Counting the poor
Reducing poverty is the central development challenge in Bangladesh. This poverty assessment answers several basic questions about counting the poor. Who are the poor? How numerous are they? Where do they live? What are the characteristics of poor households? Has poverty declined? Has inequality increased?
Making the poor count
As importantly, the poverty assessment addresses several questions about how to make the poor count in the choice, design, and implementation of public policies and programs whose aim is to reduce poverty. These questions are more difficult: What is the relationship between growth and inequality? Is this relationship different for rural and urban areas? Does education reduce poverty? How much does the poor benefit from increasing public spending on health and education? Are households that own more land less poor? Do area characteristics such as rural infrastructure affect the incidence of poverty? How cost-effective are safety net programs? Where do microfinance programs fit within a poverty reduction strategy? Do they reach the poorest? How well do NGO services in education and health compete with public and private services?
The lack of access to primary data on poverty in Bangladesh has been a serious, long-standing hurdle to more detailed poverty analysis. Official poverty estimates have been shrouded in some controversy because independent analysts have never been able to fully replicate the estimates, examine the strengths and weaknesses of the official methodology, or suggest alternative estimates using primary data. Recognizing these problems, in late 1994 World Bank staff undertook a collaborative,
capacity-building initiative with the Bangladesh Bureau of Statistics (BBS) to help enhance the 1995-96 Household Expenditure Survey (HES), train BBS staff, improve basic data analysis, and publish an abstract. This initiative has also led to a series of analytical papers using the 1995-96 and earlier HES data. This report is part of this process. Work is still underway to mainstream poverty analysis into public policy design, implementation, and evaluation. The Bank is now assisting BBS with the implementation of the 1999-2000 HES.
Important Findings and Policy Conclusions
Poverty measurement has been put on a sounder footing
The BBS has adopted the cost of basic needs method for estimating poverty incidence, which is preferable to the official methodology used in the past. Using primary data from successive rounds of the HES between 1983 and 1996, the poverty assessment estimates the incidence of poverty over time calculated according to the cost of basic needs method. Two sets of poverty lines identify the very poor (lower poverty line) and the poor (upper poverty line).
Poverty has declined in the 1990s, but the remaining challenges are massive
Both the lower and the upper poverty lines indicate a statistically significant decline in poverty after 1991-92. The incidence of the very poor declined from 43 percent of the population in 1991-92 to 36 percent in 1995-96; the incidence of the poor declined from 59 to 53 percent. Although poverty has declined in both rural and urban areas, rural poverty is still higher than urban poverty. Reducing the poverty of the very poor living in rural areas -still at 40 percent of the rural population in 1995-96 -remains a massive challenge.
Rising inequality has reduced the rate of poverty reduction
The decline in poverty observed in the 1990s contrasts with the stagnation of poverty in the 1980s. Why was overall poverty reduction so slow or nonexistent over the 1980s? This complex question requires considerable inquiry, particularly since average GDP growth was roughly around 4 percent and exceeded the declining population growth rate. The poverty assessment shows that part of the explanation is rising inequality. Depending on which poverty measure is used, one-fifth to one-third of the potential poverty reduction from growth may have been lost because of higher inequality. The higher inequality associated with growth in Bangladesh does not imply that growth should not be pursued. To the contrary, faster growth is needed if poverty is to be reduced faster, because the net effect of growth on poverty reduction is positive. But in addition to faster growth, efforts to limit rising inequality are required. Over the period 1991-92 to 1995-96, inequality rose the least with agricultural growth, and as a result the net elasticity of poverty with respect to growth was the largest in agriculture. Assuming these elasticities hold unchanged in the future, growth in agriculture would tend to reduce poverty and limit inequality more than identical growth in industry and services. Industry and services, however, are likely to grow much faster than agriculture as they have done in the past, and the net contribution of faster industrial and service growth to poverty reduction should be quite high.
The gains from education and other household and regional characteristics suggest areas for policy emphasis.
Apart from broad-based growth, targeted investments in the human and physical capital of the poor can reduce poverty and limit inequality. Which investments should have priority? The poverty assessment provides some partial answers to this difficult question. Education and land ownership are key determinants of living standards. The gains from education are high and have persisted over time. Higher education has the largest impact in urban areas. Land ownership matters more in rural areas. The returns to education, as measured by a household's per capita consumption, are similar for the household head and spouse. Differences in poverty between geographical areas depend more on differences in area characteristics than on differences in the characteristics of the households living in those areas. This finding suggests that investment policies aimed at poor areas will reduce poverty. Occupation, too, affects living standards. In rural areas, for example, the gains from switching from the farm to the non-farm sector are positive and large for the poor, implying that developing the rural non-farm sector holds considerable potential for poverty reduction.
Public expenditures and safety nets reduce poverty, but their targeting and efficiency must be improved.
The share of expenditures in the Annual Development Program devoted to social sector spending has more than doubled since the early 1990s and is expected to increase further in the years ahead, especially the share devoted to education and health. The poverty assessment reviews the performance of public services in these two areas. The case for substantial public expenditures to education and health is strong on externality and equity grounds. While public expenditures on health appear to be somewhat better targeted to the poor than public expenditure on education, there is much scope for improvement in increasing the quality of and access to such services. Government programs, such as Food for Work, Vulnerable Group Development, Test Relief, and Rural Maintenance are well targeted. A detailed assessment of Food for Education, the fastest growing program, shows that it raises primary school attendance and is cost-effective as measured by its long-term impact. But it is not as well targeted as the other programs, and improvements in targeting and internal efficiency would further raise its social returns. Investments in the program's growth will have to be balanced with the need to improve the overall quality of primary education.
Bangladesh's NGOs are a unique, vital resource for faster poverty reduction, and more needs to be done to support partnerships with them.
Bangladesh is a world leader in innovative NGO programs. The poverty assessment reviews the growth of NGOs and their performance in delivering microcredit, particularly to the very poor. With rapid growth in microcredit, it will be important to ensure that quantitative objectives (reaching as many households as possible) are not pursued at the cost of qualitative objectives (reaching the households that most need assistance). The government and microcredit providers should look for ways, possibly through innovative partnerships, to reach the poorest, as well as better-off borrowers who are ineligible for microcredit but do not have access to formal credit. A village-based survey provides new insights into the superiority of rural health and education services provided by NGOs rather than the government or the private sector. The vastly superior performance of NGO social services suggests clear possibilities for partnerships among NGOs, the government, and the private sector in providing better health and education services. This information also sheds light on the potential priority areas for improving government services: quality appears to be the major problem with public health facilities, and both quality and quantity appear to be problems in public education.
Building Consensus for a Poverty Reduction Strategy
This report is part of a long-term process of capacity building and mainstreaming of poverty analysis in Bangladesh1. Its findings outlined above suggest five pillars for a poverty reduction strategy-accelerating economic growth; promoting education for the poor, particularly primary education, and particularly for girls; investing in poor areas to take advantage of strong location effects on poverty reduction; improved targeting of public expenditures and safety nets to reach the poor better; and forming further partnerships with NGOs to reach the poorest and not-so-poor in ways designed to make a stronger attack on poverty.
Discussions with stakeholders, NGOs, the government, poverty researchers, and other donors in Bangladesh arising from this report will help to build support for an action plan and more detailed policy and institutional changes for faster poverty reduction. In line with the capacity-building emphasis of the World Bank's country assistance strategy for Bangladesh, these discussions will also help to build consensus on the institutional capacity required to mainstream poverty analysis in policy design and implementation. BBS will field the next Household Expenditure Survey in 1999. This will provide the opportunity and the means to further refine our understanding of the determinants of poverty and the conditions under which households in rural and urban Bangladesh can most easily escape poverty.
1. In addition to this report, two other tools have been developed to facilitate the use of the poverty assessment. First, a World Bank Internet web site is under construction to give greater access to the poverty assessment and to link it with its background work. The web site will be linked to the World Bank's public web site. Second, easy-to-use spreadsheets are being prepared to allow analysts and policymakers to simulate poverty measures based on chosen household characteristics and to explore the impact of policies that change these characteristics.
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