In most developing countries, poverty is a predominantly rural problem. This is especially true in Bhutan, where over 95% of the poor population lived in rural areas between 2003 and 2017. Bhutan has maintained a strong rural poverty reduction record for the past 20 years. In 2003, 38% of the rural population was living below the national poverty line. That rate dropped steadily to 31% in 2007, 17% in 2012, and 12% in 2017.  

The Covid-19 pandemic struck in 2020, with disastrous impacts on the economy. This raised concern of a setback in Bhutan’s fight against poverty. When the National Statistics Bureau (NSB) released its 2022 Poverty Analysis Report in January in partnership with the World Bank, a quick and uninformed glance would have confirmed that fear. The NSB estimated an 18% rural poverty rate in 2022. Taken at face value, that would represent a ten-year setback in the fight against rural poverty. 

But as the report makes very clear, the poverty estimates for 2017 and 2022 are not comparable. The national poverty line was adjusted substantially upward for the 2022 report, from 2,196 ngultrum per person per month in 2017 to 6,204 ngultrum per person per month. This nearly three-fold increase in the poverty line far exceeds inflation over the period (34%). 

Rather, the change is in large part due to a much higher minimum threshold for non-food spending, which was increased nearly five-fold between 2017 and 2022. A small increase in the minimum caloric intake threshold for food poverty was also implemented. These are commendable changes, and the result is that the national poverty line is now much better at reflecting acceptable living standards and consumption patterns for Bhutan. 

The National Statistics Bureau will release a separate publication with comparable poverty estimates for 2017 and 2022 later in the year. That will provide the final word on the extent to which rural poverty has fallen in the past five years. In the meantime, what do the data indicate about Bhutan’s progress?  

A direct comparison is complicated by changes in prices and methodology in calculating a household’s total spending between 2017 and 2022. An indirect way to assess progress against poverty is to analyze the composition of a typical rural household’s budget in 2017 versus 2022. Especially for rural households, a high share of spending on food purchases is a strong indicator of poverty. As households become richer, they spend a lower proportion of their budget on essentials like food and fuel, and a higher proportion on discretionary goods like entertainment and luxuries. 

The average rural household spent 60% of their budget on food in 2017. That share declined to 49% in 2022, suggesting that rural households did become better off over the preceding years. Based on a simple statistical model, the decline in poverty was 29% or 31%, depending on whether 2017 or 2022 is taken as the base year. Thus, whether the 2017 poverty standard or the new, more generous 2022 poverty standard is used, there is strong evidence that the national rural poverty rate declined between 2017 and 2022.  

Covid-19 may indeed have caused setbacks with respect to rural poverty reduction. At around 30%, the estimated rate of poverty reduction was very close to the rate achieved between 2012 and 2017 (29%), but much slower than the rate achieved between 2007 and 2012 (46%). It is possible that much larger gains in poverty reduction were made between 2017 and 2020, and some of those gains were wiped out between 2020 and 2022. But in the absence of a survey from the years between 2017 and 2022, all we can say is that progress in poverty reduction seems to have been made since 2017. 

This conclusion is consistent with other indicators. The recent Multidimensional Poverty Index (2022) study indicates welfare gains over the past five years, with acute multidimensional poverty falling from 5.9% in 2017 to 2.1% in 2022 and the largest gains in rural areas and poorer Dzongkhags. The encouraging findings of the recent Gross National Happiness (GNH) survey (2022), which showed that the national GNH Index rose by 3.3% since 2017, are also aligned with this conclusion. Poverty reduction in rural areas must have contributed to the observed improvements across GNH domains for enabling happiness. And while unemployment did jump from 3% in 2019 to 5% in 2022, income transfers equivalent to 3% of GDP were disbursed to the population via the Druk Gyalpo Relief Kidu program during the pandemic. Social safety nets like that likely played a large role in offsetting the negative economic shock. 

While the country faces significant economic challenges, with large numbers migrating to Australia, macroeconomic imbalances needing attention, and some engines of the economy still sputtering, it is important to reflect on the quieter recent victories. That appears to include protecting the most vulnerable from falling into poverty during three economically disruptive years. 

Contributed by

Milan Thomas (Ph.D) Economist 

Asian Development Bank, Thimphu