Rebuilding quake-hit economy

  • Finance Minister has to balance two crucial tasks: Reconstruction of damaged infrastructure and boosting GDP growth
Rebuilding quake-hit economy

Jul 9, 2015-

As he prepares for budget for the next fiscal year, Finance Minister Ram Sharan Mahat has a tough task ahead. He has to balance two crucial tasks—rebuilding the quake-hit country and boosting economic growth.

The deadly April 25 earthquake has severely hit the economy, with the GDP growth plunging to an eight-year low of 3.04 percent this fiscal year. The quake inflicted damage to infrastructure and business worth Rs700 billion, and reconstruction requires Rs666 billion, according to the Post-Disaster Needs Assessment (PDNA).

Given the massive damage, the government’s policies and programmes for the budget have accorded top priority to reconstruction of the damaged infrastructure. The government raised the budget ceiling by Rs106 billion. Before the quake, the ceiling was set at Rs735 billion, which was latter raised to Rs 841 billion. With huge resources mobilised, government officials expect the reconstruction drive will play a key role in economic growth next fiscal year.

That’s why the National Planning Commission (NPC) has recommended the government keep unchanged the projected GDP growth rate for next fiscal at 6 percent. NPC officials said the projection was based on the estimation that the government would spend around Rs200 billion.

Transforming disaster into opportunity

As the government aims to pour huge money in reconstruction, the private sector too is expected to boost investment. Since the tremor, there has not been big private sector investment, which is reflected in just Rs7 billion bank credit expansion post-quake against deposit collection of Rs80 billion.

While the government spends in reconstruction, supporting industrial activities will grow, boosting employment and wages. This will help expand economic activities.

NPC Vice-chairman Govinda Raj Pokharel said spending in reconstruction and connecting to domestic market activities would be crucial for achieving higher growth next fiscal year. “We also have to create conductive business environment for increased private sector investment,” he said.

However, budget allocation alone won’t ensure spending as the government has struggled in the past when it comes to spending. In order to fast-track the process, the government has formed an authority, but key appointments have not been made yet.

Former NPC Vice-chairman Shankar Sharma said the scale of contribution of the reconstruction works to the economy would depend on how quickly the Reconstruction Authority starts functioning. “As reconstruction has been considered a key growth driver, the authority must function as soon as possible,” he said. As reconstruction activities will create opportunities for the private sector, the business community has demanded the government involve them in the process. Both the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) and the Confederation of Nepalese Industries (CNI) have demanded the government involve the private sector in reconstruction activities as partners.

FNCCI President Pashupati Murarka said as the private sector has presence in all parts of the country, it makes sense to participate them. “The government can involve us in any way it considers possible,” he said, adding a successful reconstruction effort would help build manufacturing base. “If this opportunity results in increased investment in manufacturing, it will have a long-term impact on the economy.”

Continuing economic reforms

The policies and programmes have not spoken explicitly on continuing economic reforms, but has announced of continuing a few initiatives. “Implementation capacity of the projects will be enhanced by applying performance-based incentive system in large-scale as well as national pride projects,” it states.

Required laws will be formulated and implemented to resolve problems such as acquisition of land and compensation in projects including electricity, road and drinking water.  

Earlier, the NPC had suggested the government continue the economic reforms initiated this fiscal year. Pokharel said he believed the new budget would announce continuing the reforms.

Except for the Foreign Investment Policy and Public Procurement Act, other three dozen reforms measures could not conclude this fiscal. This has raised questions over the government’s credibility.

The government blames the legislature for not holding budget sessions for much of the time. But most of the new Acts and policies have not reached the Parliament. Pokharel admits both the executive and legislature are to be blamed for the delay in reforms implementation.

As it takes time for legal reforms, former finance secretary Rameshore Khanal recommends reform measures that can be done through single stroke of policy announcement such as allowing survey license holders of hydropower projects up to 10MW to carry out generation works too. “Why dual licensing? He asked.

Given the government’s focus on reconstruction of damaged houses, the business community has stressed on the need for helping small businesses of quake-hit areas. The PDNA has also suggested the government help such businesses revive.

“Small and medium enterprises in many quake-affected districts have been wiped out. The government should introduce programmes to re-establish them,” said Murarka.

The experts pointed out the need for helping businesses that can recover in a shorter period. “Tourism sector is in great need of the government’s help following big business losses,” said Sharma. Tourism faced business losses worth Rs62 billion due to the quake.

Expediting big projects

The earthquake has hit just 14 districts, while others are largely unaffected. Progress of most of the national pride projects, including Melamchi Drinking Water Project, Fast Track and Mid-Hill projects, have remained slow. Experts say expediting the projects will help boost the economy.

Khanal suggests establishing a special purpose vehicle like the Reconstruction Authority to fast-track the development of critical infrastructure projects. “India has formed Highway Authority to fast-track works on big highway projects. China and Singapore also worked similarly to fast-track critical infrastructure projects,” he said.


Published: 10-07-2015 08:49

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