Evaluating the Poverty Line of Bangladesh

A revised version of this post has been published in the newspaper "Dhaka Tribune" on May 28, 2015

Recently in October of 2014, the World Bank released the “Bangladesh Development Update,”  where it was stated that the national poverty rate of Bangladesh fell from 31.5% in 2010 to 24.47% in 2014. Using the population estimates from the World Bank and Bangladesh Bureau of Statistics, this shows that the total number of poor fell from 47.6 million to 38.5 million between 2010 and 2014. This seems to be a remarkable achievement, as the number who are considered poor fell by almost 10 million within the past 4 years, thus showing that the anti-poverty and inclusive growth targets of the government are being met. However, on closer inspection, it is evident that the bar to identify who is poor has been set too low, and the standard used to determine the poverty status of a person does not fully reflect the well-being of the general population of Bangladesh. Cost of living in urban areas of Bangladesh are very high, and even after earning well above the poverty line, the urban-poor families tend to struggle financially, as this article will show.

The “Bangladesh Development Update” notes that the national poverty line has been set by the government to be US$1.13 per person per day, which comes to about 87.38 taka per person per day at current exchange rate. Anyone living on less than this amount per day is considered to be poor. One thing to note is that the national poverty line of Bangladesh is lower than the $1.25 poverty line that donor organizations now use to measure extreme poverty across the world.By casual observation, this 87.38 taka per person per day seems to be too low of a number to lead a decent standard of living. Indeed, the Asian Development Bank argued in a recent report (“Key Indicators for Asiaand the Pacific, 2014”) that the poverty line should be much higher than $1.25 per person per day for Asian countries. According to ADB’s estimate, with a revised poverty line of $1.51 per person per day, 58 percent of Bangladeshis (or 86 million) were in poverty in 2010. Raising the poverty line from by just 38 cents or about 30 taka increases the number of poor by almost 40 million. About 40 million Bangladeshis earn between $1.13 and $1.51 per day, but this amount seems low to maintain a decent standard of living in Bangladesh, once one takes into account the cost of living in Bangladesh.

According to the World Bank, the Bangladeshi poverty line is calculated by estimating and then adding two costs – one is the cost of purchasing 2,122 kcal of food, and the second includes the cost of purchasing a bundle of certain necessities needed in daily life. However, this line does not include cost of rent, transporation and educational expense that are also faced by the poor. Consequently, the current poverty line of Bangladesh underestimates the number of poor, because the poverty line is not adjusted for the cost of living in the country.  Proper adjustment of the poverty line is absolutely necessary because it is one of the criteria used to gauge whether inclusive development is being implemented by the government. If the threshold is set too low, without any reference about the cost of living of a country, then the true impact of inclusive development cannot be ascertained. With a low poverty line, it would seem that poverty is decreasing in the country; however, there can be a large group of people who are struggling to make ends meet because of high cost of rent, utilities, and transporation, even though they may earn well above the poverty line. These people who are should be considered to be in poverty too, and development goals should have provisions to help these individuals.  

Does Bangldesh need to update its national poverty line to reflect a better assessment of who is poor? I believe it is time to do so. To understand why, lets consider a thought exercise. For a family of 4, the minimum amount needed to keep the family out of poverty is 87.38 x 4 = 349.52 taka per day, according to the official measure. This amount comes to about 10,485 taka per month. Thus, if the family earns 11,000 taka a month (husband, wife and maybe the two children too), the family is considered to be living above the poverty line.

But how much is actually needed to have a decent standard of living in, lets say Dhaka for this family of 4? A recent report on the newspaper Dhaka Tribune (February 10, 2014 titled “Slum Dwellers pay more but get much less”). states that rent in a slum in Dhaka averages between 1,500-3,500 taka per month for a single room, with electricity bill being 500 taka and water bill being 200 taka. Price of housing in the district towns might be slightly lower, not by much. On top of that, another news article mentions that price of IRRI rice is 33-35 taka per kg in Dhaka (September 6, 2014, titled “Rice dearer in capital” from bdnews24.com),  lentils cost 95 taka per kg, eggs cost 35 taka per 4 piece, and onion cost 45 taka per kg (August 15, 2014 titled “Prices of onions, egg up” from bdnews24.com). Therefore, this family of 4 can be paying 4,000 taka a month on rent and utilities (living in a slum) and 3,000-4,000 taka on food, and so very little is leftover for ‘luxuries’ like transportation, clothing expenses, education expenses for the children, entertainment and spending on accessories such as soap, shampoo and detergent. A family may be able to get-by by earning slightly above the poverty line, but that lifestyle will not have many of the things that we should take for granted, take for granted, like decent living and nutritious food.

Even if the total monthly income of the family is above the poverty line, the family still faces a lot of economic hardship, and does not even attain the minimum of the decent standard of living. Thus, we see millions migrating out of the country, or families scattered between cities and villages because it is too expensive for the whole family to live in one place. This article is not saying that the government is not reducing poverty, rather, it is advocating for a revised poverty line that reflects the actual needs and the cost of living of a typical family in the rural and urban parts of Bangladesh.

What steps can be taken to revise the poverty line? A large portion of a family’s budget goes towards expenses such as rent, transportation and utilities in urban areas, and so the revised poverty line should account for the amount needed for a person to meet the minimum level of housing, utilities and transportation both in rural and urban areas, in addition to food expenditures. The Household Income and Expenditure Survey of Bangladesh conducted by the Bangladesh Bureau of Statistics gives a good picture of how much families in Bangladesh spend on food, clothing, housing, education, utilities, transportation, etc. Using those numbers, the government can get an understanding what kind of goods a typical Bangladeshi family spends money on, and what is the minimum amount needed to maintain a decent standard of living in Bangladesh.