Poverty drops but inequality higher than ever

The poverty rate in Bangladesh has dropped significantly but income inequality is at an all-time high, according to the latest version of the Household Income and Expenditure survey -- in a puzzling development that raises questions about the nature of economic growth seen in recent times.

"If we take the HIES 2022 data highlights at their face value, there is both good news and bad news -- it raises more questions than answers," Zahid Hussain, a former lead economist of the World Bank, told The Daily Star.

The survey shows that poverty reduction was more in rural areas, where the income growth was less and inequality was less. It is the opposite in urban areas: poverty reduction was less, income growth was more and inequality widened.

"How do you explain that? Does higher inequality cause higher growth or vice versa? Higher growth with higher inequalities raises puzzling questions about causation," Hussain said.

The decline in the poverty rate comes at a time when the economy is grappling with the fallout of the Ukraine war, which occurred just as the world was shaking off the effects of the global coronavirus pandemic.

"We are elated," said Planning Minister MA Mannan at the unveiling of the survey data yesterday.

When asked about the decrease in poverty amid a period of great economic hardship around the world, he said: "The government imposed limited lockdown and left the highways open. There were a host of stimulus packages to cushion the economy from the brunt of the shutdown. As a result, the poverty rate dropped."

However, the pace of poverty reduction has slowed. Between 2010 to 2016, poverty declined by 1.2 percentage points. Between 2016 and 2022, it was 0.93 percentage points.

But extreme poverty reduction picked up pace: from 0.78 percentage points between 2010-2016 to 1.2 percentage points between 2016-2022.

"Extreme poverty is down to 5.6 percent, suggesting Bangladesh is well on track to reducing it more than half relative to 2015 by 2030 as targeted under the Sustainable Development Goals," Hussain said, adding that the extent of poverty reduction has been palpably larger in rural areas.

The number of ultra-poor decreased because the government has been providing assistance through different food programmes, said Shamsul Alam, the state minister for planning.

The expansion of non-farming activities also played a role, he said.

"Given the high inflation, erosion of purchasing power and the hit to income amid the pandemic, it is surprising that extreme poverty has come down so much," Mustafizur Rahman, distinguished fellow of the Centre for Policy Dialogue, told The Daily Star.

Hussain, however, said the poverty data from the 2016 survey is not comparable with the 2022 numbers as different methodologies were used.

The upper and lower poverty lines used to determine the number of poor and ultra-poor in the country were reconstituted for the 2022 survey. The Bangladesh Bureau of Statistics has not disclosed the new poverty lines.

"It is therefore impossible to compare the 2022 headcount ratios and poverty gap measures with their counterparts based on previous surveys. This is a crucial caveat that analysts and policymakers must not overlook. We hope BBS will finish this very important unfinished work sooner than later," Hussain said.

The spike in income inequality sours the good news provided by the poverty reduction data.

Of the 17 HIES conducted by the BBS, the rise in income inequality was the highest this time.

The Gini coefficient, which is the economic measure of equality, stood at 0.499 in 2022. It is measured on a scale of 0 to 1; the closer it is to 1 the higher the inequality is in society.

"The distributive justice of growth is deteriorating and we can't arrest it. If wealth concentration was looked into, then it would look even worse," Rahman said.

What is worse is the government is failing to arrest the rising inequality by increasing spending on social safety net due to the narrow fiscal space, he added.

When there is a growing economy, in the initial stages, the benefits of development will not spill over to all segments, said Dipankar Roy, joint secretary of the statistics and informatics division.

"There will be a concentration of income," he said.

Bangladesh has done a tremendous job of bringing down poverty over the last two decades, supported by strong economic growth and accompanying investments, said Ximena V Del Carpio, practice manager of the World Bank's poverty and equity practice group.

"We have to be mindful as vulnerability and falling back into poverty remains a real and present concern. The same is true about spatial disparities. Some regions are still lagging in their progress, and not only in rural-urban diversity but also between and within regions," she said.

All of the increase in income and consumption inequalities occurred in urban locations where the apparent poverty reduction was also lower, Hussain said.

There is a need for further work to know the reason why rural inequality is decreasing while urban inequality is on the rise, said Binayak Sen, director general of the Bangladesh Institute of Development Studies.

"Extreme poverty in households is rare right now, so the extreme poverty rate of 5.6 percent is plausible," he said.

Shahnaz Arefin, secretary of the statistics and informatics division, said the survey will now be conducted every three years instead of six.