COVID-19 or the coronavirus that originated from Wuhan in late December 2019 has spread throughout the world infecting more than 5 million people and more than 360,000 people succumbing to the virus. 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. The COVID-19 pandemic is no longer a mere global health crisis, it is also a major labor market and economic crisis. The International Monetary Fund (IMF) has projected that the world is likely to face the greatest economic downturn after the great depression of the 1930s. IMF (2020) projects that over 170 member countries will experience a negative per capita income growth in 2020.
COVID-19 has completely disrupted the global labor market. The great lockdown has halted the movement of people leading to closure of factories, schools, financial institutions, and many more businesses. The International Labour Organization (ILO) describes the coronavirus epidemic as “the worst global crisis since World War II”. ILO (2020) estimates that almost 25 million jobs could be lost worldwide as a result of the pandemic. Hence, unemployment is expected to skyrocket. The World Bank (2020) estimates that about 49 million people will plunge below the poverty line due to the pandemic. It is likely to cause the first increase in global poverty since 1998 (World Bank, 2020).
The economists at the World Bank predict that the Goal 1 of Sustainable Development Goals, “End poverty in all its forms everywhere” by 2030, is seemingly impossible to achieve if the pandemic continues. Further, a study by Oxfam (2020) suggests between six and eight percent of the global population could be forced into poverty, which translates to about half a billion people falling into poverty. The 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 Plan, 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 plan. 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 Gross National Disposable Income (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 (2020) projects economic growth of 2.28 percent for FY 2019/20, 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 will fail 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 Nepali labor market structure is largely informal. Around 62.5 percent (4.44 million) of total employment (7.10 million) in Nepal is 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, 631,000 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 labor 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, is the remittance-induced consumption. About 56 percent of total households 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 nine 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 will be pushed into poverty and about 12 million people in India will 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-19 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 labor 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 concerns about 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 being left undernourished. The COVID-19 pandemic is no longer just a health crisis; it has entrapped the global economy into an inescapable labor market and economic crisis. The COVID-19 crisis has made poverty alleviation harder. 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 Nepali economy, is likely to shrink and the informal sector, the most threatened sector by COVID-19, holds the majority stake in employment.
Poverty is a major obstacle to growth and development. The government needs to take quick initiatives directed toward those who have lost their jobs and are struggling for livelihood. The government should devise a strategy to provide the relief packages in the form of cash transfers, distribution of necessities, and skills-based employment in public enterprises or construction.
The poverty line as per NLSS-III stands at Rs. 19,261, and the inflation-adjusted poverty line in 2020 stands at around Rs. 36,000. As an immediate response, the government should disburse about Rs 17 billion in relief package to 18.6 percent of people living under poverty. Similarly, the households prone to poverty should be encouraged with entrepreneurship program and interest-subsidized lending should be prioritized.
Likewise, the department of labor must maintain a proper record of skills and experience of returnee from foreign employment. Such records will assist in enhancing the productivity of the human resources. Also, the tourism sector is hit hard by the pandemic, so the promotion of internal tourism is utmost for revival of the tourism sector.
(GC is a researcher with the Institute of Foreign Affairs and Byanjankar is with the NRB)