The approach paper for 13th Development Plan prepared by the National Planning Commission (NPC) is out of touch with the realities of Nepal’s economy. The goal of six percent economic growth rate in the next three years cannot be achieved, given the low prospects of fresh investment and absence of investment-friendly environment. [break]
In the last three years, the economy has been badly hit due to the lack of timely budget required for adequate capital expenditure. Economic growth has been limited at four percent on average in the last decade, which is not going to change without a strong exogenous shock to the economy. The supposedly major contributors to the GDP—agriculture and manufacturing sector—have been underperforming due to acute power shortage.
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The manufacturing sector that had contributed around 12 percent to GDP in the fiscal year 1998/99 could contribute only six percent in 2012/13. This poisonous decline is not going to reverse anytime soon. The only one way we can push up the manufacturing sector’s contribution is by making adequate energy available for smooth operation of machinery. The required energy cannot be provided unless the government invests heavily in hydropower and reforms regulatory agencies of the sector. The government has committed to invest in hydropower, but even if it keeps its word (which is unlikely), it will take another four to five years to generate the required power. In other words, the manufacturing sector’s contribution to GDP is not going to increase in the next three years.
The previous three year plan 2010/11-2012/13 aimed at economic growth of 5.5 percent, which could not be attainted. At just 1.3 percent in 2012/13, agricultural sector’s growth was miserable. This was a sharp fall from the five percent growth in 2011/12. The monsoon-based agriculture should not be used to project economic growth unless the government develops irrigation infrastructure. Two mega irrigation projects, namely Rani Jamara and Babai Irrigation projects, will not be completed before 2015/16. Other small irrigation projects need to be developed in different parts of the country to utilize arable land.
The government in general, and Ministry of Agriculture Development in particular, have been apathetic to implementing plans and programs in the agriculture sector. Farmers run short of chemical fertilizers during peak plantation season. This shortage alone inflicted a loss of around Rs 13 billion in 2011/12.
Farmers who use motors to irrigate their land are suffering from escalating fuel prices. Many farmers in Tarai have left their land fallow because of this. There are two ways of helping them: by developing irrigation facilities, or by making adequate power available to operate their machines. Neither of these is feasible at this time, since the government has no mechanism to implement them at local level.
The contribution of non-agricultural sector has also been declining steadily. The previous three-year interim plan aimed to maintain 5.4 percent growth rate of this sector, but it did not rise beyond 4.2 percent. The causes for this frustrating situation—poor governance, unresponsive bureaucracy, corrupt politicians, unhealthy penetration of INGOs in development activities, passive private sector—are not going to change any time soon.
The government has no concrete plans to manage the 37 public enterprises (PEs) that burden the economy. The cumulative loss that these state-owned enterprises incur each year is more than enough to develop a 100MW hydropower project. The mismanagement at two major public institutions—Nepal Oil Corporation (NOC) and Nepal Electricity Authority (NEA)—has deprived the people of adequate light and petroleum products. The government has no plans to reform these institutions. Unfortunately, even if the government does come up with a plan, history tells us that it is tough to push through reforms in these fields.
Remittance, the lifeline of our economy with 26 percent contribution to GDP, should be properly managed. The government has identified remittance as a major source of expenditure for the next three years. But it would be suicidal if the government continues to rely on this revenue. The supply-side constraints that we have in the economy are hard to fix. Ever-increasing trade deficit is another barrier to our prosperity. The current consumption pattern—consumption without production—just makes our economy more vulnerable.
The approach paper’s ambitious target of graduating the country from the list of least-developed countries is just a slogan that political leaders and development activists want to propagate. The government’s development plan should not be based on unrealistic assumptions that make the entire plan appear shaky. It should rather focus on removing supply-side constraints, developing small and large scale hydropower projects by reforming regulatory mechanisms, managing PEs and creating avenues for investment in productive sectors for households which receive remittance.
The approach paper will be a guiding principle for next three years. It should incorporate people’s aspirations, and list achievable targets. It would be unfortunate if it is no different from political parties’ election manifestos.
The author is
associated with Business and Economic Bureau of Republica
bhoju.poudel1@gmail.com
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