FOOD INSECURITY GROWS

But GON and WFP continue to squabble

This Commentary was first published in the The Reporter Weekly

There will be slight increase in the number of food-insecure population in the country this year largely because of agriculture lean season, according to the United Nations World Food Program (WFP). The number of people hit acute food insecurity across the Mid and the Far Western Hill and Mountain (MFWHM), is estimated to be 0.48 million, and WFP is running out of  budget necessary to cope with the situation during the fiscal year 2011/12.The Government of Nepal (GoN) does not have a well-grounded program to address the problem either.

As per the WFP report, the total number of food insecure population in the country stands at 3.7 million spread across 38 out of 75 districts. The MFWHM districts have recorded a 2.7 per cent increase in population (July-September) compared to the corresponding period last year. While food insecurity may not have taken into its fold new population this year, the budgetary constraints of WFP may come as a handicap to do anything substantial there in need.

WFP is  suffering from the 51% budget deficit compared to the planned budget for this fiscal year 2011/12. "The budget deficit is due to the global financial crisis," WFP Nepal Office elaborated, "many donors reduced their contribution  and some stopped the fund for WFP." And that naturally will have its impact on the lives of food insecure people in the country. The UN agency works as per the emergency needs in member countries.

The WFP is coordinating with the Ministry of Local Development (MoLD) to help the food insecure population in Nepal. The Government of Nepal (GoN) hasn't been able to show any willingness to serve the food insecure population besides repeating the cliché of 'food distribution by Nepal Food Corporation (NFC)'.

However, government authorities in Nepal do not quite agree with the projection of the  WFP regarding the  food insecure population. They allege that the WFP is just multiplying the costs of food distribution. "The GoN won't give any additional budget to the WFP," one senior official at  the Ministry of Local Development said, adding “We are not going to repeat our past follies like giving  WFP the money we had got from the World Bank. " Nepalese authorities also claim that WFP just refuses to work ‘under our government’.

The World Bank says that the global food crisis has reached 'dangerous levels'.  “As  Nepal does not produce enough food to meet the domestic requirement, we have to import food from international market. This rising food prices will definitely lead us to some problem. GoN should acknowledge this fact and have to work towards advancing the food production situation in the 38 food deficit districts”, World Banks says.

But what is likely to create more crisis in a scenario of food scarcity is the rigid stance of the government not to give budget to the WFP. “Why can’t it ask the WFP to work more efficiently? But at the same time, WFP also must realize why donors are cutting or reducing their contribution to it when the food insecurity is increasing in many countries,” ask the WB officials.

CAPITAL FLIGHT AND NEPAL

This Commentary was first published in the The Reporter Weekly

"I am surprised to know this figure," Economist Dr. Madan Kumar Dahal said when I shared with him the total amount of illicit financial outflows from Nepal in the last decade ending 2009. The report-- 'Illicit Financial Flows from Developing Countries Over the Decade Ending 2009' –released recently says that total amount of illicit financial outflow from Nepal is estimated to be US $ 6.040 billion during the period.

Trade mispricing, proceeds of corruption and bribery are cited as the three major drivers of illicit financial outflow from Nepal by the report.  Available information suggest that the trade mispricing contributes 83 percent of total l outflows from Nepal. This study by Global Financial Integrity (GFI) tracks the amount of illegal capital flow from 157 countries. The GFI has ranked all the countries on the basis of volume of total illicit financial outflows and Nepal is placed 83rd.

The total illicit financial outflow from Nepal is around 7.25 percent of our Gross Domestic Production (GDP) compared to the same time period.  The amount of money thus lost is enough to run  almost two fiscal years if the amount is compared with that  of the  annual budget of  the government.

The  GFI has taken into account  the balance of payments (BoP), bilateral trade, and external debt data reported by member countries to the International Monetary Fund (IMF) and World Bank while preparing the report. Dr Dahal who is also an expert in Macro Economics, says that this report throws a challenge to the government to  trace the way, and destination of the capital flight and those responsible for it.  Senior officials from Ministry of Finance (MoF) and Nepal Rasrta Bank (NRB) were reluctant to be quoted.

The enactment of the Anti-Money Laundering Act-2008 and Anti-Money Laundering Regulations-2010 together with the establishment of Financial Information Unit (FIU) within the Nepal Rastra Bank (NRB) may be taken as attempts to deal with the problems of illicit financial outflows. But these acts, regulations and units do not appear as effective when Nepal is losing more due to trade-mispricing. The average contribution of trade-mispricing in Asia is just 53.9 percent where as in Nepal's case, the figure is well above -- 83 percent—the mark.

The illicit financial outflow has become a global problem that the governments from different countries are trying to address. But the same cannot be said about Nepal. While some  cases of anti-money laundering in the supreme court of Nepal  filed few months back have taken their own time, government bailing out the  VAT fraud case worth billions of rupees—of late by transferring the investigating officials en masse—makes its intentions clear.

GFI, an NGO based in Washington DC defines illicit financial flows as 'proceeds from both illicit activities such as corruption (bribery and embezzlement of  national wealth), criminal activity and the proceeds of licit business that become illicit when transported across borders in contravention of applicable laws and regulatory frameworks.  And it has its own impacts. The illicit capital flight doesn't only create the illegal problems, but also weakens the capacity of economic indicators of reflecting the situation.

Illicit Financial Outflow

The Economists wondered when I shared with them the amount of money that outflows illegally from the country. The Global Financial Integrity (GFI)’s report "Illicit Financial Flows from Developing Countries Over the Decade Ending 2009” says that US $ 6.040 billion outflows from Nepal illegally between 2000-2009. The amount of money that has been estimated in the report of GFI is almost equivalent to two fiscal years’ budget of Government of Nepal (GoN).

 

Bribing for Monsanto

The hybrid seeds of maize from the American multinational company Monsanto have been distributing in Nepal with the help of some handful of people. There are several news in different local media that United State Agency for International Development (USAID) is lobbying for the entry of this particular company in Nepal.

The latest news has revealed that local contractors in Nepal are trying to push the seeds of Monsanto by bribing to the government officials in Nepal. This news has taken back to the 2009 when the Government of Nepal had to give money to the local farmers in the Terai region of Nepal when the seeds of Monsanto had cost the maize production hugely. The government had dispersed Rs 2 hundred million in the five districts of Terai region through the Ministry of Agriculture and Cooperative (MoAC). 

LOOKING THE OTHER WAY WHEN CRISIS LOOMS LARGE

This article was first published in the The Reporter Weekly

The last staff report of the International Monetary Fund (IMF) in November strongly recommended structural reform in the Nepali economy with emphasis on productivity and growth. In principle, it argues in favor of need for some changes made for the Nepali economy to move ahead, but neither the IMF nor the Government of Nepal   is clear about what really needs to be done immediately.

Structural reform for productivity and growth may not be a vague prescription, but  senior economists and officials here are quite unable to decipher , and interpret it differently.  "Banking sector risks have intensified as financial institutions proliferated in an environment of weak supervision," the staff report of IMF says. This line clearly shows the lack of efficiency on the CBN's part. Dipendra Bahadur Chhetri, Vice Chairman of National Planning Commission (NPC) and former Governor of the Central Bank of Nepal (CBN), says that the IMF's report has an implied meaning- the reengineering of CBN. Finance Secretary Krishna Hari Baskota does not agree with Chhetri.

Perhaps Baskota did not want to be caught in a controversy by making any statement about the recommendation of the IMF. He suggested that the Economic Affairs Division at Ministry of Finance (MoF) was a more competent body to respond to it.  But for one who has already worked  as a Revenue Secretary before moving to the helm of the Finance Ministry  about what the IMF recommendation implies, is unfathomable .

CBN Chief Yubraj  Khatiwada, who is an expert in monetary policy, has not given any statement on the IMF recommendation  either . However, he does not conceal his disagreement  that borderlines with disappointment with the  IMF team, according to a highly placed source in the GoN. The source said that one specific meeting with IMF team had been particularly rocky. The staff report of the IMF which is released annually after the Article IV consultation meeting with Nepal, is implicitly directed towards Dr Khatiwada and the institution he is leading. But others don’t see that unusual.

In the words of vice-chairman of NPC, there is ample room for improvement in the CBN--this is where the IMF is pointing. The efficiency of CBN can be increased if there is willingness from the leader of the institution. But this is being taken by some others as Chetri’s attempt to shirk his responsibility.

As IMF emphasizes on productivity and growth, something directly associated with the NPC that should make Chettri more thoughtful and introspective, instead of blaming the CBN's leadership.  At the same time, Finance Secretary Baskota needs to understand that he should have a clear take on issues raised by an international agency which is there to support Nepal when it is in a difficult situation.

Key technocrats in the three leading government institutions looking in there different directions, and not formulating a joint approach, to say it more precisely, reflects a situation of policylessness in the country in the given context.  This difference shows lack of a harmonious relationship among these institutions and their  leaders . Not being able to formulate a joint approach would mean their collective failure at a time when the nation faces a financial down turn.

Proposal from China for 4 Ports When India Delays

There are news in media that China has proposed to upgrade the ports in the border areas of two countries (Nepal & China). The agreement is about to be signed in the near future. This news has come out just after the Indian Envoy to Nepal Jayant Prasad’s words in the capital city Kathmandu about the Indian investment of almost $ 15 billion worth of in Nepal’s hydro sector. I am sketching this context to observe the competition between two giant economies in Nepal’s neighbor for something but economic advancement.

In the last week of November, Indian scholar S. D. Muni was in Kathmandu and he was sounding a bit aggressive when journalists questioned about what would be the Indian reaction if there was a huge amount of Chinese investment in Nepal. The preparation for signing the agreement to upgrade the ports in the border area of Nepal should be a lesson to India. The most important thing here is that Nepal has been suffering due to the congestion in the Kolkata and Haldia ports. Nepal has been constantly requesting for the facility of Bhisakhapatnam port since last more than a decade.

Nepal-India Petroleum Pipeline in News Again

The petroleum pipeline that has been talking time and again between Nepal and India—this was talked once again in the Inter-Governmental Committee meeting of two sides, which was held in the Delhi last week. This project had started almost one and half year back but couldn’t be materialized due to some irregularities in the Ministry of Commerce &Supply of Nepal then.The Indian Oil Corporation (IOC) had cancelled the Joint Venture proposal (which was in the verge of signing) by saying that the project wouldn’t work in the proper way.

This Project Won’t work in the Long-run 

The pipeline project might be good for the short run of Nepal’s petroleum market but in the long run this might be a problem. I am saying that because the petroleum market of Nepal should be liberalized for private sector--there must be the private sector’s involvement to enhance the quality of market and supply situation. The much talked private sector’s involvement is not happening due to hold of some bureaucratic hazards.  

IFIC Bank Will Have More Share in NB Bank

The International Finance Investment and Commerce Bank Bank Ltd (IFIC Bank) of Bangladesh has shown interest to invest more in the Nepal Bangladesh Bank in Nepal. The Central Bank of Bangladesh has principally provided the permission to IFIC Bank to invest more in the NB Bank in Nepal.

Survey Report of Nepal is Out

Ministry of Finance of Nepal Government has published the Country Survey Report, 2011 on Paris Declaration- 2005. This report shows some significant changes in the last three years from 2008-2011. The donor agencies in Nepal do not use the Country Procurement System (CPS) as much as they used to do in 2008. Only 37 percentage of their total annual budget used to be spent through the CPS in 2008 and now it has been increased by 19 % in the last three years and have reached to 56 percentage of their total annual budget.

AID AGENCY FLOUT GOVT RULE

Nepalese authorities say we are helpless

The aid industry in Nepal does not quite follow an easy route , and there are complex dynamics it associated with it. “In our case, it is like either we let them do whatever they want, or we decline the aid altogether”, a senior official in the Ministry of Finance told The Reporter.

What he implied was a disapproval of the way many aid agencies have conducted themselves in Nepal over a period of time. “ A few bilateral donors and their aid agencies apparently do not follow the Country Procurement System (CPS) that supervises  and keeps a tab on all procurement activities associated with the public sector.

Citing examples, he said  many donor agencies,  including the  United States International Development Agency (USAID), do not follow the CPS, i.e. the aid money it brings in here is spent without following norms set by the government, and these agencies have their way. Senior officials plead helpless on the issue.

“We don't have the right to ask any donor agency to procure under the norms of CPS", secretary at Abnindra Kumar Shrestha, Public Procurement Monitoring Office (PPMO) told The Reporter. “ Article 67 of the Public Procurement Act, 2006  gives  the freedom to donors not to comply with the CPS if the aid is not for budgetary support to the Government of Nepal.”  But it is found that  still a lot of aid intended for budgetary support flaunts CPS. Interestingly, the consultants hired with the help of World Bank had drafted the PPA, 2006.  Official version of the U S Embassy on the issue was not available although it had been approached.

“We are keen that aid agencies follow rules and demonstrate higher degree of transparency and accountability “, an official said , adding “this will also have positive impact in other sectors as this sector alone contributes to 26 per cent of our annual budget.”

“At times, they are very blunt to our mild objections. They simply ask us whether we want their support or not, and that is not the kind of decision that we can take at our level in the bureaucracy”, an official in the  Ministry of Finance said.

The latest Portfolio Performance Review of 2011/2012 has clearly stated that the CPS should be reformed to align it more with our needs and CPS system. But, it is far from being adhered to by the donors and their aid agencies. According to the guidelines, the donors should spend money by following our CPS and not by compelling the officials to accept their aid in its entirety with conditionality or forsake it.

Nepal Narrows Its Trade-Deficit with India

Nepal’s trade deficit with India has narrowed down by 1.6 percent in the first three months of FY 2011/12 compared to last years same period. Only very few products’ export, i.e. the export of zink, sheets, textiles, copper wire rod and cardamom have gone up according to the Government of Nepal’s revelation of a report last week. 

Indian Investment in Nepal’s Hydro Sector

The Indian investment in Nepal’s hydropower sector will definitely lead the country towards a better future. The Indian Ambassador to Nepal Jayant Prasad has said that there could be $ 15 billion worth of investment can be from India in the next five years. But he has given the stress to the ‘investment environment’. 

This statement from the Ambassador has come just around one month later of signing the Bilateral Investment Promotion & Protection Agreement between two countries. Pranav Mukharji, the former Ambassador to Nepal is in town when His Excellency Prasad is talking about the Indian investment in hydro sector of Nepal.

Local Bodies’ High Dependency in Nepal

The local bodies in Nepal have been highly dependent on foreign aid and government's budget. Sushil Ghimire, the secretary of Ministry of Local development has publicly admitted that the reason behind it is the lack of timely election in Nepal.The election in the local level is not happening since last 9 years--almost a decade. Officials and experts have claimed that this situation has been reflected into the dependency of local bodies. Previously, local bodies used to survive on their own by collecting the revenue in their levels.

This high dependency has led to the corruption and mismanagement of budget that goes to the local levels Nepal has been receiving the around 40 percent of total yearly budget as the foreign aid.

Nepal’s Merchandise Trade Rate Goes Up

Nepal Rastra Bank has published its quarterly report of last three months of FY 2011/12. This report says that Nepal’s international merchandise trade’s growth rate has gone up.

• Merchandise exports rose by 6.9 percent to Rs. 18.04 billion ($ 240.53 million) during the three months of FY 2011/12. Such exports had increased by 6.2 percent in the same period last year.

Nepal Gets $ 1 billion Remittance in 2 Years

Nepal has gained around $ 1 billion amount of remittance within two years (2009 to 2011). This amount is quite bigger than the total amount of foreign aid that comes to Nepal. In 2009 Nepal had gained $ 2.985 billion and now in this year the total amount of remittance that comes to Nepal is estimated to be $ 3.951 billion. This amount is 23 % of our total budget of Nepal’s yearly budget in 2011/2012.

This is quite interesting to see that the 23% of our total budget comes through the remittance but we hardly can see any significant uses of it in the development sector. The remittance has been a driving force for the sustainability of Nepali economy.

• Remittance flows to developing countries are expected to total $351 billion this year.
• Worldwide remittances, including those to high-income countries, will reach $406 billion for the current calendar year, according to a newly updated World Bank brief on global migration and remittances.
• The top recipients of officially recorded remittances, estimated for 2011, are India ($58 billion), China ($57 billion), Mexico ($24 billion), and the Philippines ($23 billion). Other large recipients include Pakistan, Bangladesh, Nigeria, Vietnam, Egypt and Lebanon.
• While the economic slowdown is dampening employment prospects for migrant workers in some high-income countries, global remittances, nevertheless, are expected to stay on a growth path and, by 2014, are forecast to reach $515 billion. Of that, $441 billion will flow to developing countries, according to the latest issue of the Bank’s Migration and Development Brief, released today at the fifth meeting of the Global Forum on Migration and Development in Geneva.