Nyas Yadav

The economic crisis, triggered by the coronavirus pandemic, is unprecedented in its ubiquity, scale and depth. So, this is expected to have the greatest impact on the world economy since the Great Depression of the 1930s. With major economies such as the USA, Japan and the UK reporting negative GDP growth rates, slump has now become a new buzzword in the global economy. While there is no way to measure this pandemic's actual impact on the global economy as of now, there is widespread unanimity among economists over an economic contraction worldwide. However, one could only hope it is not true in Nepal’s case.
When newly-appointed Finance Minister Bishnu Prasad Paudel assumed office on October 15, the first piece of document he signed was not monetary or fiscal policy. Instead, it was for a loan agreement of $200 million with the World Bank. That reflects the poor state of government’s treasury. The country has a debt to GDP ratio of about 35 per cent which allows the country to take more loans.

Plausible option
While raising debt is a plausible option to meet the recurrent expenditures and keep the government treasury in check, it won’t be sensible for the government to collect more than the already existing Rs. 225 billion in domestic debt. Another factor to keep in mind is that debt has its own limitations since high borrowing means higher interest rates which results in higher inflation. Therefore, borrowing from external sources such as the World Bank or the IMF was the only feasible option to address the deficit in government expenditure.
It wasn’t long back when Nepal Communist Party (NCP) made lofty electoral promises during the election campaign. However, the poll pledges normally become a business of trading trust, with no minimum guarantee or accountability. Therefore, political parties tend to go over the top with it. The NCP had promised a double-digit GDP growth rate from seven per cent at that time and an increase in per capita income from $882 to $5,000 in the next 10 years which appears unrealistic by any calculation or stretch of imagination. Now after three years, the current GDP growth rate stands at below three per cent and per capita income at about $1,085. A double-digit growth appears to be a distant dream in the current circumstances and the per capita income of $5,000 by 2027 also seems far-fetched.
One could argue that an exogenous incident such as coronavirus can derail the economic process and slow down economies. But it is the government’s responsibility to install safeguards to protect the inherent rhythm of economic reform process that has been outlined in order to produce best results. If the gap between what was promised and what is being delivered widens as much as it has right now, the governance model may not be able to last too long.
Leaders have to be pace setters and visionaries. It is their primary responsibility to implement a coherent action plan to move the country towards a right direction at a desired pace. With the general elections approaching, the Finance Minister has an uphill task of reviving the economy and maintaining public support so as to ensure victory in the upcoming poll. Hence, it requires drastic measures, reforms and structural changes to address the crisis. It is time for the country to look beyond its dependence on agriculture, tourism and foreign remittance for revenue. With about 65 per cent of the population dependent on agriculture (only fulfilling domestic consumption) and contributing less than 30 per cent to the GDP, the country cannot be looking at double-digit growth rate and higher per capita incomes unless there is a tectonic shift in the thinking, policies and approaches.
The government should set realistic goals, have a long-term vision and strong commitment to bringing about major economic reforms. In the aftermath of the pandemic, it is not an easy task. However, in hindsight, this situation serves as an opportunity to introduce radical reforms by the government. Nepal has always had a very conservative approach to liberalisation for reasons better known to previous governments. But we can take advantage of the situation by kick-starting the economy and bringing in new investments.
Let’s look at a few examples globally. India faced a serious economic crisis in 1991 and was on the verge of collapse. The famous budget presented by then Finance Minister Dr. Manmohan Singh liberalised the economy. From the following year, India's GDP started growing by 8-9 per cent. Currently, India is the world's fifth largest economy surpassing countries like France and the UK. China began to liberalise its economy towards the latter half of the 1980s, which created a suitable condition in the country for an inflow of capital from all over the world. Now China is the second biggest economy in the world.
Similarly, a war-torn Vietnam opened up its economy and has succeeded in attracting capital from all over the world. The list goes on with Poland, Thailand and many other countries that followed. Therefore, Nepal can also follow suit. The aspirations of the Nepali people are rather modest. If we have a leadership which is not realistic and sincere, the gap between the aspirations of the public and what’s feasible politically, economically and socially will grow to a point of an acute political instability.

Reforms
Nepal desperately needs a socio-economic revolution and transformation. It requires reforms with a capital ‘R'. It is high time that our leaders recognised it. Fortunately, we have a stable and strong government, all it needs is a vision and political will to push through reforms and finally transform Nepal from a traditional agriculture and tourism-based economy into a modern market economy which has a sustainable mix of agriculture, capital markets, international trades along with small and large scale of manufacturing and service industries. Winston Churchill once said, “Never let a good crisis go to waste.” Perhaps, the government could take a cue from Churchill.

(Yadav is a chartered accountant and financial analyst.)