Nepal - Poverty in Nepal at the turn of the twenty-first century

Report No. 18639-NEP Nepal Poverty in Nepal At the Turn of the Twenty-First Century December 1, 1998 Po\ert\ ReductI(Irl indc Ebonornic Manaoement Unit South *\ia Re (,r Document of the World Bank  CURRENCY EQUIVALENT US$1 = NR 67.93 (November 1998) Currency Unit - Nepali Rupee (NR) : FISCAL YEAR July 16 - July 15 ACRONYMS AIC Agricultural Inputs Corporation CECI Centre d'Etudes Canadien CSD Community Self-Development FY Fiscal Year GDP Gross Domestic Product GTZ Gessellshaft fur Technische Zusanimenarbeit NGO Non-Govemmental Organization NLSS Nepal Living Standards Survey NR Nepali Rupee SAARC South Asian Association for Regional Cooperation UNDP United Nations Development Programme VDC Village Development Committee VO Voluntary Organizations Vice President : Mieko Nishimizii : 0 ~CountryDirector : Hans M. kotheribohler Sector ManagerRoberto Zagha Ltask;Leader : Giovanna Prennushi  Contents Introduction Part I The Background ........................................1l Introduction .................1... Aspects of Nepali Poverty ................... .2 Progress, Standstill or Regression? ..................6 Part II Elements of a Strategy .................8 Broad-Based, Equitable, Sustainable Growth ..................8 Investing in Human Resources and Providing Safety Nets ................. 11 Enlisting the Poor in Anti-Poverty endeavors ................. 12 Monitoring Progress ................. 13 Conclusions ................. 14 Tables Table 1 Access to rural roads, Nepal .4 Table 2 Regional disparities in education, Nepal, 1995/96 .5 Table 3 Projections with faster GDP growth .7 Table 4 Projections with slower GDP growth .8 Figure Figure 1 Who benefits from the fertilizer subsidy? 3 This summary was prepared by G. Prennushi, building on the work of a team comprising Benu Bidani, Peter Lanjouw, Salman Zaidi at the World Bank, and the Nepal Living Standards Survey Project Team led by K. Karmacharya at the Central Bureau of Statistics in Kathmandu, with guidance from Keshav Raj Sharma, Director General, Central Bureau of Statistics, and the National Planning Commission of Nepal. The report was prepared under the guidance of Roberto Zagha (Sector Manager, PREM) and Hans M. Rothenbiuhler (Country Director, Nepal), and was discussed with the Government in November 1998.  INTRODUCTION This note is the outcome of a long process. In 1991, when the first Poverty Assessment for Nepal was completed, the only data available were those from the 1984/85 Multipurpose Household Budget Survey, and the need for more up-to-date, easily accessible data was strongly felt. Work began in 1992 to help the Central Bureau of Statistics set up an integrated household survey on the model of the Living Standard Measurement Surveys developed by the World Bank. After much preparation and capacity building, the Nepal Living Standards Survey was fielded in June 1995 and completed in May 1996. The Central Bureau of Statistics took the courageous decision to allow open access to the survey data, leading the way in the region. Data analysis began soon after the end of the field work, and over the last two years a number of reports have been published using the data, beginning with the two volumes of results prepared by the CBS. Several journal articles and academic theses have been written, and some have been published. Several workshops and conferences have been held, culminating in January 1998 with a National Workshop on Poverty hosted by the National Planning Commission and organized by a consortium of NGOs and donor organizations. The reports, studies, and workshops have stimulated the debate on the roots of poverty and on possible solutions. In addition to the NLSS, several other surveys and participatory studies were carried out during the 1990s. These include, on the sample survey side, the 1991 Rural Credit Survey, two new rounds of the Demographic and Health Survey (1991 and 1996), the 1995-97 Multiple Indicators Surveillance Survey; on the participatory side, assessments conducted by Action Aid Nepal and several others; on the study side, the work carried out under the MIMAP project, the ICIMOD district indicators project, and UNDP's Human Development Report. As a result of all this work, we are in a better position now than ten years ago to analyze the extent of poverty today, changes over time, and determinants, and design appropriate poverty alleviation strategies. This note summarizes the results of a detailed report, which focuses primarily on new evidence emerging from the 1995/96 Nepal Living Standards Survey, the first nationally representative household-level survey on living standards to be conducted in eleven years, but also discusses data from other sources. The detailed report, which is now being discussed with the Government, will be published in January.  POVERTY IN NEPAL AT THE TURN OF THE TWENTY-FIRST CENTURY PART I - THE BACKGROUND Introduction 1. This report carries a central message: Poverty in Nepal is deep and complex, and only a concerted effort to improve public interventions while mobilizing community initiative holds hope for a reduction in poverty, Despite the complexity of the poverty situation, more can be done to alleviate the indigence that oppresses roughly every other inhabitant of Nepal. By doing so, the nation as a whole can move farther and perhaps faster toward economic growth and social health. Since this report presents only a brief digest of extensive World Bank research and analysis available in other publications,' it contains no executive summary. The first section examines the overall problem and the second offers suggestions for action. Separate, short attachments look in detail at agriculture, at rural infrastructure, at health and education and at the role of women in the context of efforts to reduce poverty. 2. Progress is urgently needed. While various neighboring countries have made some headway against poverty, Nepal has at best stood still. As best as can be judged comparing data from different sources, poverty rates, as measured based on the 1995/96 Nepal Living Standards Survey, remain nearly where earlier studies recorded them in 1976 and in 1984/85. Population growth in the interim, however, increased the actual number of Nepalis living in destitution by more than 60 percent - from about 5.7 million in 1976 to an estimated 9.2 million 20 years later. Progress was achieved in reducing illiteracy - from 80 percent in the mid-1970s to 64 percent in the mid-1990s - but the current rates still remain the highest in the region.2 3. The national averages mask dramatic disparities. The largest is certainly that between the bustling, urban Kathmandu Valley and the rest of Nepal - in effect, two separate and unequal countries. In one - around the capital, where around five percent of the population lives - the incidence of poverty is around four percent and illiteracy is 24 percent; in the other - the rest of the country - poverty is ten times as high and the chance of being literate almost three times lower. There are also marked differences across rural areas, where 90 percent of the population lives: poverty is more widespread and deeper in the more remote areas the mid- and far-western development regions and the mountain belt - where illiteracy also runs 15 percent above the rural average. The Terai plain does not appear to be poorer than the Hills, but illiteracy rates are higher - 69 percent versus 58 percent in the hills. Within areas, there are then significant differences between men See for example the Country Economic Memorandum (World Bank, 1997). 2 The figure for illiteracy for the mid-1990s comes from the Nepal Living Standards Survey 1995/96.  2 and women, and across socio-economic strata. More than eighty percent of Nepali women cannot read or write, and only one in twenty of Nepal's poorest women is literate, compared to one in three of the poorest men. 4. Given this mosaic of economic and social realities, no single approach to poverty reduction can stimulate across-the-board advances. Rather, this report emphasizes a multi-faceted strategy that gives priority but not exclusivity to agricultural growth and that recognizes the vital contribution to Nepal's future that healthy, educated women and men, no matter their income level, can make. The report also recognizes the importance of local initiative. Especially because conditions vary so sharply among Nepal's regions and even within them, the poor - intimately familiar with their own condition and needs - should be enabled to join in shaping community-based initiatives to overcome poverty. 5. No one should expect quick or easy returns. Poverty in rural Nepal is too deep and too entrenched to be rapidly or widely alleviated. Still, a steady, sensitive effort at combating and reducing it can bring progress in the coming century. Aspects of Nepali Poverty The centrality of agriculture 6. Landlocked and land-poor, Nepal must make the most of its very limited resources of arable soil if the large share of the population, and of the poor, who depend on it are ever to taste well-being. Agriculture employs 83 percent of the country's work force, eight out of ten of them as self-employed farmers. Counting the earnings of agricultural wage workers, it provides nearly two-thirds of all household income. On average, eighty-two out of every hundred Nepali households own land; 86 of every hundred actually farm; and four-fifths of all Nepalis keep some kind of livestock. For almost 90 percent of the poor and the very poor - those in the bottom 25 percent of households measured by consumption - it is effectively the only remunerative activity available. Even at the top of the consumption scale, nearly three out of four households are engaged in agriculture, and for both the lowest and the highest groups, farming income represents more than half (55 and 54 percent, respectively) of all income. Nationwide, the importance of agriculture is unquestionable. 7. Nepal's agriculture is barely yielding enough to match population growth. The farms of the poor have particularly low productivity. The poor farm the least and the least productive land - only one-fourth of the very poor, for instance, have khet (rice- growing) land, and the median farm size for them is only half a hectare, while the average for all other groups is two-thirds of an hectare. Only 11 percent receive irrigation water year-round, compared to a national average of 15 percent. 8. Probably because irrigation is a rarity, only 37 perpent of very poor households use fertilizer, an input employed by 55 percent of farmers in the next poorest fourth of the population. The amounts used also rise sharply with economic status - from an average  3 of 10 kilograms of subsidized fertilizer bought by the very poor from the Agricultural Inputs Corporation (AIC) to nearly twice that amount (19 kilograms) for the next quarter of the population and 39 kilograms for the wealthiest fourth. Those figures indicate a clear inequity: Nepal's fertilizer subsidies - amounting to between one-fourth and one- fifth of its total budgetary outlays for agriculture - benefit poor farmers the least, their better-off neighbors the most (see Figure 1 below). Figure 1 Who benefits from the fertilizer subsidy? 0.2 0 0.15 C1 Nn v UL O CD 1, C 01) OO Cons um ption docile 9. A parallel pattern applies to government-provided extension, veteninary services, and formal credit. Not only had very few farmers o ets r veterinary agents on the year preceding the Nepal Living Standards Survey (4 and 12 out of 100 farm households, respectively) or gotten credit from formal-institutions (14 percent). But it was also the better-off fanners who had the most access to these services. Farmers in the top consumption bracket were five times more likely than those at the bottom to have seen an agricultural extension agent. Similarly, veterinarians, on average, visited 19 percent of farm households at the top of the scale and only 4 percent of those in the lowest quartile. Among the very poor affordable credit is so hard to come by that only 8 percent borrow from either formal or semi-formal institutions, half the rate for other households. Extension services consumed 47 percent of budget outlays for agriculture in fiscal 1997 and are slated to rise to 67 percent in fiscal 1999, after the one-third reduction in fertilize-r subsidies per ton. Unless knowledgeable assistance and credit are better directed toward the poorest farmers, they provision will reinforce inequity rather than help reduce rural poverty. The dearth of infrastructure 10. Poor road access is an important factor in reducing land productivity for the poor and the better-off alike: higher costs of inputs and reduced access to product markets relegate large parts of the Nepali countryside to subsistence production, with little market  4 activity. Roads are the missing link in the development of rural Nepal. On average, it takes three-and-a-half hours on foot to reach the nearest point where a jeep or bus might pass, and only 15 percent of the very poor live within 30 minutes of a paved road (see Table 1 below.) In fact, it does not matter much to income growth whether the road is paved or not. What is important, especially in the rural Hills, is the deficit of roads of any kind and the poor quality of the roads that are present, which act as a bottleneck to agricultural growth. Table 1: Access to rural roads, Nepal Average walking distance to Percentage of households a... (hr:min) within 30 minutes of a... Dirt road, Paved road Dirt road, Paved road vehicle- vehicle- passable passable Bottom25percent 5:18 8:05 37 12 25-50 percent 3:16 5:29 53 13 50-75 percent 2:41 4:44 60 19 Top 25 percent 2:58 4:41 58 25 Average 3:29 5:39 52 18 Number of observations 2657 2657 2657 2657 11. The lack of roads is compounded by the lack of other infrastructure - and the poor are especially at a disadvantage. Not only are 61 percent of Nepal's rural communities without telephones, only 3 percent of the poorest Nepalese have electricity - as against a country-wide average of 14 percent. The valve of migration 12. Both those who work their own fields and those who are landless must often look elsewhere for income. Among the poorest fourth of Nepali households, therefore, almost one in five (18 percent) sends away at least one worker in search of seasonal employment and relies on remittances for 27 percent of total income. Sometimes, entire households migrate. These migrants, however, carry few income-earning skills with them. If they cross into the adjacent Indian state of Uttar Pradesh, for instance, residents of the Terai, only 21 percent of whom, on average, can read and write, will find that almost 44 percent of their rural cross-border counterparts seven years old or older are literate.3 The migrants - whether going abroad or, more typically, to Kathmandu - and their stay-at- home relatives are likely as well to be less healthy than their neighbors in India, Pakistan and even Bangladesh. 3 India, Options for More Effective Public Services to Reduce Poverty, (World Bank, 1998), Table 1.2, page 2.  5 Low social indicators 13. Average life expectancy in those countries is 62, 60 and 58 years, respectively. In Nepal, the figure is 55 years. Just under half the country's population (48 percent) has the access to safe drinking water that six out of ten Indians and Pakistanis can claim. And these figures are averages. They only hint at the shorter and less healthy lives and the lower rates of literacy of the rural poor and at the disparities in their access to various services. 14. There are wide disparities in educational achievements. The most comfortably situated Nepali families are more than twice as likely to enroll their children in primary school and ten times as likely to enroll them in secondary school as the poorest. These differences reflect not just the expense of sending a child to school - average annual out- of-pocket expenses for primary school students, mostly for textbooks, run to NRs. 320, the cost of 23 kilos of coarse rice - but also the cost to the household of losing the child's work at home, and sometimes the wage he or she earns. 15. Along with economic status, as Table 2 documents below, geography also dictates levels of educational opportunity, giving urban children an escalating advantage over rural ones as they advance through or drop out of the school system and producing wide gaps in literacy between the two groups. Table 2: Regional disparities in education, Nepal, 1995/96 Incidence of Illiteracy Gross Primary Gross Lower Gross Upper poverty (percent pop.) Enrollment Secondary Secondary Rates Enroll. Rates Enroll. Rates (1-5) (6-8) (9-10) Nepal 42 64 94 54 43 Urban 23 36 108 84 85 Rural 44 67 93 52 40 Urban Kathmandu Valley 4 24 116 97 102 Other Urban 34 45 105 75 74 Rural Eastern Terai 42 62 120 61 53 Rural Central Terai 38 77 109 57 35 Rural Western Terai 40 69 131 61 55 Rural Mid- and Far-West. Terai 53 72 82 39 20 Rural Eastern Hills/Mtns 28 59 90 73 69 Rural Central Hills/Mtns 67 66 59 30 25 Rural Western Hills/Mtns 40 54 92 50 27 Rural Mid- and Far-West. Hills/Mtn 72 73 85 50 29 Terai 42 69 80 46 28 Hills 41 58 115 59 48 Mountains 56 75 79 49 41 Note: all data come from the Nepal Living Standards Survey 1995/96 (CBS, 1996)  6 16. Similar disparities exist across income groups in access to and usage of health care facilities. Although the poor stand roughly the same chance as other Nepalis of falling ill, the cost of treatment and the distance to a medical facility both act as obstacles to their receiving adequate care. Where, on average, seven out of ten citizens seek medical treatment when they fall ill, only half of the very poor do so. Much like public education, public health is also costly. A consultation at a sub-health post, the facility likely to be closest to a poor rural family, averages NRs. 232, the equivalent of nearly 17 kilos of the grain staple, to cover any actual fees, medicines, and travel costs. For the rural poor, getting to a public health facility that is often poorly stocked and run by ill- or untrained personnel takes an average of 75 minutes. In an urban setting, the same trip, but to a clinic more likely to be better equipped and staffed, requires just 20 minutes. For both health and education, the poor are profoundly dependent on public services. 17. The unequal availability of good health care and education, much like that of access to agricultural inputs, infrastructure, or credit, is a manifestation of the broad gap between the poor and the better-off, and limits the potential of the poor to contribute to economic growth and share in its gains. Progress, Standstill or Regression? 18. Regrettably, many broad observations on the state of Nepalese poverty in 1995/96 would have been valid ten or twenty years earlier as well. The methodologies used in surveys in 1977 and 1984/85 are not comparable to those applied most recently, but reading the data with care produces a clear picture of a nation where the numbers of the poor have risen with population growth as their share of the population and their distribution within it have remained roughly the same. Although some evidence indicates a slight decline in rural poverty during the first half of this decade, that movement may not have been strong enough to compensate for the worsening economic plight of the countryside during the preceding 15 years. 19. For the future, as well, it is not easy to be optimistic. An average annual GDP increase of 4.5 percent over the next three years, followed by 5.0 percent growth during fiscal years 2002-2006, would make a dent in the number of the poor. If this growth could be achieved, it would produce a 20 percent drop in the number of the poor - from 9.2 million to 7.5 million - in ten years and cut the incidence of poverty from 42 to 26 percent in fiscal 2007. Although those growth targets are in line with the experience of the decade following fiscal 1986, they are not likely to be achieved unless Nepal overcomes both political instability and its poor record of managing public expenditures. 20. A growth rate even just half a percent lower over the period would mean only a ten-percent reduction in the number of poor people. And if inequality were to rise along with GDP growth by a single percentage point a year, only 300,000 Nepalese would have escaped from poverty by fiscal 2007. Even worse, slower growth and rising inequality would bring no decline in the number of the poor. For detailed projections of the  7 consequences of faster or slower GDP growth with and without increases in inequality see Tables 3 and 4 below. Table 3: Projections with faster GDP growth FY96 FY02 FY07 FY02 FY07 actual constant constant increasing increasing data inequality inequality inequality inequality (FY96 (FY96 level) level) Assumptions: Average annual GDP 4.5% 4.7% 4.5% 4.7% growth between year and FY96 Average annual population 2.5% 2.5% 2.5% 2.5% growth between year and FY96 Average annual pc growth 1.9% 2.2% 1.9% 2.2% between year and FY96 (%) Average annual Gini 0.0% 0.0% 1.0% 1.0% increase between year and FY96 (%) Results: Headcount (derived) 42% 34% 26% 36% 31% Poverty gap 12.3 9.1 6.4 10.9 9.7 Share bottom 20% 7.8% 7.8% 7.8% 7.0% 6.4% Gini 0.35 0.35 0.35 0.37 0.39 Number of poor (millions) 9.21 8.66 7.46 9.24 8.90 21. Whatever annual growth rates Nepal achieves will not significantly reduce. poverty unless the advance occurs where the poor live - in rural Nepal. For growth to be equitable and enduring, therefore, it must bring progress to the nation's farms and farners; roads, irrigation and power to its rural communities; opportunities to its women; and sanitation and health care to households for whom an untreated illness can be an economic catastrophe. Economic growth occurring in only a few urban areas does not automatically translate into growth for all where the linkages between urban and rural areas are weak because of lack of roads, communication infrastructure, and appropriate skills among the rural poor.  8 Table 4: Projections with slower GDP growth FY96 FY02 FY07 FY02 FY07 actual constant constant increasing increasing data inequality inequality inequality inequality (FY96 (FY96 level) level) Assumptions: Average annual GDP 4.0% 4.2% 4.0% 4.2% growth between year and FY96 Average annual population 2.5% 2.5% 2.5% 2.5% growth between year and FY96 Average annual pc growth 1.4% 1.7% 1.4% 1.7% between year and FY96 (%) Average annual Gini 0.0% 0.0% 1.0% 1.0% increase between year and FY96 (%) Results: Headcount (derived) 42% 36% 29% 38% 34% Poverty gap 12.3 9.9 7.5 11.8 10.9 Share bottom 20% 7.8% 7.8% 7.8% 7.0% 6.4% Gini 0.35 0.35 0.35 0.37 0.39 Number of poor (millions) 9.21 9.17 8.32 9.67 9.76 PART II- ELEMENTS OF A STRATEGY Broad-Based, Equitable, Sustainable Growth The importance of growth 22. Broad-based, equitable, sustainable growth is the sine qua non condition of any poverty alleviation strategy in a developing country as poor as Nepal. The growth of per capita incomes can only be accelerated if the rate of population increase declines and if output - especially from agriculture - increases faster than in the past. 23. Both those prerequisites can be met. Population growth is already slowing. Both the 1995/96 Nepal Living Standards Survey and the 1996 Demographic and Health Survey found evidence of a decline in fertility, probably having to do with gains in education, overall income growth and increased contraceptive availability. That trend can  9 be sustained by continued emphasis on education, especially of girls, and on contraceptive use. But, even with declining fertility, population will continue to grow at a rate above two percent for at least another decade because of its slow dynamics. Thus, faster output growth is necessary to achieve significant gains in per capita income. 24. To achieve rates of output growth high enough to make a dent in poverty, it is clear that Nepal must improve its management of public expenditures and the climate for private investment, which have both suffered from political instability. The issue is not as much one of policies; in most areas, policies are in place to enable private initiative, and sustained output growth was achieved in the early 1990s. Rather, the issues are project implementation and mismanagement of public resources. Correcting those faults can, as the World Bank has recommended at length elsewhere,4 go far toward stimulating output growth. To insure that such advances do not increase inequality and thereby deny the poor the benefits of growth, development must reach into the areas where the poor are at work - the rural areas. Farms andfarmers, first andforemost 25. In Nepal, "broad-based" growth certainly means growth that happens in rural areas. Such growth has to be centered on agriculture. In the short-to-medium term, agriculture presents the highest potential for growth and poverty alleviation, as the vast majority of the people, and especially of the poor, live in rural areas and draw their livelihood from agriculture. Given the centrality of agriculture and the fact that growth in agricultural output has averaged three percent a year between 1984/85 and 1995/96, barely keeping up with population growth of 2.5 percent, it is not surprising that there is little evidence of improvements in the living conditions of people, in rural areas. This has to change. Higher rates of growth of agricultural output have been achieved in neighboring countries - India's real agricultural GDP grew around 4.3 percent a year over the period from 1987/88 to 1995/96.5 Unless Nepal can sharply improve its agricultural performance, the country's poverty will persist and, for many, deepen to the point that social tensions such as those witnessed in the Mid-Western Hills will spread. 26. Higher agricultural productivity is related to quality of land and input use. No matter how much land a household farms, for instance, irrigation increases yields - not just in Nepal, but throughout South Asia. Fertilizer brings higher yields, even when applied to barley, summer potato, summer maize and mustard - typical crops of poor farmers working poor land. Agricultural incomes are also correlated with the head of household's level of education and with the farmers' access to a road, even a dirt one that is passable for most vehicles most of the time. Given the correlation between higher yields and incomes on one hand and irrigation, fertilizer, education and proximity to roads on the other, it is clear that properly directed public expenditures in the agricultural sector can do much to combat poverty. Indeed, such investments are a priority. Over the 4 See the 1997 Country Economic Memorandum. 5 India: Sustaining Rapid Economic Growth, (World Bank, 1997), Table A 1.2(b).  10 last decades, however, vast domestic and foreign resources have been poured into fertilizer, irrigation, research and extension, rural credit and rural infrastructure without producing enough growth to shrink poverty. One likely reason for that failure is that public expenditures are largely ineffective. 27. The need to improve the effectiveness and targeting of public expenditures in agriculture is obvious. The most effective means of achieving better targeting, however, is harder to define. In many cases, public expenditures do not reach the poor because the poor are not able to benefit from them. Canal irrigation, fertilizer, improved varieties of rice, or extension services focused on the main crops can contribute little to subsistence farmers working on slopes and other poor land not suitable for rice cultivation. Moreover, the institutions through which public funds are channeled are often out of reach for the poor, who rarely see extension agents, go to the local branch bank, or get to purchase fertilizer from the Agricultural Input Corporation. 28. Thus, one part of the answer lies in providing services useful to farmers, including the neediest - for example, research and extension on the crops the poor grow and the livestock they raise. A second part requires establishing delivery mechanisms that actually reach the poor. One avenue that Nepal must diligently explore (and that is discussed at greater length below) is grass-roots mobilization that can involve the poor themselves in setting the goals of public assistance programs and in channeling funds toward those objectives. The capacity of local institutions to deliver services needs to be strengthened in parallel. Part of the answer is also in giving farmers direct control over resources, as successfully done with community forestry and farner-managed small-scale irngation. 29. Higher agricultural productivity is also related to road access, as proximity to market opens up production opportunities and reduces transport costs. Clearly, rural roads are an essential component of any rural development strategy for Nepal. Given that the need is widespread, investments must be prioritized at the local, district, and national level. Rural roads ought to be built following environmentally sound practices, using labor-based techniques; capacity for planning and management of sustainable rural roads should be strengthened. To ensure sustainability, proper maintenance arrangements - whether involving local communities or contractors - should be se,t up before construction starts. 30. Without significant progress in targeting public expenditures, in delivering to the poor the services they really need, and in expanding access in a sustainable manner, Nepal's agriculture will barely keep up with population growth, and rural poverty will persist as a heavy drag on the nation's development. Not only must agricultural growth and the infrastructure to accelerate it have priority in any serious poverty-reduction strategy; that priority must be translated into practical efforts that treat the rural poor themselves as agents of growth.  11 Invesfing in Human Resources and Providing Safety Nets Providing public education and health for the poor 31. One of the new, and surprising, results emerging from the Nepal Living Standards Survey is the extent of private expenditures for education and health services, which are much higher than previously thought. At the same time, the NLSS indicates that public provision of these services plays a dominant role for the poor. 32. Significantly for the future and for the success of any poverty-reduction strategy, educated parents are distinctly more likely than uneducated ones to send their sons and daughters to school. Every generation that goes without schooling, in other words, raises a new generation in which the value of education is likely to be scanted. No country, particularly not a developing country, can prosper unless that cycle is arrested. Because the Nepali poor, in many cases, can only afford public health and education services, it is essential that the government continue to provide those supports at least at basic levels and to improve what is too often their low quality and limited availability. 33. At the lowest service levels, public expenditures for education and health already deliver proportionately greater benefits to the poor than to better-off households. That pro-poor bias, however, rapidly evaporates going from primary school to tertiary, from sub-health post to hospital. As is the case with agriculture and rural infrastructure, better targeting of public expenditures can produce not just more equitable allocation of funds but more effective results in reducing poverty. Focusing expenditures on primary and lower secondary education and on health care provided at sub-health and health posts, for instance, would channel social spending more directly to the poor and the very poor. 34. As there is scope for a reallocation of expenditures within education and health, there may be gains from reallocating expenditures across sectors. Since cost data are not generally available, it is not possible to define the most practical trade-offs within existing patterns of spending for education or health or between those outlays and targeted investments in rural infrastructure, irrigation, or extension. The upcoming Public Expenditure Review, however, provides a fitting occasion for examining these questions. Corruption-free public works as safety net 35. Existing income transfer schemes are limited in scale and scope and, being mostly linked to public employment, reach almost by definition the better-off more than the poor. Moreover, all kinds of institutional constraints (lack of the correct paperwork, inability to travel to district headquarters, and so on) limi-t the ability of the poor to avail themselves even of those transfers - for example, widow's pensions - which are directed to them. However, given the limited administrative capacity of the government apparatus and existing budgetary constraints, it does not seem advisable to expand such schemes.  12 36. 'Public work schemes, on the other hand, appear to reach the poor, and could have some impact over the next five years. HIowever, their potential could be severely curtailed if current levels of leakage continue, as both the works actually carried out and the number of days of work generated could end up being significantly lower than planned. The approach adopted by the Food-for-Work projects in the Churia area, which centered on adopting local norms for payment of workers, an "open books" accounting system, and community involvement, represents one possible solution to limit leakage and corruption. Experience elsewhere with public works programs shows that, if well designed, they can provide an effective safety net; thus, it is important to explore and expand ways to make public works programs work for the poor. Enlisting the Poor in Anti-Poverty Endeavors 37. A broader lesson from the Food-for-Works program in Churia is the potential contribution of the poor, as individuals and as communities, in ensuring that anti-poverty services and programs actually reach their intended beneficiaries. This shift towards beneficiary involvement, community participation, and decentralization has been emphasized and followed by a number of development agents. In South Asia, the SAARC Commission on Poverty Alleviation sanctioned this shift by recommending an approach based on building the capacity of the poor to access services and exploit productive potential in its 1991 report. In Nepal, many organizations, both public and private, have worked hard in recent years to make community participation a reality, both in small village-level projects and in nation-wide schemes - as for example in community forestry and farmer-managed irrigation.6 The lessons from these programs echo those of the Churia program: there are gains to be won when the poor become the agents of their own advancement, replacing distant, top-down inefficiency with grassroots energy and knowledge. 38. Through these experiences, much has been learned about what works and what does not. The basic elements of a good-practice grassroots development model appear to be the following: * Community mobilization initially supported by outsiders, involving but not necessarily limited to the poor (grassroots formation of voluntary organizations (VOs), user committees, credit and saving groups, women's groups, etc.). Different programs use different entry points - credit, literacy, women's programs, and other activities - and follow different practices on who can become a member of the voluntary organizations. 6 Programs that follow this approach include the UNDP-supported Poverty Alleviation project in Syangja district the Participatory District Development Programme, the GTZ-supported district development programs in Dhading, Gorkha, Lamjung, and the Arun Valley, CECI's Community- Based Economic Development Project, and several programs implemented by Nirdhan and CSD, among others.  13 * Building/strengthening, through actual practice, the links between VOs/user groups and service providers, whether government or private/NGO agencies (district-level line agencies, bank branches, NGO representatives, and others). * Strengthening capacity of local civil servants, officials of line agencies and elected officials, so as to enable them to provide the services they are supposed to provide and respond to local demands. This is essential to make decentralization work. * Provision of information/training/capacity building to villagers, on various topics: literacy, hygiene and health, agricultural productivity enhancements; funds and enterprise management; and others. * External provision of funds for credit, micro-enterprises, infrastructure, etc., coupled with some form of external overseeing and the set-up of a monitoring mechanism. 39. Where such programs have successfully engendered community participation, corruption has declined and service provision improved. The presence of some form of external overseeing seems to play a crucial role in tipping the balance of power away from those who benefit from corruption and towards those who have traditionally been losing out - the poor and marginalized. Greater community mobilization, involving especially the poor, is also important in improving the efficiency and targeting of decentralized programs, such as the block grant allocation to villages. 40. This grassroots approach, however, is not easy to either implement or replicate on a large scale - for example, attempts to transfer the Churia Food-for-Work model in other areas of Nepal have not all succeeded. Nor is the approach inexpensive. Several unanswered questions on its effectiveness and sustainability would justify an in-depth evaluation of some of the key experiences. However, since no other method has a proven track record of providing services to the poor and spurring local development, community involvement with all its imperfections remains the most promising implementation approach for micro-level poverty alleviation programs. 41. Thus, this study suggests a two-pronged approach to poverty alleviation in Nepal: the allocation, targeting, and efficiency of public investments and expenditures should be improved, while communities should be mobilized to express priorities and help implement and monitor service provision. Thus, improvements on the supply side would be required to respond to a stronger, better educated demand, while better provision would itself strengthen the ability of communities to use services, in a virtuous circle leading to higher productivity and faster growth. Monitoring Progress 42. To check progress in implementing such strategy, it is necessary to monitor the evolution of poverty over time both at the country and at the local level. At the country level, sporadic surveys which are limited in content or coverage and do not provide data  14 over time are not sufficient to provide answers. What is needed is a reliable survey instrument administered regularly, designed and analyzed jointly by policy makers and statisticians. The 1995/96 Nepal Living Standards Survey provides the model for such a survey, and should be repeated, with adequate modifications, in 1999/2000 or 2000/01 at the latest. At the local level, ways to assess what are the salient features of poverty and how they change over time are needed in order to design local approaches to poverty alleviation. The work underway in a number of districts to set up district- and VDC-level databases with assistance from the UNDP represents a good model for local poverty monitoring efforts. With systems in place at both the national and the local level, it will be possible to assess whether and where the strategy is working and to correct it where it does not have the desired impact. Conclusions 43. In sum, much work is required to ensure that those who monitor Nepali poverty a decade from now will not find the same bleak lack of progress that this report has summarized. If ways are found not just to maintain respectable overall rates of growth but to spur agricultural output in particular and brake population increase, the data ten years from now will reflect a significantly diminished incidence of rural poverty. That outcome is possible. It requires a fresh and full commitment to mount programs that actually reach the rural poor - roads and irrigation systems, agricultural extension and veterinary services, affordable and accessible schools and health facilities and greater availability of credit at the grassroots - and transform rural areas. That commitment can be realized at least in part through tradeoffs with programs that benefit regions and households whose need is not as great. It cannot be realized in full or efficiently, however, unless it is expressed in a new outreach to the poor themselves, an invitation that can take many forms while aiming for a single goal: the energetic participation of the poor in designing and using the levers that can lighten the burden of their poverty and the weight of poverty on the future of Nepal.