Mismatched labor market: Case from Japan

Ippei Shibata in a working paper argues that the labor market has been sharply mismatched in terms of occupation and employment type. The unemployment rate in Japan is low but it is steadily increasing in last three decades. The 10-year average unemployment rate rose from 2.5 percent in the 1980s, to 3 percent in the 1990s, and to 4.7 percent in the 2000s. 

Shibata asks is the labor market mismatch a big deal in Japan. yes, it has been a problem. “It is an important issue and policy measures and structural reforms that can successfully reduce labor market mismatch in japan will play an important role in the future,” reads the paper making conclusion. 

IMF warns Nepal to manage spillover effects from Indian economy

International Monetary Fund has warned that the Nepal's economic outlook in fiscal year 2012/13 will be more challenging compared to previous fiscal year 2011/12. The report prepared by IMF after completing the Article IV consultation in Nepal has highlighted the challenges that the economy will be facing in the current fiscal year. As it highlights that the gross domestic product (GDP) growth is estimated to go down at 38 percent in this fiscal year which was maintained at 4.6 percent in the fiscal year 2011/12.

Here are the major challenges that the IMF has showcased for Nepali economy in the current fiscal year

• The real GDP growth is projected to decline to 3.8 percent, reflecting a weaker monsoon and slower services activity as remittance growth may slow.
• Spillover effects from declining growth in India (through lower export demand, weaker inward investment and possibly less remittance) and the dampening effect of continued political uncertainty will also present further challenges to growth in Nepal.
• Inflation is also in rise, and upward pressure on prices may increase in line with projected developments in India over the next few months.

The 2012 article IV consultation has focused on managing the downside macroeconomic risks and financial sector vulnerabilities. The IMF has suggested various recommendations to the government of Nepal to take. The recommendations of the IMF are as follows:

• To secure macroeconomic stability and to foster sustainability and inclusive growth, IMF emphasized continued commitment to sound policies and structural reforms, particularly in the financial sector.
• There should be continued fiscal prudence, consistent with the objective of keeping public debt roughly constant over the medium term.
• Act expeditiously to pass a full-year budget for 2012/13 and to strengthen public financial management to ensure full execution of the capital budget.
• Address the quasi-fiscal liabilities arising from financial losses at Nepal Oil Corporation and Nepal Electricity Authority.
• Need for targeted and well sequenced acceleration of financial sector reforms, including the amendment of Nepal Rastra Bank Act to improve the governance of the financial sector and broadened prompt corrective action framework.

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.