2020s: Mission Prosperity?

With a two-third majority government at the helm, Nepal embarked on an ambitious journey of ‘Prosperous Nepal, Happy Nepali’. Nepal has set ambitious goals for itself, including the aim to graduate from a low-income country to middle-income one and achieve the Sustainable Development Goals by 2030. In order to achieve these goals of prosperity, the economy needs to maintain a streak of unprecedented economic growth in the decade of 2020s. While the country must overcome numerous challenges to realize prosperity in the lives of Nepali, the political stability ushered in by the new Constitution with positive economic indicators allows for optimism towards the future.

Nepal is considered a leader in poverty reduction. It has witnessed a steady decline in Multidimensional Poverty Index (MPI), which unlike a monetary measure, takes health, education and standard of living indicators into account. Nepal’s MPI reduced from 59 percent in 2006 to 39 percent in 2011 and 29 percent in 2014. On the economic front, Nepal saw a Gross Domestic Product (GDP) growth rate of 8.2 percent, 6.7 percent, and 7.1 percent in the 2016, 2017, and 2018 respectively. While it is challenging for Nepal to sustain this rate, the trend does hint the economy is gaining momentum. In a similar vein, Nepal improved its ranking, from 110th to 94th in Doing Business Report in 2020. Nepal’s admirable performance in multiple aspects suggests that there are reasons to be hopeful for the future. However, its path towards prosperity is not free of roadblocks. Several policy barriers are posed to upend Nepal’s growth trajectory.

Let’s break down some of these barriers, shall we?

One of the means that the government is banking on to drive Nepal’s economic growth is large scale foreign direct investment (FDI) in high potential sectors, such as hydropower, tourism, agricultural infrastructure. However, the government’s decision to put a NRs 50 million threshold, while prioritizing larger investments seems to have only shrunk Nepal’s pool of resources. The data from Industrial Statistics 2018/19 has shown that FDI below NRs 50 million in the fiscal year 2075/76 amounted to NRs 3,092.13 million and it created 6,855 jobs. On the other hand, FDI above the threshold was of NRs 21,907.11 million, which created 7,689 jobs. These figures point out that smaller investments create more jobs in proportion to larger investments. Given the employment generation capacity exhibited by small scale investment, the FDI threshold might only protect domestic investors at the cost of growth of small and medium enterprises.

Another roadblock that is not only keeping investors at bay but also slowing down Nepal’s growth is the sluggish rate of capital expenditure. Infrastructure projects in Nepal are often plagued by cost and time overruns, that deprives scores of people of basic amenities like roads and bridges, drinking water, electricity and reduces the productivity of enterprises. Amongst a multitude of factors affecting the low capital expenditure, the inefficiency of public procurement features prominent. The only solution at hand to expedite procurement is to make it more competitive by initiating changes in the Public Procurement Act 2063. The Act should accommodate small and medium scale contractors by accelerating the bid qualification, evaluation and award procedures and enable a competitive environment among all bidders. The timely completion of infrastructure projects is only possible if the Act ensures public procurement is result-oriented.

Of many costs incurred by the protectionist measures, the one most palpable for every citizen is the rising cost of living. Nepal’s inflation rate has been above four percent for three consecutive fiscal years. While the government is unable to prevent price distortion in the market caused by businesses, such as the recent case of hatcheries driving up the price of chicken meat and eggs, the import restrictions has further exacerbated the rate of inflation. The import quota of 100,000 tons of sugar is a point in case. Apart from import barriers, Nepal has a long negative list for bringing FDI, which includes poultry farming, dairy industry, bee-keeping, and fruits, vegetables, pulses, and oil seeds production. One can only wonder where the interest of the government lies in making people’s lives more expensive.

While the goals of prosperity and happiness for Nepalis is laudable, we need policy measures that pave the way to realize these goals, not act against them. While we have this decade to achieve twin goals as the country, much relies on adopting policies that promote investment and growth.

– This article was originally published by Bidhyalaxmi Maharjan in The Himalayan Times on March 15, 2020.