By Gaurav Aryal (With inputs from Rashesh Vaidya, Sushila Budhathoki, Abha Dhital and Bivek Dhakal)

Nepali Economy

Before and After Maoist Insurgency

 

Five years before the Maoist insurgency started in Nepal in 1996, Nepal’s GDP growth rate was approximately 5.34 percent per annum. The growth rate plunged to 3.36 percent per annum in 2006, the year the underground Maoists came over-ground following the success of the peaceful April Uprising (Jana Andolan II) and the subsequent restoration of the dissolved House of Representatives in April 2006. The economy’s growth rate kept fluctuating over the next five years till 2011.

Nepal is yet to witness a ‘healthy’ growth rate, which has so far fluctuated between 3.3 and 4.5 percent in this millennium, with the exception of 6.10 percent in 2008. Perhaps nobody is happy with the country’s slow growth rate, but the economists are probably the most worried lot. They lament the fact that the country’s economy has continued the downward trend even after the peace deal between the government and the Maoist guerrillas signed on November 21, 2006. A majority of Nepali economists cite the lack of new investments as the major reason for this poor show of the Nepali economy. They blame an ‘unfavourable investment climate’ created by the political uncertainty for the lack of new investments – foreign as well as domestic. However, it is not that every sector slackened over the past one and a half decades. Some sectors have witnessed encouraging growth rates. (it would be better if you could cite some examples)

Despite the political upheavals which include a decade-long armed insurgency, sectors such as telecommunications, education, information technology, road construction, and remittance have registered significant growths over this period. In the education sector, the literacy rate has continued a steady growth. This is mainly because of the rise in private sector investment in education, and the top priority attached to the sector by the government which allocates the largest share of the national budget to education.

Remittance has become the lifeline of the Nepali economy in recent times. Despite huge trade deficits, the country’s Balance of Payment has remained positive, barring some hiccups. The remittance inflow has fuelled the growth of the banking sector and helped in the reduction of poverty and increase in the people’s living standard, believe the economists and experts.

However, energy and tourism, arguably the two most prospectful sectors in the country, have not grown as expected. The entry of the private sector through Public Private Partnership (PPP) and Power Purchase Agreement with the state-owned Nepal Electricity Authority (NEA) has shown some hopes in the hydropower sector. However, the hope to resolve the power crisis that has only intensified since 2006 is still out of sight.

Similarly tourism, another sector widely tipped as the basis for Nepal’s economic development, could not improve as expected over the years. A veteran of Nepal’s tourism sector and Chairman Emeritus of Hotel Soaltee Crowne Plaza, Prabhakar SJB Rana notes that though the tourism industry gained some ground over the past one decade, “there are plenty of areas where we could not do anything at all”. Rana as well as other analysts attribute this failure mainly to Nepal’s inability to promote and advertise itself as an exciting tourist destination in the world’s tourist originating markets.

Economists as well as development planners seem to be disappointed with the latest political and economic developments. Deependra Bahadur Kshetry, Vice-chairman of the National Planning Commission, says, “The country is moving backward instead of going forward”. Referring to the difficulties of the current government led by Dr. Baburam Bhattarai in bringing out a full national budget for fiscal year 2012/13, he added, “The kind of hindrance created by the opposition parties in Nepal (in the presentation of the national budget) is seen nowhere in the world.” The size of the budget this year has shrunk compared to that of the previous year. Kshetry blames the ‘non-cooperation’ by the opposition parties for the sluggish growth of the Nepali economy in recent years.

Several other analysts echo Kshetry’s concerns and cite the example of the Maoist obstruction to the presentation of the national budget last year by the then government led by CPN-UML leader Jhalanath Khanal.

The Good Old 90s

Mid 1990s was a time when the scenario was much brighter with the economic growth rate hovering around five percent. From 1990, the year democracy was restored to 1995, Nepal’s overall situation improved, according to senior economist Dr Dilli Raj Khanal. But in the years after 1995, the Nepali economy witnessed a slowdown which turned into a negative growth during 2000-2005. Recalling the situation of the 1990s, economist Prof. Dr. Bishwambher Pyakuryal says, “There was devaluation of the Nepali currency, economic imbalance, and unemployment but the economy continued to grow - albeit at a modest rate - even during the insurgency in the late 1990s. The donors were supporting the development projects; ongoing projects were being given continuity. But, the donors cut their financial support to Nepal by 48 percent in the last fiscal year, compared to the previous year.”



Dr. Khanal adds, “Nepal’s economic growth rate, which was already slow, further deteriorated during the period of 2000 - 2005. The Maoist insurgency, which escalated during these years, is to blame to a great extent for today’s flagging economy.” Another economist, Dr Chiranjibi Nepal observes, “Although there was little economic progress from 1996 to 2000, the country was faring well, so to speak. But after 2000, there was a massive decline in economic activities, followed by the closure of several industries and slowdown in the manufacturing sector. The cumulative negative impact of all this on the economy was too heavy.”

Sri Lankan Comparison

Economists and development experts often compare the economic situations of Nepal and Sri Lanka, for both countries have gone through violent armed insurgencies in recent history. When Nepal was passing through an armed Maoist conflict, Sri Lanka was going through the LTTE violence. In fact, Sri Lanka’s insurgency-related problems were far bigger than those of Nepal, in terms of both size and scale. For example, the Sri Lankan conflict took the life of its then head of the state and aeroplanes parked at the international airport in the capital were blown off in LTTE attacks. Nothing of that sort happened in Nepal. (The massacre of King Birendra and his family was not a terrorist act.)

Dr. Nepal says, “It is amazing that Sri Lanka achieved five percent growth rate even when the armed conflict there was in full swing. What’s more, the island country’s growth rate crossed seven percent after the LTTE violence was brought to an end. In stark contrast, Nepal has continued with its poor show in terms of economic progress even after so many years of the start of the peace process.” 

Former finance minister Dr. Prakash Chandra Lohani explains the reasons. “Political uncertainty and chaos has been at the root of the sorry state of the Nepali economy. It’s unfortunate that the same reasons still prevail and are hindering Nepal’s economic progress,” he says.

 The lack of any worth-noting investment in the major sectors of the economy has been another hurdle to Nepal’s economic progress. Neither domestic nor foreign investment worth mentioning has been made since the start of the peace process in the country. According to Dr. Pyakuryal, no significant amount of foreign direct investment (FDI) has come to Nepal over this period because of the feeling of insecurity and lack of confidence in the government.

 



However, all hopes are not lost for Nepal. Analysts still see the possibility of a double digit growth for the Nepali economy, provided that the state can ensure political stability and policy predictability for foreign as well as domestic investors. Some instances in the recent past support this optimism. For example, a number of foreign investors flocked Nepal – some of them wanted to explore investment opportunities while others came with concrete proposals in their hands – immediately after the government and the Maoist guerrillas signed the comprehensive peace accord on November 21, 2006. Similarly, many foreign investors applied and got the permission to conduct detailed surveys for developing a number of hydropower projects of different capacities. But many of these investors haven’t been able to go ahead with their projects, thanks to the hurdles posed by different vested interest groups. Successive governments over the years have not been able to deal effectively with these ‘project spoilers’, perhaps because of the uncertainty looming large over their own future.

 Human Development Index
 

Nepal’s Human Development Index (HDI) value for 2011 is 0.458 and the country is positioned 157th out of 187 countries included in the Index. According to a report of UNDP, between 1990 and 2011, Nepal’s HDI value increased from 0.340 in 1990 to 0.509 in 2006 and 0.458 in 2011.

The analysts say remittance has a lot to do with poverty reduction and consequent improvement in HDI over the years. According to the Human Development Report 2011, life expectancy at birth in 1995 was 57.5 years and it increased to 65.6 in 2005 and to 68.8 in 2011. Improved health condition due to availability of health services and improved awareness are considered as contributing factors for increased life expectancy.

Remittance   

The role of remittance in Nepali economy is increasing continuously. When most of the sector of the economy are showing downward trend, remittance inflow has constantly increased. This on the other hand has kept the Nepali economy going, say analysts. Remittance inflow that was Rs 239.388 billion in the fiscal year 1995/96 made a steep rise to Rs 413.428 billion in 2000/01 and to Rs 430.396 billion in 2001/02. Though the following five years till 2004/05 saw a near stagnation in remittance inflow, it registered a sharp rise to Rs 1246.423 billion in 2010/11. The trend shows that it is likely to keep on growing in the years to come too.

 The remittance inflow in 1995/96 was equivalent to 1.79 percent of the GDP. That ratio shot up to 10.97 percent in 2001/02 and 18.69 per cent in 2010/11, according to the statistics provided by Nepal Rastra Bank.  

Remittance is credited to be one of the most important contributor to reduction of poverty incidence which, according to the Nepal Living Standards Survey III (NLSS-III), published in 2011, stands at 25.2 per cent, down from 31 percent a decade earlier.

Number of Nepali youth going abroad for employment increased during the insurgency and in the following years. Upon publication of the NLSS-II which showed poverty reduced to 31 percent from 42 percent shown in the NLSS-I in 1996, analysts had expressed fear that the poverty incidence may shoot back to 42 percent or above if the peace process started by then encouraged the migrant workers to go back to the village and discouraged further migration out of the village. But it seems that the outflow of the people from the villages is not likely to be reversed in the foreseeable future.

Trade  

Nepal’s international trade has continuously been in deficit in the absence of low industrial base. Measures for trade promotion have not brought significant improvement. Trade analysts say that easy availability of cheap Chinese goods has displaced many industries though it has helped in improving the lifestyle of the people. Nepal’s readymade garments industry (one of the major export industries) lost its American and European market due to the combination of two reasons that struck it simultaneously. One, the quota facility it enjoyed in these markets till late 1990s was lost with the phase out of the multi-fibre agreement in international trade. Second, the severe labour unrest instigated by the Maoists during the insurgency as well as after they came overground following the success of Jana Andolan II, disrupted the supply chain that forced the buyers to search other sources of supply.

According to data from Trade and Export Promotion Centre (TEPC) and NRB, between fiscal years 1995/96 and 2011/12, it was only in 1999/2000 and 2000/01, the trade was measured surplus. The surplus in 1999/2000 and 2000/01 was by Rs 18.43 billion with India and Rs 40.24 billion with other countries and by Rs 19.18 billion with India and Rs 40.85 billion with other countries respectively.

Nepal’s international trade has been concentrating more and more in India in the recent years. While the share of countries other than India in Nepal’s total international trade was higher than with India till fiscal year 2001/02, then after India’s share started to be higher than that of other countries.

 
Government Budget  

Capital expenditure in the government budget during the insurgency (from 1995/96 till 1998/99) was low and almost stable. But it was higher than the recurrent expenditure. However, in years after 1999/2000, recurrent expenditure has zoomed up while capital expenditure remained almost stagnant until the fiscal year 2005/06. One of the reasons behind such scenario was concentrated priorities of the government to calm the heightening conflict. For that purpose, expenditure was diverted to investment in security purpose; as a result, development projects were affected. It was also complained that the environment was not favourable for successful completion of the projects by the project executors during the conflict era. In the last six years recurrent expenditure has been growing substantially, reads the data provided by the Office of the Comptroller General.

Analysing this, Prof. Dr. Bishwambher Pyakuryal says, after the peace process started, many projects were either postponed or discontinued because of lack of trust in the government by donors. For example, last year the donors decreased their financial support by 48 per cent. Deficit budget is financed through foreign loan and internal loan. The amount of foreign borrowings in 2000/2001 (Rs 12.044 billion) was almost equal to the borrowings in 2010/11 (Rs 12.075 billion) while it decreased to Rs 4.546 billion in 2002/03. Similarly, the internal borrowing reached a record high in 2010/11 with Rs 42.515 billion. In the fiscal year 2009/10 it was Rs 29.914 billion and in 2006/07 it was Rs 17.892 million.

 

Roads

 
One of the areas where Nepal registered a good growth was in the expansion of roads network. The total length of roads has doubled over the fifteen years period between 1996 and 2012. The growth had slowed down when the conflict was at its worst. However, the growth never really ceased. Many remote parts of Nepal have been connected by road over these years. The growth is particularly in the length of fair weather roads. One reason for this increasing trend is initiative taken by local people. Growth is seen also in the length of gravelled roads that have helped in improving accessibility. In the recent years it can be noticed that the length of black-topped roads has outpaced other kinds of roads.

Electricity

Electricity shortage has hamstrung industrial growth and made city life miserable. And the history reveals very interesting facts. In 1990, the installed capacity of hydropower generation in the country was 0.73 million MW which increased to 0.86 million MW in 1995/96 which gives an addition of 0.15 million MW within six years. This increased to 1.76 million MW in 2005/2006 – an increase of 0.9 million MW in ten years. Now in 2012 it stands at 2.36 million MW.

Telecommunication

There has been a good increase in the telephone coverage across the country over the last 15 years. And this expansion is speedier in cellular mobile phones. According to the census 2011, 7.37 per cent of Nepali population uses landline telephone though this is heavily concentrated in urban areas where 22.66 per cent population uses it. In rural areas only 3.77 per cent of the population there has landline telephone. Similarly 64.63 per cent of total population of Nepal uses cellular mobile phone. This ratio is 84.07 per cent in urban areas and 59.98 per cent in rural areas. According to the census 2011 report published in November 2012.
 

The telephone sector suffered a lot during the insurgency. For example, many telephone towers were blown up by Maoist insurgents. However, this sector gained the most after the peace process started.

 Agriculture 

The Agriculture sector saw stagnant trend during the period between 1995/96- 2011/12. The cash crops sub-sector did better – the production of cash crops doubled during the period. Within the cash crop subsector, the major crops that recorded substantial growth were tea, coffee and cardamom.

 According to Sheela Thapa, Deputy Director at AEC (Agro Enterprise Center), consistent growth in the agricultural production was mainly because of the good weather and high rate of seed replacement. She says, “We don’t have pest problems. Farmers are increasingly using hybrid seeds as well as improved seeds which have positive impact in the production figures.”

Within this period, the year 2008 was the best in terms of weather and the availability of fertilizers while the drought and flood in 2006/ 07 resulted in a slump in agricultural production.

 Durga Prasad Upreti, Senior Economist at Agricultural Commodity Export Promotion Program says though there were no direct effects of armed conflict or the subsequent peace process in agricultural production, the country has lagged behind six to seven years in terms of agricultural sector development due to the conflict. He attributes the subsistence farming system for no effect of the conflict or the subsequent peace process in agriculture. According to him, had there been commercial farming with large scale farms producing the goods for the market, Nepal’s agricultural sector would have certainly suffered huge losses due to that conflict.

 Irrigation  

There were noticeable changes in the irrigation sector with the start of Maoist civil war in 1995/96. The hilly region saw massive decline in the growth of additional land irrigated. About 10,600 hectares of additional land were brought under irrigation in 1995/96, but it was only 1,620 hectares in 2006/07 and only 1,345 hectares in the first nine months of the fiscal year 2011/12. In Terai region, 36,084 hectares additional land was brought under irrigation in 1995/96. It was 16,782 hectares in 2005/06 and 16,101 hectares in the first nine months of the fiscal year 2011/12.

 Similarly, the method of irrigation has also been varied since 1995/96 with the increase in the use of ground water system. The canal water irrigation system was the main source of irrigation, irrigating 33,898 additional land in 1995/96, 5,460 hectare in 2006/07 and 12,935 hectares in the first nine months of the fiscal year 2011/ 12. On the other hand, the ground water irrigation system was 12,231 hectares in 1995/96, 21,024 hectares in 2006/07 and 4,512 hectares in the first nine months of the fiscal year 2011/12 respectively. According to the Economy Survey 2011/12, about 67 per cent of the total agricultural land is covered by irrigation.

Manufacturing

Manufacturing sector was the greatest sufferer due to the conflict and it is still the same. The problem started to be more pronounced from the year 2003/04 since when there was massive decline is recorded in the production of manufactured goods.

Education  

Education sector too was badly affected by the conflict that forced many schools to close down, particularly in remote rural areas, and the students there were forced to join the Maoist army. However, that triggered the private sector to open new schools and colleges (mainly plus two colleges) in the cities, particularly in the capital. The conflict also encouraged the students to go abroad for studies. Now, colleges in Nepal have started getting affiliation with foreign universities and offering their courses here.

According to the latest National Census 2011, the country’s literacy rate stood 65.9 percent, up from the 54.1 percent in 2001. However, this trend indicates that that it will take over three decades for Nepal to achieve the Millennium Development Goal (MDG) of 100 percent literacy, whereas that goal is actually set for 2015.

National Census-2011

Overall literacy rate (age-5 and above) =65.9%

Male literacy=75.1%

Female literacy=57.4%

Highest Literacy Rate (Kathmandu=86.3%)

Lowest Literacy Rate (Rautahat=41.7%)

Education Above SLC=10.2% (Total Pop.)

Tourism

Tourism industry was not affected in the initial years of the armed conflict. So, till the end of the millennium, Nepal got good number of foreign tourists. One reason for that was the Visit Nepal Year campaign of 1998. According to the given data, it was after the millennium the tourism sector in Nepal witness a negative growth for few years. The government declared the year 2011 as ‘Nepal Tourism Year’ expecting similar effects as those of Visit Nepal Year -1998, but it was largely a failed exercise. The tourist arrival in that year was 736,215, much less than the expected one million, though nearly double the number of 1996 or 2006.

Civil Aviation 

Decade-long conflict adversely affected civil aviation industry as well. Many Air traffic control towers were destroyed in the conflict. For example, the ‘West Locator Tower-Dharke’ was completely destroyed and it is still in the dilapidated state.

Another effect of the conflict was in the international flight movement to and from Kathmandu. Driven out of their villages, Nepali youth started going abroad for work and that increased the demand for international flights. Consequently foreign airlines started increasing their flights to Kathmandu. However, Nepal’s flag carrier Nepal Airline Corporation could not benefit from this as it suffered from lack of aircraft. Consequently, Nepal could not derive as much benefit as could have from this boom in international air traffic.

Air operator’s certificate

Total AOC issued – 69

Valid AOC – 39

Invalid and Cancelled –30

Airline in Operation –34

AOC Valid but Not in Operation – 5

Helicopter Operator with Valid AOC –8

Fixed Wing Operator with Valid AOC –14

Aviation Sports with Valid AOC –17

‘We must strengthen our democracy’

PRABHAKAR SJB RANA

Chairman Emeritus

Soaltee Hotel Ltd, Crowne Plaza Kathmandu

Sri Lanka, too, suffered from an armed insurgency which was more intense and persisted for a longer period than the Maoist conflict in Nepal. But Sri Lanka has been doing well in recent times, following the end of the violence there. In comparison, Nepal is not doing that well though the decade-long conflict was said have ended six years ago. In my view, our socio-economic condition is going downward at present. To become a prosperous nation with robust economy, we must groom and strengthen our democracy.

As a matter of fact, the economy and social factors are inseparable and proportional to each other. At present, the inflation is on the rise and the main factor behind the gloomy picture is the decreasing exports. The political instability has held the nation a hostage. On the one hand, there is a positive progress in the tourism sector, while on the other, we haven’t made much difference. According to the October statistics, the international tourism market has witnessed a fall. So, we must acknowledge the fact that it’s high time that we became self-dependent and started thinking how to raise our market at the global level.

‘Peace process did not bring optimism for investment’

DR PRAKASH CHANDRA LOHANI

Economist

The average growth rate of the Nepali economy was around five percent during the 1990-2000 decade, despite the beginning of the decade-long Maoist civil war in 1996. However, after the peace process, there was a slowdown in the economy, mainly because of the lack of new investments. One reason for this might be there were an increasing number of improper investments, misuse of money and leakage in investments.

Post the peace process, the government had no plan for investment and it could not guarantee the investors for business in Nepal. There were ongoing big budget programmes but with no productivity. A lot of money was wasted in unproductive sectors which led to the failure of Nepali economy to achieve even the minimum growth.

The peace process, unlike the people’s expectations, did not bring optimism and as a result, the economy could not prosper in the post-conflict period. Uncertainty and political unrest were the major reasons behind this.

Now, the country has no regular income source because of high rate of unemployment. Young people are wandering all over the world like never before - only to earn. Unless they are employed, the country cannot generate income. If we want to reform our economy we need to minimize the political risks. Drafting the new constitution and creating conducive environment for investors will surely bring positive changes in the Nepali economy.

 ‘Intra- party consensus on economic issues’

PROF DR BISHWAMBHER PYAKURYAL

Economist

Historically there seems to have been positive relation between economic development and political stability in Nepal. However, it is difficult to find the exact relation in the current scenario. It is mainly because Nepal could not prosper after the peace process when compared to the time of conflict. For example, Iraq, a country in Western Asia is achieving a double digit growth despite such a shaking unrest. We don’t find a relation between political instability and economic growth there.

Nepal’s growth rate was four percent during the years 1997- 2003 and three percent during 2003- 2008. Before the Maoist war, the average growth rate was four percent, but it decreased by one percent after the peace process. During the insurgency, there was an increase in unemployment, devaluation of the Nepali currency, economic imbalance etc but the economic growth was not that uncertain and many development projects were going on. However, after the peace process, many projects were either postponed or discontinued because of the lack of trust in the government. Last year only, donors decreased their assistance by 48 per cent.

Political stability is supposedly the backbone of economic stability. Therefore, politicians should understand that politicization of economic agendas is never fruitful. With the erosion of political credibility, the trend of Nepalis investing outside the country has been on the rise. The government has fallen short of motivating and inspiring the private sector. Even more alarming, perhaps, is the ever rising exodus of the productive population – the age group of 16 to 29 – for foreign employment. Remittance, a not-so-dependable source in today’s global politico-economy, has kept the Nepali economy afloat so far.

The common people do not care which party or person is in power; all that they care about, perhaps, is how the inattention to the country’s economic agendas is affecting their lives. Now the economic situation is unpredictable. If this situation continues, the possibilities of less production, labour migration, capital flight, uncertainty, insecurity for investors will rise for sure. Economic issues should not become the victim of anybody’s vested political interest. We can have a continuous growth in the economy if the political leaders are ready for it.

There should be an inter-party consensus on high priority sectors such as health and education. This has become very urgent and it’s high time that the politicians felt this urgency. There should be consensus at the policy level for the implementation of the economic agendas. This is the only way to regain the people’s support and trust which is very vital for sustaining the political change and preventing economy flight. Our policies and legal framework, too, should be predictable. I wonder why our politicians couldn’t learn to agree on the common economic agendas. However, I am optimistic that they will, someday.

‘Stable government is a must for development’

DR CHIRANJIBI NEPAL

Economist

Economic activities in Nepal were highly affected during the years 1996- 2000, leading to a low economic growth. The economy’s downward spiral started in 1996, and after the year 2001, the changes became noticeable with the growth turning negative. It was when Nepal started being compared with conflict-hit countries such as Burundi and North Korea.

The worst-hit sectors were industry and manufacturing, declining from 16 per cent in 2001 to six per cent in 2006. This massive decline in economic activities and closure of the industries hit the economy hard. The resulting negative growth introduced foreign employment as a major business. Weak export and nil employment were the main features of the economy back then. The trend of foreign employment peaked while export saw a massive decline from 2000 to 2006. The contribution of remittance to the GDP was higher than that of total export. After 2006, the situation was expected to improve. But it did not, with the economic growth rate hovering around barely above six per cent. The growth rate saw a downward trend again in the years 2008-2012, with an average of three per cent.

Nepal is losing its international credibility, thanks to the current political mismanagement. A clear indicator for this is the decline in the annual foreign direct investment (FDI) inflow which has decreased from Rs 9 billion nine years back to around Rs 7 billion at present. For survival, the country depends as much on remittance as the Netherlands once relied on its oil resource. If the remittance inflow follows a downward trend, what will be the future of Nepal?

Remittance is simply undependable as a means to sustain the economy in the long run. Also, its inflow which depends on a number of external factors is unpredictable. It is a kind of slow poison which ultimately kills a nation in the course of time. The government has no strategies to generate employment in the country. When there is no productivity, how can we have growth? This is why our international trade comprises of 85 per cent import and a mere 15 per cent export. There is no fixed time for presenting the country’s annual budget, which has been delayed over and again. Meanwhile, the budget deficit has reached Rs 3. 87billion.

It seems amazing that Sri- Lanka, which was growing at about five percent during the LTTE conflict, has been able to achieve a growth rate of more than seven per cent post the conflict. But Nepal, on the other hand, has failed to achieve any impressive growth rate even after the peace deal. I don’t understand why Nepal hasn’t witnessed a healthy economic growth though the decade-long armed insurgency here ended six years ago. Our major problem, perhaps, has been unstable government. Moreover, economic growth also depends on policy consistency and stability; Nepal lacks long-term government policies.

Nepal has huge prospects in many sectors, including hydropower and tourism, which await their effective exploitation. For the past few years, Nepal’s average annual hydropower generation capacity has been only six mega-watts. At this rate, it will take us a century to produce 600 MW of hydropower. Our total hydropower potential is up to 63,000 MW. I am confident that we can bring about impressive changes over the next five years – there is no need to wait for another 25 years as suggested by some politicians - if we have a government stability and policy consistency.

‘We lack clear economic policies’

DR DILLIRAJ KHANAL

Economist

Compared to other Asian countries, Nepal always has had a slow growth rate. Nepal’s economy started slowing down further after 1995; the effects of this were quite visible during the years 2000-2005. The armed Maoist insurgency certainly had some impact on the Nepali economy, but it was only a marginal impact.

Unlike in many African nations which have been through conflicts, the negative impacts of the Maoist insurgency on Nepal’s economy became more perceptible after the beginning of the peace process. Nepal hasn’t seen the kind of economic growth which normally follows the establishment of peace after a long period of conflict in any country. This is mainly because we could not give priority to our economic issues.

The fact that the political parties in Nepal cannot agree on even presenting the country’s full national budget on time speaks volumes about our current problems. The country could not get its annual budget on time, except for one fiscal year, after the start of the peace process in 2006. It is unfortunate that the politicians have failed to focus on the country’s economic agendas over this period. Their concern for the worsening economy is limited to slogans and speeches only. In reality, their only concern is how to get the reins of power. Power is what they have been fighting for all these years, after the signing of the peace deal.

We don’t have the pre-requisite for development, either. For example, we lack the infrastructures that are a must for a big-budget project to run smoothly. We haven’t been able to encourage local as well as foreign investors to invest in the country. High transaction costs, power shortage and water scarcity have made it further difficult to sustain the industry. In addition, the investors find the overall environment in the country not conducive for investment.

There is uncertainty in the global environment and the political instability in Nepal has made achieving economic prosperity further difficult. My research on finding the sources of economic growth also suggests the need to have proper economy and to make good policies to implement them. If we do it, we can have high growth rate in coming 10 years- and we don’t need to wait for 2030. Nepal can benefit from the development of global economic hubs like China and India as well. We could increase our income by five times what we earn today. We can have better economy than the newly emerged economies like Malaysia, UAE and other Gulf countries.