With an average per capita Gross Domestic Product (GDP) of US$260 (2004), Nepal is the poorest country in South Asia and ranks as the twelfth poorest country in the world.
However, over the last decade the country has made considerable progress reducing poverty. Poverty rates declined across all of Nepal’s development regions and ecological belts:
- Headcount poverty rate declined from 42% to 31% between FY95/96 and FY03/04
- Urban poverty declined from 22% to 10%
- Rural poverty declined from 43% to 35% (although it remains higher than in urban areas)
The standard of living improved between FY95/96 and FY03/04:
- Agricultural wages and in ownership of durables increased
- The actual consumption of 'luxury’ foods rose
- The proportion of households reporting inadequate food consumption declined
- Self-assessments of adequacy of housing, clothing, health care and children’s schooling improved
However, the decline in poverty has been accompanied by an increase in inequality. The Gini coefficient increased from 34.2 to 41.1.
Overall, people who tend to remain poor are households of agricultural wage earners, those who are landless or have small land holdings, those with illiterate household heads, and those living in large households (with seven or more members).
In terms of different caste and ethnic groups, Hill and Terai Dalits represent the poorest segment of the population, despite a decline in poverty -- from 58% to 46%.
Nepal has also improved some of its human development indicators: infant and child mortality rate decreased, albeit with large regional variations. Child malnutrition and maternal morality remain high and the prospects of achieving these Millennium Development Goals are unclear.
Nepal's achievements are impressive given the country's politically difficult and conflict-ridden environment. A number of structural economic factors explain Nepal’s unexpectedly strong development outcomes (see box below).
How Has Nepal Reduced Poverty?
There are a number of explanations for Nepal’s impressive achievements in reducing poverty.
Remittances: a significant increase in remittances propped up consumption. The proportion of households receiving remittances increased to 32% in FY03/04 from from 24 percent in FY95/96. In 2004, about 1 million Nepalese worked abroad, primarily in India, the Gulf and East Asian countries. Also, the average real remittance amount has risen by more than 80% .
Farm wages: after improving productivity and tightening the labor market, agricultural wages increased by about 25% in real terms over ten years. Increased demand, coupled with improved connectivity and better access to markets, stimulated entrepreneurial activities and allowed for non-agricultural wages and incomes to increase.
Urbanization: increased urbanization moved workers from low productivity jobs in rural areas to higher productivity jobs in urban areas.
Fertility: the decline in fertility (starting in the 1980s) reduced the household size and the dependency ratio.
All these factors have contributed to recent poverty reduction.
Last Updated: 6/7/06