The prosperity agendaAs we focus on inclusive prosperity as our national aspiration, we have to take into account two dimensions of our development efforts. National policy and commitments will undoubtedly play the primary role, but international partnership also has to play a strong complementary role.
As we focus on inclusive prosperity as our national aspiration, we have to take into account two dimensions of our development efforts. National policy and commitments will undoubtedly play the primary role, but international partnership also has to play a strong complementary role. Nepal’s dependence on external resources to create basic infrastructure and promote human development is higher than that of many other countries. The structure of our economy is fragile. In fact, our import-led, consumption-driven and remittance-based economy is simply unsustainable. Furthermore, landlockedness has imposed extra cost and time in doing trade. And we have not been able to fully utilise the economic strength of our two neighbours, who are the world’s second and sixth largest economies, to our advantage.
A vulnerable and volatile economic structure is a daunting challenge, despite our reasonable progress in reducing poverty and promoting human development. Furthermore, we have now moved towards a federal structure which requires a coherent strategy and healthy competition among all three tiers of government to promote economic development. While the government has to create an enabling environment with coherent policies and appropriate incentives, the whole process has also to be owned by the stakeholders, private sector, academia and civil society in a spirit of genuine partnership. Moreover, our international partners can help the national leadership by implementing agreed cooperation programmes in an effective manner, based on the Busan principles of global partnership for effective development cooperation (GPEDC).
Foreign aid continues to be a major contributor to Nepal’s development efforts even though its share in the total investment is declining rapidly. Attaining the Sustainable Development Goals (SDGs) is an overarching aim for all of us which has to be implemented with mutual accountability. The SDGs call for poverty eradication, building resilience, promoting inclusive economic growth and ensuring environmental sustainability in an integrated and holistic manner. Leave no one behind is the mantra of the SDGs.
Since the least developed countries (LDCs) and conflict-affected states are most likely to lag behind in meeting the SDGs, there is a consensus that they should get an enhanced level of comprehensive support and assistance. If we do not improve our performance in terms of effective and efficient use of resources, translate into action our commitment to good governance, rule of law and anti-corruption measures, and deal with the issue of fungibility, the likelihood of getting a higher level of foreign assistance is limited. The current level of foreign assistance to Nepal, including grants and concessional loans, is around $1 billion annually. That is rather low, and we should be able to double the amount in the next few years.
International trade has been used to enhance overall economic progress, change the structure of the economy and improve the lives of the people. Our lack of productive capacity and competitiveness has played havoc with our trading capacity. The current trade deficit is staggering and unsustainable. During the last nine months of fiscal year 2017-18, Nepal’s total trade was valued at $9 billion, and the trade deficit amounted to almost $8 billion. During that period, we ran up a trade deficit of about $5 billion with India and almost $1 billion with China.
We have been able to keep importing goods, thanks to a continuous and large inflow of remittance. But that is not the best way to finance our import bill. It is not sustainable. And the worrying part is that it is worsening every year. We have not been able to enhance our export substantially, or diversify the products, or the trading partners. There is an urgent need for an in-depth analysis and effective strategy to enhance the production of exportable goods, reduce imports by increasing domestic production and distribution capacity and enhance market penetration. We should review our bilateral trade treaties and focus on making full use of multilateral forums and institutions to ensure effective utilisation of the concessions granted to our products. The World Trade Organisation (WTO) Trade Facilitation Agreement should be fully utilised to reduce our trade and transit costs.
The way forward
Investment is another area which is closely related to our economic development, trade promotion and diffusion of technology and techniques. In the last few years, the LDCs collectively have been attracting about $40 billion in foreign direct investment (FDI) annually. In our own neighbourhood, Bangladesh has been receiving about $2-3 billion annually for the last decade. Even in the best of times, we have been able to attract only around
$100-140 million. This is way below our potential. We should have a consistent and focused policy of encouraging both domestic and foreign investment in productive sectors and infrastructure. We should also make full and effective use of investments from our neighbouring partners, including through the Belt and Road Initiative and from all other development partners with cohesion and clarity in our strategy.
We must ensure an effective and coherent one-window policy, provide necessary infrastructure, reduce bureaucratic hurdles and enhance inter-ministerial coordination.
In terms of foreign tourist arrivals, we reached the 1 million figure just recently when it should have happened a decade ago. Yet, we have not been able to enhance the level of tourism receipts or their length of stay in Nepal. We should be tapping the growing middle class in our neighbourhood for the tourism industry. We should enhance air connectivity and network, develop tourism related infrastructure, diversify tourism products, protect and promote our cultural heritage and natural assets, and upgrade partnerships with the private sector to promote and develop tourism in a more effective manner. Even latecomers have gone far ahead of us.
Foreign employment has contributed to Nepal’s economic activities and employment opportunities for the youth. But it has its downsides too. The plight of Nepali migrant workers is unacceptable, and the social fabric and advantage of the youth population is slowly eroding. While protecting their rights in the short term, our long-term policy should be to provide employment opportunities at home. We should also make the best use of our relationships with the countries in the Middle East and elsewhere to diversify our relationship into trade and investment too. Global partnership will not materialise without our conscious and consistent efforts. A cohesive strategy among all these facets of global partnership supported by clear targets, work plan and effective implementation will go a long way towards translating these visions into reality. The time is propitious now, and we must act on them in a coherent manner.
Acharya is the former foreign secretary of Nepal and former United Nations Under-Secretary-General