78518 A K M Shehab Uddin Bangladesh Poverty Assessment Assessing a Decade of Progress in Reducing Poverty, 2000-2010 Key Messages June 2013 Acknowledgements This report was written by a core team comprising and Mrittika Shamsuddin. Hossain Zillur Rahman of Dean Jolliffe and Iffath Sharif (task team leaders), helped with the introduction. Mehar Akhter Khan Lea Gimenez and Faizuddin Ahmed, with significant provided capable assistance in the formatting of the contributions from Gabriela Inchauste and Sergio report, while its production under the Bangladesh Olivieri. The report draws substantially from a set Development Series was facilitated by Mehrin of background papers that were prepared with the Mahbub and Naomi Ahmad. help of generous financial support from the UK Department of International Development through The analyses of poverty trends and patterns the Joint Technical Assistance Program (JOTAP). using multiple rounds of HIES was conducted in partnership with the Bangladesh Bureau of Statistics The background analysis on Bangladesh’s in 2011. Throughout the development of this report, demographic transition was led by Maitreyi Das with the team received valuable feedback from several support from Ieva Zumbyte. The background paper sources. In particular, the team received guidance linking labor and poverty reduction was produced from Wahiduddin Mahmud, Binayak Sen, Mahabub by Gabriela Inchauste, Sergio Olivieri and Tonmoy Hossain, Hossain Zillur Rahman, Riti Ibrahim, Islam. Shahidur Khandker, Hussain Samad, Nobuo Mustafizur Rahman, Debapriya Bhattacharya, Baqui Yoshida and Gaurav Khanna conducted the analysis Khalily, Quazi Mesbahuddin Ahmed, Fazlul Kader, on seasonal extreme poverty. The chapter on food Akhter Ahmed, Arifur Rahman, Iftekhar Hossain, prices and poverty draws from two papers prepared Andras Horvai, Sanjay Kathuria,Vinaya Swaroop, by Hanan Jacoby and Basab Dasgupta, and an IFPRI Pablo Gottret and Salman Zaidi. The report benefited team consisting of Xiaobo Zhang, Shahidur Rashid, from comments by Shamsul Alam and other officials Kaikaus Ahmad,Valerie Muller, Hak Lim Lee, Solomon of the Planning Commission. Peer reviewers Lemma, Saika Belal, and Akhter Ahmed. for the report were Mustafa Mujeri, Ken Simler, Ambar Narayan, and Cem Mete. The team thanks The chapter on safety nets and vulnerabilities was Ernesto May and Jesko Hentschel (Sector Directors, supported by analysis from Maitreyi Das and Celine World Bank), and Ellen Goldstein and Johannes Ferre. The background material on microfinance and Zutt (previous and current Country Director poverty reduction was written by Shahidur Khandker for Bangladesh, World Bank) for their support and Gayatri Koolwal. Wahid Abdallah provided inputs throughout the preparation of the report. on analysis on the inequality of opportunity. Forhad Shilpi with support from Ieva Zumbyte conducted the analysis on the spatial differences in poverty to support the chapter on the East-West divide. The profile of poverty benefited from a background paper on dietary diversity by Atonu Rabbani, and education statistics from Syed Rashed Al-Zayed Foreword Throughout the 2000-2010 decade, Bangladesh Overall, the report’s findings suggest that sustained experienced steady and strong GDP growth of poverty reduction moving forward will require nearly 6 percent per year on average. During coordinated multi-sectoral action. To maintain steady this period, poverty rates also demonstrated an growth in jobs, it will be necessary to promote impressive steady improvement, falling by about investments to raise agricultural productivity 1.7 percentage points per year. Using data from the and also to promote growth in the demand for Household Income and Expenditure Survey (HIES), a salaried work in manufacturing and services (e.g., joint product of the Bangladesh Bureau of Statistics through improving infrastructure, supporting and the World Bank, this report shows that, while entrepreneurship by promoting the rule of law, and 49 percent of Bangladeshis were poor in 2000, this strengthening the transparency and accountability of percentage had dropped to 31.5 by 2010. In addition, both the public and private sectors). With regard to Bangladesh also achieved better health outcomes, demographic changes, a “demographic opportunity� improved living conditions for the poor, lower will be realized only if there are policies in place childhood mortality, increased under-five vaccination to harness it. Thus, Bangladesh will need both to rates for all children, increased literacy rates, and cater more aggressively to the needs of the growing improved safety net coverage. These are impressive youth cohorts in the coming years and to begin achievements! preparations for aging-out of the demographic dividend. The analysis of the 2000-2010 period presented in this report finds that poverty reduction was closely Lastly, Bangladesh can make better use of social linked to growth in labor income and demographic safety net coverage and human capital formation changes. It also shows that the sources of income to sustain poverty reduction. There remains much growth varied significantly between the first and the potential for improving the linkage between safety second halves of the 2000-2010 decade. Differential nets and poverty reduction through improved rates of poverty reduction along an “East-West design, targeting and timing of safety net responses. Divide� characterized the first half (World Bank, In addition, education remains a key pathway to 2008), but regional differences were significantly breaking free from the intergenerational transmission reduced in the second half. Nevertheless, while of poverty, and there is similarly substantial scope overall improvement in wellbeing was strong across for improving the quality of, and expanding access all regions, poverty continues to be a substantial to, schooling. A continuation of the policies and and stubborn problem in Bangladesh, where about programs that have proven successful, combined with 47 million people still live in poverty and 26 million improving safety nets and placing more emphasis on people in extreme poverty. Moreover, poverty in skills development and child nutrition, could prove rural areas continues to be relatively more pervasive a powerful formula for increasing human capital and and extreme than in urban areas, whereas urban further poverty reduction in the future. areas remain relatively more unequal. Ernesto May Jesko Hentschel Johannes Zutt Sector Director Sector Director Country Director Poverty Reduction and Human Development The World Bank Office Economic Management South Asia Region Bangladesh South Asia Region A remarkable decade of progress Bangladesh experienced a steady decline over the decade. Between 2000 and 2005, a large in poverty between 2000 and 2010 number of households saw an improvement in Poverty declined by 1.7 percentage points per year. terms of the materials used in the constructions of The series of shocks that affected Bangladesh in their homes and access to services. Between 2005 2007 and 2008 did not significantly slow down the and 2010, while the poor continued to improve the speed of poverty reduction. The decline in poverty quality of their homes, the largest improvements rates has been sufficient to ensure a 26 percent for all households were in terms of the amenities reduction in the number of people living in poverty. households owned such as television sets and Inequality as measured by the Gini index of real per cellular phones. capita consumption remained relatively stable over the decade. Real per capita consumption increased Health and nutrition outcomes tell a proportionally across all income groups. bittersweet story Poverty projections Despite an increase in rural real per Bangladesh has witnessed a significant improvement suggest Bangladesh has capita consumption in 2010, the gap in in access to health care, the most notable achieved its MDG goal the speed of poverty reduction between achievement being the substantial decline in the of halving its poverty urban and rural areas has widened over immunization gap between the poor and non-poor. headcount. the last five years. Extreme poverty still Despite improvements in access to health care, remains a rural phenomenon. dietary adequacy and diversity remain key issues. The analysis suggests that low dietary diversity was Poverty patterns have dramatically a persistent problem in Bangladesh, and showed no changed across regions between 2000 and significant change across 2010 all income groups even as Diets of relatively Poverty estimates in 2005 highlighted the need for the country experienced a poor households creating economic opportunities for narrowing the significant decline in poverty. have not development gap between the East (Chittagong, improved. Dhaka and Sylhet) and the West (Barisal, Khulna and Rajshahi) of Bangladesh. While the East was rapidly improving and benefiting from its geographical proximity to growth poles, the Western region of Bangladesh had been lagging behind. However, Poverty headcount the 2010 poverty estimates describe a changed Bangladesh. Between 2005 and 2010, Western 28.1% divisions experienced larger reductions in poverty Sylhet 33.8% and also managed to reach levels of poverty that 44.2% are closer to those of their Eastern counterparts. 35.6% Rajshahi 51.2% An important exception to this pattern is the 56.7% Northwestern part of the country, specifically 32.1% Rangpur, which has over 42 percent of its population Khulna 45.7% still living below the poverty line. 45.1% 30.5% Dhaka 32.0% This remarkable reduction in poverty 46.7% was coupled with an equally impressive 26.2% improvement in living conditions of the Chittagong 34.0% poor 45.7% In 2000, less than a third of households had access 39.4% to electricity and this increased to more than half of Barisal 52.0% 53.1% households by 2010. The rate of increase was much 0.0% 60.0% greater for poorer households with connection to electricity increasing from 10 percent to 29 percent 2010 2005 2000 Source: HIES: 2000, 2005, 2010 Drivers of poverty reduction Changes in both labor income and of education of the workforce. During the second demographics were the two largest half of the decade, more of the poverty reduction contributors to poverty reduction over the occurred in the farm sector, which experienced a decade significant increase in labor income. This increase in Labor income was the dominant factor in delivering labor income was not associated with higher levels higher incomes and lower poverty rates (both for of education or changes in occupation but was the poor and extreme poor). In addition, a higher largely due to an increase in rural real wages. share of adults in the household helped to increase income per-capita. Increases in both labor income Rising real rural wages in the second half and the share of adults in the population were also of the decade coincided with the food price the two most important contributors to the regional shock of 2007-08 poverty reduction patterns. They accounted for a Following the food price shock, real wages declined larger share of the overall poverty reduction in the significantly, but by 2009 they began to increase, West relative to the East, and thus offer one possible adjusting to a new price regime. Three years after the explanation for the changing regional poverty crisis, urban wages were still shy of their pre-price patterns. shock levels, whereas rural wages were above their pre-shock levels. These wage patterns are consistent There were qualitative differences in how with the findings that the growth in income growth in labor income occurred over the experienced by rural day laborers over the 2005- decade 2010 period contributed substantially to poverty During the first part of the decade, the increase reduction. in wages in the non-farm sector was the most important factor contributing to poverty reduction. There were also three additional ‘poverty reducing’ Growth in labor income was shifts taking place: (i) workers moving from driven by higher returns to agriculture to manufacturing and services sectors, individual and household (ii) workers moving from daily and self-employed endowments. work to salaried jobs, and (iii) an increase in the level The agriculture sector while shrinking over the decade continues to employ nearly half of the workforce and provides 45 percent of the total household income. Andrew Biraj The lower dependency ratio was largely There was a significant expansion in driven by a reduction in fertility job creation in industry and services Bangladesh’s dramatic fertility decline from 3.3 throughout the decade children per woman in 2000 to 2.3 in 2011 is a However employment growth in urban areas result of an aggressive, supply-driven family planning occurred primarily for the first half of the decade program. Contraceptive prevalence in Bangladesh only. Inadequate access to electricity and finance, rose from a mere 8 percent in 1975 to over the prevalence of corruption, and the lack of an 61 percent in 2011. In addition changes in living adequately trained workforce remain significant arrangements driven in part by labor mobility and bottlenecks for further business development. These changing social norms also contributed to the constraints appear to be much more significant in reduction in the dependency ratio. The data shows Bangladesh relative to the rest of the South Asia a decline in the proportion of joint and extended region. The impact of corruption on the business households and a commensurate increase in climate cannot be overemphasized, as it directly the proportion of single, semi-single and nuclear affects investment decisions and therefore the households. potential for further job creation. A growing share of women in the labor Demographic trends over the past decade force contributed to poverty reduction, suggest potential opportunities as well as but further increasing their participation challenges for future growth and poverty remains a challenge reduction through job creation The labor force participation rate of women, though Population growth slowed down considerably increased from 25 percent to about 35 percent over the last thirty years. Despite this slowdown, over the decade, still remains low by international Bangladesh added 19 million people to its total standards. As in most developing countries, female population, a 15 percent increase between 2000 labor force participation in Bangladesh increases at and 2010. The working age population the higher end of the income distribution among expanded more rapidly than the total Linking the swelling youth the women who are also likely to have higher levels population, growing at an average rate cohorts to productive of educational attainment. Early marriage and early of 2.3 percent between 2000 and 2010, employment either via motherhood are substantial constraints to increasing a 25 percent increase over this period. overseas migration female labor force participation. These findings The ‘bulge’ among the 5-14 year-olds in or in growing sectors suggest that postponing marriage could increase the 2010 population indicates that this of the economy will be women’s welfare over the course of their lives. trend will continue over the next decade. critical to fully realize a While a growing labor force can be an “demographic dividend.� asset for income generation and growth, Bangladesh will soon be at the absorbing such a large wave of new entrants every replacement level of fertility and year will pose a major challenge for the labor market. may be at the cusp of an aging crisis within the next two decades. Seasonal poverty, shocks and coping mechanisms of the poor Seasonality of consumption still prevails in Rangpur wealth distribution. In the long term, after the price shock Among the poor living in regions affected by seasonal permeated to other sectors, particularly the service sector deprivation, seasonal migration is used as a key coping (the output of which is disproportionately consumed by the strategy, though access to remittances does not constitute rich), the short term effect of the shock appears to have been an important source of household income. Access to credit moderately reversed: the population at the higher end of the remains fairly limited and is generally insufficient to smooth income distribution was relatively more affected than those at seasonal consumption patterns. Social safety net expenditures the lower end of the distribution. are not well targeted towards those most in need to avert seasonal food deprivations. The wide spectrum of social safety net programs implemented by Bangladesh remains relatively Poor households living in the poorest regions are untapped sources of poverty reduction less able to cope with shocks Poor targeting of resources and inadequacy of average safety Household survey data show that over 50 percent of net benefit amounts represent important obstacles for households in Bangladesh experience one or more shocks attaining further poverty reduction. Even though the safety net annually. Households still rely on coping mechanisms that coverage of the poor has improved over time it still remains are likely to have negative welfare consequences. Rural low: in 2010, a third of the poor participated in at least one households are particularly vulnerable. For example, while social assistance program as compared to 21 percent in 2005. urban households are more likely to rely on savings relative to These results also suggest large scale inclusion errors among rural households, rural households are more likely to deplete the safety net programs. The proportion of recipients who their productive assets or use high-interest loans from money are non-poor increased from being 44 percent in 2005 to lenders. When faced with climate shocks, an overwhelming almost 60 percent in 2010. Similarly, the share of total program majority of households are not able to effectively cope with spending accruing to the poor dropped from 52.6 to 35.3 the shock. This is consistent with percent within this five year period. The average transfer The second half of the the notion that when dealing adequacy is also low, and has worsened over the years: the 2000s saw an escalation with climatic or covariate shocks share of real value of transfers to the total consumption level of real rural wages but households are unable to rely of poor households has almost halved, falling from 22 to 11 the growth of urban real on community-based coping percent. Even though current benefit amounts are inadequate, wages was lackluster. instruments. if allocated to the poorest households, the total safety net budget could potentially reduce the level of poverty by as Poor households are vulnerable in the short run to much as 4.3 percentage points. adverse food price shocks Despite having increased its food grain production significantly Access to microfinance can play an important role over the past years, Bangladesh continues to rely on food in helping households cope with shocks grains imports to meet its domestic demand making it Conditional on experiencing a shock, the most common vulnerable to both local and global price spikes. Since coping mechanisms adopted include the use of savings and 2005, prices of major food crops have been surging in the loans. Less than 2 percent of households reported safety international market: between 2005 and 2008, rice prices nets as one of the top four coping mechanisms used to face rose by 25 percent while wheat prices by 70 percent. The a shock. The relative importance of savings and borrowing nutritional intake of most Bangladeshis is negatively affected compared to safety nets in dealing with shocks is not by these price shocks since 74 percent of calories consumed surprising given the vast coverage and reach of microfinance by an average household come from cereals. Rice alone organizations operating in Bangladesh and the relatively low represents more than 40 percent of total consumption for the transfer amounts and coverage of safety nets. An important poorest households. role for microfinance is in smoothing consumption. Given that Bangladesh is likely to continue to face adverse shocks, Thus not surprisingly the 2007-2008 food price microfinance will need to continue to play an important role shock affected the poor disproportionately in helping the poor Following the shock, the rural extreme poor experienced a to buffer themselves Microfinance disbursements 22 percent decline in consumption while the average effect from these shocks and reached Taka 370 billion by on the non-poor was a 4 percent decline. In the medium term thereby also help reduce 2010 with a client outreach of however, after wages adjusted to reflect the price shock, the extreme poverty. almost 34 million. impact of the food price shock largely equalized along the Arne Hoel Main policy implications Increase the Ensure that the demand Provide continued Improve the skills of the productivity of workers for salaried work in support to family swelling youth cohorts To continue making progress the manufacturing planning programs to ensure they are in reducing poverty, it will and service sectors with a strong focus on gainfully employed be prudent to continue continues to grow the less well-off and on To ease the labor market investments in improved Since this type of work delaying early marriage pressures caused by the agricultural productivity, necessitates a constant Because high dependency demographic transition, primary schooling and human supply of skilled workers, ratios and low education Bangladesh will need to capital formation focused on continued efforts to expand levels are both closely focus more attention to low-skilled workers. Policies the quantity and quality of linked with poverty, family the skill development of a and programs to improve the education can go a long way planning programs should rapidly expanding labor force, health and education levels of in ensuring sustainable and now refocus on the less well including the policies aimed those most in need will lead inclusive growth. Moreover, off, as well as on delaying at enhancing opportunities to lower levels of poverty in actively promoting the rule early marriage and early for overseas migration. the future through improved of law, enhancing worker parenthood of young girls. Similarly, given the trends in productivity. welfare, and improving Improved enforcement female education outcomes infrastructure have great of age-of-consent laws, in and low rates of female labor potential to generate combination with educational force participation, a focus a positive investment stipends that reduce the cost on creating ‘female-friendly’ environment for firms to for children transitioning jobs, work environments and continue creating jobs at the from primary to secondary labor policies will also help needed pace. school, could help young to facilitate a higher level of girls from poor families to female participation in the both successfully complete labor force. their secondary education and avoid early marriage. Yet, it must be underscored that “changing attitudes� will need to be the strategy that underpins all other efforts to end early marriage. Arne Hoel Begin preparations Improve the linkage Address persistent Link cash based for aging out of the between safety nets seasonal shocks and transfers to human ‘demographic dividend’ and poverty reduction global commodity capital formation With an increasing number To be more effective, price volatility more among the poor of the elderly surviving safety net programs need effectively Safety net programs have longer and tending to live to be: (i) better timed to Further deepening of micro- gradually shifted from alone, Bangladesh may find more adequately address lending and safety nets in providing food to cash itself at the cusp of an aging adverse effects of shocks, (ii) terms of both coverage transfers in recognition of the challenge in twenty years. The better targeted to ensure and improved targeting fact that the latter are more positive aspect of this is that that benefits are primarily will help poor households cost effective. Linking this Bangladesh has some time to received by the poor, and (iii) smooth their consumption larger pool of cash transfers prepare and to put in place better tailored to meet the to mitigate seasonality of to human development programs and policies that specific needs of the poor. income, particularly in the outcomes is likely to can protect its elderly in a Consolidation of safety net ecologically vulnerable improve the quality of social manner that is both fiscally programs in Bangladesh along regions such as Rangpur. This protection expenditures. sustainable and culturally these three principles would will mean further improving Particular emphasis needs appropriate. not only improve the quality the performance and scope to be placed on programs of public expenditures but of large seasonal employment and policies that focus on: (i) will allow increased benefit generation programs such early childhood development levels that are needed for as Food for Works, Test in a way that integrates further poverty reduction. Relief and the Employment health and nutrition services, Generation Program for the early stimulation and learning, Poorest, and of subsidized and pre-school education, sale of food grains for the and (ii) building the skills and poor such as the Open improving the employability Market Sales Program. of the poor youth. Read the Bangladesh Poverty Assessment 2000-2010 at www.worldbank.org.bd The World Bank Plot E-32, Agargaon, Sher-e-Bangla Nagar, Dhaka 1207, Bangladesh 880-2-8159001-28 Fax: 880-2-8159029-30 www.worldbank.org.bd