COVID-19: A threat to Poverty Alleviation

COVID-19 or
the coronavirus that originated from Wuhan in late December 2019 has spread
throughout the world infecting more than half a billion people and more than
335 thousand people have acceded to death. The developed western countries,
such as Italy, Spain, France, the UK, and the USA, are the most affected.
Recently, Brazil is hit hard by the virus followed by Russia.

The preventive measures adopted by most of the countries of
the world have severely affected the global economy. COVID-19 crisis is no
longer a mere global health crisis, it is also a major labour market and
economic crisis. IMF
has projected that the world is likely to face the greatest economic
downturn after the great depression of the 1930s. IMF
projects that over 170 member countries will experience a negative
per capita income growth in 2020.

COVID-19 has completely disrupted the global labour market.
The great lockdown has halted the movement of people causing factories,
schools, financial institutions, and many more businesses to close.
International Labour Organization (ILO) describes the coronavirus epidemic as
“the worst global crisis since World War II”. ILO
estimates that almost 25 million jobs could be lost worldwide as a
result of the COVID crisis. Hence, unemployment is expected to skyrocket. The World
Bank (2020)
estimates that about 49 million people will plunge below
poverty due to the COVID crisis. COVID-19 is likely to cause the first increase
in global poverty since 1998 (World
Bank, 2020

The economists at the World Bank verdicts that “End poverty in all
its forms everywhere
” by 2030, Goal 1 of Sustainable Development Goals, is
seemingly impossible to achieve if this pandemic continues. Further, the study
by Oxfam
suggests between six and eight percent of the global poverty could
be forced into poverty, which translates to about half a billion people falling
into poverty. ILO (2020) study estimates an income loss between USD 860 billion
and USD 3.4 trillion by the end of 2020. This translates into falls in the consumption
of goods and services.

The poverty rate in Nepal hovers around 18.6 percent in
2018/19 (15th
, NPC). The multidimensional poverty stands at 28.6 percent.
Historically, poverty in Nepal stood at 42 percent in 1995/96, 31 percent in
2003/04, and 25.2 percent in 2010/11 (NLSS – I, NLSS – II, & NLSS – III).
The 15th plan aims to reduce absolute poverty to 11 percent and
multidimensional poverty to 13 percent by the end of the first five years.
Similarly, poverty alleviation policy 2019 aims to reduce poverty to 5 percent
by 2030, and ‘zero’ poverty by 2043. The elasticity between poverty and per
capita GNDI at a constant price during the period of 2003/04 to 2009/10 stands
at 0.17 signifying that about a 6 percent rise in per capita GNDI decreases
poverty by 1 percent point on an average.

The preliminary estimate by CBS
projects economic growth of 2.28 percent for FY2019/20, which
translates into a fall in real per capita GNDI growth of 6.8 percent. Consequently,
about 1.15 percent (335 thousand people) of the total population (29.96
million) expected to break through the poverty trap fails to come out of the
trap. The economic growth of 2.28 percent is higher than the population growth
of 1.35 percent, so the falling of GDP growth rate does not increase the
poverty, however, it retards the rate of decline in poverty.

Poverty in Nepal is likely to escalate due to two main reasons. First, the Nepalese labour market structure, which is largely informal. 62.5 percent (4.44 million) of total employment (7.10 million) in Nepal are employed in the informal sector, and the coronavirus pandemic has threatened the employment of the informal sector. ILO estimates that the job losses in Nepal due to coronavirus might hover between 1.6 and 2.0 million; in total, 631 thousand female jobs and 1.3 million jobs for men are estimated at risk. ILO identifies wholesale and retail trade, manufacturing, construction, and transportation and accommodation as the sectors at high-risk. 56 percent of the employed labour force (3.98  million) are employed in these high-risk sectors and among them, 66 percent (2.62 million) work in the informal sector (NLFS, 2017/18).

Second, the remittance-induced consumption; about 56 percent
of total household receive remittance and about 58 percent of total rural
households are remittance recipients. About 79 percent of total remittance
recipients use remittance income for consumption. Current
Macroeconomic Situation of 9 months
reveals that year on year remittance inflow
decreased by 4 percent, while month on month remittance inflow plummeted by 51
percent. The World Bank (2020) estimates a downfall in remittance by 14 percent
and CBS (2020) estimates a fall in remittance by Rs. 163 billion in FY2019/20.

The World Bank projects 16 million people in South Asia is pushed into poverty. The World Bank estimates that about 12 million people in India fall into absolute poverty. Likewise, a study by South Asian Network on Economic Modeling (SANEM) projects that Bangladesh’s poverty rate may rise to 40.9 percent due to the COVID-19 pandemic. Also, Pakistan’s poverty rate is likely to increase to 33.5 percent. Similarly, the consumption shock of 10 percent is likely to increase Nepal’s poverty rate by about 7 percent, and consumption shock of 20 percent is likely to increase the poverty rate by about 15 percent. The COVID pandemic is likely to increase the depth of poverty, which is measured by the poverty gap index. The poverty gap index of Nepal has steadily declined from 11.8 percent in 1996 to 7.6 percent in 2004 and further to 5.4 percent in 2011 (ADB, 2017). The steadily declining poverty gap index is likely to increase with the labour market and economic crisis brought about by the global pandemic. Further, children below the age of 10 years represent the poorest age subgroup in Nepal (Nepal Multidimensional Poverty Index, 2018). The threat of malnutrition is emerging with the growing concern on food security.

The global pandemic, from multiple perspectives, is
threatening the goal of poverty alleviation. The people living in the least
developing and developing countries are prone to plunging into poverty and
millions of children left undernourished. COVID-19 crisis is no longer a health
crisis; it has entrapped the global economy into an inescapable labour market
and economic crisis. The COVID crisis has made poverty alleviation dearer.
Skyrocketing unemployment, plummeting remittances, and the great global
lockdown will eventually drag millions of people into a vicious cycle of
poverty. Nepal is likely to face a sharp escalation in poverty as remittance,
the lifeblood of the Nepalese economy, is likely to shrink and the informal
sector, the most threatened sector by COVID-19, holds the majority stake in

Way forward

Poverty is a major obstacle to growth and development. The
government needs to take quick initiatives towards those who have lost their
jobs and struggling for livelihood. The government shall devise a strategy to
provide the relief packages in the form of cash transfers, distribution of
necessities, and skilled-based employment in public enterprises or

The poverty line as per NLSS-III stands at Rs. 19261, and
the inflation-adjusted poverty line in 2020 stands at around Rs. 36000. As an
immediate response, the government shall disburse about Rs. 17 billion as a
relief package to 18.6 percent of people living under poverty. Similarly, the
households prone to poverty shall be encouraged entrepreneurship program and
interest-subsidized lending shall be prioritized.

Likewise, the department of labour must maintain a proper record of skill and experience of returnee from foreign employment; such records will assist in enhancing the productivity of the human resource. Also, the tourism sector is hit hard by the pandemic, so the promotion of internal tourism is the utmost for the revival of the tourism sector.

This article was first published in Setopati on 30 May 2020.

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