Economic challenges facing new govt

- RUPAK D SHARMA, Kathmandu

Feb 16, 2018-

Nepalis’ quest for a stable government, which remained a wishful thinking for quite a long time, has finally come to an end with KP Sharma Oli assuming the prime minister’s seat on Thursday. Oli will now remain in office for at least two years, as the constitution promulgated in September 2015 has barred parliamentarians from moving a no-confidence motion against the prime minister during that period. 

Chances of Oli remaining in the driving seat of the government for a longer period are also high as his Communist Party of Nepal-Unified Marxist Leninist (CPN-UML) is close to wrapping up the merger process with the Communist Party of Nepal (Maoist Centre), which together hold close to two-third of the seats in Parliament. A full five-year term government would be unprecedented in a country which has seen 26 governments since the restoration of democracy about 28 years ago.

Nepalis have long been aspiring for a stable government as the game of musical chair that politicians play every now and then to grab the prime minister’s seat has weakened institutions and promoted policy instability. This has prevented the economy from taking off in a desired manner.

The assurance of a stable government for a period of at least two years has propped up confidence among the general public and the business community. “The new government can further bolster that confidence by appointing a competent finance minister, who can deliver results,” said Shankar Sharma, a senior economist and former vice chairman of the National Planning Commission, the apex body that frames country’s development plans and policies. 

Lately, governments have been appointing politicians without any academic background in economics or finance as finance ministers. Such finance ministers often struggle to understand technical issues and deal with bureaucrats, diplomats, foreign investors and development partners, restraining the government from introducing appropriate policies and promoting economic diplomacy.

It is said Ishwor Pokhrel, Pradip Gyawali and Bishnu Paudel of the CPN-UML are currently eying the finance minister’s post. All of them do not have academic background in economics or finance.

“The new government should carefully choose the finance minister because Nepal is at a very early stage of implementing fiscal federalism. This is the time when roles of federal and lower tiers of governments must be spelt out clearly to avoid conflicts, for which competent leadership is necessary,” said Sharma.

Fiscal federalism is an integral part of the federal government system, which allows provinces and local bodies to design their own budget, make decisions on their own and adopt the necessary strategies to pursue development activities, create jobs and deliver public goods and services.

“But many subnational governments, at present, do not know how to proceed ahead. The central government must teach them how to perform day-to-day tasks and utilise budget efficiently. The central government should also help them formulate necessary laws and guidelines to streamline their work,” former finance secretary Shanta Raj Subedi said. “These tasks should be complimented by deployment of adequate number of staff at provincial and local bodies to ensure effective delivery of public goods and services.”

The country made a shift from unitary to federal system of government to empower lower tiers of government and give impetus to bottom-up development. But for a country to grow in a sustained manner top-down development is also necessary. For this, central government must play a proactive role. However, the central government in Nepal does not have a good track record of pursuing development works.

For example, the central government takes an average of around 11 years to complete a project and around 87 percent of the projects have witnessed cost and time overrun, government data show. 

“It is important that the new government prepare a comprehensive business plan, give priority to construction of selected projects that are necessary to spur economic development and make sure they are completed on time,” said Sharma. 

Infrastructure projects, such as roads, airports, hydropower plants and irrigation projects, built by the government lay the groundwork to attract private investment and stimulate industrialisation process. Nepal needs more private investment and must revive industrialisation, which is in a moribund state, to create more jobs.

So far, the country has been depending on remittances to boost economic activities, mostly through consumption. This has eased pressure on authorities to create productive employment opportunities at home. But remittance inflow has started to shrink with the fall in outmigration of workers. This means Nepal must start looking for other drivers of economic growth. Many say revival of industrialisation process could be one of those drivers, as it can create jobs for Nepalis, who have decided to stay in the country, and stimulate growth.Industrialisation process could be rekindled by focusing on generation of as much hydroelectricity as possible, according to Yubaraj Khatiwada, former vice chairman of the National Planning Commission.

This could turn Nepal into a hub of energy-intensive industries and clean-energy transport network. “For this, we must conduct a study on effective energy demand,” Khatiwada said. 

But all this cannot happen with domestic capital, which is not in abundance, meaning foreign investors must be roped in. For this, investment climate must be favourable.

Investment climate in the country, despite the government’s claims, is still not favourable for foreign investors. For example, it takes three to 10 years for hydroelectric project developers to begin construction because of tiresome processes of acquiring different licenses, conducting environmental impact assessment and pooling public and private land. Investors eyeing other sectors too have to make tiring rounds of government ministries, departments and offices to complete paperwork and acquire licenses. 

These hurdles have always restricted inflow of foreign direct investment into the country. “The new government can shorten many processes and prove it is investor friendly,” said Sharma.

The new government, in fact, has the opportunity to rise to the occasion and prove its worth in many areas. But many a time, politicians of the CPN-UML have failed to do so because of their vested interests, particularly in healthcare, hydropower, cooperatives and forestry sectors. These perverted incentives weaken the economy and promote crony capitalism. The new government should be aware of this.

Published: 16-02-2018 09:34

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