MADAN KUMAR DAHAL
The forecast of IMF that the world economy would witness a more dangerous global economic meltdown in 2012 and onward with growing debt crisis in euro-zone including the US and the likely scaling back of economic growth rates in China (7.8 per cent) and India (5.5 per cent) against the original projections are a major threat to developing economies that calls for reordering of priorities to absorb external shocks and sustain the pace of economic development.
And Nepal is no exception to it. With the emergence of protracted transition, especially after the mysterious dissolution of the Constituent Assembly (CA), Nepal’s future is entrapped into intractable situations circumscribed by unwarranted fraudulent behavior of political activists that totally minimized the significance of ethics, values and morality to sustain development activities in a burgeoning economy. The current development drama could be emphatically described as or manifestation of: “state without government, economy without budget and the plan and democracy without the elections”.
Nepal’s economic development is poignant and decelerating and rapidly trailing behind other South Asian economies in South Asia attributing to growing inefficiency, mounting corruption and poor governance. This is a classic case of poverty and stagnation characterized by high cost economy, subsistence agriculture and alarmingly growing dependence due to built-in structural constraints with dwindling comparative advantages and competitive edges to maximize benefits from globalization and liberalization through penetrating neighborhood, regional and global markets.
The quantum of FDI evidently declined from Rs. 10.5 billion in the previous year to Rs. 7.14 billion in FY 2011/12 primarily due to prolonged transition; earnings from total exports (Rs. 74.26 billion) is deficient to back up the hefty import-bill of petroleum products (Rs. 94.1 billion); size of trade deficits (Rs. 387.41 billion) surpassed the magnitude of annual budget (Rs. 310.75 billion); capital spending remained inordinately low (56.2 per cent of total budget); revenues are buoyant but inadequate to supplement capital expenditures; investment in agriculture, the biggest and priority sector, has been minimal confined to 3.2 per cent of total resource allocations in FY 2011/12, and the share of manufacturing is below 6 per cent of GDP.
During the period financial sector witnessed a tumultuous environment and commercial banks suffered liquidity crunch with reversal of credit crunch in recent times. NEPSE index declined to 389.74 in FY 2011/12 and the prospect for share market with falling interest rate on deposits below the inflation rate is limited to impact and increased confidence of people resulting in diminishing profit at financial houses. The demand for credit is low especially in priority sectors due to increasing risks and uncertainties with political instability, and private sector investment has rigid tendency to move with secured profit and safe investment.
The fiscal authorities have failed to appropriately diagnose the economic discrepancies facing Nepalese economy and determine priorities, expedite sizable investments in priority areas, and devise prudent strategy to deal with existing vulnerabilities specified above and fight poverty, stagnation, and corruption. Nepal’s development efforts have been jeopardized by constraints comprised of acute shortage of power with increasing load shedding, disruption in the supply of petroleum products regularly, dilapidated roads, limited supply of drinking water, poor industrial relations, huge subsidies to SOEs with monopoly market, and high taxes.
In an economy where GDP (US$18.6 bln.) is extremely diminutive with inordinately low GNI per capita (US$715) and rampant corruption, it is imperative to quadruple the national income and increase per capita income to the average level of middle income countries by 2025 ensuring redistributive justice. At this juncture, the best therapy to Nepalese economy requires: (a) improving competitiveness of economically active population being 54.2 per cent through inducting effective education, health and nutrition policies; (b) increasing productivity of food and cash crops through commercialization of agriculture with higher investment; (c) enhancing performance of manufacturing sector by creating congenial industrial relations at home; (d) ensuring security to workers in foreign employment to maximize remittances; (e) promoting exports with comparative advantages and competitive edges to global market with identification of new products; (f) attracting FDI especially in infrastructure and promoting indigenous investments through formulating a competitive tax structure for establishing both export oriented and import substituting industries; (g) encouraging private sector participation for importing petroleum products; and (h) mobilizing economic cooperation from neighborhood economies.These propositions would definitely help ensure economic prosperity in Nepal but conditioned to political wisdom, good governance, and the end of transition with emergence of a consensus government.
Prof. Dahal is Chairman, Mega Bank Nepal Ltd.