Measuring income poverty in Bangladesh

1. Measuring income poverty in Bangladesh Hassan Zaman Senior Economist World Bank

2. Presentation structure • World Bank analytical work and TA on poverty measurement • Approaches to poverty measurement • Poverty estimation with HIES 2005

3. TA for BBS for Poverty Monitoring • Longstanding relationship with poverty section of BBS since early nineties • Grant financed HIES 2005 and will also finance a safety net survey • World Bank staff conducted refresher training on poverty analysis in Nov 2005 at BBS

4. Poverty Assessment Report • One important part of this on-going poverty work is a Poverty Assessment report. • The last Poverty Assessment Report 2003 for Bangladesh, in conjunction with ADB, was based on HIES 2000

5. Using HIES 2005 for policy analysis Very preliminary issues that next Poverty Assessment could examine include: • Targeting of public expenditures (incidence analysis) • Relationship between growth, inequality and poverty • Remittances • Poverty and social impact of specific interventions (e.g. oil price hike)

6. Different Approaches to Poverty Measurement • Direct Calorie Intake (DCI) • Household is poor if its per capita calorie intake is less than the standard per capita nutritional requirement - 2,122 kcal per day. • Best used to measure under-nourishment as it doesn’t include non-food items • Food Energy Intake (FEI) • Food poverty line is the monetary value of the food expenditure that allows households to just meet the stipulated calorie requirement. • The FEI is normally derived through regression of the relationship between calorie intake and expenditure. • However, rural households are more willing to consume food that is cheaper per calorie. This could result in urban households appearing to be poorer than rural households even if in fact they are better off.

7. Different Approaches to Poverty Measurement • Cost of Basic Needs (CBN) • a basic food basket is identified from the data, consistent with consumption patterns • the quantities in the basket are scaled accordingly to correspond to the nutritional requirement • the cost of acquiring the basket is calculated. This results in the food poverty line. • A non-food poverty line is calculated by estimating the cost of consuming a basic set of non-food goods for (i) extreme poor households whose total expenditures equals the food pov line (ii) moderate poor hhs whose food expenditure is at food pov line. Contd.

8. Poverty trends 1991-2000 • World Bank/BBS estimates are based on the Cost of Basic Needs (CBN) method. • The base year for the CBN poverty line was 1991-92, which was then updated for 1995-96 and 2000 for changes in the cost of living using a price index. • Difference with Sen/Mujeri estimates is the use of unit record data vs grouped data and different non-food poverty line as base year.

9. Updating vs. Re-Estimating the Poverty Line using HIES 2005 • Merits of simple updating of the poverty line • The PL can be updated using inter-temporal price indices • Updating the PL allows for easy comparison across years since the same reference basket is being used. • Merits of re-estimating the poverty line • Consumption patterns change over time and commodities may need to be added to or dropped from the reference bundle • Relative prices change over time and the original reference bundle may not reflect the optimum consumption choice of those near the poverty line

10. Updating vs. Re-Estimating the Poverty Line using HIES 2005 • There are some problems with simply updating the PL in Bangladesh: • Sampling frame differences make inter-temporal price indices harder to estimate. • 2005 food bundle for the poor could well be different from current food bundle. • Main problem with re-estimating the PL is that MDG and PRSP targets are based on data corresponding to the old PL. • This problem can be addressed by estimating poverty measures with both the “old” and “new” poverty lines. Contd.

11. Next steps • When full data set is available we will check how existing food bundle corresponds with 2005 bundle for the poor • We will check how inter-temporal price indices can be constructed despite new sampling frame • We will hold discussions with professionals in this field to seek advice and build consensus