DONORS NOT ABOVE ACCOUNTABILITY AND TRANSPARENCY

The government is bringing new provision to make development partners accountable

This piece was first published in the The Reporter Weekly.

In a belated exercise, the Ministry of Finance is planning to make it mandatory for the Development partners to submit details of actual aid and their disbursement to the government quarterly.

This provision is being included in the ‘Action Plan for improving portfolio performance-2012’ prepared by the Ministry which is going to be put before the Council of Ministers for adoption shortly, official sources said.

Upon approval, the development partners shall have to submit all details—actual aid amount their disbursement –every three month under the theme of ‘mutual accountability’, a new theme added to the existing themes. The government move follows widely raised complaints about the lack of transparency in aid disbursement. ‘The mutual accountability’ is an obligation under the Paris Declaration 2005 with the objective of making the aid more effective in the Least Developed Countries (LDCs). "This is the local initiation to implement the Paris Declaration- 2005,"  Kailash Raj Pokharel, Under Secretary in the MOF ,  who is also the coordinator of Nepal Portfolio Performance Report and Action Plan formulation team, said.

Official say, the latest move brings the development partners in Nepal  --often critical of the Government and  its machineries for the delay in implementing the projects –into the accountability net.  Nepal receives almost one third of its f total budget and more than 70 per cent of total development expenditure every year from the donors.

As per the new arrangement, the development partners will have to submit their actual aid vs. disbursement amount in every three months and also  the mid-term budget review. "This norm will help us to fasten the development projects which are being delayed by the slow disbursement of budget from development partners," Under-secretary Pokharel said.

Other four themes of the action plan include  Public Financial Management (PFM), Public Procurement, Improving Human Resources Management and Managing for Development Results (MfDR). ‘With the new arrangement, we hope to have an environment of mutual accountability and faster pace of development’, he said.

Under the new scheme, the government will be asking development partners  to submit their planned disbursements for next three fiscal years and the actual disbursement in every three months. "The huge gap between planned and actual disbursement should not exceed 20 per cent by the end of this fiscal year onward," the draft of the action plan says.

The new plan also aims at addressing the issue of lesser predictability of the aid. “It should be more predictable--which can be done only by reducing the gap between planned and actual disbursements." Under-secretary Pokharel said, adding that this action plan is going to bring all the development partners in a national record.

Development partners, mostly some bilateral ones, keep complaining about the government's weak mechanism but do not submit their periodic reports that show their level of transparency. Only 45 per cent of total amount of  money development partners bring in Nepal is spent through the national budget system, and the remaining 55 per cent is spent under their discretion, something that lacks transparency.

WEN’S GIFT

He gave something to every one: DPM Shrestha

This news was first published in the The Reporter Weekly:

Minutes after Chinese Premier took off for Qatar winding up his five hour official visit, Deputy Prime Minister Narayankaji Shrestha declared it was a ‘historically successful’ visit.

“China gave so much touching almost every sector of Nepal and especially its socio-economic and development but asked nothing in return,” Shrestha told media people on Jan 11 at the end of Wen’s visit.

China pledged 750 million RMB (Rs 9.75 billion) grant assistance for the next three years.  It also increased the regular support by 33 percent over last year’s 150 million RMB.  Along with this, Premier Wen Jiabo also announced 20 million USD for the budgetary support to Nepal as the 'one time grant.’

And altogether eight bilateral Agreements, Memoranda of Understanding (MoU) and Letter of Exchange were signed during four hours of hectic diplomatic business.   They include Economic and Technical Cooperation Agreement (ETCA), Agreement on the Ports Management in Nepal-China Border Areas (APMA), Agreement on Trans-frontier Pasturing by Border Inhabitants (ATPBP), Strengthening bilateral Cooperation, Nepal Armed Police Capacity Building, Agreement on Cultural Cooperation (ACC), Nepal Police Equipment Improvement Agreement (NPIA) and Memorandum of Understanding on Operationalization of Loan Mechanism (MoU on OLM).

Shrestha said Premier Wen Jiabo was positive towards Nepal’s demand that  railway connectivity from border area of China be extended upto Kathmandu and then to   Lumbini in the future  and called it a ‘meaningful response’.

"The two sides agreed to further intensify cooperation in socio-economic development, promotion of trade and tourism, hydropower, transportation infrastructure development and other fields on the basis of equality and mutual benefit," says a four pages long joint statement between Nepal and China at the end of Wen's Nepal visit. China made it clear that it wanted  its competitive and established companies to expand in Nepal.  Although, the  Bilateral Investment Protection and Promotion Agreement (BIPPA) could not be signed, there were indications that talks would continue in that direction.

"China encourages and supports competent and established companies and enterprises to promote investment and joint ventures in Nepal," the statement says.

There will be a loan mechanism between Nepal and China in the coming days since Nepal is also looking for concessional loan from China for expansion and upgrading of Pokhara airport, Upper Trisuli 3A Hydro Power projects along with many other development projects.

Chinese side also agreed to expedite the implementation of various developing projects, including the  upgrade and expansion of existing Ring Road of Kathmandu and Tatopani Dry Port. Not only has the development of infrastructure, China also wants its neighbor's security being more efficient. What was new and perhaps more significant was Premier Wen’s symbolic support to Nepal’s security sector. China gave 10 million RMB for Nepal Armed Police capacity building and  4 million RMB for Civil Police equipment improvement.

To promote the existing level of understanding and friendship, the year 2012 has been announced as 'Nepal-China Year of Friendly Exchange' by two sides. "The two sides agreed to promote exchange and cooperation in the areas of culture, education and between youths, media, think tank, scholars of two countries," says the statement released at the end of the visit.

"Nepal and China have identical or similar positions on major international issues, such as global financial crisis, energy and food insecurity," the statement said, promising that a new era of ‘support each other's participation in regional cooperation’ will begin.

A MOVE TO RESCUE 'POLITICAL' BROKERS

This piece was first published in the The Reporter Weekly

The government is seeking to bring an 'immediate scheme' to revitalize the endangered real estate sector. The Ministry of Finance (MoF) and Nepal Rastra Bank (NRB) are trying to push commercial banks to reinvest in the sector through some new policy measures, much against their earlier harsh attitude  while they were massively investing. No matter what policy measures are taken, the commercials banks are reluctant to walk along with the government's decision at this juncture.

"I don't think that the commercial banks will invest again in the real estate sector in the coming days," a senior executive from a leading commercial bank told this scribe, adding ‘there is enough skepticism regarding  our future role on the real estate investment.’

Government officials are not confident either over the new policy authored by the MOF and the NRB. “This appears to be a very disparate attempt to get some banks to invest in the real estate  with some political interest in mind”, they say.  "Many of the real estate brokers are the party cadres as well," a senior MOF official said, adding   "I am aware of the political flavor in this issue but there is still some hope of getting the economy better.”

But there seems to be no doubt that the MOF-NRB move in the name of resuscitating the real estate transactions is an outcome of the pressure from the real estate brokers.  "I can’t at this stage disclose details of the conversation  and the peoples involved in it, but the hasty route that the government is travelling  is not influenced by the thoughts to rescue eco9nomy",  he said.

Bankers do invest their money where there is a security of their investment and chance of making profit In this case, the  government is asking bankers not to pressurize borrowers for repayment of loan  distributed in the past. At the same time, M O F is considering to increase  ceiling of an 'individual loan' for the real estate brokers from existing Rs 8 million to Rs. 10 million. "It might fuel to increase the economic activities, but not definitely in a healthy way,” an analyst--who refused to be identified said, "This  is not a visionary step , and simply may work as a  short-term remedy."

Banks and Financial Institutions (BFIs) have already invested Rs 1 trillion in the real estate sector. BFIs are not getting any repayment of this loan. The provision that the NRB is going to establish to postpone the deadline to 2070 B.S. for ceiling of the 25 percent of 'real estate loan' out of total loan of a bank is 'suicidal' in the long term. "This is just a postponement of suicide date,” he said, asserting that it is not going to address the root cause of the economic malaise.

Along with the real estate and share market, the government is also going to take the responsibility of selling the apartments built and owned by the private sector. Many think the  government's step towards subsidizing the apartments to its officials is a way of wasting the money that is collected from revenue.

Asian Development Review

The Asian Development Bank has published the Asian Development Review, volume 28.This review is basically focused on how poverty should be dealt and how complex it is to work with the poor people. It has following topics and each of them deliberately discuss how the Asian development paradigm is shifting and what is playing the major role for this happening. 

=> Poverty and Redistribution in Emerging Economies

=> South–South FDI and Development in East Asia

=> Forecasting Volatility in Asian Stock Markets:
Contributions of Local, Regional, and Global Factors

=> Remittances and Household Expenditure Patterns in Tajikistan:
A Propensity Score Matching Analysis

=> Industrial Deepening in Malaysia: Policy Lessons
for Developing Countries

=> The Global Financial Crisis and Resilience
of the Thai Banking Sector

=> Does East Asian Integration Keep up with the European Pattern?
Empirical Evidence from Intra-Industry Trade in Europe
and East Asia

Nepal is one of the highly prioritized country as per the ADB policy and this review accommodates many aspects of Nepal. In each topic there is a rigorous discussion on how the development is taking path in the Asian countries. The most interesting chapter for me is “Does East Asian Integration Keep with the European Pattern”.

SAARC Finance Ministries’ Meeting This Month

Fifth South Asian Association of Regional Cooperation (SAARC)’s finance ministries meeting is going to be held at the end of this month (January 2012). A source at the Ministry of Foreign Affairs (MoFA) of Nepal revealed that the meeting is going to happen in the capital city of Dhaka. “The agendas for meeting are yet to be finalized,” source told me.

As per the development of issues in this region, corruption, anti-money laundering and growth will be the most likely agendas for discussion. SAARC is a regional forum to discuss on various issues of development, politics.

Is Cash Incentive Scheme Failed in Nepal?

Nepal introduced the ‘cash incentives’ scheme through the fiscal policy to improve the situation of export while the country is facing the huge trade deficit. The trade deficit is high and its continuously increasing. But this scheme that the government’s ‘cash incentives’ provision is almost failed.  There are news that only two out of 34 industries have been successful to get the incentives.

The Government of Nepal (GoN)’s effort to promote exports by providing the cash incentives is something good but the complication and bureaucratic hurdles that the businessmen and industrialists should face to get that cash is inexplicable— too much papers and documents are needed. industries that applied for the cash incentives at the Department of Industry (DoI) were asked to come up again with the proper documents.

ECONOMIC PROBLEMS LINGER TO 2012

This commentary was first published in the Reporter Weekly. 

The year 2011 has been one of disappointment in terms of tackling the core constraints ailing the fragile economy. Prime Minister Dr Baburam Bhattrai's 'Economic Revolution' was on sale till the winter hit Kathmandu. Now, people are living in the 'darkness'. The 'hope' that PM Dr Bhattrai had rekindled while entering Baluwatar is almost dead. Welcome to the New Year 2012 with darkness and unresolved issues that are going to plague our economy like previous years.

Rising inflation, decreasing exports, more than 16 hours of daily load shedding , labor problems, Intra-party and inter-party disputes , and uncertainty over constitution making and the peace process will continue to remain the legacy of the past on the shoulder of the new Year. Shortage of petroleum in the domestic market has hit the when the new Year steps in.

The lives of people throughout 2011 were no better than in 2010. The high food inflation and frequent hike in the price of the petroleum products  hit the people everywhere,  in rural as well as urban areas, with no signs that the situation will be better in 2012.  Sudden downslide in food inflation in India has however, raised some hope here.  Economists are suggesting that this decreased rate of inflation in the Indian market will be reflected in our markets sooner or later. The food inflation rate in India has come down at 1.8 percent which is the lowest in the last four years. Our double-digit inflation might decrease slightly in 2012 though petroleum price in the international market and domestic food production would continue to put upward pressure on general price level.

The labor problems remained most challenging for industrial sector after the inadequate supply of power and infrastructures in 2011. From Surya Nepal to some of the star hotels were shut down due to the labor union politics. Political parties fueled to increase the density of problem rather than settling the issues. There are no signs of positive changes in the New Year as well until and unless political leaders stop  stepping  on the 'labor-carpet'. Industrialists are keeping the door open to see if anything positive happens in the horizon this year.

More than Rs 64 billion liquidity surplus in the banking sector has been a matter of head-ache for Nepal Rastra Bank (NRB) and the BFIs themselves. The International Monetary Fund (IMF)'s charge on NRB for its inefficient regulation of financial sector is not just a  'blame'.

After the 'almost' collapse of real estate in the domestic market most banks lost their prized area of investment. Now, Finance Minister Barshaman Pun and Governor Dr Yubaraj Khatiwada are busy meeting with bankers to ease the liquidity surplus problem. They are pushing on to decrease interest rate to ease financing for industries and people.

This tireless effort of NRB and Ministry of Finance (MoF) might lead to a decrease in lending rates in 2012. Investors and real estate brokers may have a respite as well. Banks will not be happy with this step but at the end of the day they will get some space to disperse their money. Let us hope that the financial sector will be put in order in 2012.

The food insecure population is going to increase in 2012. Chinese experts have warned that this year will remind us of year of 2008 again. Nepal has many more international agencies at home to help needy people, but equally important for us to see will be how the World Bank, United Nation Development program (UNDP) along with multilateral and bilateral donor agencies set their plans for this year, and how they go about feeding  the hungry in the mid and far west .

In short, we may not have much to celebrate the arrival of 2012.  But in the midst of all this gloomy scenario, Hope cannot be divorced from our future. Therefore, despite this end note, Happy New Year 2012!

BoP Breaks the Record since 1974

Country’s Balance of Payment (BoP) went up breaking the record since 1974/75. Nepal Rastra Bank (NRB)’s macro economic report of last four months of current fiscal year says that remittance and spending of foreign tourist have contributed for this. The BoP has reached Rs 46.31 billion in the last four months of current fiscal year till mid-November.

Here are the major points that the report of NRB has:

1) Trade deficit is still high—widened by 12.1 percent compared to the same period of last year. It has reached Rs 111.80  billion.

2) Remittance went up by 34.2 percent and has reached Rs 103.2 billion in the four months of current fiscal year.

3)  Imports grew 11.8 percent to Rs 135.49 billion compared to imports worth Rs 121.17 billion recorded during the same period in the last fiscal year.

Nepal’s BoP is continuously rising since the beginning of this fiscal year. Some of the experts here in Nepal claim that this is more like a miracle than the real improvement of situation. I think that this is not any miracle but a tremendous contribution of remittance and spending of foreign tourist—which means the NRB’s report is relied on the facts. As per one of the internal document of NRB (a senior official shared with me in his cabin) shows that the tourist flow even from Eastern Europe is increasing though the financial situation of that region is not in good condition.   

Looking for Another Failure!

Nepal has requested with World Bank for another financial sector support program. As per the information available from Nepal Rastra Bank (NRB), the program has been designed and submitted to the World Bank in November, 2011. The program has accommodated three components: regulation of NRB, loan protection and capacity building. The proposal of Government of Nepal (GoN) will be discussed in the upcoming Board Meeting of World Bank in April 2012.

The decade long '’Financial Sector Reform Program (FSRP)’ supported by World Bank was finished in 31st December 2011. The  FSRP has been failed to meet its objectives. The program was started to smoothen the financial sector of Nepal, mainly to strengthen the situation of Nepal Development Bank (NDB) and Rastriya Banijya bank (RBB). Both of these banks are still struggling to maintain the capital and protect the bad loan they had dispersed.