Agenda for prosperity

  • The nation’s future in terms of prosperity and development will depend on the proper execution of economic decentralisation
The government doesn’t have the capacity to spend the development money available in its treasury: Around a quarter of the funds reserved for capital investment remains unspent annually

Jan 23, 2018-With the completion of the elections and the end of political transition, Nepalis expect stability and economic development. Southeast Asian countries that were in a similar position to Nepal in the 1960s have transformed their economies since then. Even other South Asian countries have made faster progress. Nepal’s economy is one of the smallest in the world at $25 billion. The economic loss caused by the 2015 earthquake is estimated to be as high as $10 billion. The cost of rebuilding is expected to reach $5 billion. The vicious cycle of poverty has affected every sphere of the country. Most of the poor are from remote areas. According to the census, poverty is increasing faster in rural areas, particularly in the far western and mid-western regions. Wealth distribution is extremely uneven. 

The country’s export trade is in a miserable condition due to the high dependency on India. The cancellation of special trade preferences and duty-free tariff benefits by the United States in 2003 and the quota restrictions and non-tariff barriers imposed by India severely hit Nepal’s manufacturing sector. Millions of young people are working abroad as cheap, unskilled labourers. According to a UN report, no country in the world is more reliant on remittance than Nepal where it makes up 32 percent of the Gross Domestic Product, up from 17 percent in 2007. Nepal has been able to develop very little of its hydropower potential. The tourism sector has not been able to extend further than Kathmandu and Pokhara. For the last two decades, the agriculture sector has been undependable. Food imports worth billions annually are proof that the farm sector is incapable of feeding Nepal’s fast growing population.

Sending the wrong message

External investors feel insecure about investing in Nepal due to militant trade unions, power shortages, weak infrastructure, strikes, red tape and frequent policy changes. The sudden cancellation of the 1,200 MW Budhi Gandaki Hydropower Project awarded to a Chinese company sent a negative message to external investors. Nepalis have long suffered from poverty, underdevelopment, scarcity and conflict; 29 percent of the population still lives below the poverty line. Provinces 2 and 6 are the poorest states in the country. Long queues of people can be seen waiting outside depots to 

get a few kilos of rice for religious celebrations in remote areas. Moreover, people lack proper medicines. Small children and the general people have to walk for hours to reach schools, health posts and water sources. This is a normal phenomenon in the mountains of Nepal.

Proper execution of federalism is of utmost importance for prosperity. The country has been devastated by a great earthquake and the reconstruction of infrastructure needs great attention. It is necessary to increase employment opportunities. Mega hydroelectric projects, factories, roads, railways and international airports, waterways, tourism infrastructure and drinking water and sanitation systems must be completed with high priority. We must modernise and commercialise the agriculture sector to double production within a short span of time. Moreover, investment in education and health, smooth operation of banks and financial institutions, good governance and effective service delivery are other significant areas which relate to national prosperity.

In order to abolish extreme poverty, Nepal must make great efforts to achieve the Sustainable Development Goals (SDGs) set by the United Nations. Nepal is among 16 countries expected to graduate to developing country status from the current least developed country (LDC) status by 2022. The annual per capita income must increase to $1,242 for this to happen. There are 21 national pride projects, including six roads, four irrigation systems, three hydropower plants, three international airports, two religious sites, one railway, one drinking water system and one conservation project that have been under implementation for a long time. The national pride projects do not include mega and sophisticated projects which can bring real change in the national economy. Such projects would include fertiliser plants, oil refineries, hydropower projects, manufacturing industries, bus transport, waterways, oil and LPG storage plants, solid waste management and satellite stations.

Laggard in development

To enter the international trade regime, a country should be at least self-sufficient in the production of food and mass consumable items. It is considered a primary base for forward activities. Prices of Nepali products must be lower compared to products made in neighbouring countries. Weak, unstable and faulty economic policy and import-based revenue policy are short-sighted economic policies. A massive policy shift in this regard is the need of the day. The physical infrastructure needed for internal and international trade is not well developed. Almost all highways are narrow and not in conformity with international standards. The country’s only one international airport in Kathmandu is not capable of handling the growing number of air travellers. Three important sources of economic development—hydropower, tourism and agriculture—have been growing very slowly and all these sectors need a herculean development effort. 

The government doesn’t have the capacity to spend the development money available in its treasury. Around a quarter of the funds reserved for capital investment remain unspent annually. This has been an obstacle to growth and development. After the complete implementation of the federal structure, it is hoped that economic activities will spread and be decentralised to the provincial and local levels. It is estimated that the federal budget will swell more than 50 percent this year, and the construction of the federal structures is expected to cost $8 billion. On top of that, an additional $1 billion will be required yearly, which could be a challenging task for the government. Thus, a serious equilibrium is required between swelling government expenditure, revenue growth and growth in factors of production to save the economy and federalism from unexpected accidents.


- Shrestha is a former under-secretary at the Ministry of Finance and was associated with the United Nations Development Programme in Sierra Leone and South Sudan

Published: 23-01-2018 08:05

User's Feedback

Click here for your comments

Comment via Facebook

Don't have facebook account? Use this form to comment