Promising the moonThe election pledge to raise the per capita income to $5,000 in 10 years is fanciful
During the recent election campaign, political parties brought out overly ambitious election manifestos which contained more fanciful promises than implementable goals. Some parties even stated that the per capita income they promised to achieve was in dollars instead of rupees. One political party said that, if elected to power, Nepal’s per capita income would jump to $5,000 by the end of the decade. This message obviously sounded reassuring to the average Nepali, considering that the current per capita Gross Domestic Product (GDP) is $883 which is the lowest among the 30 emerging and developing economies of Asia, according to the World Economic Outlook Database published by the International Monetary Fund (IMF) in 2017.
Elections worldwide are a domestic affair, and references to money in the manifesto of a Nepali political party should have been made in Nepali rupees. The party could have given the amount in Nepali rupees, and then the equivalent in dollars. But this was not done. Political parties are competing to express amounts in dollars instead of an inconvertible currency like the Nepali rupee. Such a love for convertible currency could undermine the sanctity of Nepal’s currency and the monetary policy.
Not growing fast enough
According to the IMF, Nepal’s per capita GDP in current US dollars witnessed an average annual growth rate of 5.1 percent during the past 38 years (1980-2018). Among the high performers elsewhere in Asia, the per capita GDP grew by an average of 9.5 percent in the Maldives, 9.4 percent in China, 6.7 percent each in South Korea and Sri Lanka, 6.4 percent in Bhutan, 6.1 percent in Thailand and 5.3 percent in India during the same 38-year period. These growth rates may not be consistent with the average annual per capita real GDP growth rates of 8.5 percent in China, 5.6 percent in Bhutan, 5.1 percent in Vietnam, 4.5 percent each in India and the Maldives, 4.4 percent in Laos and 3.8 percent in Singapore compared to 2.7 percent in Nepal during the same 38-year period.
At the global level, during the same 38-year period, one country’s performance even exceeded that of the Maldives and China where the annual average growth in per capita GDP in current US dollars was 12.2 percent and the per capita real GDP was 9.3 percent. This country is Equatorial Guinea, which surpassed the records of other fast growing countries because of newly found oil deposits. Besides, there is a weak relationship between the per capita GDP in current dollars and the per capita real GDP for the reason that the determinants of the exchange rate with the dollar may not be closely associated with the determinants of real economic growth.
If Nepal’s past average annual growth rate of 5.1 percent continues to prevail in the coming decade, the per capita GDP in current US dollars would rise to only $1,452 after 10 years, which is 71.0 percent lower than the promised $5,000. To attain the per capita GDP level of $2,000 or $3,000 or $4,000, the required average annual growth rate in per capita GDP in terms of current US dollars would be 8.5 percent, 13.0 percent and 16.3 percent respectively. And to attain the $5,000 level promised in the election manifesto, an average annual growth rate of 18.9 percent will be required. Even if Nepal were to match the record growth rate of 12.2 percent achieved by Equatorial Guinea during the past 38 years, its per capita income would amount to only $2,792. And if Nepal were to succeed in attaining China’s performance of 9.4 percent, its per capita income at the end of the decade would reach only $2,168.
This analysis makes it clear that the promise of $5,000 at the end of the decade is not attainable. The promise must have been inserted in the election manifesto without necessary homework including a review of similar achievements of countries around the world.
According to Nepali and global experiences and trends of the past 38 years, the probable range of Nepal’s per capita GDP achievable in 10 years’ time is $1,452 to $2,792. As the determinants of the exchange rate with the dollar may not closely resemble the determinants of real economic growth, implying that even fulfilling the promise of a per capita income of $5,000 in 10 years’ time may not bring about the desired impact on the people’s standard of living and the overall conditions of the economy.
It is suggested that politicians should promise and deliver in terms of socio-economic objectives like raising economic growth on a sustainable basis, generating employment opportunities, ensuring price stability, creating and maintaining infrastructure, strengthening human resource management and augmenting human capital formation, controlling the excessive trade deficit for maintaining external sector viability, strengthening fiscal affairs including maintaining fiscal prudence, fostering equity and inclusiveness in society, creating more opportunities for people and alleviating absolute poverty instead of indulging in vote-catching gimmicks like promising to raise the per capita income to so many dollars.
Basyal is a former executive director of Nepal Rastra Bank