 and 3/4 of the active workforce is engaged in low productive agriculture, the rural areas are especially affected by these natural disasters. The rural regions tend to significantly lag behind in access to essential services such as health, education, and safe drinking water. This spurs strong migration to urban areas where mostly poor people find jobs in tourism and in construction. According to IMF, the output of the latter slowed down recently. Nevertheless, Nepal is still on-track to achieve SDG 1 by 2030, which is great news from the top of the world.