In Nepal, there still exist a record number of unemployed workers among the 400,000 new entrants to the labor market every year. Unemployment will become more acute in Nepal in the next decade as the labor force in the region is also expected to grow by around 2.1 percent a year, warns the International Labor Organization. Despite the growing number of Nepalis going abroad to work, the number of unemployed has not declined. The employment-to-population ratio (the proportion of persons aged 15 and above) has declined from 84.3 percent in 1998/99 to 81.7 percent in 2008. The larger the number of working poor in wide informal economies, the greater is the percentage of exclusion.
The case for labor market reforms has been more pronounced especially after the global financial crisis. However, there has been no success in generating real additional employment opportunities. Nepal’s promising financial sector has a dismal record in lending adequate credit to enlarge economic activities; influencing lending behavior in productive sector investments; and creating employment opportunities in Nepal’s disadvantaged regions. Also, Nepal is facing severe macroeconomic shocks from the additional problems of liquidity crunch, which is beyond the known theory of monetary economics. This has made it necessary to reassess the Nepali monetary policy model and its links with overall financial sector regime. Let’s begin by looking at the microeconomic data.
The latest data on key macroeconomic indicators reveal the liquidity scenario, which explains the contraction in economic performances/activities. By mid-February 2010, deposit mobilization of commercial banks increased by only 3.9 percent (Rs.21.6 billion) compared to the increase of 12.2 percent (Rs.51.3 billion) in the same period last year. The liquid assets of commercial banks declined substantially by 10.4 percent against a growth of 3.4 percent The higher growth of banks’ credit compared to their deposit mobilization has changed the liabilities/assets structure by increasing the credit-deposit ratio to 91.3 percent from 81.2 percent in mid-July 2009. On the other hand, the liquidity-deposit ratio declined to 29.5 percent in mid-February this year, compared to 34.2 percent in mid-July 2009.
The overall Balance of Payments (BoP) shows a deficit of Rs. 21.83 billion against a surplus of Rs. 25.68 billion. Merchandise trade deficit grew by 62 percent to Rs. 180.20 billion compared to a growth of 27.8 percent. Foreign exchange reserves dropped by 13.5 percent to Rs. 242.22 billion from Rs. 279.99 billion compared to the review period last year. Against this backdrop, an increase of recurrent expenditure by 36 percent and decline in workers’ remittances, which grew only at 13.6 percent to Rs. 124.31 billion compared to the significant growth of 58.6 percent in the corresponding period of the previous year, has obstructed smooth functioning of the highly pronounced strategy of inclusive growth.
The excluded group is usually in a minority; therefore, the political parties do not have any incentive to address their problems. Since by definition, this group is poor, it cannot on its own take on a leadership role in politics either.
UNEMPLOYMENT
After the global financial crisis both developed and developing economies are facing the same problems of maintaining employment. For example, even after the rebound of the US economy, it is anticipated that the recession and follow-up rescue plans will leave more Americans unemployed than the past recessions. It is feared than about 2.7 million poor people will lose their unemployment benefits. For the first time, a majority of the American middle class is relying heavily on public assistance.
As mentioned above, liquidity crunch has further restricted the flow of money to small businesses and new ventures that could generate new jobs. Therefore, Nepal should seriously take up the urgent task of labor market reforms to correct the labor-related distortions and depressing economic performances. Delayed amendments in market regulations and taxation policies have widened the suspicion between the employers and employees. It is sad that there is no policy design and seriousness in integrating the informal markets, which accounts for almost 90 percent, into the formal sector employment. Until the government moves forward with the tripartite dialogue for labor market reforms, inclusive growth will remain an illusion. This leads us to the issue of social protection.
Except the inadequate and voluntarily designed informal sector protection schemes, the existing social security measures have failed to cover a large segment of people who have no social protections whatsoever. Although there are some positions in selected enterprises, many lack the special requirements of these institutions. Delay in sector-specific capacity building of Nepali workers could lead to their replacement by foreign workers in service sector. In theory, social protection provides services for the loss in income to individuals who suffer from a range of ‘contingencies’. These packages include access to health care and basic social services. However, as long as Nepal regards ILO Convention No. 102 as a formality to alleviate the loss of income, the government does not seem to have a strong motive to implement human rights-specific social security. This has an indirect impact on labor productivity.
INCLUSIVE GROWTH
Inclusive growth forms the basis of Nepal’s development policy. The case for inclusive growth is strengthened because Nepal has been experiencing social, political and economic exclusion for several decades. The uneducated and unskilled do not have employment and educational opportunities, and are thus excluded. Therefore, there is a need to conduct scoping exercise to find out the dimensions and causes of exclusion.
In any given society, people are divided on the basis of their social class, educational status and standard of living. Their integration by participating in social activities and accessing services depends largely on their comparable living standards. This is where policy interventions may be required.
The excluded group is usually in a minority; therefore, the political parties do not have any incentive to address their problems. Since by definition, this group is poor, it cannot on its own take on a leadership role in politics either. Usually in the under developed world, political parties are dominated by vested interest groups. And, as such, the ruling parties are not neutral, which widens the possibility of exclusion of minority groups.
It suggests that social inclusion requires a multi-faceted approach to policy and action. As the minority does not benefit from economic growth, it possesses limited assets and therefore faces discrimination in the labor market. Economic exclusion of workers is visualized from three basic markets in Nepal – labor, credit and insurance. This creates a vicious circle – exclusion increases inequality, which in itself is the cause of exclusion.
In Tarai, the literacy rate of Madhesi Dalit children in primary school remains merely 10 percent. It is suspected that this could be the reflection of poverty resulting from caste-hierarchy, necessitating the development of sound intervention tools to address Nepal’s exclusion.
Although the overall poverty declined during the National Living Standards Survey II (2003-04), the ethnic minorities from the Tarai and eastern and central hilly regions remained poor. As in the past, 8-9 percent growth was achieved largely in urban areas through macroeconomic reforms but poverty was two-and-a-half times higher in rural sectors, a reflection of structural inefficiency in Nepal’s policy formulation and execution modality. This needs to be addressed in the forthcoming Three Year Plan (2010-2013).
There seems a fairly good competition among the development partners to focus on the most deprived under the ‘pro-poor’ approach. It is proved that greater weight given to the poor results in higher incomes, which grows faster than those of the non-poor. The problem of poverty among the great mass of non-poor escalates equity consideration. As long as the problems of the majority of non-poor remains unchanged, the strategy to focus too much on deprived sector may prove counterproductive. This issue may need special care while developing pro-poor policy especially by Nepal’s development partners.
bishwambher@yahoo.com
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