Nepal on Precipice of Poverty

This article was first published in The Annapurna Express. 

Covid-19 has made the world pause. Nepalis stayed home on the eve of New Year 2077 and started the first morning of the new year with no idea of when they would get back to normal life. New cases of the novel coronavirus continue to appear, adding to the widespread fear. Meanwhile, the government is taking ad hoc measures instead of coming up with a firm strategy to support the poor and sustain the national economy.

The Ministry of Finance, which is supposed to come forward aggressively with plans that can be adjusted each day depending on the scenario, doesn’t seem to have a clue of what’s happening in the economy, let alone be bothered of the impending poverty and privation. Finance Minister Dr. Yubaraj Khatiwada, who seems intent on sidelining private sector and entrepreneurship, doesn’t know what holds the economy together. If he did, the situation today would be much different.

His statements before the World Bank Group Nepal Office representatives exemplified the stupidity, insensitivity, and recklessness of his leadership at this time of crisis. He talked about vague issues that had nothing to do with fighting the broad economic impact of the pandemic.

Likewise, Prime Minister KP Sharma Oli addressed the nation last week. But he too had no message of hope for the panicked public. Rather he spent his time explaining why it’s futile to question the procurement process of health materials from China. Estimates show that globally, around 600 million people will be pushed into poverty and that certainly includes people from Nepal. Those at the bottom of the income and wealth ladder have harder days ahead. But the government is silent on what can be done to help them survive this ‘man-made crisis’.

A recent World Bank update shows South Asia sub-region’s growth falling to between 1.8 and 2.8 percent in 2020, down from 6.3 percent projected just six months ago. Although Nepal’s share in sub-regional GDP is minimal, the country’s economic growth is expected to significant slow down in 2020.

The national economy, including the agriculture sector, has come to a halt. There is no preparation to ensure availability of agriculture inputs as planation time closes in. In the event of the country’s inability to control the crisis in agriculture, the economy will be in a free-fall, driving vast numbers of farmers into absolute poverty. The government doesn’t seem to be paying attention to this critical issue.

There will be severe food insecurity in the country due to supply shock. The World Bank has warned that a rapid spread of the virus could reverse the recent positive trends in poverty and result in high levels of food insecurity and widespread malnutrition among children.

Investment, both domestic and foreign, will fall, leading to lower job creation. A large fiscal deficit will be added to public debt, directly affecting Nepal’s fiscal sustainability. Daily wage earners will be hit the hardest. Remittances will significantly decrease, impacting both forex reserve and the livelihood of those who rely on it. The informal sector, which makes up nearly 70 percent of the national economy according to same estimates, has stopped functioning.

Against this bleak backdrop, the government seems the least concerned and ill prepared to handle the corona fallout. Worryingly, the Ministry of Finance does not seem to have a clue about how to move ahead. It is not having necessary dialogues with development partners, it lacks detailed analysis and insights on what’s happening, and it has failed to undertake a rapid assessment of the economic impact of Covid-19.

Dr. Khatiwada can always argue that even the best of government plans failed in tackling the virus, just as has happened in far more developed countries. But this will be a lame excuse even as the economy teeters on the edge. Let’s hope people won’t have to start dying for the government to come to its senses.

Beyond the growth figures

This article was first published in The Kathmandu Post, May 3, 2017. 

The government has projected that the economy would grow by almost 6.5 percent in fiscal year 2016-17. There were similar higher growth projections from different development agencies. For example, the Asian Development Bank (ADB) has predicted that the growth rate would be somewhere between 5.2 to 6.2 percent in fiscal year 2016-17. The International Monetary Fund (IMF) has stated that the economy would grow by 5.5 percent in its 2017 report. These figures are encouraging for a country that has seen an average growth rate of only 4 percent in the last two decades. 

But the projected higher growth rate is not led by infrastructure development. So the higher growth rate won’t be reflected significantly in people’s lives through job creation and income generation. Since the growth rate is mostly due to timely monsoon and ballooning import of consumer goods, there is a looming fear that it may not be durable. 

The government has identified a total of 21 national priority projects that have direct links with urban, semi-urban and rural populations. Right now, the most important aspect of development is building infrastructure that complements urban life and facilitates rural-urban migration. But the Development Committee under the Legislature-Parliament has concluded that none of the national pride projects would be completed in time. Only four out of the 21 pride projects have completed more than 50 percent of the work. Underlining the importance of fast-paced development of national pride projects, the Development Committee has directed the government to expedite work on these 21 projects.

Urbanisation and migration

Nepal’s average urban population density is 1,381 per square kilometre, whereas the total population density is 180 per square kilometre, according to the 2011 census by the Central Bureau of Statistics (CBS). Increasing urbanisation demands quick construction of infrastructure so that migration and urbanisation are in sync. Kathmandu, Pokhara, other medium-sized cities and some small towns along different highways are expanding, but severely lack adequate urban facilities such as education, health, drinking water, sanitation, public transport, electricity supply and, most importantly, land zoning. 

Remittance has been the mainstay of Nepal’s economy for many years. The official estimation is that the ratio of remittance to GDP is 32.1 percent in fiscal year 2015-16. Income from remittance has registered a 4 percent growth in fiscal year 2015-16, which is reflected in the form of semi-urbanisation in different parts of the country. If the government works to accelerate the pace of infrastructure projects, emerging semi-urban clusters could add value to the overall economic development more efficiently.

Infrastructure development connects rural population to the nation’s economic development, facilitating better access to health, education and advanced means of doing agricultural activities. In such a scenario, youths would find job opportunities in Nepal rather than having to migrate abroad. Evidently, development of high-end infrastructure projects would create job opportunities for all kinds of labourers—skilled, semi-skilled and unskilled. In such a fast-paced development process, Nepal could utilise its own working population to build a prosperous nation.

Infrastructure-led capital spending 

Capital expenditure in Nepal has consistently been low, creating strong barriers to economic development. With less than three months remaining in the fiscal year, the government’s capital spending stands at less than 30 percent of the total capital budget allocation of Rs312 billion for the current fiscal year. The government has to expedite the development of infrastructure projects so that money travels through all the veins of state apparatus and also through the private sector. This would employ a large number of working-age population and boost capital spending. However, there is no magic wand to increase capital spending through infrastructure development. The government has to design, process and implement various infrastructure projects connecting different parts of the country through road, rail and air. 

In addition, health and education infrastructures in Nepal are way below 

standards. For example, a visit to the library of Tribhuvan University in Kirtipur shows how unmanaged and ugly it is. Students studying there do not even get basic amenities such as proper toilets and drinking-water taps. This applies to any public education institution in Nepal. Needless to say, availability of basic amenities can be instrumental in enhancing the quality of education. The government has to spend on improving the quality of health and education infrastructures.

The economic growth rate figures should be directly reflected in citizen’s lives. This happens only if the government actually develops what is required and not just counts the numbers to project an inflated sense of development for public consumption. The projected economic growth rate for the current fiscal year comes mainly from the availability of farm inputs such as seeds and chemical fertilisers, timely monsoon, imports and somewhat increased levels of post-earthquake reconstruction activities. But these are not a result of planned development and expenditure to generate jobs and wealth. There has been no substantial progress in addressing the pressing needs of the economy that could uplift people’s livelihood and lay the foundation to sustain the growth rate in the coming years.

Trickier future path

McKinsey & Company, a management consulting firm, concludes in its Infrastructure Financing Report that inadequate infrastructure—and the resulting congestion, power outages and lack of access to safe water and roads—is a global concern. Worryingly, the pace of urbanisation in Nepal is the lowest in South Asia. As Nepal is entering a new kind of administrative structuring, large-scale infrastructure development might be mired in provincial disputes in the future. The government has to ensure that the national priority projects do not fall victim to bureaucratic inefficiency, provincial disputes and political bickering. As McKinsey & Company highlights, Nepal will face haphazard urbanisation in the near future if the government does not address the issue right now. For instance, the more time the government takes, the more difficult it will be to acquire land for project development. 

Rabindra Adhikari, chairman of the Development Committee under the Legislature-Parliament, has been vocal about reminding the government time and again to complete at least the 21 priority projects on time so that the country’s growth figures will reflect improvements in people’s lives. The more the government delays developing these infrastructures, the harder it will be in the future.

Time to act

First published in Republica Daily

Regulating NGOs
In June 2013, leaders of Nepal’s political parties—except UCPN (Maoist)—jointly issued a press release against the then government’s decision to upgrade the capacity of Upper Trishuli III ‘A’ hydropower project from 60 to 90 megawatts. The press release was prepared in a Kathmandu based office of an INGO working in Nepal. Finance Minister Dr Ram Sharan Mahat was one of the senior leaders in the meeting and had signed that release.
The event was reported by all the major news media. Since upgrading the capacity of the project was not in the favor of country’s economy and power sector, the press release was seen as having good intentions and the move was, quite rightly, not questioned by anyone, including the media. But the question arises: Why did senior leaders of major political parties issue the press release from an INGO office?
What’s wrong in doing that in a country where more than 60 percent of the fiscal budget comes from donor agencies, you may argue. You are right in a way. But it raises some serious questions: Aren’t we an independent nation? Don’t we have to deal with our issues ourselves? What sort of development practice are we undertaking? What is the distinction between government agencies, political parties and I/NGOs? What is their role in country’s development? How should they be working and what kind of moral and ethical codes should the political parties follow when it comes to I/NGOs?

Dr Mahat, who engineered the development plan that yielded record high economic growth rate and created an environment for entrepreneurship post-1990, has recently assumed the office of Finance Minister for the sixth time. But we must not forget his inability to limit the level of corruption which partly caused the increase in the gap between the rich and the poor. This created a fertile ground for Maoist insurgency. Now is the right time to ask him about his policy toward I/NGOs as well as bilateral development agencies that are hesitant to funnel money through government mechanisms.
It is an understood fact that the Maoists exploited massive inequality in the country in order to further their movement. Former Prime Minister Baburam Bhattarai, the chief architect of Maoist insurgency, drafted his political-economic rationale based on inequality that could not be addressed in post-1990 development. The result of the recent election, where Nepali Congress and CPN-UML emerged as the two major parties, is not a mandate for them to hobnob with the elites and sideline the marginalized people. While democracy and capitalistic system are the most convincing systems in the modern development course of the world, it should not be an instrument to create a vacuum, again, for another kind of ‘unjust’ society.
Development institutions like World Bank and Asian Development Bank are trying to help Nepal build infrastructure that the country needs at this moment. There are other genuine bilateral development partners, who are our long-term friends, and who definitely want to see Nepal become a prosperous country. But we should think about I/NGOs that work without much of a rationale to their work. It might be hard to make a black and white judgment about their contribution in country’s development but political leaders should try to stay away from these sorts of I/NGOs.
There might be an argument that these I/NGOs are a part of civil society. But the question has already been raised about funded organizations being part of the civil society. It becomes more and more difficult to draw a line between a genuine development-oriented organization and a mere propaganda machine of some group when it comes to I/NGO movement. The question, again, is what kind of moral and ethical ground can be built to have a meeting to issue a press release against the government’s decision in an office of an INGO. Moral and ethical questions may sound vague, but we have the right to expect answers from our leaders. Who in today’s society can show a sense of morality and ethical behavior if the leaders cannot?
It is not justifiable to put all I/NGOs in the same basket but what is our standard to measure them and figure out which one is working in whose interest? Mahat is right in what he has written in his book In Defense of Democracy: Dynamics and Fault Lines of Nepal’s Political Economy about the loss of Arun III because of INGOs against the project. What about his attitude towards I/NGOs now? Are politician Mahat and author of the book two different people?
The incumbent government, particularly Finance Minister Mahat, has shown an unprecedented interest and enthusiasm in hydropower sector since the formation of the government. It’s appreciable. It is also true to a large extent that the economic decision that made by this government will be an outcome of what Mahat believes in and does. For that matter, it is important to ask him some fundamental moral questions at this time. Any small mistake that we make now will have a long-lasting impact in country’s economic course.
This one case in the hydropower sector demonstrates how we largely fail to comprehend the dynamics of development. Development and prosperity are more accessible to a large section of people in a free and democratic society. But the execution of programs and policies should be done carefully.
In this backdrop, we also have to be considerate about the difficult coalition government and its limitation. But that does not give the leaders an excuse to be too accessible to I/NGOs in the country. The present government has to be bold enough to ask all the bilateral development partners including India to spend development aid through the Red Book of the Finance Ministry. This will not only help us be more transparent but also develop a system that will be institutionalized in the long run.
Lastly, we have to learn from African country Lesotho. It is still a poor country despite the fact that it has been receiving development assistance from more than 30 developed countries and is a hub of I/NGOs in the name of development. According to the anthropologist James Ferguson, the people of Lesotho have been subject to experiment and the joy-ride of development money. Let’s hope Mahat will not let the Nepalis be subject to similar experiment for ‘development anchors’.

Path to prosperity

First published in Republica Daily

“I have never been to Nepal, but the first thing that comes to my mind when I think of Nepal is tourism. I want to visit there one day,” one of my German friends said over dinner as we talked about Nepali economy. He further added that he assumed tourism sector made significant contribution to Nepal’s gross domestic product (GDP). In reality, tourism contributed a mere 1.8 percent to our economy in 2012/13. But my friend’s assumption is not wrong, as our government has acknowledged that tourism sector might help us maintain a healthy balance of payment (BoP).
Tourism’s paltry contribution to GDP indicates we have failed to tap the resources we have. The tourism sector—which neither demands large-scale investment nor requires significant policy reforms—can lead us out of underdevelopment. This sector can create job opportunities for all sorts of people—skilled and unskilled, educated and uneducated. Already, more than 160,000 people are employed in this sector in Nepal.
As our conversation progressed, we started talking about how, historically, no country has become rich without a foundation of industrialization. Nepal is not going to have an industrial revolution in the near future that will help it break the vicious cycle of underdevelopment. And even if it does, it cannot penetrate big markets in the world. Constraints like difficult geography and weak competitive edge will severely limit it. The services sector, especially tourism sector, is our only hope for prosperity.
Nepal can neither invest big to increase economic growth, nor does it have a competitive advantage in manufacturing sector. Our agricultural sector is still at subsistence level, remittance is not being utilized productively, and manufacturing is under pressure from long power cuts and trade unionism. In this scenario, focusing on the tourism might give it the impetus to economic development.
Additionally, the most beautiful part of focusing on tourism sector is that it gives us the incentive to preserve our culture, natural resources and customs. We can become an exemplar country by attaining economic growth without ruining the environment and natural resources.
In a recent report, Nepal Rastra Bank (NRB) stated that the country can accommodate around 7.44 million tourists annually. The report, based on field study, also highlights how Nepal’s failure on tourism promotion impacts tourist inflow. This was reflected in tourism’s decreased contribution to GDP: 2.8 percent in 2008/09 to 1.8 percent five years down the line.
We have had different programs in the past to promote tourism, but we could not achieve as much we wanted. Tourism’s contribution to GDP never reached higher than 2.8 percent. Given our comparative advantage in the sector, we could achieve much more. The economies of China and India are growing, and the emerging middle class of these countries are looking for short and reasonably priced holiday destinations. We could attract many of them.
We don’t have to build star hotels or construct multilane highways or invest billions to attract tourists. We already have many things tourists like. What we have to do is coordinate among ourselves, come up with different packages, and advertise them around the world. People make decisions based on the information they have at hand or receive easily. So we need to make our country’s name familiar across countries.
We need not focus too much on high-end tourists, though they are important. We can be a destination for tourists who seek places that are natural, calm and spiritual. Many such tourists are backpackers. If they venture into hidden nooks and crannies of the country, that will create jobs at the local level.
There are certain things, however, that we need to do to make tourism sector more productive. The first is to improve the quality of our international airport and create a smooth transportation system. We have to stop frequent bandas and our habit of making too much political noise, which spreads fear among potential tourists. If the government could ensure this, there are many local entrepreneurs who would be happy to serve tourists who come for short vacations.
The United Nations believes that sustainable tourism can contribute to achieving Millennium Development Goals (MDGs) in least developed countries. The tourism package program called KONSO Project in Ethiopia is an example of how this sector can help create small scale jobs and reduce poverty. The project was launched by World Tourism Organization (UNWTO) in 2007 in response to a request from the Ethiopian Ministry of Culture and Tourism. It was supported by other development agencies in Konso district in Ethiopia. Following the example of this successful project, we too can urge different agencies working in Nepal to help launch different programs to accelerate the development of tourism sector.
Our expenditure in the tourism sector is limited to 2.4 percent in 2012/13, which we can increase in coming years. Increased focus on tourism might encourage entrepreneurship among the youth who leave for the Middle East in search of jobs.
“Achievement from tourism sector could not be made as expected despite abundant potential of this sector, as it could not be developed to its maximum,” reads the economic survey of 2012/13. Development and marketing of touristic commodities and services is our challenge. Let’s overcome it.

Public eyes needed

First published in Republica Daily

Civil society and economy
It is believed that a society is largely driven by its political framework. But the history of human development hints at something different. It is often the economic status of a country that gives it a stable political framework.
Historically, Nepal’s civil society has been concerned, perhaps too much, about politics and political institutions. Its role in guarding politics and political institutions has been impressive throughout history. During every major political change, civil society has perhaps been more important than political actors themselves. But we never had a strong civil component to watch over economic institutions.
Theoretically, civil society need not be involved in the economic sphere at all, as all individuals are rational beings and can make decisions for their own betterment. But that need not be the case. Our government’s expenditure is large, and not transparent. To make government aware of its inefficiencies, we need a civil society focused on economic activities.
The civil society’s role is not limited to overseeing the management of tax money. It should also speak out against corporate giants. The recent attempts to bring Monsanto into the country, and Rajya Laxmi Golchha’s entry into the Constitution Assembly are extreme cases that call for a strong civil society on the economic front. Economic development is a collective effort of the private and public sector; the problem is that our private sector has become rather irresponsible.
Economic development is not a single incident. Prosperity is the result of many small and large scale activities and sound economic policies. But at the bottom of all these things, there should be an honest private sector and functional public sector.
The opening up of the economy in 1990 brought significant changes to people’s lives, but they were not enough to improve daily lives of people. The private sector in other countries has been able to create jobs and increase production even when the political situation is not favorable. Bangladesh is an example. In our case, private sector is always demanding one thing or the other. The umbrella organizations of the private sector, Federation of Nepalese Chambers of Commerce and Industry (FNCCI) and Confederation of Nepalese Industry (CNI), both are inactive.
In our country, economic development is not synchronized with social and political development. Our social and political awareness are way ahead of our economic awareness. In theory, no economist, policymaker or businessperson would agree to have a civil society that is a hindrance to economic activities of the private sector. But in practice, it has been a necessity in a country where there are far more traders than real entrepreneurs, and there is a vast difference between the two. Making profit is neither bad nor dishonest, but it should be fairly gained and socially responsible.
Francis Fukuyama writes that economic activity represents a crucial part of social life and is knit together by a wide variety of norms, rules, moral obligations and other habits that together shape society. The idea of a civil society that looks after economic activities is to build a society where trust prevails.
The question here is whether media can be that civil society that safeguards the ethics of the economy, as it does in politics and governance. No media seems ready to speak against private sector ‘mafias’. Government and political dictators have repeatedly failed to manipulate the media. But corporate interest groups, unlike the government, can easily make a media house blind to their wrongdoings, and thus prevent them from being honest watchdogs of society.
The need for a civil society that carefully watches over economic and development activities that have a significant impact on people’s lives has been felt in many instances, including in Upper Trishuli 3A and the development of Melamchi Drinking Water Project. But we hardly get news of such activities because the media is run, directly or indirectly, by corporate giants that are involved in these activities. Most journalists have had their journalistic freedom compromised while covering issues related to private sector’s mischief.
The media should be able to play the role of civil society in any area. Journalism’s roots come from gossip-mongers. Historian Yuval Noah Harari from Hebrew University in Jerusalem writes, “Gossip usually focuses on wrongdoings. Rumor-mongers are the original fourth estate.” This historical background of journalism should enable it to warn society about cheats and freeloaders in the private sector. But it has failed to do so in many cases.
A strong civil society in the economic sphere has become necessary as the country’s political situation seems more and more uncertain. Therefore, it is time to call for an effective civil society that monitors the economy. We need an independent civil society that works to make economic institutions accountable and urges public offices to perform better.