Looking further, the negative impact of the currency devaluation on real income varies according to gender, location and income group: • **_Rural households bear a larger real income loss_** , estimated at about 14 percent of real income on average compared to 11 percent decline for urban households.

• **_Male and female headed households face similar costs,_** around 12 percent of real income on average.

• **_Households whose main source of labor income is derived from the tertiary sector (public administration, commerce, transportation) bear similar real income loss,_** estimated at about 12 percent on average.

• **_Poor households will also be worse off relative to their richer counterparts_** . Households in the lowest income group (25<sup>th</sup> percentile) will experience a 14 percent drop in their real income on average compared to 10 percent decline for the richest households.

• **_Consumption of qhat raises the real income loss to richer groups_** . The small difference between share of real income loss between the poorest and richest groups is due to the larger share of qhat consumption in richer households in their overall expenditure. Table 5 shows that if only the pass-through effect is considered for food items, the poorest share of real income loss is about 1.4 times larger compared to the richest group. However once qhat is added as per the final column, the difference in real income loss narrows between the two groups.

**Table 5: Real Income Loss as a share of Total Expenditure with 60% pass through**

|**Income Categories**|**overall**<br>**welfare cost**|**welfare cost**<br>**with food only**|**welfare cost with**<br>**food & qhat**|
|---|---|---|---|
|All|11.9|8.4|10.1|
|poorest|13.7|11.3|11.9|
|2nd quartile|12.2|8.9|10.3|
|3rd quartile|11.5|7.5|9.7|
|riches|10.3|5.9|8.5|

_Source: Author's calculation based on EDAM 1996._

# **_5.4. Impact on poverty_**<sup>**29**</sup>

**_The incidence of extreme and national_**<sup>**_30_**</sup> **_poverty will rise by 4.4 and 6.3 percentage points respectively while the poverty gap_**<sup>**_31_**</sup> **_is expected to increase by 1.3 (extreme) and 3.0 (national) percentage points respectively for the population_** . Figure 9 shows leftward shifts in the income distribution of households associated with greater magnitudes of nominal exchange rate devaluation, assuming a pass-through of 60 percent. The vertical height measures the density or concentration of households where prior to the devaluation (using the distribution of households in 1996), most households were located between the extreme and national poverty lines. As the size of the nominal exchange rate devaluation increases, a greater number of households would

> 29 This section reports the poverty impact of  a nominal devaluation of the magnitude of 30 percent assuming an exchange rate pass-through of 60 percent.

> 30 Extreme poverty line is 100,229 FDJ (US$566) per adult equivalent or US$ 1.5 per adult per day. The national poverty line includes food and non-food consumption, is equivalent to 216,450 FDJ (US$1,223) year or US$ 3.3 per adult per day.

> 31 The poverty gap (or the depth of poverty) measures how far below is poor households’  per capita income from the poverty line. It is expressed as a share of the poverty line.

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