Credibility quotient

  • Domestic investor confidence has hit rock bottom as shown in the falling stock index
The finance minister is trying hard to sell the idea that the state coffers are empty while demand for financial resources has substantially increased, also due to the federal set-up

Aug 21, 2018-Prime Minister KP Sharma Oli’s lamentation that his government was being unfairly criticised for enforcing the Civil Codes and Criminal Codes is genuine. This is because these five related acts were ratified by Parliament 10 months ago, and the government was only adhering to the deadline set for their implementation. The Civil Codes and Criminal Codes replaced the General Code, popularly known as Muluki Ain, enacted by the first Rana prime minister Jung Bahadur in 1854 and partially amended by the late king Mahendra in 1964. Clearly, implementation was overdue. Moreover, these bills were drafted by a team led by a person of impeccable legal credentials--former chief justice of the Supreme Court Kalyan Shrestha. The provisions that are now being contested also leave a lot of room for interpretation in either direction.

The excruciating question here is this: Despite all these, why are there serious apprehensions that the government might use some of these codes to curtail freedom of the press and civil society and to take indiscriminate punitive actions against professionals like doctors? Apparently, the protests are not exactly against what the Codes contain but fear of them being misinterpreted at the convenience of the government. Such a fear is the cumulative outcome of the government’s overall modus operandi and its rapidly depleting democratic credentials.

The flux

Lack of efficiency of the government matching its two-thirds numeric majority in Parliament is a widely perceived phenomena. Beyond that, there are several not-so-easily perceivable but potentially dangerous traits the government has been exhibiting on several fronts simultaneously. To be precise, it is failing in its own much harped prosperity agenda, messing up on implementing federalism and deliberately hitting at the soft spots of critical institutions with the ominous intent of controlling them.

The finance minister is trying hard to sell the idea that the state coffers are empty while demand for financial resources has substantially increased, also due to the federal set-up. The exchequer, as always, is under increased pressure to address demands for the development of mainly capital intensive large infrastructures. But the government’s actions are effectively repelling all potential sources of finance.

The people’s trust deficit with the government, for example, as exhibited in the aftermath of the recent implementation of the Civil and Criminal Codes, has alarmed all multilateral and bilateral development partners to come forward with augmented engagement. Domestic investor confidence has hit rock bottom as reflected in the dwindling stock index, for months now. This has put stress on the banking sector and increased the risk of an asset bubble as it is the only sector witnessing over concentration. Most precarious of all scenarios is in foreign direct investment (FDI).

Government figures show that during the last fiscal year ended July 15, Nepal received FDI commitments worth $560 million. But it has interesting characteristics. Out of the $560 million in pledges, 95 percent ($530 million) is from China alone. Such skewed resource dependence has its own obvious ramifications beyond instant economics, like in the geo-strategic balance, the country’s global diplomacy and (hypothesised) debt trap. Apart from that, investors from Nepal’s long-standing development partners like the US, Japan and Korea are not only feeling relegated but increasingly sensing deliberate attempts to crowd them out.

These are not mere speculations. A Japanese company working in a project under the Ministry of Tourism complained to its embassy in Kathmandu that ministry officials were bargaining for hefty sums of money even to process their regular files and also implying that the lucre would be shared by the political leadership too. Incidentally, the ministry is headed, supposedly, by one of the most promising young leaders of the ruling Nepal Communist Party, Rabindra Adhikary.

South Korea is one of the few countries with substantial FDI in Nepal’s industrial sector. Each Korean venture employs about 150 Nepali workers along with a number of Korean technical hands. Recently, the Nepali bureaucracy bargained for an exorbitant bribe to extend working visas for these few Koreans. Korean diplomats lobbied for the extension by meeting the vice-president of the country and at least half a dozen ministers. In the end, they were so disappointed that the company, in desperation, was reportedly advised to relocate to Indonesia.

A high-level US diplomat was bewildered at his inability to put his message across to the prime minister of this country. There is a general understanding that none other than the prime minster is left with the authority to decide anything, literally anything. Potentially, a substantial amount of FDI from the US in clean energy, thus, hangs in limbo.


A new debate over taxes and fees levied, particularly, by local governments, now pervades the country. Much of the controversy has been engendered by sheer irresponsibility on the part of the federal government. Without assigning any convincing reason, the government has not taken any initiative to appoint commissioners to the National Natural Resource and Fiscal Commission as envisaged by Article 250 of the constitution. In several successful federal systems, such commissions chalk out formulas for equalisation grants from the centre to sub-national and local federal units. Also, they enjoy quasi-judicial authority akin to civil courts in settling financial disputes often arising between different levels of government.

Although acts related to local governance has been enacted, on the basis of which local governments are now collecting taxes and fees, the government for no apparent reason has failed to draft the necessary bylaws for the actual implementation of the same, hence the confusion. Instead of putting these inevitable institutional and policy frameworks in place, the federal government is issuing often conflicting directives and circulars that are barely solving the problems.

There is little support provided to local governments in formulating and ratifying the finance bills of their jurisdiction, providing right information about their financial rights and limitations, and imparting skills in basic financial management. The insinuation is that the government itself is waiting for anarchy to unfold so that it can establish federalism as being an unfavourable system for Nepal.

Nobody can perhaps stop the present leviathan government from experimenting with all its ideological concoctions of Marxism and parliamentarianism. But the sooner it realises the better that all these experimentations are directly denting its credibility quotient which, in turn, is accruing a huge opportunity cost for the country.

Published: 21-08-2018 07:25

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