Do not take the economy for grantedThe government seems to be in no hurry to address the common man's quest for survival.
It's been about five weeks since Sher Bahadur Deuba was sworn in as prime minister. But this government of five coalition factions, with their ideological inclinations ranging from centre-left and centre to regionalism, largely appears nonchalant. Deuba is yet to complete the formation of his council of ministers. Except for putting proper focus on procuring enough doses of vaccines against Covid-19, the current administration, like its predecessor, is scrambling to manage multifaceted logistics and operations related to the coronavirus pandemic. It also appears underwhelmed by unprecedented incidences of calamities like floods and landslides.
The country’s economy, which has suffered significant setbacks due to lockdowns resulting from Covid-19, should be at the top of the government’s list of priorities. But it does not seem to be the case for the Deuba-led coalition. For starters, Deuba appointed a non-economist as finance minister and failed to correct the policy aberration caused by the continuation of institutions like the National Planning Commission that are not only an apparent detriment to the spirit of the federal polity, but have often been causing a contentious overlap of authority with constitutional commissions like the National Natural Resource and Fiscal Commission.
The government and its allies barely appear bothered by critical economic indicators that are already unpalatably alarming. The total value addition of the manufacturing sector has over the years dwindled to a mere 5 percent. Nepal's trade deficit in the last fiscal year ended July 15 crossed Rs1.3 trillion, or 32 percent of the country's gross domestic product (GDP). By contrast, the export to GDP ratio is a meagre 3 percent. The current account deficit has crossed Rs334 billion, and the national debt has almost trebled to the tune of Rs1.8 trillion during the last five years, approaching 40 percent of GDP. But Prime Minister Deuba and his major constituent partners largely appear impervious to these realities and unforthcoming to take corrective measures.
Since Deuba rose to power, three main documents, (a) The common minimum programme of the coalition government; (b) The economic white paper; and most recently (c) The monetary policy issued by the Nepal Rastra Bank, have been published. If they are any indication of the present government's economic and developmental priorities, it can be safely argued that it too, like its several predecessors, lacks the urgency to deal with the issues plaguing the economy and address the common man's quest for survival.
Common minimum programme
The common minimum programme of the coalition partners unveiled two weeks ago blatantly digressed from the country's pressing structural problem. It seemed to emphasise procuring anti-Covid-19 vaccines but faltered on many other fundamental economic challenges, for example, the government's capital expenditure which remained under 60 percent of the allocation at the end of the last fiscal year. One of the significant issues, beyond the federal government's suboptimal expending capacity, is the manifest inefficiency of the subnational governments in managing their budget.
The document even failed to reaffirm a commitment to federal polity, fiscal federalism, in particular. The issue was sidelined with the excuse that all coalition partners do not have the same level of commitment to consolidate the country's hard-earned federal system. A minor constituent in the alliance, Samyukta Janamorcha, is an avowed anti-federalist political entity while another partner, Janata Samajwadi Party, is against empowering the local level, and wants the provincial governments to be powerful. This flip-flop was clearly reflected in the ritualistic, rather than transformative, approach of the much-awaited common minimum programme. The confusion that brewed out of these political trade-offs were, in turn, extended to two other subsequent documents—the economic white paper and the monetary policy.
Finance Minister Janardan Sharma presented the white paper in Parliament last week. It was a crude political diatribe against the previous Oli government's handling of the economy. Like his predecessors, the finance minister spent all his efforts digging out flaws and policy distortions of the past regime.
He was undoubtedly expected to dig deeper, but into more substantive issues. The overarching concern is that the shadow economy is about to swallow the formal one. What do policymakers want to do about it? Even by modest estimates. It is now believed to have crossed two-thirds of the GDP and, if not contained and streamlined, will inevitably derail the democratic system through pervasive criminalisation of politics. Massive capital flight, deepening divide between the haves and the have-nots and rise in incidences of politically patronised corruption are some of the concerns people want fixed by the government of the day. But the white paper skirted the issues unreservedly. This was not expected from a government that claims superior democratic credentials allegedly replacing a potentially dictatorial regime.
Last Friday, Nepal Rastra Bank presented the monetary policy for the current fiscal year 2021-22. At this stage, it is futile to comment on the merits of its contents since it exhibits sheer anachronism and lack of coordination between two key government agencies, namely the Ministry of Finance and the country’s central bank. The principal objective of the monetary policy is to create a favourable environment for the mobilisation of financial resources required to meet the government's growth objectives outlined by its fiscal policy. The maintenance of the system’s stability in this process is an additional responsibility.
But the government is yet to table a replacement bill for the ordinance budget presented by its forerunner. Many growth objectives, like the GDP growth projections, of the ordinance have already proved spurious, and this warrants a realistic calibration. The priorities and approaches of the present government are bound to drastically alter in the changed political context and emerging Covid-19 realities. Despite this, the hotchpotch and haste of the central bank to come up with a new monetary policy with half-baked ideas and assumptions are beyond the comprehension of anyone with economic common sense.
In essence, the new government that has come to power amidst growing expectations of the people must not so serially fumble on the economic and eco-political necessities and priorities of the country. It cannot take the people's aspirations for prosperity for granted.