The Promise of Poverty Alleviation | Is Bangladesh ready to eradicate poverty by 2040?

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“The extreme poverty rate will come down to 3 percent by 2030 and that the country will be free of poverty after 2041.” These were the bold statements made by the country’s esteemed Foreign Minister, Abdul Monem on 30 March 2021 at the launching ceremony of the book titled “Sheikh Hasina Sarker” at Jatiya Press Club in Dhaka, as reported in the Daily Star. According to him, “Once, 80 percent of people were poor in Bangladesh but now the poverty rate stands at 20 percent,” stated in the Daily Star article. However, to pose as a foil to such laudable projections, we have the contrasting and conflicting report by South Asian Network on Economic Modeling (SANEM) titled “Covid-19 Fallout on Poverty and Livelihoods in Bangladesh ”. The survey states Bangladesh’s extreme poverty rose to 28.5 per cent and the poverty rate 42 per cent in 2020 as the pandemic hit the country’s economy hard.

 

Understanding SANEM’s report

The SANEM report began with a survey being conducted over 5,577 households from 500 Primary Sampling Units (PSUs) distributed across eight divisions during the November-December period of 2020. The objective of the survey was to unveil the pandemic’s effect on three-wide indicators, such as Poverty, Inequality and Employment (PIE).

According to the survey, which was based on updated poverty lines, it was found that the poverty rate has shot up from 21.6 per cent in 2018 to a groundbreaking 42 per cent in 2020. In two years the rate of poverty has exponentially doubled. The survey also indicated the state of extreme poverty in the country, which has risen from 9.4 per cent in 2018 to 28.5 per cent in 2020.

Rise in Poverty Rates

The survey points to an increase in poverty rates in both urban and rural areas. The upper poverty rates in the rural and urban areas were 45.3 percent and 35.4 percent respectively. The lower poverty rates were 33.2 percent and 19 per cent in rural and urban regions, respectively. “High path dependency in lower-income households implies that households that were already poor in 2018 may have experienced a poverty trap and thus remained poor in 2020,” said Zahid Hussain, former lead economist of the World Bank’s Dhaka office as one of the discussants of the survey. He also touched upon the relevance of assessing the influence of geographical location, occupation, employment status and digital access on the prevalence of poverty among these households.

Sharp Decline in Household Expenditure

Mymensing witnessed the highest rise in extreme poverty to 38.9 per cent, followed by Rajshahi and Rangpur at 37.4 per cent. Chittagong’s extreme poverty is the lowest at 18.8 percent. On the other hand, poverty rose to 57.3 per cent in Rangpur, followed by Rajshahi at 55.5 per cent and Mymensingh at 46.2 per cent. Barisal saw the lowest rate of 29.3 per cent. When compared with 2018, the average per capita household expenditure in 2020 has decreased by 45 per cent, 29 per cent and 17 per cent in extreme-poor, moderate-poor and vulnerable poor households, respectively. However, at the same time, the survey found that in the non-poor and non-vulnerable households it has increased by 6 per cent.

Categorising the New and Old Poor

To streamline the survey, households were classified as “old poor” and “new poor”. These distinctions were based on whether the households were already poor before the onset of the pandemic or if they have since fallen below the poverty line as a consequence of the pandemic. It was found that in households that were categorized as poor preceding the pandemic, the heads of 37 percent of them are self-employed, 20.5 percent wage-employed and 39.5 percent are day laborers. Subsequently, in households that have found themselves in poverty as a direct effect of the pandemic, it was found that 42.3 per cent of household heads are self-employed, 23.9 percent are wage-employed and 30.2 percent are day laborers. Among households classified as “old-poor”, it was observed that 43.4 percent relied and were dependent on agriculture, 5.2 per cent on the industry, 46.5 percent on service, 0.3 per cent on government allowances and 3 per cent on remittance as the sole source of income. The numbers recorded among the new-poor households were that 36.6 per cent relied on agriculture, 6.4 per cent on the industry, 51.2 per cent on service, 0.4 per cent on government allowances and 3.2 per cent on remittances as their primary source of income.

Overall Dip in Average Income

According to the findings in the survey, it’s observed that a mere 17.3 per cent of households stated that they were involved in economic activities without any disruption, 55.9 percent claimed a significant drop in income despite having work, 8.6 per cent claimed to have been working for longer hours and 7 per cent claimed that their working hours had been cut back. Besides, 33.2 percent of respondents claimed their work had ground to a halt for a while during the outbreak. The average income of the main earner of households declined by 32 per cent for self-employed workers, 23 per cent for wage-employed workers, 29 per cent for day laborers and 35 per cent for the other categories between February and October 2020.

Coping Strategies

To combat the detrimental effects of the pandemic, households adopted a wide array of strategies. It was found in the survey that about 49 per cent of households had to resort to borrowing, 32.4 per cent broke the bank relying on savings, while 27.3 percent reduced spending on non-food items, 27 per cent recorded unplanned changes in their dietary patterns, and 16.67 per cent had to resort to donations from friends and relatives.

Dip in Remittance Flow

Remittance flow also saw a disruption due to the pandemic. The survey found that 82.1 per cent of households that depended on remittance state that they received less remittance from abroad. On the other hand, for households that depend on remittance from within the country – it was found that 64 per cent claimed that they received less remittance from within the country compared to what they received before the pandemic.

Addressing remittance earning in the survey, Zahid Hussain postulated that the conversion of remittance transfer from informal to formal channels has increased the liquidity of the dollar in our local foreign currency market. This has helped to lower interest rates and enhanced the lending ability in the banking sector, which will also be a useful tool in the macroeconomic management of the crisis. However, as remittance has not sufficiently reached households at the micro-level, the surge in remittance earning has not stimulated private consumption expenditure. Thus, it may not have a major impact on economic growth, he added.

Possibility of a K-Shaped Recovery

However, experts opined that there is a possibility of a K-shaped recovery. “To understand whether the crisis will persist, it is important to figure out the key areas that have been most negatively impacted and whether it is possible to replenish the economic losses through short-term initiatives,” said MM Akash, a professor of Dhaka School of Economics. There is a possibility of a K-shaped recovery in Bangladesh in which different income groups of the population recover at different rates and magnitudes, he said.

Future Recommendations

MM Akash also recommended that future studies should consider assessing the impact of the pandemic on the ultra-rich population to uncover the complete picture of recovery, he added. Since non-food expenditure has been primarily affected in poor households, it is necessary to identify non-food consumption areas, including spending on education, health etc, that have been most commonly sacrificed during the pandemic and include them in policy formulation.
To ensure sustainable and evidence-based development pathways in the post-Covid scenario, it is crucial to make a sound assessment of the pandemic’s multi-dimensional impact on the people, Raihan said.

In this context, understanding the impact of the covid-19 on poverty, inequality and employment remains an essential prerequisite.
As a result of the pandemic, households had to confront various employment issues such as losing work, not receiving due wages, workplace closures etc, he added.

Path to Recovery

In overcoming the challenges caused by the covid and reducing poverty, Sanem highlighted five key suggestions that emerged from the survey: management of the Covid-19 crisis, increasing social safety net coverage including direct cash transfer to the poor, price stability of essential products, reduction of corruption, and creating employment opportunities.

Lessons from BRAC

In an interview during the height of the pandemic last year, Asif Saleh, Executive Director of BRAC explained the importance of tackling inequality to fight against poverty. “During this time of economic uncertainty, inequality is going to rise exponentially which may have massive implications in terms of peace and stability. So there is a lot of work to be done both in terms of addressing the systemic challenges and also providing economic support to reduce inequality”, he stated. He further emphasised on investing a significant amount of resources must be allocated to ensure support for the “New Poor” to prevent dropouts. Economic disruption coupled with the closure of educational institutions due to could raise dropout at schools since many families, mostly lower-income groups, have been sending their children out for work. Therefore, looking forward to the next decade, BRAC’s focus would firmly be on the SDG goals that are more relevant for Bangladesh. Reducing inequality from the economic perspective would be a priority. It will be followed by improving the quality of services in areas like health care and education. Bangladesh has to ensure that access to quality education does not depend on one’s financial ability.

Tackling the Second Wave

At the time of writing this article, the Bangladesh government has already announced new lockdown measures as the country reels from another wave of rising infection and death rates. Although the new measure has provisions to allow factories to continue operations, a large segment of the population will be fearing for the worst. There is a high probability that most people in the impoverished segment of the population have already burned through their savings and further depletion of income sources will push them into debt and huger. The government has done a remarkable job in the first phase of the pandemic in supporting the poor and all eyes will be on it to replicate their effort through the second phase. While it is difficult to predict whether Bangladesh will be able to reduce extreme poverty dramatically as some predict, a robust long term strategy is required to protect the vulnerable population from falling into poverty as long as the pandemic prevails.

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