Bold Reform Necessary

The ‘Current Economic Status of Nepal 2083’, unveiled by the Ministry of Finance, shows the sobering glimpse of a nation grappling with deep-rooted structural woes. The document points out the major challenges that the Nepali economy has been confronting for a long period of time, such as slow growth, structural inefficiencies, weak productivity, and dependence on remittances. At the same time, the document also identifies key sectors that could help accelerate the slow growth trajectory of Nepal. After just one month in office, finance minister Dr. Swarnim Wagle’s candid white paper deserves credit for laying bare uncomfortable truths of low and erratic growth, a feeble industrial base and a troubling shift toward services without the backbone most economies rely on.

 It charts an ambitious path to middle-income status – 7 per cent annual growth, $3,000 per capita income, and a $100 billion economy in five to seven years. This is a positive hope towards prosperity. Yet with any roadmap, the success lies in the journey it takes. At the core, the paper emphasises the issue of Nepal’s premature de-industrialisation. In the past decade, the average GDP growth rate has remained at a low level of 4.2 per cent with fluctuations ranging between minus 2.4 per cent and plus 9 per cent, lower than other neighbouring countries like India and Bangladesh. In this fiscal year too, Nepal is looking forward to achieving growth at 3.5 per cent against its target of 6 per cent. 

As far as its productive sector is concerned, industry is responsible for generating employment and exports; it accounted for just 5.4 per cent of the GDP, growing at a paltry pace of 2.9 per cent. Similarly, agriculture, industry and service sector’s share in GDP fell from 28.4 per cent to 25.2 per cent and 14.1 per cent to 12.8 per cent, respectively, while the service sector rose from 55.3 per cent to 62 per cent. This can be compared to building on shifting sands as remittance income (up by 37.7 per cent to Rs. 1,449.56 billion in eight months) has been keeping the country’s external sector afloat, compensating for a huge trade deficit where the exports account for 14.8 per cent of imports, half of which being cheap edible oil. However, there has been a six-time increase in electricity generation from 728 MW to 4,105 MW in 2011/12, yet it has not ignited productivity. 

As per the paper, the economy requires deep structural transformation rather than short-term policy adjustments. The focus now is on rejuvenating industry: tax breaks for industries, vocational education linked to exports, and partnerships between government and private sectors for research and development. Think about the possibilities when remittances go to power agro-processing centres or technology parks, reversing the trade deficit. Minister Dr. Wagle’s tenure has already crossed one month, and it's time to work to match the words. A wealthy Nepal is possible if we connect the dots between identification and implementation. The white paper is a strong hope for long-awaited structural reforms that will translate to higher productivity and a more resilient economy. The government needs to take private sector into confidence, while mustering cooperation from the international community. The legal and fiscal incentives must be rolled out to attract the foreign investors because foreign direct investment is crucial to develop large infrastructure in the country.