The government’s most recent approach paper for the three-year plan envisages Nepal graduating to ‘Developing Country’ status by 2022, on the back of a projected six percent annual growth. Among other things, for a country to be eligible for Developing Country status it has to have a minimum per capita Gross National Income (GNI) of US $1,190. Nepal’s GNI as of 2012 was US $700, while the average annual growth is around three percent. This shows the enormity of the challenge at hand.
There are many factors that stand in the way of a healthy growth climate: political instability, ballooning imports, long power cuts, frequent labor unrest, slowing exports, declining industries, among a host of others. [break]
For just about any kind of income growth, a requisite for the Developing Country status, there must first be a degree of political stability. Without a semblance of stability and an end to the attendant disruptions in normal business cycle, investors will be reluctant to invest in the country, which in turn will curb job growth.
Moreover, the current currency crisis, whereby the value of the Nepali currency plummeted by more than 15 percent in a month vis-à-vis the US dollar, has badly exposed the weaknesses of the Nepali economy. The import-reliant economy has been heavily hit as raw materials get dear. Inflation, which was already in double digits, is expected to get worse in the days ahead. The price of petroleum products is ever on the rise, even as the country’s balance of payment worsens. Little has been done to increase agriculture and service sector productivity, the backbones of Nepali economy.
So the path ahead is not going to be easy. Perhaps this is the reason there have been apprehensions from some quarters that Nepal’s climb to a Developing Country status might not be in its interest. In that case, foreign aid is likely to be cut and the privileged access to Nepali products in international market rescinded. But this is a self-defeatist argument. Nepal’s climb-up will entail that it be on a firmer economic footing, with a relatively strong industrial and manufacturing base, and much less reliance on remittance. But again, so much rests on the political players. It would be wonderful for all the major political forces to be able to come up with a common economic policy.
That is easier said than done. In the current state of transition there are many political forces in the fray with vastly different political and economic ideologies. But this meeting of minds on the economy need not be a permanent feature. They can all agree to work together till they get the country to a level of economic success by 2022.
Otherwise, without such political consensus, the Nepali economy might never be able to achieve the kind of growth needed to take the country out of the mire of poverty. Giving Nepal a firmer economic footing is all the more important because it cannot afford to keep relying on remittance to foot its bills. One day the spigot might run dry without warning, in what will, as things stand, be a deathblow to the economy. The earlier robust preventive measures are taken to deal with this eventuality, the better it is for all of us.
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