Ignored Economic Problems

Our agriculture has remained highly unproductive, with annual output per worker estimated at us dollar 208, and most of the agricultural products are imported from outside for domestic consumption in agrarian Nepal where agriculture still accounts fo

July 4, 2010, 5:45 p.m. Published in Magazine Issue: Vol. 04 No. 03 July 2-2010 (Asadh-18, 2067)

It could sound rather foolish to talk about economic issues at a time when political problems have remained unresolved, currently unattained, despite repeated promises of our leaders to resolve political problems and then concentrate on economic issues. Notwithstanding this sentiment of our leaders and their prioritization, , I for one decided to raise economic issues one more time especially in the face of growing uncertainty about the presentation of the annual budget and my chance, as a CA member, to perform the annual ritual of professing on it in the legislative wing of the Constituent Assembly called for July5.Indeed,with UCPN Maoist appearing  resolute to disrupt the house proceedings and Mr. Nepal see- sowing on the exit issue, budget discussion and its approval this time is likely to be  more complex than the previous two years which saw delayed approval of it. The most disappointing thing about our economy is that the external sector has more or less collapsed. Merchandise trade deficit is expected to be around Rs.342 billion constituting 29 percent of the estimated GDP (Rs.1182 billion) for the current fiscal year. This has been a record deficit. This situation is the result of skyrocketing imports (likely to cross Rs.400 billion this year) and disappointing export (likely to decrease to Rs. 60billion from Rs.67billion  last year) performance. Our agriculture has remained highly unproductive, with annual output per worker estimated at us dollar 208, and most of the agricultural products are imported from outside for domestic consumption in agrarian Nepal where agriculture still accounts for 34 percent of our national GDP.Further, industrial output has not grown, remittances, used basically for consumption of imported goods, are increasing at a decreasing rate and tourism income has decreased  so far by about 4 percent  as against a remarkable rise of more than 46 percent in the corresponding period  of last fiscal year. The outflow has been more than the inflow of resources into the country and the net result has been a huge deficit in our balance of payment (BOP), which is talked about by all and sundry, in most cases without proper understanding of it. An attempt here is made, therefore, to share my little knowledge and thoughts on the subject and its seriousness.


BOP data enable us to understand our country's transaction with the rest of the world during a given period of time. BOP is broadly categorized under two heads- current account (goods services, income and transfers) and capital\ financial account comprising foreign direct investment (FDI) and other investment accounts including the government loan transaction. When a country pays more than what it receives under these heads, it faces a difficult situation commonly known as the BOP problem. Nepal's situation today is like that of a rural household that buys a lot from the market and receives very little from outside through sales of whatever little marketable surplus it has generated. As the rural households, devoid of resources, get into serious problems, so could be the case with Nepal if serious attention is not paid to reviving the long-stagnating economy. On the trade front, Nepal is experiencing a pitiable situation as is amply manifested by a deteriorating export\import ratio of 16.This means we are buying things worth Rs.84 from outside and sells to outside world amounts to a meager Rs.16.Seriousness of the situation demands concrete action and any effort to belittle the gravity of the problem, citing similar cases in the past, should be checked.Indeed, the present situation is very serious. It may be mentioned that ever since Nepal Rastra Bank started compiling and publishing BOP figures in1972\73, Nepal had BOP surplus in 30 years and deficit in 7 years, excluding the current one. Fact to be noted, however, is that the current deficit of Rs.17.36 billion is 2.16 times the combined deficit of previous seven years totaling Rs. 8 billion. Current account in the10 months of the current fiscal year registered a deficit of Rs.37.78 billion compared to a surplus ofRs.37.04 billion in the corresponding period of last year. A new record has been created on the trade front, too. Likewise, foreign exchange reserve suffered erosion in   terms of import (goods and services) capacity, from 10.1 months last year to 6.6 months currently. This slide that took place in 12 months time is said to be the sharpest ever. Failure to manage public expenditure in a proper way has been distinctly reflected in a huge share of recurrent expenditure to total expenditure. Having created unprecedented negative records on several fronts of macro economic fundamentals, it can be concluded that the current dispensation has failed the economy. We have failed on the external front as is shown by huge deficit in BOP and also on the internal front as is clearly manifested by a long spell of double digit inflation. High level of inflation coupled with lackluster performance of the economy (expected to be around 3.5 percent this year as against the planned target of 5.5 percent) has stopped any movement of the economy towards a positive direction. Nepal is probably the country with the lowest rate of growth amongst South Asian countries some of which have seen and are still experiencing intense internal unrest. More hurting than the poor economic performance is the recently publicized fact that Nepal has emerged as the most corrupt nation in South Asia, surpassing Bangladesh, Pakistan and probably reaching the level of Afghanistan.  From its 121st position last year, Nepal slipped 22 places down to occupy the 143rd position in the list of 180 countries. This is a record level in the history of Nepal, states a report of the Transparency International (TI) publicized recently in Berlin. Those at the helm of affairs should remember that these facts have come from an independent agency that has hardly anything to do with Mr. Nepal's continuation or ouster from the government.

Honesty in political leadership is prerequisite to faster economic development, preached a senior government official from Pol Pot devastated Cambodia. Majority of Cambodians have begun to enjoy the benefit of an annual growth rate of around 10 percent and their visionary and honest political leaders are credited for the new wealth generated and its distribution to alleviate poverty in the country. Let alone countries like China, India and Vietnam with unparallel economic progress achieved in recent years, we can learn lessons from Idi Amin-ruined Uganda that has become the darling of multilateral and bilateral donors since long. The lust for power seen in top leaders of our major parties is really indigestible and it is high time that they endeavoured to establish themselves as honest leaders, if not visionary. Can our leaders do something nice for us to follow suit?

(Dr. Rawal is a former governor of Nepal Rastra Bank and currently a member of Constituent Assembly. He is a prominent economist of the country)

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