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The concerned authorities have also stated that country’s GDP will be taken to a two- digit level within three years. After achieving 8 percent growth this year, the economy will grow by 9.1 percent next year and a year thereafter it will hit 9.5 percent. During this period of three years, agriculture sector is expected to grow by 6.6 percent and non-farm sector is hoped to grow by 10.7 percent.

Sept. 22, 2018, 9:08 a.m. Published in Magazine Issue: VOL 12 No.05, September 21, 2018 (Ashoj. 05, 2075) Online Register Number: DOI 584/074-75

It is good to get good news about our economy from different government agencies. The first piece of good news related to expected increase in paddy production this year, which alone is said to increase Nepal’s GDP by 1.5 percent. The rains this time have inflicted some injury on the nation, in terms of loss of lives and property, and some good to the economy as is shown by 15 percent increase in area under paddy. The expected 8 percent growth may not remain unachievable this year. The concerned authorities have also stated that country’s GDP will be taken to a two- digit level within three years. After achieving 8 percent growth this year, the economy will grow by 9.1 percent next year and a year thereafter it will hit 9.5 percent. During this period of three years, agriculture sector is expected to grow by 6.6 percent and non-farm sector is hoped to grow by 10.7 percent. Industry and services will increase by 14.9 and 9.4 percent, respectively. Let us pray what is hoped does not remain a mere wishful thinking. Remittance inflow also increased by 8.06 percent, reaching Rs. 755 billion, last fiscal year, accounting for 25.01 percent of GDP.It may be noted that remittance inflow had gone up by only 4.6 percent in the previous year. Nepalis are also happy that Nepal is finally set to get access to four sea ports via China, providing one more transit access. This is believed to open new avenues to begin trade through the second largest economy in the world. Indeed, finalization of the draft protocol to the Transit Transport Agreement is a move toward implementing the transit agreement signed two years ago with China when highly restricted supply of different items ranging from food to fuel from the south for months created a crisis in Nepal, which is heavily import based. As per the draft protocol Nepal will have access to four ports-Tinanjin,Shenzhen,Lianyungang and Zhanjian and also use three ports namely Lanzhou,Lhasa and Shigatse.Opening up of new transit routes with China is indeed a good decision but Nepal is not in a position to take advantage of this act immediately because we are very poorly connected with China,in terms of physical infrastructures, to take advantage of this shorter route to trade with countries like Russia,japan and other north eastern Asian countries. In the current situation, freight costs may not be competitive. Nepal will have to build railways and roads, connecting it with China, so that the initiative taken at a difficult time of crisis starts bearing fruits without much delay.Unaduited financial statements of the commercial banks have shown some 28 commercial banks making very encouraging profit last fiscal year, 18 percent more than what was achieved a year ago. This staggering profit of Rs. 48.70 billion has surprised many observers who had often heard the concerns of these financial institutions about lack of loanable funds and its likely negative impact on profit. There is no point in envying these commercial banks because they are meant to make profit but these institutions should also not turn a deaf ear to the urging of their clients for lowering the lending rates.

Nepalis also watched successful holding of the Fourth Summit of the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) on August 30 and 31. It was nice to have in Kathmandu for some days heads of states\governments of BIMSTEC nations each of which enjoys trade surplus with Nepal, which has not been able to arrest the accelerated deterioration in its external sector. Amongst BIMSTEC countries, our highest trade deficit is with India, it being Rs.764.30 billion last year. With Bangladesh it was Rs.3.70 billion and with Thailand it was Rs. 13.1 billion and Myanmar enjoyed a trade surplus of Rs.4.11 billion. Bhutan and Sri Lanka had a surplus position of Rs. 1.63 billion and 0.30 billion respectively.

Indeed, our external sector is fast deteriorating. Nepal’s total trade deficit last year is said to have exceeded the total actual budgetary outlay. Total budgetary outlay last fiscal year, according to our central bank, which takes into account actual cash spent, is Rs 1016 billion and it is Rs. 1073 billion as per data made available by comptroller general’s office. In either case, the trade imbalance last year has clearly exceeded the actual amount expended through the annual budget. It may be mentioned that Nepal’s fuel import bill increased by 43.1 percent last year to hit Rs.170.13 billion. Despite reduced load-shedding hours, oil imports continued to increase further, contributing toward further widening the trade gap. The fuel import bill accounted for about 14 percent of the country’s total import spending. Appreciating American dollar, increase in crude oil prices on the global market and increased smuggling of fuel into India due to price differences are often cited as reasons for the surge in oil import bill. As has been spoken and written umpteen times that Nepal is not in a position to reap substantial benefits irrespective of trade-related concessions extended to it by friendly nations and agencies because our production base is weak and no mention worthy exportable surplus, with proper level of value addition, is seen in the economy. Therefore, creation of physical infrastructures and strengthening our production base has to proceed simultaneously in a meaningful way. Achieving selfsufficiency, for example in food products, and then generating exportable surplus should be the strategy. Rice production is one area where Nepal could soon achieve selfsufficiency and also reassume its traditional position of a rice exporter nation if the increase in rice production increases for some more years the way it increased last year and is likely to increase this year. In non-farm areas, government should see to it that concessional lending and subsidies are used in enhancing production of items with a satisfactory level of value addition to avoid a situation where increase in export of an item automatically leads to substantial increase in imports. Nepal’s garment export could be a case in point. As far as taking benefits from different agencies including South Asian Association for Regional Cooperation (SAARC) and BIMSTEC is concerned, much depends on our own efforts and initiatives to carry out production-oriented activities in the country. This does not, however, mean that we should not do anything toward extracting favourable terms and conditions from our trading partners just because we do not have much for export in the present. Let us not forget how the two major economies (America and China) are struggling to protect their respective interest, hiking tariff rates on each other’s exports and introducing new regulations to influence the trade.

China and the US are seemingly in trade war, the US introducing new and hiking existing tariff rates on imports from China and the latter reciprocating in a tit- for- tat manner. This trade war between the two largest economies has undoubtedly hurt China, which enjoys huge trade surplus (28.1 billion dollar in July) with the US, but at the same time pig and soya farmers in the number one economy of the world have already begun to feel hurt on account of falling prices of their products, which is a direct result of decreased export of the same to China. The manufacturing sector of the US economy has also been hit as a result of hike in tariff rates on imports of steel and aluminum from different countries including EU, Japan and Mexico. In addition, about 60 percent of American firms operating in China have begun to feel that new tariff rates have adversely affected their business. It may be noted that American firms operating in China create huge internal demand. Understandably, China looks interested to resolve the issue at the earliest without conceding much and President Trump should not be interested in lingering it either, despite his claim that he is under no pressure for China trade talk.in addition to already taxed 50 billion dollar worth of Chinese goods, Trump has decide to impose tariff on additional Chinese imports worth 200 billion dollars. This new announcement is said to have been made to pressure China ahead of trade talk. China has retaliated by imposing tariffs on 60 billion dollar worth of American goods. President Trump is hell bent on extracting major concessions from China and thus wants his delegation to be properly equipped for trade talks proposed by the US. China has welcomed the offer. Nobody can blame Trump for working in the interest of his nation, which currently suffers huge trade deficit with China as well as other major trading partners, but he will have to make moves cautiously so that he does not too much antagonize his traditional allies who are also trading a lot with the US. Trump must be aware of developments taking place in different parts of the world.

Russia and Japan are on the way to striking a peace deal. President Xi of China and Russian President Putin were recently seen munching Putin-baked pancakes and sipping vodka, clearly showing that the personal relationship between the two and their countries is deepening. It may be interesting to note that Chinese investment in Russia increased by 72 percent in 2017.Russia is the largest supplier of Oil to China. Russia is carrying out a huge military exercise in Siberia involving some 300 thousand soldiers and Chinese decision to participate in it is a clear indication that military cooperation between the two countries is strengthening. President Xi is also serious about rescuing Venezuela, which despite having huge oil and gold reserves, is in a serious crisis with thousands of Venezuelan fleeing the country with the highest level of inflation in the world today. Mass exodus of people from that country has created serious problems for neighboring countries, mainly Colombia. What is happening in this country is a clear manifestation that abundance of resources per se does not help much if a country is not properly governed. Some leaders, including Moduro of Venezuela, need lessons on good governance.

Prime Minister Oli may be aware of this reality and also the fact that taxes are not much liked even in a very rich country like the US, let alone Nepal where a large number of people do not have access even to basic necessities of life. Indeed, hike in existing rates and introduction of new taxes by governments at different levels have made the life of Nepalis miserable. Very disappointed by enormous tax increases in goods and services, people have begun to accuse the local and central governments of extortion. They also feel that instead of making life easier, the new policies of the federal government have rubbed salt in the wounds of middle class people whose lives are already difficult. People are obliged to pay whatever they are told without raising any questions. The current dispensation led by Oli may not forget that completion of parliamentary, provincial and local elections under the new constitution had made people hopeful of better facilities and services and increased economic activities, which could pave way in a convincing manner for additional contribution, in the form of tax, to run state affairs. What was hoped and what has been realized is before every one of us.


Dr. Tilak Rawal

Dr. Rawal is former governor of NRB.

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