As highlighted in the cover story of this issue of New Business Age (Pages 16-22), the Nepali economy is facing multiple challenges that require urgent attention. However, amidst these challenges, there are healthy signs as well. The solution to these challenges needs to be searched for in these signs.
One healthy sign is that Nepal has successfully met its international debt obligations without defaulting. Second, both the IMF and World Bank have projected a growth rate of over 4% for the Nepali economy in the current fiscal year 2023. Although it is lower than the government’s target, it is a positive sign considering the current challenges faced by the country, such as low government revenue collection and slow industrial and trading activities. Third, Nepal has already qualified for graduation from LDC status since 2018, although the country has delayed this recognition to analyse potential losses, such as the special facilities it is entitled to as an LDC.
Also noteworthy is Nepal's recent foray into electricity exports to India, which has seen growth and is likely to expand to other neighbouring countries such as Bangladesh, thanks to India's cooperation. Additionally, there are several other items that Nepal is exporting in significant quantities or showing signs of growth in exports, such as cement, liquor, paper products, and spices. There are some items that India imports only from Nepal. Also, recent trends indicate that Nepal's tourism sector is resilient although it is prone to external shocks.
Amidst these facts, one may question whether the growth of Nepal's GDP, which is mainly centred around the service sector (tourism, financial services, retail-wholesale trade, etc.), is truly healthy, given that the real sectors, such as manufacturing and agriculture, are not growing fast enough and are sluggish. Answering this question may provide insights for public policy on where and how the government should intervene to accelerate growth.
As for the concentration of the economy on the service sector, economists suggest that it may signal two things. First, the country is shifting towards what is known as the ‘New Economy’, which is led by high technology. And second, the service sector that is growing in Nepal is in non-tradable services.
The recent changes in the global business environment are causing concerns for the Nepali economy. In light of this, it is important for Nepal, including both public authorities and private sector players, to carefully consider which points of strength can be leveraged to achieve economic wellbeing for its citizens. It is equally important to identify sectors that may no longer be relevant in the changing context and abandon them. This exploration should not be limited to broad sectoral levels but should delve deeper into sub-sectors and sub-sub-sectors
Some possible sectors to focus on for promoting economic growth and wellbeing in Nepal can be suggested. Firstly, the promotion of IT education and infrastructure to support the development of the new economy. Secondly, reducing the burden on government finances by phasing out unnecessary public offices, such as some boards, committees, and commissions that are not provided for in the constitution. Similarly, withdrawing support for industries that are highly dependent on duty differential and promoting investment in industries that have long-term concessional access to developed country markets can be a good idea. Reforms in policy and practice to attract foreign investment in select agricultural sub-sectors may also be warranted. Additionally, serious attention is required for reforms in the rules that promote transparency and control money laundering and financing unlawful activities.
Now that the election to the highest offices in the country’s government, including the President, Vice-President, Prime Minister, and Heads of the Houses of Parliament, has been completed, it is time we shifted our focus from politics to the economy.