--By Hom Nath Gaire 

 

Latest studies show that the Illicit Financial Flows (IFF) drained from Nepal on an average far exceeds the Official Development Assistance (ODA) the country receives as grants from the donor community. 

 

A report published by the Global Financial Integrity (GFI), a US longtime authority on financial crimes, reveals Rs 62 billion has been drained from Nepal annually during the period of 2002 to 2011 in the form of IFF. On the other hand, the statistics maintained by the Ministry of Finance (MoF) shows that Nepal has received Rs 37 billion as grants annually during the same period. 

 

According to these statistics, on an average Nepal has been losing Rs 25 billion annually. This net outflow of money is more than 5 per cent of the Gross Domestic Product (GDP) of Nepal in constant price. 

 

During the period, the capital flight from Nepal has increased by an annual average growth rate of 15.64 percent. In 2010, a record high Rs 155 billion was drained from the country while the year 2003 witnessed the lowest capital flight which stands at Rs 25 billion. The trends show that Nepal suffered the most from the problem of capital flight during 2007 to 2010. Perennial political transition, instability created by communist-led government and ambiguity in the policy front are considered some of the major reasons for the problem of capital flight for that period. 

 

The Maoist government failed to take the business community into confidence due to their weak commitments for free market economy and failure to safeguard the right to private propriety encouraged big investors to take their investment out of the country,” an economist said. 

 

The annual grant received by Nepal increased by 31.85 percent during the study period. The percentage of currency outflow is higher than the actual grant the country received which clearly suggests that the country was at loss.

 

As far as grant is concerned, the country received the highest amount of grant of Rs 70 billion in 2009 whereas it received only Rs 8 billion in 2003. It was yet again political reason – lack of political stability and lack of local bodies to maintain transparency of the aid money – for the low amount of grant, an official at the Ministry of Finance said. 

 

“How can a country take the path of prosperity when the government cannot spend grant money effectively on the one hand and is unable to stop capital flight on the other?” asked the official.

 

Major Reasons for the Capital Flight 

1. Decade long internal conflict followed by political Instability

2. Rampant Corruption in Bureaucracy as well as business community  

3. Tax evasion oriented mindset among businessmen 

4. Lack of accountability/transparency in private sector 

5. Unnecessary conditions of the donors 

6. Low confidence of investors 

7. Government’s Failure to Safeguard the right to private Property

8. Problem of under-invoicing and over-invoicing in trading 

9. Rampant transfer pricing in international trade 

10. Emergence of conservative (communist) forces in the government