Nepali economy is passing through a critical phase characterized by poverty and stagnation. The economy suffers from sluggish growth, with rising inflation and growing unemployment resulting in ‘stagflation’. With a diminutive size of GNP (US$ 20 billion) and low GNI per capita (US$ 772), Nepal today is the second poorest country in the world. The IMF says even in 2020 Nepal will remain the poorest country in South Asia. ADB and Nepal government recently revised down annual growth rate to between 1.5 and 2 percent. Inflation, too, is hovering at around a troubling 12.1 percent, as of Jan 2016.
The current vulnerable economic situation is attributed to last year’s devastating earthquakes, with the damages from it worth as high as US $10 billion, which is 50 percent of GDP. The economy further suffered during the prolonged protests in the Tarai, followed by India’s blockade, resulting in acute shortage of petroleum products, cooking gas, medicines and other essential commodities.
In the changed context, the major challenge for the Nepali economy is to ensure the livelihood of poor people and, at the same time, ensure sustainable and inclusive growth with social justice.
At this critical juncture, the recent visit of Nepali prime minister KP Sharma Oli to China is historic. Relation between Nepal and China dates back to antiquity. The Oli visit coincided with 60th year of Nepal-China relations. The visit to China has been instrumental in strengthening the age-old ties. The 10-point joint agreement between the two countries signed on March 21, 2015 followed by the 15-point joint statement on March 23, 2015 in Beijing are a testimony of cordial relations between the two countries. This has opened up a new vista of cooperation to ensure long-term economic prosperity of Nepal.
The 10-point agreement covers a wide range of areas including transit transport through China, river bridge in Humla, Chinese assistance for exploration of oil and gas resources, strengthening of intellectual property system, feasibility study of China-Nepal Free Trade Agreement and MOU between China Banking Regulatory Commission and Nepal Rastra Bank, among other things.
Other areas of agreement are regarding the international Airport in Pokhara, feasibility study on Araniko and Syaphrubesi-Rasuwagadhi highways, construction of cross border railways and railway network in Nepal, Chinese investment in key areas including infrastructure, cross-border economic cooperation zones, and three billion RMB grant assistance from 2016 to 2018 to support post disaster-reconstruction of Nepal.
The visit of Nepali premier to China ushered in a new era of cooperation between the two friendly countries. If these agreements and commitments, as envisaged in the two statements, are implemented within specific times, Nepal’s economic future is secure. Infrastructure will be developed and connectivity will be strengthened, trade and transit facilities will be enhanced, trade deficit will be reduced, load shedding will be minimized, tourism will flourish, financial link will be established, and the state of excess dependence on trade and transit on India will end.
However, it is unfortunate that existing connectivity between Nepal and China is extremely poor. After devastating earthquakes the strategic link-road at Tatopani has been totally disrupted, for more than a year, and the state of Rasuwagadhi-Safrubeshi and other eight-entry points are as deplorable. This is attributed to inefficiency, corruption, and bad governance in Nepal.
Therefore, it is time to mend our errant ways and to rescue Nepali people from the dungeon of poverty. A series of agitations and blockade has jeopardized the economic prospects of Nepal. Thus Nepal must expedite the import of petroleum products, including cooking gas from China, with top priority through trade negotiations between concerned organizations of the two countries.
Similarly, Nepal must request China to upgrade the roads in Tatopani, Rasuwagadhi and other vulnerable locations and entry points at the northern border. There is also need to construct and accomplish the proposed 434 MW Arun-Kimathanka Hydro Power Project and 400 KV Cross-Border Transmission Lines Project at Rashuwagadi-Kerung border on fast-track basis. Nepal should also move towards establishing “Zero Tariff Regime” with China, for China has already provided duty-free access to more than 8,000 Nepali products. This would help reduce negative balance of trade with China.
China is the second largest economy in the world. It will overtake the US economy by 2018. In addition, China has commenced a series of initiatives comprising “One Belt-One Road”, 21st Century Maritime Silk Road, Energy Silk Road also known as the New Silk Road and Asian Infrastructure Investment Bank (AIIB). Nepal should expedite efforts to benefit from these initiatives. Nepal could be a transit country for both China and India and, therefore, it is important to develop trilateral relations and formulate plans and programs accordingly. This requires developing additional infrastructure and improving existing status of infrastructure in Nepal.
Again, China is one of the strong economic powers today. The whole world is attracted to China. During 1950, 60s and 70s China was one of the premier donors to Nepal. However, this trend has been disrupted and China today ranks a lowly ninth in the list of our bilateral donors. China’s miraculous economic development offers tremendous opportunity for Nepal and South Asia. But even though Nepal and China are so close, there is distance between them in terms of bilateral cooperation when compared with other donor countries from developed economies. It is, therefore, necessary to abandon the conventional policy of ‘equi-distance’ and adopt a pragmatic policy of ‘equi-proximity’ with China in the changed context.
Nepal experienced a crucial phase of ‘development of underdevelopment’ during the past sixty years of planned economic development and the country is more vulnerable after devastating earthquakes and India’s blockade. Therefore we must promote a ‘self-reliant’ economy and develop a state of interdependence with our neighbors to effectively integrate Nepali economy with neighborhood, regional and global economies. This would ensure high, sustainable and inclusive growth with social justice for future generations. And it is in this context that China will play a more and more important role in ensuring both survival and growth of the Nepali nation-state.
The author is an economist
madandahal.prof@gmail.com
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