Monday, October 31, 2011

Nepal plans to sign BIPPA with China

After its southern neighbour, Nepal is planning to sign Bilateral Investment Protection and Promotion Agreement (BIPPA) with northern neighbour soon.
Finance Minister Barsha Man Pun — talking to media persons in the western district of Banke in Nepalgunj today — said that the government is preparing to sign BIPPA with five countries including neighbouring China very soon to attract more foreign investments for the economic development of the country.
Nepal on October 21 signed BIPPA with India, making it a seventh nation to enter into investment protection and promotion agreement with Nepal, during Prime Minister Dr Baburam Bhattarai's India visit.
However, Prime Minister's own party — UCPN-Maoist — leaders are against the agreement that is aimed at attracting more Indian investments in the country in the days to come giving them equal treatment like the domestic investors.According to the agreement, "if an investor of a country suffers losses owing to war or other armed conflict, a state of national emergency or insurrection or riots in the territory of the other country will be given equal treatment, as regards restitution, indemnification, compensation or other settlement, no less favourable than that it accords to its own investors. Resulting payments shall be freely transferable."
However, the agreement will come into force on the date of exchange of diplomatic notes confirming that the legal requirements of the both countries have been fulfilled for the entry into force of the agreement.
Nepal has already signed BIPPA with France, Germany, Britain, Mauritius, Qatar and Finland, though these countries do not have significant investments in Nepal. Similarly, India has also signed such agreements with 86 countries, of which agreements with 72 countries have already been implemented.
The BIPPA will not only boost the confidence of the foreign investors that their investment is safe in Nepal as it will get equal treatment not less than that their own domestic investors, but also help reduce cost of doing business by both the countries.
Indian firms are the biggest investors in Nepal accounting for about 47.5 per cent of total approved foreign direct investments (FDIs). There are about 150 operating Indian ventures in Nepal engaged in manufacturing, services — banking, insurance, dry port, education and telecom — power sector and tourism industries.
India is the largest trading partner and largest investor of Nepal. China is the second largest trade partner in terms of imports, while in terms of exports China comes at the eight position.
India and China — both rising global economic powerhouses — are also the largest markets giving Nepal strategic benefit in case Nepal can attract investments from both the countries and exploit their markets.

Farewell to NTB chief executive Shrestha

Chief executive officer (CEO) of Nepal Tourism Board (NTB) Prachanda Man Shrestha retired from today.
Shrestha served four year as the CEO of the board. He has also assured to remain active for the promotion and preservation of tourism sector. Shrestha was appointed as NTB CEO on November 1, 2007.
Before joining NTB, he served as the joint secretary at the Ministry of Industry, Commerce and Supplies as the chief of World Trade Organisation Division.
He had also served Ministry of Tourism as acting DG of Tourism Department before it dissolved in 1998.

Sunday, October 30, 2011

VAT fraud scam report lists big corporate houses, too

The list of suspicious PAN number released by the Finance Ministry today features some big houses involved in stealing money from national coffers by producing fake Value Added Tax (VAT) bills.
In a 'Report on Study and Investigation of Fake and Fictitious VAT bills-2011' released today by Finance Ministry to the Right to Information campaigner Taranath Dahal after the National Information Commission’s directives, ‘surprisingly’ some big names have also been found involved in VAT fraud scam.
“It is the largest corruption of the decade," Dahal said, after receiving the report.
The ministry had formed a committee on February 21 to investigate the fake VAT bills scam that is expected to have bleed government coffer of Rs 10 billion including fine.
The team had submitted the 33-page report on March 4. According to the ministry, it has been investigating some 518 cases of the VAT default. Some of the biggest corporate houses including Golchha Organisation, Chaudhary Group, TM Dugar Group, Shankar Group and Bishal Group are among the 437 firms of the suspicious PAN list.
The list includes Him Electronics of Golchha Organisation, Varun Developers, CG Electronics Pvt Ltd, CG Impex Pvt Ltd, CG Foods Pvt Ltd of Chaudhary Group, Dugar Brothers and Sons and Dugar Auto Clinic Pvt Ltd of TM Dugar Group, Jagadamba Steel of Shankar Group and Rasuwa Construction Company in its VAT fraud list.
Similarly, United Distributer, a close partner of Vishal Group, Bhatbhateni Super Market, Morong Auto Works and Chameliya are also involved in producing fake VAT bill, according to the report.
Going through the list, the fake VAT bill scam has two separate cases; one without any trade and transaction faking the VAT bills and claiming reimbursement from the government coffer — which is a financial crime — and another under invoicing and cheating the tax.
The government report revealed that some seven different firms have been reimbursed. Of the seven, the ministry has decided to refund Rs 5.41 million from Sarita Enterprises, Rs 5.31 million from Sarita International, Rs 17.22 million from Ashutosh Impex Pvt Ltd, Rs 16.94 million from Shivashakti Impex, Rs 11.26 million from Digambar Trade House, Rs 45.60 from Digambar Trade International and Rs 14.35 from Bhimeshwar Trade House. After lots of pressure from the public, the Finance Ministry has agreed to probe into the fake VAT bill scam. However, the Finance Ministry did not reveal the names and actual amount cheated by the firms. Similarly, it also did not provide the name list of large taxpayers.

Precious yellow metal price jumps

The local market witnessed Rs 200 jump in a tola (11.664 gram) gold to Rs 52,898 from last Wednesday's closing of Rs 52,698.
Before Tihar — the festival that sees more trading of precious yellow metal — also the gold price has jumped by Rs 400 per tola keeping the buyers away from the bullion market. But price volatility could not impact the sale in the domestic market during Tihar as the festival witnessed three times the regular trading, according to Nepal Gold and Silver Dealers Association (NEGOSIDA).
The gold price could not cool down also due to dollar that is weakening against the rupee, though the domestic gold market follow the international market price of gold.
According to the World Gold Council, in the current economic environment, low real yields around the globe incentivise investors to look for additional sources of return, while increased uncertainty and market volatility have increased the importance of risk management.
A distinct allocation to gold within a portfolio including alternative assets like private equity, hedge funds, real estate and commodities, can preserve capital and reduce risk without diminishing long-term returns, concluded the latest research from the World Gold Council.
In summary, the report, which is the first the World Gold Council has produced on alternatives, suggests that even if investors hold alternative assets, they are no substitute for the protection that a distinct allocation to gold can offer.
Findings demonstrate that portfolios with an allocation to gold of between 3.3 per cent and 7.5 per cent — depending on the risk tolerance of the investor and the currency of reference — show higher risk-adjusted returns while consistently lowering Value at Risk (VaR).

Asia Pacific tourism arrivals up by six per cent

South Asia was the second fastest growing sub-region in August, according to Pacific Asia Travel Association (PATA) data.
With the exception of India, there were across-the-board double-digit increases in arrivals to the sub-region’s individual destinations, it said, adding that arrivals to India grew at a more moderate pace of five per cent in August, but remained significant in volume terms. India welcomed an additional 20,000 more visitors in August compared to same month a year ago, the Pacific Asia Travel Association (PATA) results said, showing that international visitor arrivals into Asia Pacific destinations1 grew by six per cent year-on-year in August, the latest month for which reliable figures are available.
South Asia has set the pace of expansion this year with a 14 per cent increase in international visitors. Southeast Asia is close behind with a 12 per cent increase while Northeast Asia and the Pacific grew by four per cent and one per cent respectively during the January to August period, year-on-year, it said.
Even with economic uncertainty in Europe and North America, growth in international visitor arrivals into the Asia Pacific region has remained steady over the first eight months of 2011.
In August, travel to Southeast Asia grew by 15 per cent, up from 11 per cent in July. Thailand (up by 35 per cent), Vietnam (up by 29 per cent), Cambodia (up by 21 per cent), Singapore (up by 18 per cent) and Philippines (up by 11 per cent) reported stronger international arrivals growth in August compared to July.
Growth for Myanmar and Indonesia, however, was lower compared to July. But overall, growth remains healthy for Southeast Asia.
Northeast Asia registered a year-on-year increase in arrivals of four per cent during August. It set a new monthly arrivals record for the sub-region, reaching a foreign inbound volume of more than 20 million in a single month.
Nonetheless, China saw a minor drop of one per cent and Japan struggled with a 32 per cent decrease in international visitor arrivals during the month, as the negative impact of the March tsunami lingered. "It is interesting to note that the relative shares of international visitor arrivals into Northeast Asia destinations have been changing during the past several years," the report said, adding that Hong Kong SAR, South Korea and Chinese Taipei have been gaining at the expense of both China and Japan.
The Pacific had a static zero-growth August following three consecutive months of contraction. There were increases in foreign traffic into Australia (up by three per cent) and New Zealand (up by five per cent).
PATA Interim CEO Bill Calderwood said that international arrivals momentum into the Asia Pacific region continues to hold at a relatively strong rate. "Many destinations are performing above that six per cent aggregate average," he said, adding that a few Asia Pacific destinations are facing difficulties with contracting numbers of visitors.
Meanwhile, international arrivals into New Caledonia and Palau surged by 53 per cent and 36 per cent respectively. However, Hawaii (down by four per cent) and the Northern Marianas (down by 12 per cent) showed declines in international arrivals.

Saturday, October 29, 2011

Government unable to spend on development activities

The government has spent Rs 36.76 billion, some Rs 10 billion less than the disbursement.
As always, the government spending revealed that it is spending more on salaries and administrative expenses rather than on development. It has spent Rs 34.14 billion under recurrent expenditure, Rs 1.10 billion under capital expenditure and Rs 1.52 billion under Financing head by October 7, according to Finance Ministry. More recurrent expenditure means government has failed in creation of assets.
However, the ministry has disbursed Rs 46.94 billion. "It shows the government's inability in spending on development activities," said a source at the Finance Ministry.
"During the first three months, the government may not be able to spend according to its projection but the spending picks up during the second half of the fiscal year," he said, adding that by the end of the fiscal year the spending goes beyond the control making it unproductive.
However, a study has revealed that the government spending has not been productive so far.
Going by the sectoral spending, government has spent 75 per cent of the total spending in 10 sectors, education, local development, defence and police, repayment of loans, health, road and transport, and electricity in the last fiscal year.
Of the total spending, education sector received the highest 17.76 per cent followed by local development at 11.76 per cent and repayment of loans 10.94 per cent, senior trainer at the Revenue Administration Training Centre Basu Sharma said, adding that higher the government spending, more problems in the sectors.
"Taking cue from the last fiscal year's spending, the government has to work hard on making the spending more productive this fiscal year," he suggested.
However, Prime Minister's Economic Advisor Rameshwor Prasad Khanal opined that the spending on education is not unproductive. "But due to excessive politicisation of teachers' union, the quality could be questionable," the former finance minister said.
According to the new classification of Finance Statistics, the total appropriation for recurrent expenditure — for salaries and other expenses — is proposed to be Rs 266.61 billion which is 69.27 per cent of the total outlay for the current fiscal year.
Similarly, the budget for 2011-12 has allocated Rs 72.61 billion for capital expenditure which is 18.86 per cent of the total budget.
Under the Financing head, Rs 25.38 billion (6.6 per cent) has been allocated for loan and share investment, and Rs 20.3 billion (5.27 per cent) for repayment of principals.

The spending
Recurrent expenditure — Rs 34.14 billion
Capital expenditure — Rs 1.10 billion
Financing head — Rs 1.52 billion
(Source: Finance Ministry)

Friday, October 28, 2011

IndiGo starts Kathmandu flight from today

The healthy growth of Indian tourists to Nepal has attracted more Indian airlines to Nepal.
With seven flights daily, IndiGo Airlines has started New-Delhi-Kathmandu flight from Friday making it the sixth Indian private airliner to fly to Kathmandu.Speaking on the inaugural flight, Aditya Ghosh, president IndiGo said that Kathmandu is a key market and holds a lot of promise. “IndiGo will continue to keep its promise of providing low fares on the New Delhi-Kathmandu-New Delhi routes as well," he said, adding that the airlines hopes to provide the much needed avenue for countless Indians to explore wider horizons and at the same time open up the doors to more and more overseas travellers to experience India.
Currently, Air India, Jet Airlines, Jet lite, Spice Jet, Kingfisher and Indigo fly on New-Delhi-Kathmandu route with a total of 78 flights a week.
"Private Indian airlines have explored Nepal as new destination,” said director general of Civil Aviation Authority of Nepal Ram Prasad Neupane.
"The increase in the number of Indian airlines flying to Kathmandu has also encouraged the sector," he added.
According to him, India and China has large market access and they have strong economy. "Increase in the number of airlines from these countries can bring a large number of quality tourist to Nepal," he said, adding that the movement of Indian tourist has always been in an increasing trend.
"In an average, Indian tourists contribute to 30 per cent of the total international tourist arrival through airways,” said Neupane.
"According to Air Service Agreement (ASA) between Nepal and India, different Indian airlines can have 30,000 flights a week,” according to joint secretary at the Ministry of Tourism and Civil Aviation Ranjan Krishna Aryal.
Therefore, more private Indian airlines can start their flights to Kathmandu with the recommendation of Indian government and technical specifications to Nepal, he added.
Including six Indian airlines and two Nepali airlines — Nepal Airlines Corporation (NAC) and Buddha Air — some 28 different international airlines fly to Nepal like Air Arabia, Arke Fly, Baharain, Biman Bangladesh, China Eastern, China Southern, Dragon Air, Fly Dubai, Etihad Airways, Gulf Air, Korean Air, Oman Air, Pakistan International Airlines (PIA), Qatar Airways, Druk Air, Silk Air, Thai International Airways, United Airways and GMG Airlines.

The frequency
Airlines — Destinations — No of flights in a week
Air India — Delhi — 14
Air India — Kolkata — 4
Air India — Mumbai — 4
Jet Airways — Delhi — 14
Jet Airways — Mumbai — 7
Jet lite — Delhi — 7
Kingfisher — Delhi — 7
Spice Jet — Delhi — 14
Indigo — Delhi — 7
Total flights — 78
(Source: Civil Aviation Authority of Nepal)

ADB to expand, speed up access to information

In its drive to increase transparency and accountability, the Asian Development Bank (ADB) will expand and speed up the release of information to the public as part of key changes to its Public Communications Policy.
The policy changes incorporate feedback from over 500 stakeholders in ADB member countries, including governments, the private sector, development partners, civil society, those affected by ADB’s projects, academics and the media. The updated policy will take effect on April 2, 2012.
"While the feedback we received indicated that ADB’s standards of transparency remain good, we recognise that times have changed, and this revised policy is our response to those changes,” said ADB president Haruhiko Kuroda.
Among the most significant revisions is the earlier release of information on final proposals for country partnership strategies and sovereign project loans.
This information will be made available at the same time as the proposals are circulated to ADB’s Board of Directors for a decision, subject to country consent. Previously, the information was not disclosed until after the board had given final approval.
Policies and strategies that have been drafted after public consultation will also be disclosed when they go to the board for consideration, to further boost transparency. In a step to make information more accessible in countries where ADB works, ADB will also translate its project summaries for loans, grants and project preparatory technical assistance into the national language of the country concerned.
In addition, for the first time, ADB will release audited project accounts of borrowers involved in ADB-financed sovereign projects.Another important new development is the creation of an independent appeals panel with three international experts to provide a new mechanism of redress for parties who have had requests for information denied.
"We listened to our stakeholders who were asking for an independent tier to review denied requests, which is now a best practice among our comparators," said Ann Quon, Principal Director of ADB’s Department of External Relations.
In-country communication work will also be expanded, to give the public more information about projects and other ADB activities that could affect their lives.
ADB’s Public Communications Policy acknowledges the public’s right to know about its work and recognises that transparency is critical for it to be an effective and trustworthy organisation. At the same time, it aims to strike a balance between access to information and any potential harm disclosure may cause to particular parties.

Thursday, October 27, 2011

Sound accounting infrastructure makes investing in developing economies more attractive

The experts noted that consistent implementation and enforcement of global standards and codes of corporate reporting are key to promote investment.
Dicussing during the 28th annual meeting of the Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR), more than 220 government authorities, regulators, standard-setters and academic representatives met and brainstormed the latest developments in the field of corporate reporting.
"The accounting infrastructure of a country is a critically important – and often overlooked – facilitator of economic development," UNCTAD’s deputy secretary-general Petko Draganov, said, highlighting that many developing and least-developed countries (LDCs) in the world today lack some of the basic features of an accounting infrastructure.
Reiterating the importance of comprehensive and transparent financial reporting, secretary general of the International Organisation of Securities Commissions Greg Tanzer, said that global financial stability relies on market confidence.
Sound financial reporting becomes a critical element in mitigating systemic risk and encouraging people to invest in securities markets with the corresponding effects in economic growth," he added.
During the session, UNCTAD presented a new guidance tool to be used by policymakers to assess and benchmark progress in building capacity for corporate reporting. Based on international benchmarks and good national practices, the UNCTAD tool covers financial and non-financial aspects of corporate reporting, including environmental issues, corporate social responsibility, and corporate governance disclosure.
More than ten member States volunteered to pilot the UNCTAD tool over the coming months. Experts also dealt with the latest developments for integrated reporting and climate change-related disclosure, as well as presenting an overview of research and surveys on corporate governance disclosure and updates from regional and international organisations.
On the eve of ISAR 28, a Technical Accounting Workshop on 'Accounting and Reporting for Financial Instruments and Application for Fair Value Measurement Requirements' took place, where experts debated the main provisions, changes and challenges associated with IFRS 13, Fair Value Measurement and IFRS 9, Financial Instruments: Measurement and Recognition. For more than a quarter of a century, ISAR has been the focal point within the UN system for issues of corporate transparency and accounting. ISAR works towards its objectives through an integrated programme of research, intergovernmental dialogue, consensus building and technical cooperation.

Wednesday, October 26, 2011

Corrupt money concealed in shell companies: Study

Most large-scale corruption cases involve using legal entities to conceal ownership and control of corrupt proceeds, and policymakers should take steps to improve transparency to reduce opportunities for wrongdoing, according to a study by the Stolen Asset Recovery (StAR) Initiative of the World Bank and the United Nations Office on Drugs and Crime.
"We need to put corporate transparency back on the national and international agenda,” said World Bank senior financial sector specialist who led the StAR research team.
"It is important for governments to increase the transparency of their legal entities and arrangements and at the same time improve the capacity of law enforcement," according to the report, 'The Puppet Masters: How the Corrupt Use Legal Structures to Hide Stolen Assets and What to Do About It', examines how bribes, embezzled state assets and other criminal proceeds are being hidden via legal structures – shell companies, foundations, trusts and others.
The study also provides policy makers with practical recommendations on how to step up ongoing international efforts to uncover flows of criminal funds and prevent criminals from misusing shell companies and other legal entities.
The study explains how corrupt public officials and their associates conceal their connection to ill-gotten funds by exploiting legal and institutional loopholes that allow opacity in companies, foundations and trust-like structures.
It also lists obstacles to investigating and establishing the origin and ownership of stolen assets: the difficulty of identifying where legal entities operate and have business relationships, lack of access to information on beneficial ownership and the use of complex and multi-jurisdictional corporate structures.
Drawing on evidence from relevant stakeholders, the report advised policymakers on how to effectively address the problem of corrupt payments made through opaque companies. In particular, the study recommends that more detailed information be collected in corporate registries, and that providers of legal, financial and administrative — incorporation and management — services to legal entities more effectively conduct due diligence on those controlling corporate entities.
The study is based on research including an analysis of 150 grand corruption cases and an examination of the practices of 40 jurisdictions and their company registries in collecting, updating and providing access to beneficial ownership information of legal entities.
The report also draws on the experiences of more than 77 experts from 33 jurisdictions in investigating the misuse of transnational legal structures.
The Stolen Asset Recovery Initiative (StAR) is a partnership between the World Bank Group and the United Nations Office on Drugs and Crime that supports international efforts to end safe havens for corrupt funds.
It works with developing countries and financial centres to prevent the laundering of the proceeds of corruption and to facilitate more systematic and timely return of stolen assets.

Tuesday, October 25, 2011

Revenue mobilisation growth slows down, not to meet target

Due to low non-tax revenue mobilisation, the government seems not to meet the revenue target for the current fiscal year, too.
According to the Finance Ministry, the government has been able to mobilise Rs 43.83 billion by the end of the first three months of the current fiscal year. "The revenue mobilisation is only 16.8 per cent higher compared to the same period of the last fiscal year," according to the Finance Minister that has held an evaluation meeting today.
The meeting led by the Finance Minister Barsha Man Pun brainstormed on ways to increase the revenue mobilisation and non-tax revenue that has seen slow growth recently.
Finance Secretary Krishna Hari Baskota, on the occasion, asked the officials to actively involve in plugging the loopoholes in revenue leakages. "Prepare a work plan and be serious on meeting the revenue target," he said, adding that the ministry has to widen the tax net.
Similarly, Finance Minister asked the officials to finalise the investigation on VAT default case. "Though the import has pushed the customs revneue mobilistion up, it will have no positive impact on economy," he said, adding that the import substitution is a must to improve exports and create employment.
The VAT has as usual the highest contribution in the revenue mobilisation as it contributed Rs 16.73 billion, followed by Customs (Rs 9.54 billion), Excise (Rs 6.91 billion), Income Tax (Rs 5.64 billion), and Registration, Vehice and Non-tax (Rs 5.1 billion).
The goverment has targetted to mobilise Rs 246 billion revenue in the current fiscal year. Last fiscal year the government failed to meet its revenue target as it had targetted to mobilise Rs 216 billion but able to mobilise only Rs 206 billion. To meet the revenue target for the current fiscal year, it has to mobilise the revenue at over 20 per cent. But in the first three months the government has been able to mobilise revenue at 16.8 per cent only.

Revenue contribution
VAT — 38 per cent
Cusotms — 22 per cent
Excise — 16 per cent
Income tax — 13 per cent
Non-tax — Seven per cent
Others — Four per cent
(Source: Finance Ministry)

Govt reforms enhance economic opportunities for women

A new report from the World Bank and IFC finds that women still face legal and regulatory hurdles to fully participating in the economy.
"In South Asia, only Sri Lanka does not have any legal differentiation in accessing institutions or using property," the report 'Women, Business and the Law 2012: Removing Barriers to Economic Inclusion,' said, adding that for all economies in South Asia maternity leave is paid by the employer and no economy in the region provides for paternity leave or parental leave.
In the region, approximately 20 per cent of economies have microfinance institutions that provide information to private credit bureaus or public credit registries, it said, adding that no economy made changes over the past one year and half that affected the indicators in Women, Business and the Law.
The report 'Women, Business and the Law 2012: Removing Barriers to Economic Inclusion' revealed that while 36 economies reduced legal differences between men and women, 103 out of 141 economies studied still impose legal differences on the basis of gender in at least one of the report’s key indicators.
The report also identified 41 law and regulatory reforms enacted between June 2009 and March 2011 that could enhance women’s economic opportunities.
Globally, women represent 49.6 per cent of the population but only 40.8 per cent of the workforce in the formal sector. Legal differences between men and women may explain the gap, said the report that shows economies with greater legal differentiation between men and women have, on average, lower female participation in the formal labor force.
"Competitiveness and productivity have much to do with the efficient allocation of resources, including human resources,” said director at the Global Indicators and Analysis, World Bank Group Augusto Lopez-Claros. "The economy suffers when half of the world’s population is prevented from fully participating. It is certainly no surprise that the world’s most competitive economies are those where the opportunity gap between women and men is the narrowest."
The report measured such things as a woman’s ability to sign a contract, travel abroad, manage property, and interact with public authorities and the private sector.
In all economies, married women face more legal differentiations than unmarried women. In 23 economies, married women cannot legally choose where to live, and in 29 they cannot be legally recognised as head of household.
Every region includes economies with unequal rules for men and women, although the extent of the inequality varies widely.
On average, high-income economies have fewer differences than middle- and low-income economies. The Middle East and North Africa have the most legal differences between men and women, followed by South Asia and Africa.
It measures how regulations and institutions differentiate between women and men in ways that may affect women’s incentives or capacity to work or to set up and run a business. Women, Business and the Law objectively measures such legal differentiations on the basis of gender in 141 economies around the world, covering six areas: accessing institutions, using property, getting a job, providing incentives to work, building credit, and going to court. While the project provides a clear picture of gender gaps based on legal differences in each economy, it is a simple snapshot measuring only legal differentiation.

Price starts looking up, again !

The price hike seems to look up again.
The year-on-year inflation as measured by the consumer price index increased by 8.5 per cent in mid-September compared to 8.6 per cent of the same period of a year ago, according to macroeconomic report for second month of the current fiscal year published by Nepal Rastra Bank (NRB) here today.
The index of food and beverage group went up by 10.1 per cent and the index of non-food and services group increased by 7.2 per cent. The indices of the groups had increased by 12.2 per cent and 5.6 percent respectively in the same period of a fiscal year ago," said the report.
In the first month, the index of food and beverage group had increased by 9.9 per cent and the index of non-food and services group had surged by 5.8 per cent, respectively.
The double digit inflation has moderated to single digit since mid-May this year but the festive season seems to push the price up again.
As food price inflation has drastically mellowed down in the first month of the current fiscal year, targeted inflation rate of seven per cent was expected to be achievable. However the second month's food price and non-food price hike have once again starting to raise its head containing inflation will be a daunting task for the monetary authority.
Price rise rate had moderated to the 7.7 per cent in mid-August, according to NRB's report.
If the trend continues maintaining price stability is going to be difficult task for the central monetary authority in the coming days due to external factors.
Among the food group prices of vegetables and fruits had seen the highest jump of 49.1 per cent and 38.4 per cent, respectively. The food prices do not seem to abate soon as in October due to Dashain and Tihar prices will not be able to go down.
Along with consumer price, wholesale price has also seen rise to 7.1 per cent by mid-September from 5.1 per cent in mid-August.
Region-wise, the price index in Hills increased by 11 per cent followed by 8.4 per cent in Tarai and 6.7 per cent in Kathmandu Valley against last year's same period's 9.7 per cent, 6.6 per cent and 10.6 per cent.

The inflation
Shrawan — 7.7 per cent
Bhadra — 8.5 per cent
(Source: Nepal Rastra Bank)

Monday, October 24, 2011

Can NRNA be Nepal’s development partner?

Non-Resident Nepalese Association (NRNA) fifth Global Conference concluded with a commitment to support Nepal Investment Year 2012-13, the government’s ambitious campaign to attract investment in the country.
Every two years, the Non-Resident Nepalis (NRNs) meet in Kathmandu for global conference that concludes with a declaration. Going through the declarations from the first global conference to the fifth, they seem redundant as they are all promises, which have forced the people to believe that they are not better than our politicians.
After eight years of waiting, some section of the society has already started thinking that the NRNs are a pampered lot. Going by the association’s last eight years’ performance, they have been repeating almost the same promises 'ritually' every two years.
This year’s global conference also ended with a 17-point declaration that vows to increase investment in energy, infrastructure, skill trainings and technology sectors — the most debated issues since last eight years.
The government and private sector both wanted NRNs skills, experiences and technology, if not capital, transferred to the country. But in the last eight years, apart from some individual investments, there seems no visible and transparent investment from them let alone skill, technology and experience transfer.
Lately, the migrant Nepali workers in Gulf and Malaysia have become yet another debate among the NRNs. Though, it is not a new debate in the association that claims they have three million members around the globe as a Nepali – who spends over 180 days outside the country is a NRN – the million dollar question is are the migrant Nepali workers in Gulf and Malaysia NRNs?
Are those faces in the global conferences and in the NRNA executive committee represent these Nepali blue colour job holders, who are working in 50 degree Celsius in the Middle East desert to send back home their earnings so that their kids can get education and elderly parents have a roof on their head? Can the NRNs take credit for the remittance that has been the lifeline for the country in the last one decade?
The government's failure in creating employment at home has forced unemployed youths to the Arabian Desert and Malaysian jungles as blue-colour job holders but they have become pawn in the power struggle of the association.
Most of the faces, who claim themselves NRNs are the first generation NRNs and represent white colour job holders, who are surviving every day on pay check to pay check basis, except for a few exceptions. They also have their own struggle in foreign land. The association should be bold and not keep the people confused. It should accept the reality that they have only a couple of members, who can really invest in Nepal.
The Nepali Diaspora since its second global conference in Kathmandu has been promising of setting up a fund to invest in Nepal, but has not yet been able to do so. Either they now walk their talk or redefine themselves. It’s never too late to accept the reality. The dilemma shows that the NRNs are themselves a confused lot.
Are they a charity organisation or development partners of Nepal? It’s time they start introspection as they are going to hold the sixth global conference in 2013 that makes the association a decade old.
Some of the NRNs have also tied the dual citizenship issue with investment, which is yet another blunder. There is no relationship between citizenship and investment. Nepal is in need of Foreign Direct Investment (FDI) for its economic development and there can be no better opportunity for the NRNs to take advantage.
Doing Business 2012 report published by the World Bank and IFC last week has also revealed that doing business in Nepal is much easier than in other South Asian countries but the NRNs are claiming that the investment climate in Nepal is not suitable for them to invest.
One can invest in Nepal without dual citizenship too. Their own leaders Upendra Mahato and Jiba Lamichhane are some of the examples that without dual citizenship also one can invest, if one is 'seriously' willing to and has the capacity to become a partner of motherland’s development.
During the last global conference, the NRNs agreed on Identity Card, which according to the Ministry of Foreign Affairs has been distributed to less than 1,000 NRNs. If ministry has to be believed, the NRNs are not interested in taking the Identity Card, which they themselves agreed two years ago.
The NRNA came into existence committed to streamline their energy and resources for the transformation of Nepali society. From the nationality point of view both Nepali nationals and foreign nationals of Nepali origin are regarded as NRNs to mobilise knowledge, skills, capital and other resources in their disposal in the socio-economic development of Nepal in cooperation with government and society of Nepal. It has also aimed at promoting Nepali culture and tourism abroad, apart from facilitating the foreign investment in Nepal.
Hope the sixth NRNA global conference in Kathmandu in October 2013 will either redefine the association as a development partner of Nepal and translate its slogan of the fifth conference, ‘Our Network Our Identity: Prosperous Nepal’, or accept itself as a philanthropic organisation.
It has the sole right to redefine itself and it has to, before others do.

Sunday, October 23, 2011

Nepal-India trade increases by 36 per cent: Sharma

The Indian Union Minister of Commerce, Industry and Textiles Anand Sharma expressed satisfaction that bilateral trade between India and Nepal has increased from $1,985 million in 2009-10 to around $2,700 in 2010-11 registering an increase of around 36 per cent.
Exports from Nepal to India have also grown from $452 million in 2009-10 to $476 million in 2010-11 — an increase of around 5.3 per cent, he said, during his meeting with his counterpart Anil Kumar Jha in New Delhi.
Sharma singled out hydro power sector for increased cooperation between the two countries. "It is estimated that sale of electricity from the 40,000 MW hydropower potential of Nepal can generate revenues of more than 10 billion dollar per annum. Nepal could also attract a lot of investment in manufacturing/services sector by overcoming its present power shortage” Indian Minister said, adding that in the recent past, several Indian private companies and joint ventures have been able to secure survey licences for development of about 8,200 MW hydro power projects in Nepal at an estimated cost of IRs 82,000 crores.
"It is important that the projects are started as early as possible,” Sharma said. Indian minister also pointed out the problem of local disturbances for the Indian Investors.
He also informed that India has accepted the Nepali request for use of Vishakhapatnam port and rail route through Singhabad (India)-Rohanpur (Bangladesh).
Approval of Nepal for the Letter of Exchange (LoE) sent in this regard is awaited. Nepal’s request for further facilitation of Nepal-Bangladesh trade through Kakarbhitta-Phulbari-Banglabandha route had also been agreed.
The meeting also explored India providing Buyers Credit to Nepali agencies for large project exports, especially in the infrastructure sector like roads, bridges, railways, power lines, sewerage plants, water treatment plants and housing from India. The credit can be provided under National Export Insurance Account (NEIA) through EXIM Bank for a maximum period of five to eight years.
Indian firms are the biggest investors in Nepal accounting for about 47.5 per cent of total approved foreign direct investments (FDIs). There are about 150 operating Indian ventures in Nepal engaged in manufacturing, services — banking, insurance, dry port, education and telecom — power sector and tourism industries.
Indian joint ventures in Nepal have contributed significantly to increase in Nepal’s exports to India. They also provide direct employment to around 30,000 Nepalis and indirect employment to more than twice the number.
Both governments have finalised the bilateral investment protection and promotion agreement during the four-day visit of Prime Minister Dr Baburam Bhattarai.
Sharma stressed on problems faced by Indian business in Nepal. He pointed out that Surya Nepal — a subsidiary of ITC Ltd, India — had to shut down permanently its readymade garment production because of long running labour problems.
He also touched upon the problems faced by GMR group. Such incidences will, over a period of time, have a negative effect, he added.
Meanwhile, Finance Minister Barsha Man Pun called on Indian Union Finance Minister Pranab Mukherjee on Saturday. Mukherjee assured Pun of India’s full cooperation and support in building-up various projects in Nepal.

Private sector welcomes, politicians confused on BIPPA

Bilateral Investment Promotion and Protection Agreement (BIPPA) with India has confused parties, though private sector has welcomed it.
Former finance minister and CPN-UMP leader Bharat Mohan Adhikari has welcomed the agreement, whereas his party leaders including former prime Minister and CPN-UML chairman Jhala Nath Khanal, former Prime Minister Madhav Kumar Nepal and and senior leader K P Oli blamed the incumbent Prime Minister Dr Baburam Bhattarai for compromising the national interest by signing the agreement.
Adhikari though supported the agreement, blamed Bhattarai for keeping the house in dark.
"I agreed we need Indian investment for development but why Prime Minister mislead the country saying he is not signing any agreement," he said, in an interaction today.
"There is something hidden agreement between Indian Prime Minister Man Mohan Singh and Dr Bhattarai," he suspected, blaming PM for misleading parliament and not building political consensus before signing the agreement. "Why he did not seek political consensus in the agreement that affects country for years," he asked.
Indian government has proposed BIPPA in 2001 but the government has refused to sign in the agreement showing insurgency and political transition, Adhikari said, adding that BIPPA was in Nepal's court since a decade but earlier government did not sign it showing political transition.
Similarly, UCPN-Maoist leader Dev Gurung also blamed PM for misleading the parliament. "He even did not brief a single word about BIPPA in party meeting on India visit," he said adding that the party will take action against him.
According to him, the country in transition could not afford the cost of compensation and economy will collapse. There are some of compensation measures mentioned in the agreement are beyond the control of the government, he said adding that BIPPA will make obstruction to provide equal treatment to investment from other countries.
However, private sector has welcomed BIPPA hoping the country will benefit from the agreement in long run. "I have not seen any wrong in the agreement," said president of Nepal Chamber of Commerce (NCC) Suresh Kumar Basnet.
"Political parties should not oppose BIPPA, if they want to attract Indian investments," he said, adding that the agreement will build confidence of Indian investors. India has largest investment in the country but their establishments are facing labour and other problems in recent years.
"The agreement will build the government proactive and solved small problems in their early days," he said. According to him, BIPPA will make political parties and trade unions more responsible as the country has to pay for losses of foreign industries.
Similarly, economist Dr Chiranjivi Nepal said that the agreement is essential for prosperity of the country. "There is no debate on foreign investment is essential for development, then why we are opposing the agreement," he asked adding that BIPPA will open door to industrial development in the country.
According to him, increased financial responsibility through BIPPA will make the government and political parties more responsible. "If the government and political parties become responsible there will not be financial compensation," he added.

Saturday, October 22, 2011

Government officials find tax offices lucrative

The government officials’ priority for transfer has changed, as unlike earlier, majority of them want to get transferred to the tax offices like Inland Revenue Department and Department of Revenue Investigation (DRI), according to a survey.
Some 70 per cent of the government officials surveyed said that they want to get transferred to tax offices.
Earlier, customs used to be their first priority. "But the survey revealed that customs has become the second priority at present," said senior training officer at the Revenue Administration Training Centre Basu Sharma.
Earlier, customs used to be lucrative but the current trend showed the officials started preferring tax offices as they found it even more lucrative in recent years, may be due to some ‘unseen’ benefits,” according to a Finance Ministry official.
“Finance Ministry comes to the third priority and nobody wants to get transferred to research and academic departments," Sharma said, adding that the results could be an eye-opener for the Finance Ministry.
The officials also said that there is massive political interference and unpredictable environment in the government job. “Government employees’ image has taken a plunge," they said, adding that the frequent transfer on the basis of ideology has forced the officials to believe that system does not work.
The unions in the government machinery are so powerful that they have no more them on their ability. The bureaucracy needs a complete revamp as it’s not professional, they said.
They are not satisfied with the current organisational structures too. “The current government organisational structure offers nothing for growth and development, neither personal nor organizational, they said.
The Revenue Administration Training Centre had conducted a 45-day long training for over 60 government officials from senior to junior level including that from Revenue Department and Finance Ministry.
The frequent changes in the government coupled with the bureaucracy have been making it harder for the government employees to maintain their professionalism and discouraging them from believing on the system.

Friday, October 21, 2011

Nepal signs BIPPA with India

Nepal today signed Bilateral Investment Protection and Promotion Agreement (BIPPA) with India to boost Indian investors’ confidence on Nepal.
The agreement will also help reduce doing business cost of the two countries as the investment of one will get equal treatment in the other country.
Minister for Industry Anil Kumar Jha and Indian Finance Minister Pranab Mukherjee signed the agreement on behalf of their respective countries in the presence of the Prime Minister of both the countries.
However, the agreement will be implemented only after exchange of diplomatic notes confirming that the legal requirements have been fulfilled for the entry into force of the agreement.
According to the agreement, "if an investor of a country suffers losses owing to war or other armed conflict, a state of national emergency or insurrection or riots in the territory of the other country will be given equal treatment, as regards restitution, indemnification, compensation or other settlement, no less favourable than that it accords to its own investors. Resulting payments shall be freely transferable."
India is not only the largest trading partner of Nepal but also the biggest investor in Nepal. Indian firms are the biggest investors in Nepal accounting for about 47.5 per cent of total approved foreign direct investments (FDIs).
There are about 150 operating Indian ventures in Nepal engaged in manufacturing, services — banking, insurance, dry port, education and telecom — power sector and tourism industries.
India is the seventh country to enter into BIPPA with Nepal as the country has already signed BIPPA with France, Germany, Britain, Mauritius, Qatar and Finland, though they do not have significant investments in Nepal.Due to insufficient internal homework Nepal however could not sign Double Taxation Avoidance Agreement (DTAA) and Power Trading Agreement (PTA).
DTAA will make the Indian investors feel more confident to invest in Nepal as they do not have to pay tax in both the countries. Currently, an Indian investor has to pay tax in its profit in Nepal and after taking it to India, it has to paty tax to the Indian government too. The Double Taxation Avoidance Agreement will exempt the tax payment on profits of Nepal in India.
Similarly, PTA will help Nepal, at present, and India, in the long run, to import and export more power cross border. According to current rule, Nepal can import only 50 MW of power from India. But the new agreement will pave way for more power trading.
The agreement will simplify Indian investors in Nepal like GMR (Upper Karnali) and Sutlaj (Arun III) to sell power to India after they complete their hydel projects in Nepal.

PM invites Indian business community to invest in Nepal

Prime Minister Dr Baburam Bhattarai today said liberalised tax system and introduction of various social security schemes in the recent months have made Nepal foreign investment conducive and Indian investors should take advantage of it.
Addressing an interaction organised by FICCI, CII and Assocham in New Delhi, today, he also stressed on new social security schemes and improving labour relations in recent times.
Our tax system remains one of the most liberalised in the South Asia,” he said, adding that it makes foreign investment more conducive. He also said Nepal did not discriminate any foreign companies in the country. “We treat all the companies-foreign and national equally. Nepal is also signing Double Taxation Avoidance Agreement (DTAA) and Bilateral Investment Promotion and Protection Agreement (BIPPA) with India to boost investors’ confidence.
”He maintained that Nepali stakeholders were giving finishing touch to political need of Nepal and at the same time also focusing on economic need of the country. Dr Bhattarai said Nepal’s agriculture, tourism, hydropower and mining hold high potential for both Indian and Nepali investors.
The UCPN-Maoist ideologue also informed that a Board of Investment that has been planned by the government under his leadership would address the issues of foreign investment.Nepal’s trade deficit has reached Rs 218 million and it can be bridged only when the county produces enough goods in its territory and sell them into Indian market, the Prime Minister said.Federation of Nepalese Chambers of Commerce and Industry (FNCCI) president Suraj Baidhya, who is accompanying the Premier on his four-day official tour to India said Indian investors had invested worth $ 44 billion in other foreign countries and “if Nepal could attract a small percentage, the country could benefit a lot.”
Similarly, Confederation of Nepalese Industries (CNI) president Binod Kumar Chaudhary said Nepal failed to take advantage of Indian investment, and cooperation because of politicisation of economic issues. “Now when the PM is visiting India, back home some of the parties are worried that he might sign any major deals,” he said, adding that India also needs to be more liberal vis-à-vis Nepal and should not add tariff and non-tariff barrier to hurt Nepal’s trade with India and other third countries. Indian investors who spoke on the occasion showed concern about industrial strikes and power outages.

Thursday, October 20, 2011

CBS draws new poverty line, person earning below Rs 54 per day is a poor

A person earning below Rs 54 per day is a poor, according to third Nepal Living Standard Survey (NLSS III) that has revealed one quarter of the total population are poor meaning 25.2 per cent of Nepalis are poor as they earn less than Rs 54 per day.
The new national poverty line has been fixed at Rs 19,261 per person per year, according to the new poverty index that was released here today by the Central Bureau of Statistics (CBS) that has estimated food poverty line has been estimated at Rs 11,929 and non-food at Rs 7,332, though it varies according to the region.
The national poverty line varies from Rs 15,998 in rural Tarai-Western to Rs 40,933 for Kathmandu.
Similarly, the poverty also varies from urban hills (nine per cent), Kathmandu (11 per cent) to mountains (42 per cent) followed by far western region (37 per cent), though the poverty is in downward trend.
In the last 15 years, poverty has witnessed a decline of 30 percentage point, according to the CBS that releases NLSS in every seven years.
The rate of poverty in NLSS I (1995-96) and NLSS II (2003-04), however, cannot be compared with the present NLSS (2010-11), director general of the national data bank Uttam Narayan Malla said, reasoning that the consumption pattern has grossly changed in the last one-and-a-half decade making it incomparable. Earlier, two surveys had shown poverty at 41.76 per cent and 30.85 per cent. “If we follow the similar method, the current poverty should be a little over 13 per cent,” he added.
The new poverty line takes into account changes in the food habits of the relatively poor who now consume more eggs, milk and meat. "The food basket has also changed according to changed consumption pattern," he added.
"Poverty is measured by the number of people who are unable to purchase minimum basic needs, including both food and non-food," Malla said, adding that poor sections of the society have enjoyed faster growth in private consumption between the 2003-04 and 2010-11. The bottom one-fifth of the population experienced 4.5 per cent real growth in consumption per year compared to two per cent for all section of the population.
The food basket of the poverty line is based on estimated consumption of how much a poor spend to reach a minimum caloric requirement of 2,220 Kcal per day.
Despite low-cost of living mid-and far western hills has more poverty, the NLSS III revealed, adding that poverty increases with household size and number of kids under seven years of age. Similarly, poverty is low among the people with more than one hectare of agriculture land and higher levels of education.
The NLSS III (2010-11) is the survey officially used for poverty estimation with financial assistance from DfID, DanIDA, WFP and World Bank.

Nepal improves ranking in doing business

As the country readies to announce Investment Year 2012, Nepal's rank improved by three places to 107 reversing the earlier trend in Doing Business 2012 report launched today by the World Bank and IFC.
Improved ranking in the annual report is a good signal to investors that Nepal is creating a better environment for entrepreneurs.
The improvement is attributed to improved oversight and monitoring in the legal system, and speeding up the process for filing claims by investors that has strengthened enforcement of contracts.
The rankings in indicators like registering property, getting credit, paying taxes, and trading across borders have improved, whereas rankings fell in starting a business, dealing with construction permits, protecting investors, and resolving insolvency.
On getting electricity – the newest indicator – the country is ranked 99.However, there is significant scope for further significant improvements in selected Doing Business indicators like starting a business, dealing with construction permits, paying taxes, and trading across borders, which can help build investors' confidence on Nepal for Investment Year 2012.
'Doing Business 2012: Doing Business in a More Transparent World' assessed regulations affecting domestic firms in 183 economies and ranked the economies in 10 areas of business regulation like starting a business, resolving insolvency and trading across borders.
Among South Asian countries, Nepal ranked fourth. In South Asia, Bangladesh’s rank fell from 118 to 122, and Maldives’s rank fell from 78 to 79. However, the ranks of Bhutan (146 to 142), India (139 to 132) and Sri Lanka (98 to 89) improved.
New data revealed that improving access to information on business regulations can aid entrepreneurs. In five of South Asia’s economies, traders have access to relevant documentation requirements online or through public notices. Meanwhile, fee schedules for electricity connections are easily accessible in three economies.
"South Asian economies have an opportunity to increase access to information for entrepreneurs,” said lead author of the report Sylvia Solf, "One route is new technology, which is increasingly used by governments to provide electronic services for filing taxes or registering businesses. It not only enhances efficiency but opens opportunities to increase transparency.
"Similarly, among Low Income Countries (LICs) Nepal is ranked third.
This year, the ease of doing business ranking has expanded to include indicators on getting electricity. Over the past six years, all eight economies in South Asia have made their regulatory environment more business-friendly.
"Entrepreneurs in developing economies have a vital role in creating economic opportunities,” said director at the Global Indicators and Analysis, World Bank Group Augusto Lopez-Claros. "South Asia’s governments have empowered entrepreneurs by implementing regulations that are efficient, accessible, and sustainable, and they should continue to seek avenues for improvement."
Doing Business analysed regulations that apply to an economy’s businesses during their life cycle, including start-up and operations, trading across borders, paying taxes, and resolving insolvency. The aggregate ease of doing business rankings are based on 10 indicators and cover 183 economies.
Meanwhile, previous year’s rankings are back-calculated to account for the addition of new indicators, data corrections, and methodology changes in existing indicators so as to provide a meaningful comparison with the new rankings. Otherwise Nepal was ranked at 116 in Doing Business 2011 from ayear ago's 112 rank.
Doing Business does not measure all aspects of the business environment that matter to firms and investors like it does not measure security, macroeconomic stability, corruption, the level of skills, or the strength of financial systems.

South Asian Ranking
1. Maldives
2. Sri Lanka
3. Pakistan
4. Nepal
5. Bangladesh
6. India
7. Bhutan
8. Afghanistan

Global Ranking
1. Singapore
2. Hong Kong
3. New Zealand
4. United States
5. Denmark
6. Norway
7. United Kingdom
8. South Korea

Low Income Countries (LICs) Ranking
1. Rwanda
2. Kyrgyz Republic
3. Nepal
4. Kenya
5. Ethiopia
6. Bangladesh
7. Uganda
8. Tanzania

Digital divide persists among enterprises in the developing world

The Information Economy Report 2011: ICTs as an Enabler for Private Sector Development emphasised that governments should create environments for greater information and communication technologies (ICT) adoption for private sector development, by liberalizing markets to expand and improve network infrastructure, and providing legal and regulatory environment for electronic transactions. Special attention should be given to extending access to places where connectivity is lacking, such as rural areas of least developed countries (LDCs), and to building trust in the use of ICT.
Micro and small enterprises (MSEs) in developing economies remain far behind in terms of use of ICTs, according to the Information Economy Report. And even when access to ICTs is made available, small enterprises do not always apply them in their day-to-day activities, either because they are deemed too expensive or because they are not trusted.
For MSEs in developed countries, the use of computers and high-speed Internet has become common. This is far from being the case in most parts of the developing world, especially among smaller enterprises. Jordan is a good example, where virtually all enterprises with more than 250 employees are using the Internet for transactions, but only six per cent of the country´s micro-enterprises adopt the Web for sales and customer contact.
Computer and Internet use is critical for entrepreneurs to participate effectively in international value chains, yet less than one in five enterprises in sub-Saharan Africa has a website, compared with four of five in high-income countries.
For many enterprises in developing countries, the Internet is primarily used to send and receive e mails. By contrast, relatively few engage themselves in electronic commerce, and among those that do, it is more often used for placing than receiving orders. In general, it is easier for enterprises to purchase than to sell goods and services online, as the latter may involve creating or upgrading a Web presence and restructuring sales and inventory processes.
UNCTAD´s Report further shows that developing countries´ enterprises use the Internet mostly to obtain information rather than to conduct transactions with governments. Governments can improve access to relevant information and facilitate transaction services such as payment of taxes online, payment of utilities, and automate customs systems.
According to the Information Economy Report 2011, high-speed Internet connections are essential to enable enterprises to make full use of Internet-based services and applications. One advantage is the possibility to use Voice over Internet Protocol (VoIP), such as Skype. This is of particular relevance for MSEs, as it is less expensive than traditional telephone services.
Broadband connectivity also allows for increased use of social media, which present huge economic and marketing opportunities for enterprises. Businesses are leveraging social media platforms - such as Facebook, Google+ and Twitter - to tap into their expanding user base. A large share of American and European MSEs already use blogs, forums, or wikis for internal or external purposes. Social media are increasingly used also by developing-country enterprises. For example, in Brazil, Indonesia, and the Bolivarian Republic of Venezuela, around one in five Internet users employs Twitter and other social media sites such as Orkut, says the report.
Today, while around 90 per cent of small enterprises in developed economies benefit from high-speed Internet access, broadband usage is considerably lower in most developing countries. More than three quarters of medium-sized and large enterprises in Brazil, Colombia, Qatar, the Republic of Korea, Singapore, Turkey and the United Arab Emirates already enjoy broadband Internet access, but the corresponding share is much lower in other developing countries, especially in the case of small enterprises.
The Information Economy Report 2011 urges governments to seize the opportunities for private sector development that are emerging on the back of wider access to broadband as well as to facilitate improved access in places where relevant fixed or mobile broadband connectivity is still lacking. In order to speed up the roll-out of mobile broadband, countries need to allocate spectrum and license operators to provide the service.

Wednesday, October 19, 2011

IRD completes investigation of 365 VAT fraud cases

Inland Revenue Department (IRD) has slapped a total of Rs 3.45 billion tax including fine on 365 firms — till October 19 — out of 518 firms, which were involved in Value Added Tax (VAT) evasion by producing fake invoices.
Of the total amount, Rs 1.91 billion comes under Value Added Tax (VAT) evasion, Rs 1.57 billion under Income Tax evasion and Rs 23.8 million under Excise, the department said.
The amount includes both taxes plus fine, it said, adding that the department has set the mid-November as its target to finish the investigation of rest of the firms.
Of the remaining cases, Large Taxpayer Office is handling 105 cases and Inland Revenue Office Area Number 1 office Babar Mahal is undertaking 11 cases. Similarly, 37 cases have been sent to the Inland Revenue Offices in the different parts of the country including Bhadrapur, Biratnagar, Dharan and Lahan.
"Of the total, Rs 720 million has already been collected," the department informed. A total of 65 cases have approached the Administrative Review Committee under the department seeking review of the tax slapped on them.
Taxpayers can review the decision at the Administrative Review Committee under the department, if they are not satisfied with the decision. According to the existing law, those firms can approach Revenue Tribunal within sixty days, if they are not convinced with the Inland Revenue Department decision.
Inland Revenue Department has started the investigation into the fake VAT bill scam from last November, after it discovered widespread use of fake VAT receipts.

Report urges govts to leverage ICT to promote private sector development

More effective use of information and communication technologies (ICTs) by government programmes to support micro- and small enterprises (MSEs) will help accelerate job creation and business growth, according to the United Nations Conference on Trade and Development (UNCTAD) in the Information Economy Report 2011: ICTs as an Enabler for Private Sector Development.
In the words of UN Secretary-General, Ban Ki-moon, "Although some countries are already taking advantage of the close links between ICTs and private sector development (PSD), much more can be done to make ICTs a powerful force for improving the competitiveness of their private sector."
The Information Economy Report 2011 reveals that the ICT dimension is frequently absent from PSD strategies, and neither policymakers nor MSE owners in developing countries are harnessing these new possibilities to the fullest.
The Information Economy Report 2011 reviews a number of cases from developing countries, such as the Digital Early Warning Network, which is helping to fight pests and diseases in the United Republic of Tanzania, and the DrumNet information service in Kenya, which is helping farmers achieve higher sales volumes and incomes through the use of their mobile phones. The expanding range of mobile applications - text messaging, mobile Internet and mobile money - can deliver a multitude of highly relevant services for MSEs.
In some developing countries, high-speed wireless subscriptions now surpass fixed broadband. According to data from the International Telecommunication Union, mobile broadband penetration worldwide was about 65 per cent higher than fixed broadband penetration in 2010, but it was 1,400 per cent higher in African countries. However, several developing countries have yet to launch mobile broadband services.
Broadband also facilitates the use of social media such as Facebook and Twitter, and provide additional opportunities for MSEs to connect with customers, especially among the youth. Social media tools also offer a cost-effective way for small enterprises to establish a Web presence.
Governments and other institutions should apply ICTs to make PSD interventions more effective in business environment reforms by providing business development, market information and financial services to MSEs.
To be successful, ICT-PSD solutions need to factor in both user needs (in terms of what information and other inputs are needed) and possible constraints (for example, literacy rates, aversion to using new tools, scarce electricity and unaffordable user charges and prices). Involving the private sector in the design and provision of training and advisory services can help ensure that the services offered are truly demand-driven.
However, the Report also stresses that better data, more research and rigorous impact assessments are needed.
In order to assist policymakers, the Information Economy Report 2011 proposes a framework for facilitating a more systematic use of ICTs for PSD: the quality of ICT infrastructure, the use of ICTs by enterprises, the ICT-producing sector and using ICTs to make PSD interventions more effective.
The Report makes several policy recommendations, like including ICT modules in business skills training programmes; better leveraging of ICTs in support of women´s entrepreneurship; harnessing mobile money services to make financial markets more inclusive; using ICT tools to reduce the costs of business transactions and to help MSEs bring their goods and services to domestic and international markets; adopting regulatory frameworks to build confidence in the use of new technologies or new applications of a known technology; and developing donor guidelines to ensure that the ICT potential is fully reflected in their PSD strategies.

Revenue mobilisation up by only 10.22 per cent

The government has been able to mobilize only Rs 36.50 billion revenue till October 7.
"The collected revenue is up by 10.22 per cent compared to the same period in the last fiscal year," the Finance Ministry, said adding that the government has also been able to receive Rs 4.37 billion foreign grant and Rs 640 million loan making it to a total of Rs 5.1 billion by October 7.
"The encouraging foreign grant and loan proves that the donor community is actively helping Nepal in its development efforts," the ministry added.

IMF projects above five per cent growth in Sub-Saharan Africa

The International Monetary Fund (IMF) Regional Economic Outlook projected that growth in sub-Saharan African economies will remain on average above five per cent in 2011.
The growth rate is expected to increase in 2012 to nearly six per cent, because of one-off boosts to production in a number of countries, it said, adding that beneath the good overall trends for sub-Saharan African, however, there is considerable diversity.
"Growth has remained strong in the region in recent years, and most low-income countries in Africa weathered the global economic slowdown well," according to the IMF that has released the report on Wednesday.
Most low income countries (LICs) have been doing very well. One third of LICs are expected to grow by more than six per cent in 2011 but poor households have been hit hard by rising food and fuel prices, and famine is devastating the Horn of Africa, it added.Some middle income countries were severely affected by the global crisis and in South Africa, with unemployment stubbornly high, growth will be limited to at most 3.5 per cent this year, the report added.
Oil exporters have enjoyed the fruits of elevated oil prices, and the non-oil sectors in their economies are projected to grow by 7.5 per cent. "But there are significant downside risks to this outlook," it has warned, adding that global financial volatility and a sharp slowdown in growth in advanced countries would affect sub-Saharan Africa by subduing export demand and private financing flows, restricting growth particularly in the region’s more integrated economies.
Volatility in commodity markets could cause further disruptions in macroeconomic balances, with both winners and losers within the region.
“There are also risks from within the region like inflation rates that have begun to rise again, driven in the first instance by rising food and fuel prices. Consumer prices rose on average by 10 per cent in the year to June 2011, up from 7.5 per cent a year earlier and some countries have seen much sharper increases in inflation, extending beyond the immediate impact of higher food and fuel prices.
Policies need to tread a fine line between addressing the challenges posed by strong growth and preparing to ward off the potentially adverse effects of another global downturn. At the same time, Sub-Saharan Africa needs to continue to invest in growth and employment, which are critical for sustained poverty reduction.
"New evidence from household surveys shows that the average living standards of relatively poor households in some fast-growing economies rose strongly in the early 2000s," according to the report. "Comparing across countries, the poorest 25 per cent of households fared best in countries where economic growth was higher. This evidence sheds some light on an apparent enigma in aggregate data showing — at best — a very weak relationship between poverty and growth. It suggests that one important link in the chain between economic growth and poverty reduction is growth in agricultural employment. Cross-country differences in agricultural employment growth explain a large part of observed differences in the relative consumption growth of the poorest households among the countries sampled.
"Similarly, a fast-paced reorientation in sub-Saharan Africa toward new markets is under way, with nontraditional partners now accounting for about 50 per cent of the region’s exports and almost 60 per cent of its imports, it said, adding that the region’s exports are but still heavily concentrated in oil, gas, and minerals, particularly in the case of its largest emerging partners — China, India, and Brazil — many emerging markets purchase a wider range of products.
The FDI into the region is also diversified, including infrastructure, agriculture, and telecommunications. The reorientation brings the usual benefits of greater international trade, but should also boost long-term growth by reducing volatility in exports and output.
The emergence of new partners provides the region with both significant opportunities — lower cost of inputs and consumption goods, transfer of technology, and economies of scale — and challenges — managing high concentration of exports on commodities and rapid sectoral changes.

Tuesday, October 18, 2011

World Bank commits $400m in next two years

The World Bank Group reaffirmed its support to Nepal’s efforts at achieving durable peace with investments in development and poverty reduction.
Launched its new assistance strategy for Nepal for the next two years here today, World Bank country director Ellen Goldstein said that Nepal can potentially benefit from an allocation of about $400 million from International Development Association (IDA), subject to good performance and prudent economic management, over the next two years.
"The funds could finance four to five new operations per year and International Finance Corporation (IFC) can potentially commit $25-30 million on average annually, depending on the availability of viable investments and improvements in the business climate," she said, adding that the assistance programme will help improve food security, reduce malnutrition, improve immunisation coverage and enhance the access to and the quality of education apart from accelerating the economic growth and generate employment.
"It will also support efforts at strengthening governance and accountability, fostering gender equality and social inclusion, and removing key bottlenecks to higher economic growth and more jobs through investments in rural finance, transport and the energy sector,” Goldstein added.
The government is committeed to strengthening governance, replied Finance Minister Barsha Man Pun launching the Interim Strategy Notgdpe for Nepal (1012-2013).
He also urged for the support from international community — both public and private sector to help utilise resources. "Total FDI inflow to Nepal comes to a mere 0.1 per cent of gross domestic production (GDP), much lesser than in other Low Income Countries (LICs), where FDI's contribution comes to around 1.9 per cent," he said, adding that the international community can contribute to economic growth and job creation.
"The bank hopes to create a positive impact on private sector growth through investments in infrastructure, clean growth, and by providing advice which will enhance trade and support a better business environment for the private sector, including small and medium enterprises," said IFC Resident Representative in Nepal Rajeev Gopal.
Given the political transitional – with a new constitution being written and elections to follow – the World Bank Group has prepared an Interim Strategy after discussing in the bank’s Board of Executive Directors in Washington DC last month.
Supporting Nepal’s overarching goal to build a peaceful, prosperous and just Nepal, the strategy is organised around three ‘pillars’ that emerged during consultations within the World Bank Group and with Nepal, donor partners and key stakeholders.
The first pillar intends to enhance connectivity and productivity for growth, whereas the second focuses on reducing vulnerabilities and improving resilience and the third pillar concentrates on promoting access to better quality services.
Governance, accountability, gender equality and social inclusion are themes that run across all three pillars. "Within each of the pillars, the strategy identifies specific areas where the World Bank Group can make a difference," Goldstein said.
The new strategy sets out the basic parameters of the World Bank Group programme but remains flexible to respond to the challenges of implementing the proposed federal structure, once it is formally adopted. It proposes development programmes that are consistent with the government's Three Year Interim Plan and reflects considerable continuity, largely building on programmes with successful track records that are adapted to local conditions.
It also emphasised greater selectivity, focusing on areas considered vital to development and complementing programmes supported by other development partners during the transitional phase.
The World Bank Group in Nepal includes the IDA, the concessionary financing arm and IFC, the private sector arm. Two more World Bank Group organisations — the Multilateral Investment Guarantee Agency (MIGA) and the World Bank Institute (WBI) — offer investment insurance and capacity building services.
For IDA, these include roads, food security and livelihood vulnerability, education, health, urban services, and disaster management. For IFC, these include improving access to finance and investment climate, trade facilitation, lending to Small and Medium Enterprises and trade finance facilities for local commercial banks. IDA and IFC expect to work together on power development, agriculture and climate change.

Modernisation of Rani Jamara Kulariya Irrigation Scheme
KATHMANDU: World Bank country director Ellen Goldstein and Finance Secretary Krishnahari Baskota on Tuesday signed an assistance package of $43 million for the implementation of Phase 1 of the Modernisation of Rani Jamara Kulariya Irrigation Scheme. Located in Kailali district in the far western Tarai region of Nepal, Rani Jamara Kulariya is one of the most prominent Farmer Managed Irrigation Schemes, with a total command area of 14,300 hectares. It constitutes three independent, traditional irrigation systems constructed, operated and managed by generations of farmers, mainly from the indigenous Tharu community. The Rani system dates back to 1896. Nepal has a long tradition of farmer managed irrigation systems with a strong sense of ownership and farmer organisations are typically strong and dedicated to rural development. “About 25,000 farming households comprising close to 160,000 people are expected to benefit directly from the project,” Goldstein said. In the first phase, it will support the modernisation of the irrigation system by substantially rehabilitating and upgrading the main and secondary irrigation and drainage systems and flood management infrastructure, and by training Water Users Associations to improve their ability to manage the water and maintain the infrastructure. It will also carry out a series of agriculture production support activities in the project area through demonstrations, farmers’ field schools, and other adaptive processes.

Monday, October 17, 2011

Central bank tightens local companies, individuals to open accounts in foreign banks

The central bank has tightened local companies including financial institutions and individuals to open accounts in foreign banks.
A registered company including development bank and commercial bank can open a Nostro account but they have to apply with detailed information like foreign currency, name of the bank, its address and credit rating before opening the Nostro account and keep on reporting to the central bank regularly, the Nepal Rastra Bank said.
A bank account held in a foreign country by a domestic bank, denominated in the currency of that country is called Nostro account that is used to facilitate settlement of foreign exchange and trade transactions.The central bank has asked the financial institution to inform Foreign Exchange Department after opening the account.
The financial institutions can held the balance in any of the currency according to their need but they can neither hold more than necessary nor buy Indian currency, the central bank said, adding that the banks have to deposit Indian Currency in the current account, if they have more than necessary. But the central bank has not elaborated on how to measure the necessity.
The central bank has, but, allowed interbank transaction of the IC from the current account. "And the financial institution can even lend to individuals," it said, adding that the central bank has to be informed transaction details regularly. "The banks can however, not take overdraft or borrow."
Similarly, central bank-licenced remitters, registered agencies selling their goods and services abroad, and exhibitors can also open Nostro account but they have to send the details of their accounts regularly to the central bank.
The remitters can open foreign currency account in the country to hold the transferred remittance, NRB added.
However, individuals can also open the account till one is in the foreign land. In case of one's return, such account should be closed within 35 days, or if anyone wants to continue to hold accounts, the central bank has to be informed.

Sunday, October 16, 2011

ADB to facilitate bilateral power trade pacts in South Asia

The Asian Development Bank is hosting a regional meeting soon to facilitate bilateral power trade agreements and help countries in the energy-deficit South Asia region meet their burgeoning demand for power.
The meeting to be held in Bangkok will facilitate bilateral agreements, according to Yongping Zhai, director of Energy Division at the ADB’s South Asia Department.
Home to one third of the global population, South Asia is the least connected region in terms of overall intraregional trade, including power trade. “Most SAARC member-states, including Nepal, are unable to generate sufficient electricity to meet their own demands,” Zhai, who was in Kathmandu to take part in the Energy Investors’ Forum, said.
Nepal plans to ink a power trade agreement with India during Prime Minister Baburam Bhattarai’s India visit starting next week, keeping in mind the fact that it will be difficult to export power to India once the export-oriented hydropower projects like GMR’s Upper Karnali and Sutlaj’s Arun III start generating power.
According to Zhai, SAARC member-states should enter into an ‘umbrella power trade agreement’ apart from bilateral pacts to meet the energy shortfall. The pacts are likely to herald further power trade agreements, resulting in more effective use of existing energy resources in the region.
The ADB is also trying to bring co-financers in the construction of key transmission lines for inter country and intra country power trade. “The private sector is very much into generation, hence the need to invest in the construction of transmission lines,” Zhai said.Apart from new transmission lines, the ADB wants the Nepal Electicity Authority restructured. “Reorganisation of the NEA and power tariff revision are also a must. It is up to Nepal to decide how to do it,” said Priyantha Wijayatunga, senior energy specialist at the South Asia Department’s Energy Division.The government’s commitment and policy papers have impressed the experts. Now, they want the government to walk the talk. “The action is missing, though policy papers seem impressive,” Zhai added.
Michael Barrow, director of the Infrastructure Finance Division under the Private Sector Operations Department at the ADB, seconded his colleague. “The ADB is studying around half-a-dozen reservoir-based hydel projects for private sector financing,” he said, adding that the private sector companies should approach the ADB for project financing.
The Manila-based lender that, in principle, is open to aid infrastructure projects, including power, transport, water and telecom, has, after years, shown interest in financing the hydropower project directly.
“The ADB is also planning to help local banks finance small hydropower projects,” Barrow said and stressed the need for a strong financial structure.
“ADB will try its best to guarantee the reduction of political risk, bring in international banks or other private sector for co-financing, and even lend directly,” the private sector expert said, suggesting that Nepal should create an international-standard legal and regulatory structure if it wants Foreign Direct Investment (FDI).
Though Energy Minister Post Bahadur Bogati welcomed the FDI in the hydropower sector, his plan to revise the agreements with GMR and Sutlaj may discourage FDI.

Friday, October 14, 2011

Domestic demand sundues on investor concerns

In Nepal, domestic demand was subdued on investor concerns over bankingsystem fragilities and a decline in remittances from the Middle East, according to a report by the International Monetary Fund (IMF).
The report 'World Economic and Financial Surveys regional economic outlook for Asia and Pacific titled 'Navigating an Uncertain Global Environment, While Building Inclusive Growth," in South Asia, private consumption remained robust in India on account of rising disposableincome, but investment was subdued partly on concerns over governance and the global outlook.
Similarly, in Bangladesh, buoyant credit growth amid a still-accommodative monetary stance continued to fuel domestic demand, while in Sri Lanka activity benefited from greater political stability. Wage pressures in Nepal, Mongolia, Timor-Leste, and Vietnam have been rising in recent months, it said, adding that a few factors suggest inflationary pressure may continue in the near future in Asian Low Income Countries (LICs).
Asian LICs’ core (or nonfood) inflation has been lower for the most part in the current episode, even though it is increasing in some countries. Core rates have also risen more slowly than in emerging Asia suggesting that inflation may not yet have run its course in Asian LICs, the report added.
Similarly, headline inflation for Asian LICs reached a three-year high in 2011. Generally, food inflation has been the main driver of inflation, it said, adding that in some cases, however, the procyclicality of macroeconomic policies, along with second-order effects of higher food prices, contributed to raise core inflation rates. "As of September 2011, futures prices for rice and wheat imply price increases for these major staples of about 10 per cent through end-2012. Higher food and commodity prices carry with them a risk of more generalised inflation, if they destabilise inflation expectations."
The report also suggested Asian policy makers to balance growth considerations against inflation and balance sheet risks from prolonged easy financial conditions. "In economies where inflation pressures are still elevated and monetary conditions accommodative, the return to more neutral monetary stances should continue," it said, adding, "However, for economies where expected inflation is within central banks’ target ranges and the exposure to severe external shocks is greater, a pause in monetary tightening may be warranted.
Meanwhile, fiscal policy consolidation is rightly continuing in many economies as structural fiscal deficits are still above pre-crisis levels.
Asian countries have taken comprehensive reforms over the past decade to strengthen their financial, corporate and public sector balance sheets that are now providing strong buffers for the renewed global uncertainties.
Thus, if the downside risks to the global outlook were to materialise, the IMF said that Asian economies have the scope to reverse course and use a range of measures to cushion the impact on economic activity, as many did in response to the global crisis in 2008.
Fears about the spillovers from global growth amid still high inflation pressures in much of the region mean that policymakers in Asia face a delicate balancing act, according to the IMF.

Tighten loop holes
KATHMANDU: In low-income economies, including Cambodia and Nepal, as well as emerging economies like the Philippines, significant revenue enhancement can be achieved by efforts to strengthen tax administration, the IMF report said, adding that revenue measures can also play a role in creating fiscal space. In Japan, comprehensive tax reform with a gradual increase in the consumption tax and a reduction of the corporate tax rate — with revenue losses offset by reforms of personal income tax that reduce allowances and base exemptions — will help ensure fiscal sustainability in the face of reconstruction costs and the need to promote private investment.

Energy Investment Forum concludes with commitment to minimise current power shortage, increase private investments

Nepal Energy Investment Forum concluded here today with firm commitment from the government to minimise current power shortages and create a conducive environment for private investment in the energy sector.
In his concluding remarks, Minister of Energy Posta Bahadur Bogati expressed satisfaction at the successful conclusion of the forum and gave assurances that the government will address the issues raised by various stakeholders during the forum for rapid development of hydropower in Nepal.
Secretary of Ministry of Energy Balananda Poudel presented the outcome of the forum and noted that building sustainable partnerships among different stakeholders is critical to the development of hydropower projects.
He also emphasised the need to look beyond revenue generation, including the affected communities, in the process and considering hydropower development from the point of view of overall development of the country and its people. The government assured stakeholders that it would take all necessary steps to address the gaps and inconsistencies in the policies and would take immediate steps to make Hydropower Investment and Development Company Ltd effective, and undertake restructuring of related institutions.
The government greatly appreciated the assistance of multilateral and bilateral development partners and Asian Development Bank (ADB), in particular, for the continuous support extended.
The forum also highlighted the many barriers faced by private sector investors in hydropower development and how the government, development partners and other stakeholders could assist in overcoming those barriers. A list of available projects for private sector investment in the energy sector in Nepal was also showcased. Discussions in the forum also highlighted lessons learnt in developing hydropower projects, such as the Bhotekoshi Hydropower in Nepal, the Nam Theun-2 in the Greater Mekong Subregion, the Itaipu in Brazil and the ones in Manitoba in Canada.
The ADB highlighted ongoing development assistance to the power sector in Nepal and how its increased focus on private sector-led investment could benefit the hydropower sector. ADB's continued support to the country's poverty reduction and development efforts was also emphasized in this context, including ADB investment and technical assistance for energy access and efficiency improvement, clean energy development, regional cooperation and strengthening sector governance.
Speaking at the closing session, ADB’s country director for Nepal Barry Hitchcock said solving the energy crisis is among the most essential factors to accelerate growth and reduce poverty in the country. He also said ADB will continue its partnership with the government, private sector and other stakeholders to accelerate progress in this sector.
The two-day forum, jointly organised by the government and ADB, attracted more than 200 participants including senior government officials, national and international private sector investors, power developers and traders, financiers, development partners, and civil society members.

Fifth NRN globalconference ends with 17-point decalration

Non-Resident Nepalese Association (NRNA) fifth Global Conference concluded here today with a commitment to support Nepal Investment Year 2012-13.
The Nepali Diaspora has approved the 17-point declaration that vows to increase Non-Resident Nepalese (NRN) investment in energy, infrastructure, skill trainings and technology sectors — the most critisised and debated issues since last eight years.
NRNA will help Federation of Nepalese Chambers of Commerce and Industry (FNCCI) attract investment in primary sectors like energy, tourism, infrastructure projects and agriculture, the declaration promised, adding that they will start a 100 mega watt (MW) hydropower soon.
The NRNs have been since last eight years promising of investment but there has been no visible investment from them yet.
The NRNA has, however, asked the government to create legal ground for Open University to produce skill manpower in the country. International Council for Open and Distance Education and some internationally universities have promised to provide technical support to the drive, they said, adding that Open University could be operated from the investment of the government, NRNA and other development partners.
As always, the NRN conference promised to help tourism sector in promoting Nepal abroad and attracting investments. Likewise, they have also promised to promote Nepali goods in foreign countries in collaboration with respective export agencies.
The NRNA has become more a charity orgnisation than partner for country’s — in their own word motherland’s development.
They have vouched to support Gorkha movement through moral and financial support to their drive to build ‘Gurkha Memorial’ in Salmedada of Syanja district. Ex-Gurkha army organisation is building the memorial in 300 ropani land in the memory of 60,000 Nepalis died during World War I and II.
The association has urged the government to revise foreign employment laws and policies to make job migration to foreign countries safer. NRNA will provide concrete inputs for revision of laws and policies, it said.
Meanwhile, the conference has unanimously elected Jiva Lamichhane as new president because outgoing president Dev Man Hirachan withdrew his candidacy from the post. The NRNA jamboree has kicked off in the capital on Wednesday with the slogan ‘Our Network Our Identity: Prosperous Nepal’.
NRNA has decided to hold sixth global conference in Kathmandu in October 2013.

Thursday, October 13, 2011

Asia needs to navigate uncertain global environment, build inclusive growth, says IMF’s Asia-Pacific Regional Economic Outlook

Fears about the spillovers from global growth amid still high inflation pressures in much of the region mean that policymakers in Asia face a delicate balancing act, the International Monetary Fund (IMF) said in its latest Regional Economic Outlook for Asia and the Pacific, which was released in Asia today.
Growth in Asia has moderated since the second quarter of 2011, mainly reflecting a weakening of external demand. Domestic demand is still resilient, and it should continue to sustain activity across the region, contributing to relatively robust growth of 6.3 per cent in 2011 and 6.7 per cent in 2012 on average, slightly below our forecast last April.
In Japan, the tragic earthquake and tsunami earlier this year had grave social and humanitarian costs and also set back the recovery; however, domestic demand is picking up as reconstruction efforts get under way and growth is expected to reach 2.3 per cent next year.
Meanwhile, inflation pressures have been elevated in a number of other Asian economies amid accommodative financial conditions, but should recede as food and energy prices gradually moderate.
Nevertheless, the report cautions that risks for the Asia and Pacific region are decidedly tilted to the downside. An escalation of the euro area financial turbulence and a more severe slowdown than anticipated in the US would have clear macroeconomic and financial spillovers to Asia. While domestic demand remains strong, 'Asia has clearly not 'decoupled' from advanced economies,” the IMF says.
The report welcomed the successive measures Asian policymakers have taken to normalize monetary and fiscal policy stances following the stimulus that was put in place in response to the global financial crisis. What does the emergence of renewed global downside risks imply for policies? Asian policy makers need to balance growth considerations against inflation and balance sheet risks from prolonged easy financial conditions.
In economies where inflation pressures are still elevated and monetary conditions accommodative, the return to more neutral monetary stances should continue. However, for economies where expected inflation is within central banks’ target ranges and the exposure to severe external shocks is greater, a pause in monetary tightening may be warranted. Meanwhile, fiscal policy consolidation is rightly continuing in many economies as structural fiscal deficits are still above pre-crisis levels.
Asian countries have taken comprehensive reforms over the past decade to strengthen their financial, corporate and public sector balance sheets that are now providing strong buffers for the renewed global uncertainties. Thus, if the downside risks to the global outlook were to materialise, the IMF said that Asian economies have the scope to reverse course and use a range of measures to cushion the impact on economic activity, as many did in response to the global crisis in 2008.
Looking ahead, the crisis in advanced economies is a reminder of the need for Asia to now make further progress with economic rebalancing and develop stronger domestic engines of growth. In addition to structural reforms, this would require a reprioritisation of fiscal spending, in order to create fiscal space for critical infrastructure investment and social priority expenditure.
Despite fast growth and progress in poverty reduction, income inequality in Asia has increased over the last decade — and by more than it has done in other regions. Key elements of a strategy to reduce the share of vulnerable households in Asia would include better social safety nets and more investment in health and education. The report suggests that measures that would help increase domestic demand over time, and make the region more resilient to external shocks, would also help to make growth in Asia more 'inclusive'.
In sum, economies in the Asia Pacific region are still expected to continue growing at solid rates. However, downside risks from a weakening global economy have greatly intensified and underscore the need to shift the growth model for Asia. In the near-term, policy makers face the challenging task of navigating opposing risks to growth and financial stability amid a highly uncertain global environment, and a pause in monetary tightening may be warranted in some countries until such uncertainties have lessened. Looking farther ahead, strengthening Asia’s domestic sources of growth and making growth more inclusive are key to increase economic resilience over the medium-term.