Shaky coalition and the economyInadequate investment in education has led to a huge outflow of students and foreign currency.
The “common minimum programme” is the basis for the newly formed government's economic and development policy. But the policy is not well laid out, and it simply lists wishes like double-digit growth and enumerates the economic problems besetting the country like dwindling foreign reserves and rising inflation. Finance Minister Bishnu Prasad Poudel acknowledges that the economy is in a deep crisis, but a more urgent challenge for the government is maintaining cordial relations among the seven coalition partners. So it is more likely to be preoccupied with keeping its parliamentary arithmetic intact than taking bold steps to propel the economy upward. The current challenges in the economy can be grouped under four categories: (i) Political economy, (ii) Productivity and employment, (iii) External sector, and (iv) Federal and local spending.
The government's inability to absorb and utilise the available resources is causing discomfiture and irritation to Nepal's development partners. But the announcement of projects like Millennium Challenge Corporation (MCC) augurs well for the economy and sends positive signals. MCC is likely to move into the implementation phase by hiring consultants for the road and power projects.
On a philosophical level, when the development partners have different priorities, government stability becomes vulnerable. After all, political stability is vital for projects to become profitable and sustainable. Fortunately, the day-to-day working relationship between the central bank and the Finance Ministry continues to improve, and efforts to overcome the liquidity crisis are yielding positive results.
The productivity of the manufacturing sector has not improved, but the good news is that Nepal can become self-reliant in products such as cement. When the domestic market reaches a stage of saturation, the nation will need to explore overseas markets. Alternately, the economy will have to grow large enough to stimulate construction works in both the public and private sectors. Building backward linkages remains an issue in other sectors of the economy. While the sectoral contribution of manufacturing has gone down to less than 4 percent, power supply related issues are adding to the economic woes. The manufacturing sector is bound to receive a setback after India starts reducing power exports.
The inability to generate employment opportunities in adequate numbers is another challenge. An estimated 600,000 semi-skilled persons of working age enter the market. Job creation remains a critical issue. Although the service sector is expanding, skilled workers are being lured abroad to work in finance, tourism, transport, mechanics and even education. So we find ourselves without a skilled workforce, and it falls upon the education system to produce it. Big white elephants are being created like Pokhara and Bhairahawa international airports. While we are barely able to utilise them, a debate over whether or not to build Nijgadh airport has already begun.
It is comforting to know that there has been a marginal improvement in the current account. Foreign exchange reserves have improved from five months ago, and they should be enough to import goods and services for nine months. There are overwhelming challenges in attracting foreign direct investment into Nepal. Donors are not going to send us funds unless we can convince them about our ability to utilise them judiciously in the right projects. As our revenue system is dependent on imports, our trade deficit is also ballooning. The import ban has proved to be imprudent, resulting in huge deficits in revenue collection. While long-term alternatives need to be explored, meeting revenue targets becomes a top priority for the government. The trade deficit continues to cause concern.
Federal and local spending
The federal government has always turned a Nelson's eye to boosting development spending at the provincial and local levels. Money is being parked at both levels for managing development projects, allocating budgets and deploying personnel to handle them. In order to identify and address development problems at the local level, a careful review of all government projects conducted in the last five years needs to be done.
Haphazard urbanisation, urban poverty and inefficient service delivery have not improved over time. Despite the fact that the inflow of remittance has been a little encouraging, Nepal has failed to identify new work destinations. We do not have skilled manpower that can work in high-paying jobs abroad. We are sending only a semi-skilled manual workforce to work in foreign countries.
Inadequate investment in education has led to a huge outflow of students and foreign currency. The health sector and health services continue to remain in a dire state. Critical care is not available, and what is available woefully lacks credibility and doesn’t inspire trust and confidence in the common people. Health and education in the public sector are utterly neglected. Quality consciousness and orientation alone are making the very same systems sustainable in the private sector. The pervasive challenges of the economy can be overcome only through social reforms.