challanges of economic development of nepal

8/12/2019 Challanges of Economic Development of Nepal

1/4

Introduction:

Nepalsgeo-physical setting and time-zone location assume strategic significance in South

Asia. The rich biodiversity comprised of three ecological regions - mountain, hills and terai -

experiencing tropical, meso-thermal, micro-thermal, tiga and tundra climates provide 60-80

percent of the rainfall. The country possesses 2.3 percent of the worldshydro- resources

attributable to four principal river systems, the life-line of Nepalese economy viz., Koshi

(east), Gandaki (central), Karnali (far-west) and Mahakali (far-west). Nepal has enormous

advantages and competitive edges to create for a most popular tourist hub and global

destination for tourists from all over the world. Preliminary geological surveys reveal that

subterranean resources are available in the country. However, the extent and commercial

potential of these mineral deposits are not exactly known.Nepal is bestowed with 6,000 rivers and rivulets, 5,000 species of vascular plants, 175

species of mammals, and 850 species of birds and some specific herbal and medicinal plants

are used for the treatment of cancer. Of total approximately 30 million population, the size

of economically active population aged 15-59 years is estimated to be 54.2 percent (NLSS

III, 2010). Nepals territory is double the size of Sri Lanka, 3.5 times greater than

Switzerland, 6.7 times bigger than Israel, 23 times smaller than India, and 68 times less

than the size of China. The striking features of Nepalese economy constitute that

productivity and rainfall steadily increases from west to east; poverty is more acute and

pervasive in the north as compared to south; and migration tends to shift from north to

south.2. The Current Economic Situation:

Nepalese economy is passing through a crucial phase circumscribed by poverty and

stagnation. The macroeconomic indicator reflects that Nepal suffers from a sluggish

economic growth rate compressed to 4.6 percent in FY 2011/12 against the target of 5.5

percent as envisaged in the 3-Year Interim Development Plan, 2010-12 (NPC, 2010). The

average inflation rate is hovering around 11.9 percent in August 2012, highest in the last

twenty-five months (NRB, 2012). The diminutive GNI estimated to be US$ 19 billion and

inordinately low GNI per capita (approx. US$ 745) exhibit that Nepal's economy isconspicuously trailing behind other member countries in the South Asia region (WDR,

2012).The economy is characterized by high cost economy, subsistence agriculture and alarmingly increasing

dependence attributing to built-in structural constraints and dwindling comparative advantages and

competitive edges to maximize benefits from globalization and liberalization. More than 74.0 percent of the

total population still derives their livelihood directly from agriculture, which is encapsulated by staggering

magnitude of disguised unemployment, mounting rural indebtedness, and a high incidence of poverty. A

vast majority of the people (25.16 percent) still live in abject poverty with wretched economic condition and

perpetual struggle for sustenance.The rising consumption, poor savings and encouraging investment/GDP ratio led to a large fiscal and budget

deficits. The fiscal and budget deficits are estimated to be 8.6 percent of and 4.3 percent of GDP, and total

outstanding debt leveled at 32.7 percent of GDP in FY 2011/12 (Economic Survey, 2012). Merchandiseexports grew at a slow pace and imports rapidly increased resulting in a huge trade deficit (Rs. 387.41

billion) in excess of the size of annual budget (Rs. 327.8 billion) during the same period. Unfortunately, the

total magnitude of exports (Rs. 74.3 billion) is unable to match the import bill of petroleum products

equivalent to Rs. 94 billion in FY 2011/12 (NRB, 2012). However, balance of payments situation (Rs. 127.70

billion) remained unexpectedly favorable and foreign exchange reserves moderately increased to sustain

imports of goods and services for 10.3 months during the same period. Growth of remittances has been robust as high as 23.0 percent of GDP, which has been

instrumental in reducing extent of poverty over the years. Share of foreign exchange


2/4


3/4

people ensuring a high quality of life to each individual and household within given

timeframe.The specific strategic objective should be to: (a) increase diminutive magnitude of GNI from

US$ 19 billion to US$ 100 billion and transform economy from a low income with US$ 745

GNI per capita to the level of middle income economies with average GNI per capita

estimated to be US$ 3,764 by 2025; and (b) ultimately, make Nepal the Switzerlandof

Asia by 2050.7. Conclusion:It is necessary to devise a model for export-led and private- sector led open and

competitive economy with due consideration to social security and welfare of the people.

The model must ensure a high growth trajectory with substantial poverty reduction

especially through mobilizing FDI on a greater quantum for infrastructure development. It is

important to explicitly distinguish the sector functions to be undertaken separately by the

government and private sector.There is need to expedite both vertical and horizontal merger of financial institutions by

offering attractive package of incentives. The defaulters should be given a maximum three-

month time to settle the loan above Rs. 10 million borrowed from financial institutions. In

case of delinquency the government and NRB should strongly act against the defaulters to

expedite repayments through the sale of collateral including from the personal guarantee.

The primary function of the cooperatives should be tied-up with the production activities for

creating employment opportunities especially at local levels, and this should be made

mandatory.There is need to set reordering of priorities and correspondingly determine the level of

investment based on viable economic areas comprising hydropower, tourism, bio-diversity,

human resources (foreign employment and remittances), limited exports (carpet, garments,

handicrafts and pashmina), and agriculture with special reference to high value crops. The

government should effectively induct and implement the policy of economic diplomacy to

expedite bilateral trade and investment on the basis of comparative advantages and

competitive edges with friendly countries in cooperation with Nepalese diplomatic missions

abroad. The economic diplomacy should also be instrumental to mobilize foreign assistancein priority areas especially in the context of economic growth and poverty alleviation.All state owned enterprises (SOEs) except specified by the government should be privatized

within a maximum three-year period. The government should totally abandon the policy to

undertake business, establish industries and provide subsidies to SOEs, for this comes

under the jurisdiction of private sector - a vehicle for economic development. The

government should effectively work in tandem with private sector to attract FDI for initiating

mega-projects in priority areas by creating investment-friendly environment conditioned to

enduring peace and stability in the country. In compatibility with the spirit of liberalization

the government should open up access to investment across the country and maximize the

benefits from globalization especially through promoting joint ventures in banking sector. A scientific land reforms system should be introduced with a view to increase productivity of

agriculture and individuals must have the right to create wealth but with payment of taxesto government as per the existing rules and regulations. The government must be able to

abolish dual ownership on land by offering reasonable package of incentives to absentee

landlords if they are willing to relinquish ownership and transfer entitlement to the actual

tillers. The new constitution must have the provision for ensuring food security as a

fundamental right.Industrial relations need to be substantially improved through initiating tripartite agreement

among private sector, trade unions and the government. The development plan, annual

budget, national policies and programs should be formulated on the presumption of


4/4

interdependence to galvanize the cooperation from neighborhood economies, donor

communities and multilateral funding agencies. The National Planning Commission (NPC)

should maintain its separate entity and play the crucial role of a Think-Tankat macro-level

backed by legal status to effectively implement its decision and formulate the periodic plans

ensuring appropriate delivery of the results.The NRB and Department of Cooperatives under Ministry of Agriculture and Cooperatives

must strengthen their capacity to effectively supervise a large number of financial

institutions in the country. The quality of middle-level manpower aspiring for foreign

employment should be improved. Since tax burden is relatively higher in Nepal compared

with South Asia region employing GNI per capita criterion, the tax system must be made

simple, transparent and competitive to attract FDI and promote indigenous investments. In

this context, special economic zone (SEZ), industrial corridors and industrial estates must

operate more effectively to promote exports.

challanges of economic development of nepal

Documents