Although Bhutan slashed poverty by half from 2007-12, Gini coefficient remained the same

WB Report: Pace of poverty reduction in Bhutan has slowed down since 2012 World Bank’s projections made through its report on country’s macro poverty outlook revealed.

The country’s last available official poverty estimate is 12.7 percent in 2012 and Bhutan was able to cut down poverty rate by half, from 25 percent to 12.7 percent between 2007 and 2012.

Using the internationally comparable USD 1.25 per day poverty line, Bhutan’s pace of reduction was fastest among the South Asian countries and other selected cohort of countries with similar initial poverty levels back in 1990.

The World Bank defines poverty in absolute terms – extreme poverty as living on less than USD 1.25 per day, and moderate poverty as less than USD 2 a day.

In its poverty assessment report published last year, the World Bank has also projected that the country’s poverty rate would stand below 10 percent in 2018, and that it would eradicate extreme poverty in 22 years time.

However, the recent report states that from 2007 to 2012, poverty declined by 2.6 percent every year.  Since then, it is estimated that poverty has decreased by 0.9 percent by 2014.

However, the macro poverty outlook also states that income inequality, measured by the Gini coefficient of consumption, has barely changed from 0.381 in 2007 to 0.387 in 2012 and is not expected to change in the near future.

Gini coefficient is a measure of statistical dispersion intended to represent the income distribution of a nation’s residents.  A Gini coefficient of zero expresses perfect equality, meaning where everyone has the same income.  A Gini coefficient of one (or 100%) expresses maximal inequality.

While the country’s achievement in halving the poverty between 2007 and 2012 is attributed to increasing commercialisation of agriculture, expanding rural road network, and spillover impacts from the hydropower projects, two-third of poor identified in 2007 remained poor in 2012 also.

The World Bank studies have also revealed vulnerabilities to price shock.  For instance, a 12 percent increase in food prices can increase the percentage of poor in the short term by about two percent, and for every one percent growth in income, poverty declined by 2.2 percent.

Economist are of the view that, be it subsistence farmers, salaried workers, self-employed entrepreneurs, or poor people, they derive most of their income from work, meaning that level of employment and consequently a decent earnings opportunities will be crucial determinants of poverty reduction.

The World Bank’s report also stated that “shared prosperity will depend on the ability of the economy to provide jobs to the educated youth whose aspirations increasingly differ from existing employment opportunities.”

It also highlighted that poor households face new risks and vulnerabilities as the economy grows and requires new strategies.  Limited land for agriculture, higher exposure to international commodity prices and changing social structures, for instance can increase poor households’ vulnerability to shocks.

By Tshering Dorji