Protecting Nepal’s economically vulnerable

What started as a health crisis in the form of the Covid-19 pandemic has now unfolded into a global economic and livelihood crisis. While the ubiquitous quarantines and lockdowns may have saved many lives and provided an additional benefit of environmental improvement, their enormous consequences on people’s livelihoods are conspicuous.

For example, a recently conducted Rapid Assessment of Socio-Economic Impact of Covid-19 in Nepal by the Institute for Integrated Development Studies (IIDS) indicates that 28 percent of men and 41 percent of women lost their jobs following the lockdown. Further, the impact is concentrated among the income-based vulnerable population dependent on scarce economic resources. The livelihood crisis, if it persists, is likely to further impact the already vulnerable population and pull people into poverty.

In Nepal, one-fourth of the population lives below the national poverty line (i. e. less than $0.5 a day). Given their finite earnings and scarce resources, how they sustain their lives and grapple with various socio-economic constraints is a pertinent topic of discussion. Typically, income-based vulnerable people are more likely to face food insecurity and have limited access to healthcare facilities. These challenges are potent, especially as they also tend to engage in physically demanding work.

Food insecurity is a long-standing issue in Nepal. According to the Demographic and Health Survey (DHS), as many as 52 percent Nepali households are food insecure, and food insecurity is pronounced among households in the lower wealth quintiles. The 2019 Nobel Prize-winning economists Esther Duflo and Abhijit Banarjee, building on the work of another Nobel Laureate Angus Deaton, say food insecurity among the impoverished population is concerning as they spend a significant amount of their earnings—roughly one-half to three-fourth of their total income—on food.

Following the Covid-19 lockdown in Nepal, a large proportion of the economically vulnerable population has lost jobs and incomes, and therefore become more susceptible to food insecurity. This depreciates the country’s human capital, which in turn threatens to derail economic growth. While the physical toil and economic hardship of the economically vulnerable population garner much public attention, their psychological states under resource scarcity and poverty often go unnoticed.

Behavioral economists Sendhil Mullainathan and Eldar Shafir have found that poor farmers have significantly higher cognitive ability post-crop harvest as compared to pre-harvest, suggesting that economically vulnerable people are psychologically distracted under resource scarcity. Further, scarcity-led psychological distractions could lead them to make adverse economic decisions, such as falling into huge debt traps, aggravating their economic hardship. So, while it is important to understand the economic struggles of the poor, which is likely to exacerbate in the immediate future, it is also vital to recognize the interplay of the socio-economical and psychological factors, especially at a time when the suicide rates are noticeably high.

The government role is crucial in recognizing the challenges and needs of its citizens. However, the current crisis has put a question mark over government responsiveness, as evidenced in its dire preparedness for health emergencies, resource allocation, and mobilization, giving rise to what has now developed into a nationwide public protest.

Thousands of migrant workers have returned to Nepal and more are due. Given that many of the returned migrants will find no immediate jobs, the government is faced with the challenge of overseeing their safe return and accommodation. However, incompetent management thus far has also raised serious concerns over government credibility. Amid these uncertainties, the question of how the government should address the needs of its citizens, especially the economically vulnerable population, becomes a monumental one.

Job security is vital to keep the economy afloat. The government can employ a large number of local workers in large infrastructure projects by adopting safety measures. We also have to scale-up and improve our quarantine and healthcare facilities to accommodate the increasing number of virus-contaminated individuals, possible suspects, and returned migrants. The government can also utilize local workforce in those facilities. While the recently announced budget does not guarantee outright economic protection for the vulnerable population, tax benefits for small and medium-sized enterprises may help in their economic recovery. The government should ensure the smooth running of those enterprises.

The role of provincial and local governments is as crucial in engaging and incentivizing local workforce, with incentivizing agricultural production, which is already underway in several municipalities, the immediate priority. A case in point is the rural municipality of Miklajung of Panchthar, which has announced an incentive of Rs 100,000 for farmers producing over 40 muris of paddy this year. More economic incentives are required at the municipal level to engage the local workforce, increase agricultural production, and ensure food security.

Lastly, it’s about time the government cuts down extravagant spending in all three tiers and focuses on more urgent issues at hand.

Khatiwada is a PhD candidate in economics at the University of New Mexico, USA; Pant is a fresh Juris Doctor Graduate from University of Sydney, Australia