KATHMANDU, April 28: Nepal achieved an average economic growth rate of 4.2 percent annually over the past decade, with the minimum rate at as low as 2.4 percent to a maximum of nine percent per annum.
Unveiling ‘Nepal’s Current Economic Position Paper’, the government has come up pointing at the underlying flaws, with its exaggerated pledges to outshine the economic performance.
The government in its white paper has stated that Nepal’s economic expansion is pretty low compared to the growth of its neighboring economies. Although the government this year has projected to achieve economic growth of six percent, it is estimated to remain at 3.5 percent, according to the white paper that reveals the actual position of the country’s economy.
The government has come up with the assessment of the country’s economic position after the Balen Shah led government took charge on March 27. The government revealed that the country’s external sector indicators have been stronger backed by notable remittance inflows and adequate foreign currency reserves, while the domestic sectors face serious challenges of slow production and expenditure system.
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The contribution of the industrial sector has shrunk to 12.8 percent, and the economy has become entirely dependent on remittances. “Instead of transitioning to industrialization from traditional agriculture, it has tilted more to the service sector. As a result, the contribution of agriculture to the country’s GDP is declining as the service sector contributes at an exorbitant 62 percent.”
The white paper concludes that the economy has been trapped into a cycle of unproductivity due to past policy corruption, crony capitalism, and governance instability. Revenue collection is barely sufficient to cover current expenditures, while the capacity to utilise allocated capital expenditure is pretty low.
Public debt has surged to Rs 2.878 trillion (43.8 percent of GDP), necessitating a large portion of the budget for principal and interest payments. Furthermore, the white paper notes that Nepal's financial credibility has been diminished internationally due to its inclusion in the Financial Action Task Force (FATF) 'Grey List,' making it more difficult to attract foreign investment.
The government has emphasized the need to end 'rent-seeking tendencies' to overcome the current dismal situation. The white paper pledges policy and structural reforms, identifying hydropower, information technology, tourism, and entrepreneurship as key drivers for the sustainable transformation of the economy.
The white paper released by the Ministry of Finance (MoF) noted that the approach of considering the market as self-regulating has not led to the strengthening of necessary institutional structures such as competition policy, consumer protection, environmental regulation, and social security.
As the previous governments failed to win the trust of the private sector and with distribution-oriented extremism in place, the economy has failed to prioritize production, investment, and productivity growth. “As a result, neither the market has become dynamic nor the state structure has become responsive. In the absence of an efficient, rule-based, and predictable environment, the private sector has not found a secure and reliable foundation."
Instead of prioritizing economic growth through entrepreneurship, competition and innovation, the practice of extortion through licenses, contracts and regulations has become the hallmark of the state-market relationship. Such a practice discourages capable entrepreneurs and new entrants, while orienting the economy towards an access-based structure rather than value creation, reads the white paper.
Similarly, expanding social security and distribution-oriented programs without assessing the realistic long-term financial liabilities has added to the challenge of intergenerational equity. In addition, the inability to effectively utilize the demographic dividend has led to foreign employment, dependence on remittance and limited domestic job creation.
The government, however, has sought the possibility of achieving a growth rate of seven percent from next fiscal year in order to take the country’s per capita income to cross US $3,000 within the next 5-7 years. “There is a possibility to increase the economy size to $100 billion, while upgrading the nation to middle income status,” reads the white paper.
The MoF has pledged that the installed power capacity will be increased to 15,000 MW within the next five years and important national pride projects will be completed within two years. The government aims to attract private investment through infrastructure development, including the development of new projects of strategic importance.
