Assessing the country’s total wealth

Published On: September 30, 2021 06:30 AM NPT By: Shanker Man Singh

Finance Minister Janardan Sharma has announced an assessment of the country's total assets. He has said that he will launch a campaign to assess the country's wealth and will not back down from it. In Nepal, for the first time in 2067 BS, an attempt was made to start a program to assess the country's wealth. Although the then finance minister announced the program, it did not start.

“Some time ago, I raised the issue of assessing the total wealth of the country. I have not backed down from this campaign. What is the total annual turnover of this country? The statistics of formal transactions may come, but how much worth is the informal sector? What is the whole account of Nepal? The idea is to find out. How can this be done? ” asked Finance Minister Janardan Sharma aka Prabhakar, recently.

He added, "Some people are shocked that I'm talking about searching for personal property. But, I am not trying to say that. I want to assess the wealth of the whole country. ”

But the question ‘why’ arises? And how to do it?

GDP options: Global economists and politicians use seven methods of measuring a country's wealth as a measure of the country's gross domestic product (GDP) and as a final measure of a country's wealth. But as more and more economists question the true value of GDP, there is a growing need to look at GDP alternatives to measure the wealth and well-being of countries. What is GDP? The purpose of a country is to analyze wealth. It appears in all goods and services exchanged within the borders of a country in a given year.

When economists talk about GDP, they are often talking about the "real GDP" which is adjusted for inflation. And when you measure a country's wealth using this method, you get a ranking that looks like this: first place: United States, second place: China, last place: Tuvalu.

What's wrong with this? As economists like Joseph Stiglitz point out, the GDP cannot accurately represent a country's wealth when it ignores how money is divided. Considering the GDP alone, a rich country where 10 percent of the population controls most of the wealth may rank higher than the poorest country with higher distribution of wealth. This is only a part of the problem.

One of the biggest weaknesses of GDP is that it treats tragedies as economic bonuses. If a hurricane or tornado hits and costs millions of dollars to rebuild a country, those costs boost GDP, even if people lose their homes, jobs, and lives. And that's not all. GDP ignores many important ways of measuring a country's wealth: clean air, health, age, gender equality, opportunity, education, etc. What is the alternative to the GDP method?

The alternative: gross national happiness

King Jigme Singye Wangchuck of the Buddhist Empire of Bhutan once publicly announced that he no longer wanted to increase GDP. Instead, he said, his country would use energy to boost its gross national happiness (GNH). Guided by the principles of Buddhism and caution, the king decided that a more spiritual and holistic approach was necessary to reflect the needs of his country. The Global Wealth Report 2014 defines wealth as a person's "net worth". This, in turn, is calculated by subtracting the value of financial assets (such as money) and real assets (such as houses) and then deducting any debt a person may have. An ambitious project to measure the wealth of nations shows how GDP is a misleading measure of progress. Is GDP an adequate measure for the health of an economy? Many argue that GDP, which calculates the sum of goods and services produced by a nation, fails to reflect the well-being of the population, as it is not responsible for the distribution of income or for the impact of exports in the form of pollution.

In 2018 the World Bank announced an ambitious project to measure the wealth of the world, economy by economy, to get a more complete picture of a nation’s health, both in the present and the future. It analyzed the lands of 141 countries from 1995 to 2014. The report argues that wealth is a good measure of economic success because it measures the flow of income that a country's wealth generates over time - although it is much more challenging to measure. "The level of economic development of a country is linked to the structure of its national wealth," the report said. Wealth includes all assets, which means human capital (value of earnings in a person's lifetime), natural capital (energy, minerals, agricultural land), productive capital (machinery, buildings, urban land), and net foreign assets. Assessing an economy by GDP instead of money is like looking at a company's income statement without considering its assets on a balance sheet. A company may see its earnings look good on asset liquidity for a short period of time, but in the long run it is likely to reduce the firm’s productive capacity and other means of earning income in the future. The same applies to a country. 

GDP "does not reflect depreciation and depreciation of assets, whether investment and accumulation of wealth is in line with population growth, or the mix of assets is in line with a country's development goals," the report said. That said, for most countries, GDP is strongly linked to wealth. Kuwait has more wealth per capita than GDP (like Saudi Arabia, but to a lesser extent). Kuwait and Saudi Arabia have the resources to invest in the future. Under the plan known as Vision 2030, Saudi Arabia is making these efforts by keeping its economy away from oil.

In many rich countries, human capital tends to be the largest component of wealth, while natural capital tends to be higher in low- and middle-income economies. Wealth is an accumulation of valuable economic resources that can be measured in the value of either real goods or money. Net worth is the most common measure of wealth, determined by the total market value of all physical and intangible assets owned, then subtracting all debt. As global economies develop, the structure of wealth changes.

In low- and middle-income countries, human capital increases on a per capita basis, while older populations and stable wage growth mean this component shrinks for richer countries. The World Bank says natural income alone is not enough to ensure the economic growth of low-income countries.

Finance Minister Janardan Sharma has announced an assessment of the country's overall assets. Finance Minister Sharma has said that he will launch a campaign to assess the country's assets and will not back down from it. In Nepal, for the first time in 2067 BS, an attempt was made to start a program to assess the country's assets. Although the then Finance Minister announced the program, it did not start.

It seems that the property could not be assessed due to various reasons. It has been made public that the offices of the Comptroller and Auditor General have been given the responsibility of evaluating the assets of the country every year and submitting a report to parliament. Nepal in the past  started a campaign to submit a report to the Office of the Comptroller and Auditor General every year by assessing the overall government land, forest production, physical infrastructure and movable property in the country. After that, the program was lost due to political instability. It is said that the country's wealth is still unknown as the program has not progressed. Some argue that it would be better to take the matter seriously and evaluate the country’s wealth. Even if it is still appropriate to evaluate the assets of the private sector, if it is not used properly, it will have a negative impact on the economy and there is a possibility of  negative impact on industrialization and capital flight.

Since most people pay tax on their property, it is easier to assess from there. The private sector has also been demanding self-declaration of assets for the past two decades. It is clear that the government has been denying that there will be a dispute with anti-money laundering as there is a trend of transferring property from one generation to another.

A cursory review of history was conducted in Nepal through the ‘Voluntary Disclosure of Income Scheme’ (VDIS). Finance Minister Sharma has said that he is willing to see the results after making an overall assessment. “What is the overall annual transaction of the country? How much worth is the informal sector? How much is the property? The idea is to find out, ” Sharma said.

While raising the issue, he said that some people have started searching for personal property, adding that he wanted to assess the country's assets instead. But the most important factor in determining the different trends in domestic property between countries is represented by the general level of economic activity as gross income, total consumption or GDP.

This is because the expansion of economic activity increases savings and investment by homes and businesses, and increases the value of home-owned property, both financial and non-financial. But wealth and GDP do not always go hand in hand, the report warns. This is especially true when property prices fluctuate as clearly as they did during the financial crisis. Still, "in the long run, the most successful countries are those that manage to raise funds in the form of a multiplier of gross domestic product (GDP) by addressing institutional and financial sector shortages. This could be the result of a virtuous cycle in which higher wealth stimulates GDP growth, which in turn increases total wealth.

China, India and Vietnam provide examples of this virtuous cycle in action. Assessing the total assets of the country as a whole is not easy and simple. But if that is done, it will have a positive outcome. 



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