Where is our economy heading?

Published On: May 22, 2019 02:00 AM NPT By: Republica  | @RepublicaNepal

One of the focused promises of the government has been improving Nepal’s economy by enhancing spending, bringing in more foreign direct investment and thereby expediting Nepal’s overall development process. To that end, Prime Minister K P Sharma Oli appointed Yubaraj Khatiwada, the person with proven track record of initiating disciplinary measures while he was the governor of Nepal Rastra Bank, as the Finance Minister in February, 2018. Since he took office, Khatiwada has been consistently stressing on improving economic indicators of the country.  And there have been some good signs too. For example, there has been higher economic growth in the current fiscal year. According to the Central Bureau of Statistics, the GDP is projected to grow by 6.81 percent driven mainly by bumper agricultural harvests.

However, the data released by the Nepal Rastra Bank, shows how poorly the government has fared on other vital economic fronts and how it is failing to act as per its own promises. According to NRB, most of economic indicators have deteriorated in the first eight months of fiscal year 2018/19. Even the macroeconomic indicators that were in better shape before this government came to power are heading toward negative points. For example, our balance of payments (BoP) has slipped into a deficit of Rs 64.68 billion in first nine months of the fiscal year compared to a deficit of Rs 14.6 billion in the same period the previous fiscal year. Likewise, trade deficit continues to widen (at an alarming rate of 21.6 percent to Rs 991.81 billion in nine months) amid sluggish export growth and rising imports. So is the case with foreign direct investment (FDI), which has nearly halved to Rs 7.1 billion in the nine month period from Rs 14.41 billion in the corresponding period last year. Similarly, capital transfer has fallen to Rs 12.48 billion from Rs 13.15 billion. The foreign exchange (forex) reserve is depleting mainly due to the rising import bill. Only good indicator seems to be at remittance sector, which is vital to our economy but not sustainable. The country received a total of Rs 653.19 billion in remittances in the review period, up by 20.9 percent over the corresponding period last year. The government has not been able to properly implement the budget either. According to the Financial Comptroller General’s Office (FCGO), the government has been able to spend only 55.14 percent of the allocated budget so far. Out of allocated Rs 1,1315.16 billion, nearly half remains unspent. Progress in capital expenditure is also dismal. Out of the total capital budget of Rs 313.998 billion allocated for the current fiscal year, the government has been able to spend only 41.7 percent so far.

Why is this happening? Where is our economy heading to? This is not to imply that the government is totally indifferent to economic reforms. It organized the investment summit in March this year and called for foreign investors to come and invest in Nepal.  The government directs the concerned authorities to boost the capital spending time and again.  With the international community, the government has been appealing for support. But why don’t these actions reflect on actual outcome? Surely, unlike its predecessors, this government has an added responsibility to manage budget for three levels of government and work on multiple fronts. But the fact that our economic indicators are getting worse than during the previous governments shows the government has not been able to give economy a clear direction.  The government needs to use all its powers to improve this situation. Otherwise, however impressive (even populist) budget it will bring next week, Nepal might not be able to reverse the current dismal trend.

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