Double digit growth: Expectations and reality(THT October 11)

To achieve rapid growth, we need agricultural revolution, openness for foreign investment, investment-friendly industrial environment, facilities for business, corruption control and strict compliance with fiscal discipline
https://thehimalayantimes.com/opinion/double-digit-growth-expectations-and-reality/

The government in its plans and policies, presented on May 21, has announced to achieve a double digit growth in the next five years. The National Planning Commission (NPC) too has projected a growth of nearly 10 per cent in coming three years.

But under the current circumstances, how realistic are these expectations?

Nepal in 2017 cross edits growth ceiling to 7.9 per cent, highest in the decade, which followed one of the lowest growths of 0.6 per cent the previous year. The impact of the 2015 earthquake and five-month-long border blockade were the main reasons for the slow growth. As a result, a normal revive of the economy in 2017 caused high growth. This was largely due to a very low base value in 2016.

It is a must to understand that there were no miraculous achievements in 2017 to produce that high growth; rather it was simply the calculation formula which was based on
low base value of 2016. Looking at the decade’s trend, the country has experienced an average growth of 4.3 per cent.

When it comes to economic growth forecasts, no predictions are perfect, as they are based on assumptions which change with time. However, the International Monetary Fund has predicted a 5 per cent growth for 2018 (Economic Survey 2017).  The Asian Development Bank has estimated a growth of 4.9 per cent for 2018 and 5.5 per cent for 2019 (Asian Development Outlook 2018). Amid this, the NPC recently presented to the federal government a scenario of growth of 9.1 per cent and 9.5 per cent for the next two fiscal years—once again very high expectations.

Currently, the country is in economic crisis as displayed by major indicators. Our trade deficit is widening annually. In the first eight months of this fiscal year, the trade deficit has reached around 37 per cent of the Gross Domestic Product (Economic Survey 2018). This trend is very alarming for the GDP growth as it indicates a strong decline in our production capacity.

By the composition of GDP, the primary sector that consists of agriculture, forestry, fishery and mining holds about 28 per cent of GDP, which is the largest share among others. Unfortunately, this sector is declining year by year. But the incumbent government has no special programmes for agriculture uplifting. The only major agriculture support programme, as seen in the current fiscal budget, is “The Prime Minister Agriculture Modernisation Project” for which Rs 4.77 billion has been allocated.

This programme is a continuation from last year, but last year’s evaluation shows that it was a largely a failure. As a result, the agriculture sector in the current fiscal year has shrunk to 27.6 per cent. These facts indicate the primary sector of GDP is likely to decline in coming years as well.

The other two prominent sectors of GDP are wholesale-retail trade and real estate. Real estate is likely to dwindle due to various policy restrictions imposed by the current government. Trade that has flourished due to import will also be declining due to strengthening US dollar and decreasing earning from remittance that had boosted consumer economy in the country. However, all these downward trends can be changed if country can make some radical policy changes.

Growth rate while gives a handy indicator of economic development, it is not the whole story. Size of the economy matters a lot. The USA, the world’s largest economy, has GDP of $19.39 trillion, but a very low growth rate of about 1.5 per cent. This means, by next year it will add about $290 billion to its GDP. Now if we compare it with our economy, even if we get a 10 per cent growth next year, the total size of our GDP will be around $32 billion.

Further, per capita GDP is another important yardstick where we lag behind even when we compare it to our South Asian neighbours. Nonetheless, we do need a high economic growth to balance it with the rest of the developing nations.

As the incumbent government has been making a pitch for prosperity, it must focus on “prosperity which includes economic development”. We need economic growth to
sustain our increased regular expenses. In the current fiscal year, the total government expenditure has increased by 45.1 per cent. While the federal system, which is one of the most expensive systems, has increased the cost, lack of budgetary disciplines has also contributed to increase in government expenses.

In conclusion, under the current setup, as predicted by many international agencies, it is very likely that we will achieve only a nominal growth of around 5 per cent in the coming years. If so, it will be higher than the decade’s average, but lower than the expected double digit.

To achieve rapid growth, we need agricultural revolution, openness for foreign investment, investment-friendly industrial environment, facilities for business, corruption control and strict compliance with fiscal discipline. There is also an opportunity for Nepal to reap spill-over benefits from our two neighbours India and China—two giant economies.

We need rapid development in our technology, energy and infrastructure. This is possible only from investment in these sectors.

Mission impossible, Sep 7, 2072, MyRepublica

The government has pledged to the new 'Sustainable Development Goals (SDG), which is an ambitious plan of graduating to a developing country. Just like previous plans, SDG also appears to be yet another publicity stunt of the new government and the new National Planning Commission (NPC) team.

Nepal is one of the most progressive countries in terms of entering into national and international agreements and most regressive in implementing them. Nepalis greatly suffer from paucity of electricity, drinking water, food and shelter, mostly as a result of poor governance. Ambitious projects have only brought disappointment.

Melamchi Water Supply Project was first sketched in 1998 to address the drinking water crisis in Kathmandu. This much-hyped, US $320 million project was expected to supply water from 2007, but to date is it's only 35 percent complete. Every time a new government is formed, it promises a new completion date for this project, thus the project is considered 'mission impossible'. Such is also the fate of Chure Hill Conservation Project, Mid Hill Highway, Hulaki Highway, Bhairahawa International Airport, West Seti Hydropower Project and Agriculture Prospective Plan (APP)—just to name a few.

National Strategy for the Development of Statistics (NSDS) was an international commitment aimed at improvement of national data system, a prerequisite condition for SDG. After spending millions of rupees the government has forgotten it. Major political parties had promised people that there would be 'no power cuts' in five years, but it is clear that this promise was only for public consumption.

Earthquake victims have not seen any settlement plans even after three months. Landslide victims of Jure and flood-displaced in Surkhet haven't got any relief. Even development projects destroyed during insurgency haven't been restored.

Terrible road condition in Kathmandu is the epitome of government failure on execution. Road expansion was started during the last days of Baburam Bhattarai government. It is still to be completed. Wrecked water supply lines, open drainage and randomly lying telephone and TV cables are features of these broken roads.

Incomplete goals and plans are our great challenges. Forgetting failed plans and making new ones leads us nowhere. When a new team enters the NPC, it shows eagerness for new projects rather than continuing with uncompleted ones. This trend might continue this time as well.

Most SDG targets are impractical. For example, the indicator of 'good governance' is currently 0.83 and the country aims to achieve a figure of 2.5 in 15 years. When the country has to deal with independent bureaucracies, police and judiciary of federal states with their own governance modalities, monitoring will be more difficult. How can the central government ensure compulsory literacy, safe motherhood, 100-percent electrification until it fully funds and effectively monitors these programs?

Another challenge is Infant Mortality Rate (IMR). Reduction in IMR is considered one of the greatest achievements of Nepal. We achieved a reduction of 18.4 infant deaths per thousand in 12 years' time; from 64.4 in 2001 to 46 in 2013. In the next 15 years, if this trend continues, we can reduce IMR to 23 per thousand, whereas the SDG target is less than one per thousand. This is impossible.

Economic growth target is even more doubtful, which the government seems to have realized, as is evident in the Economic Survey 2014/15, which states: "In a situation where average annual growth rate for the past 10 years has been mere 4.1 percent, it poses a tough challenge to the country to achieve a rate of 7-8 percent for graduating from a developing country".

Obviously, coming days will be holidays for development works due to continued political turmoil and transition. All sectors including bureaucracy, economy, business, and academia are politically influenced. Contrary to India, where political change in government makes little impact on bureaucracy and in development works, in Nepal such change often impedes development.

Therefore, the government should have focused on institutionalization of bureaucracy at the federal level. Budget sharing is most challenging. Currently, foreign aid makes up a large chunk of budget and local and excise taxes go to the central treasury. The roles of centralized NPC, Nepal Rastra Bank, and ministries in the future federal structure are questionable. So setting new development goals on poverty reduction, improved health and education is untimely.

The government should first complete national pride projects and manage the federal transition. It should also focus on relief for earthquake, landslide and famine victims. The parties in power should also keep its electoral promises. Our implementation and monitoring mechanisms, too, need to be vastly improved to make better use of development budget. There needs to be better coordination within and between government offices, departments and ministries. To start with, there should be a thorough assessment of where we stand today.