In light of the pandemic, government’s policies and programmes target social sectorUnlike previous years’ focus on physical infrastructure, the upcoming year’s focus on the social sector will not translate immediately into high growth, analysts say.
The KP Sharma Oli government’s policies and programmes for the upcoming fiscal year appear to have taken the impacts of the Covid-19 pandemic into account and refrained from setting an ambitious growth target.
The policies and programmes, presented by President Bidya Devi Bhandari to a joint session of the federal parliament on Friday, are largely targeted towards strengthening the economy and making it more productive at a time when most economies around the world are expected to contract in the wake of the pandemic.
According to Jagadish Chandra Pokharel, former vice-chair of the National Planning Commission, the government not mentioning a growth target for the upcoming fiscal years suggests that it has acknowledged the impossibility of achieving the high trajectory of double digit growth for the next four years as envisioned last year.
“The policies and programmes have clearly indicated the impact of Covid-19 on Nepal’s future growth, although economic growth was impressive in the last two years,” said Pokharel.
In the last three years, Nepal witnessed continued growth of over six percent, leading the government to target an ambitious growth rate of 8.5 percent this fiscal year. But after the Covid-19 pandemic began to have severe effects on almost all sectors of the economy, the Central Bureau of Statistics, late last month, had projected the country’s economic growth at a meagre 2.27 percent.
This will be the lowest growth rate since the 2015-16 fiscal year when the economy grew by just 0.2 percent amid the effects of deadly earthquakes and the subsequent Indian trade blockade.
But analysts say that even a 2.27 percent growth rate is optimistic, given that the impacts of the pandemic on sectors like hotels, restaurants and tourism are expected to continue beyond the end of the health crisis. Although the statistics bureau has forecasted that all other sectors will head towards normalisation by mid-May, much remains to be seen, as Covid-19 cases continue to increase across the country.
The World Bank, in its ‘South Asia Economic Focus’ report, early last month projected Nepal’s growth rate in the range of 1.5 to 2.8 percent in the current fiscal year, followed by 1.4 to 2.9 percent in 2020-21 and 2.7 to 3.6 in 2021-22.
These projections contrast sharply with the government's target of a high growth trajectory throughout the coming years. As per the 15th periodic plan 2019/20 - 2023/24, the government had aimed for an average growth rate of 9.6 percent during this period.
The government’s target of this high growth rate was based on its focus on expanding physical infrastructure. But there have been numerous setbacks in infrastructure development due to the Covid-19 pandemic, according to the policies and programmes.
“The priorities have been changed due to this pandemic. The priority of the government will be health, education, employment and economic recovery,” said Bhandari.
Last year, the government’s priority areas were infrastructure development, agriculture and tourism, the latter of which has been hit hardest by the pandemic with some estimates suggesting losses to the tune of Rs160 billion. According to the Central Bureau of Statistics, the hotels and restaurants sector will see a negative growth of 13.3 percent in the current fiscal year.
The social sector, such as education and health, has received priority after more than a decade and a half. During the Maoist conflict years, the focus of successive governments was on the social sector as infrastructure development was difficult due to the insurgency. During this time, Nepal made progress in meeting the Millenium Development Goals, most of them related to the social sector.
After the decade-long insurgency came to an end in 2006, Nepal renewed its focus on increasing investment in infrastructure to boost growth, but growth remained sub-par as the country entered into a period of political instability for another decade.
But unlike then, the social sector will not yield high growth immediately, compared to hard infrastructure, says economists.
“Focus on health and education is good at the moment because of the pandemic,” said economist Keshav Acharya. “But they don’t contribute to achieving large-scale growth immediately, like infrastructure.”
The government is not in a position to target high growth, because nobody would trust such an assertion, said Acharya.
“In fact, the government’s assertion that the country was close to double-digit growth in the last two years was itself misleading because a gap of a half percent is also a big shortcoming,” he said.
Although the government has prioritised economic recovery, experts say that the policies and programmes did not specifically address the assistance to sectors battered by the pandemic.
Bhandari said that the government is studying the impact of the Covid-19, based on which it will improve the supply system, the quality of health and education, increase agriculture and industrial production, and intensify development activities. Once the study is complete, an economic rehabilitation plan for the tourism sector will be introduced, according to the policies and programmes.
But Pokharel, the former planning commission vice-chair, said that the government did not specify how it would help small and medium enterprises and other sectors that have been greatly affected by the pandemic.
“The government has talked about implementing many projects, but some of them could be discarded during a resource crunch like this,” he said. “The government can abandon some railway projects and rethink even on Nijgadh airport and focus on projects like Melamchi Drinking Water Project which are in the final stage of completion. Without economic recovery, generating more internal resources will be very difficult for the government.”