Garner Development Fund

Nepal is set to graduate to the status of developing nation in 2026. This shows the country is making steady economic progress. However, its upgrade in the development ranking can hardly belie scores of humongous economic challenges it is grappling with. The shortfall in national revenue continues to hit its capacity to fund viable projects that generate employment and give a fillip to the beleaguered economy. Despite urgency in funneling funds to the development expenditures, there is a paucity of capital budget on the one hand and its poor spending on the other. This chronic conundrum has negative implications for the overall economic performance. Thus, it is understandable why the country is facing difficulty in procuring the money needed for development and social security. 

One persistent economic challenge is the ballooning sovereign debt that stands at over Rs. 2400 billion as of mid-June 2024. The internal debt is Rs. 1192.48 billion while the external one is Rs.1207.86 billion. The public debt forms 42.70 per cent of the GDP. Amidst the shrinking sources of incomes, the country has to manage around Rs 2500 billion annually to fulfil the Sustainable Development Goals by 2030. As the lion's share of taxpayers' money goes to pay the interest and principal of loans, it has become herculean task to arrange the development finance. Managing the internal resources are not enough. Sustained international assistance is equally vital for increasing the volume of development budget. On Tuesday, representatives from government, private sector and development partners mulled over the problems of Nepal's economy and presented their suggestions to be presented at the upcoming UN Summit of the Future. 

Deputy Prime Minister and Minister for Finance Bishnu Prasad Paudel sought the cooperation from the private sector and development agencies to meet the rising developmental aspirations of Nepalis.  DPM Paudel also expressed commitment to facilitating the investors – domestic and foreign – through the institutional reforms and legal revisions. He was of the view that it was necessary to conduct the credit rating of the country to bring in the foreign direct investment (FDI). As a Least Developed Countries (LDCs), Nepal is confronting trade deficit, low domestic savings, impact of climate change and natural disasters. It is trying to come out the repercussions of the 2015 earthquake and COVID-19 pandemic. Nepal has potential in energy, agriculture and small and medium size enterprises. Globally, economy has shifted from labour-intensive to high-tech digital services. So, it should also invest for the digital transformation to catch up with the economy of developing and developed nations. 

Despite the authorities' claim that the country has formulated essential legal and financial framework to attract the foreign capital, the FDI stands at a meagre 0.2 per cent of the GDP. Given that the country has huge development potential, this FDI amount is abysmally low. Poor nations like Nepal bear higher borrowing costs, limited access to liquidity during the crisis and inequitable share of resources, including climate finance. This calls for comprehensive reforms to the international financial system to make sure that the countries like Nepal have unhindered access to affordable and long-term financing.  Nepal should also devise strategies to deal with new problems after its promotion to a developing nation. It will see significant decline in the grants and concessional loans while its export items lose the preferential access to developed and preferred markets. Nepal must demonstrate its acumen in handling the economic diplomacy and mobilising the internal resources judiciously to overcome economic troubles.