# **2. Poverty Reduction in Nepal**

The earliest comprehensive poverty assessment in Nepal depicted dire living conditions of the country more than 30 years ago (World Bank 1991). About 40 percent of the population was deemed poor using a very frugal definition of poverty, but any reasonable international standard would have placed almost everyone in the country in poverty. In 1985, Nepal had the lowest GNI per capita among the 140 countries for which data was available. The share of labor force dependent on agriculture was 93 percent, the highest of any country listed in the 1989 World Development Report (World Bank 1989). The 1991 report concluded that poverty would most likely persist in Nepal for years to come (World Bank 1991). By all accounts, Nepal was one of the poorest countries in the world until the early 1990s.

While neighboring countries made a step forward in poverty reduction in the early 1990s, poverty in Nepal did not change by the time the first Living Standard Survey was conducted in 1995/96.<sup>10</sup> Furthermore, World Bank (1999) reported that poverty incidence had remained virtually constant since 1976/77 based on the Survey of Employment, Income Distribution and Consumption Patterns in Nepal, further reinforcing the notion of chronic poverty in Nepal. The 1990 prediction that poverty would persist held true; as much as 42 percent of Nepalis were deemed poor in 1995 (World Bank 1999).

Living conditions of Nepali citizens in 1995 were as ominous as they were in the earlier years. According to the 1995 NLSS Report, only 13 percent of the households had access to toilet facilities; 24 percent of the households had access to piped water supply, of which only one-third had water supply piped to the residence. More than 80 percent of Nepali women 15 years and older were illiterate. Accessibility continued to be the bottleneck to the development of rural Nepal. About 30 percent of the rural household lived at least three hours away from a paved road, and 20 percent of them from a dirt, vehicle passable road (Central Bureau of Statistics 1996).

The policy recommendations in the Poverty Assessment following the 1995 NLSS were far from auspicious and as pessimistic as in earlier years. Because “poverty in rural Nepal is too deep and too entrenched to be rapidly or widely alleviated,” the country “must improve its management of public expenditures and the climate for private investment.” In doing so, “priority must go to agriculture” (World Bank 1999).

The first sign of poverty reduction became available when the second Nepal Living Standard Survey (NLSS) was conducted in 2003. The official poverty headcount rate declined to 31 percent, a decline by 11 percentage points over an 8-year period. Due to the long interval between the two surveys, it is not possible to pinpoint exactly when poverty incidence started taking a downward trend. But it finally did so sometime between 1995 and 2003 during which the country went through political turmoil and the Maoist insurgency that disrupted the rural livelihoods (World Bank 2006). Seven years later, the poverty headcount rate further declined to 12 percent, according to the 2010 NLSS. The pace of poverty reduction accelerated during the latter half of the 2000s, from 1.4 percentage points a year between 1995 and 2003 to 2.6 percentage points between 2003 and 2010. This impressive stretch of poverty reduction record led the government to re-evaluate the poverty line established in 1995 in order to reflect the evolving living standards in today’s Nepal.

> 10 The 1995 NLSS and the 1984/85 Multi-Purpose Household Budget Survey were different in design and scope, making it difficult to construct comparable poverty estimates. All available evidence, however, pointed to little to no change in poverty incidence between 1984/85 and 1995 (World Bank 1999).

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