Thursday, December 31, 2015

A year of disaster and depression

Massive disasters, lop-sided development strategy and economic depression are the buzz words for remembering the year 2015. The year will go down in history as the year that exposed policy makers, politicians and bureaucrats for their incompetency and visionlessness. The year again proved that Nepali political parties are 'economically illiterate', despite their tall talk of economic revolution.
The year 2015 was punctuated by the devastating earthquakes of April 25 and May 12 – that flattened over a million houses, including public and private – and the subsequent aftershocks.
The government prepared a Post-Disaster Needs Assessment (PDNA) and organised the International Conference on Nepal's Reconstruction (ICNR), where development partners generously committed Rs 401 billion for the country's reconstruction. The PDNA estimated a need of Rs 669.5 billion for funding reconstruction of damaged public infrastructure, including roads, health posts, government schools and utilities; historical and cultural heritage sites; and private sector infrastructure; and for compensation and other forms of support to the public. The devastating earthquake damaged Rs 517 billion worth of assets, the report stated, projecting economic growth to drop to around half the government's target of 6 per cent.
Though the formation of Nepal Reconstruction Authority (NRA) was expected to create huge employment and kick-start the economy through massive capital expenditure, political wrangling delayed the formation. Nine months after the quakes, the year is going to end without having seen a single physical infrastructure being reconstructed.
Moreover, the economy that was slowly recuperating from the earthquakes started crumbling again after the promulgation of the new Constitution on September 20. Against the popular expectation that the Constitution would pave the way for a prosperous Nepal, unrest in the Tarai-Madhes – supported by the Indian blockade – shook the economy to its foundations.
Agitations by the Tarai-Madhes centric political parties and the fallout on the economy not only exposed the successive governments and the political parties for their lop-sided development planning and lack of vision but also pulled economic growth down into negative territory.
The central bank, in its report, 'Impact of India's unofficial blockade on Nepal's economy', projected that economic growth would be negative or at best remain below 2 per cent. The Finance Ministry, in its White Paper on the current economic status, seconded the central bank's projection.
Likewise, the central bank also warned of stagflation, as consumer prices shot up by more than 10 per cent in the fourth month of the current fiscal year of 2015-16, while economic growth is expected to drop to its lowest in around one-and-a-half decades, coupled with a high level of unemployment.
But, according to senior economist Prof Dr Bishwhambher Pyakuryal, the country is heading towards hyperinflation. "Hyperinflation occurs when a country experiences very high and usually accelerating rates of inflation, like the current market prices, rapidly eroding the real value of the local currency and causing the populace to minimise their holdings of local money," he said, adding that people normally switch to holding relatively stable foreign currencies. "Under such conditions, the general price level within an economy increases rapidly as the official currency quickly loses real value."
Similarly, the Tarai-Madhes unrest has forced some 2,200 industries to close and some 220,000 people have become unemployment, according to the Federation of Nepalese Chambers of Commerce and Industry (FNCCI). People lost their incomes in the last four months – which is severe – due to the Tarai-Madhes unrest, unlike the earthquakes that has destroyed assets.
The prolonged strikes in the Tarai-Madhes supported by the Indian embargo have not only created shortages of essential supplies including petroleum products but also encouraged the black market and hoarding, making the lives of the people more difficult still. The central bank has already admitted that it cannot crack the whip on inflation as this is not increasing due to any monetary cause.
Low production and falling imports have pushed the market prices up to double digit, exposing weak governance, he added.
Government inefficiency has also been exposed in the failure to spend the development budget. According to the Finance Ministry, the government has been able to spend only 6 percent of the capital expenditure in five months of the current fiscal year, which is going to hit the performance of the national pride projects not only because they are going to be delayed but costs also will escalate, according to Pyakuryal.
Time and cost overruns will hit the social sectors like health and education, he said, adding that the resource allocations for these sectors will also decline due to low revenue generation. "It will also hit the government's target of graduating Nepal from the current status of Least Developed Country (LDC) to a developing country by 2020."
According to the Finance Ministry, the government has lost Rs 50 billion in revenue in the last three months.
The government has also made the year 2015 more memorable as the poverty head count is going to increase and the government-promoted black economy will further expands weakening democracy in the coming years.

Black economy expands
The year 2015 will also be remembered for the black economy and market distortion with the direct involvement of the government. Weak governance and lack of willpower to enforce the law are encouraging the black economy. There is growing criminalisation in society since almost the entire official machinery is involved in illegalities. Businessmen and politicians use the police and the bureaucracy to engage in illegality. When the latter get the license to commit illegality, they do it for their own ends also, that is, for making money. The result is that the force responsible for maintaining law and order, i.e., the police, is often a party to the illegality. The nexus among entrepreneurs, bureaucrats and politicians has promoted the black economy in recent months.
Police arrested Nepal Oil Corporation (NOC) Thankot depot chief Rabin Sharma and joint secretary at the Ministry of Environment Ram Adhar Shah – who is also former chief of Nepal Bureau of Standards and Metrology – for their involvement in the black market in fuel. This is only the tip of the iceberg. The controversial firm Birat Petroleum has openly sold petrol at inflated prices, without the government's approval. The government fixes the price and quality of fuel before it is sold to consumers. But Birat Petroleum sold petrol directly from its tanker at Dilli Bazaar, Kalikasthan without fulfilling the legal procedures. This would not have been possible without high-level political patronage. The current market-distorting scenario is a clear indication that the black economy is going to cause wide-ranging damage to not only economy but also to the democracy in the long run.
Likewise, corruption is yet another plague that is pushing the country towards an underground economy. The public has little choice in the matter since almost all the political parties have been caught indulging in corruption. According to a Transparency International (TI) report, Nepal is ranked 139th out of 174 nations in the Corruption Perceptions Index (CPI). The TI report has also exposed the increasing inefficiency of the bureaucracy, something that is costing the country dear.
An economy that has the potential of growing at 7 percent per annum has been crawling at an average of 3 percent per annum in the last decade due to black economy. The year 2015 will, thus be remembered as the year that promoted black economy as the Prime Minister KP OLi and his cabinet is full of ministers of suspicious back-ground. The 40-member cabinet is also adding more pressure on state coffer for their salaries, when the revenue generation is going down.
Likewise, the year 2015 is going to pull down economic growth to almost negative but people are making money through smuggling and black marketing. The unemployed youths of Tarai-Madhes are earning handsome money selling fuel they bring from across the border. The impact of drop in fuel import from India could not be seen as the people are riding on fuel bought in black in inflated price. The government is losing Rs 3 billion – in revenue per month – that it could have earned from Nepal Oil Corporation (NOC) – if NOC had been able to import fuel through the formal channel.
The black economy has pervaded life at the social, political, economic and cultural levels alike and individuals are overnight able to buy houses, land or cars with their ill-gotten gains.

Increasing poverty
The increase in poverty in a very short span of time – eight months from April to December in 2015 – is going to render the country the poorest in the South Asian region.
According to the PDNA report, the devastating earthquakes of April and May will end up pushing an additional 2.5 per cent to 3.5 per cent into poverty trap. It translates into at least 700,000 additional poor in the country of 16.5 million population.
Similarly, the Tarai-Madhes unrest and the Indian blockade have pushed another 4 per cent of Nepalis into the poverty trap, which translates into some 800,000 additional poor due to losses in agriculture, industry and service sector. The protracted political transition in the last four months made people in Tarai-Madhesh lose their employment and incomes.
Currently, one in four Nepalis is under the extreme poverty line, according to the Central Bureau of Statistics (CBS). But the number will rise and one in every three Nepalis will be poor, thanks to 2015.

Adios 2015!!!

Saturday, December 19, 2015

Nepal ranks 118th in Forbes' business list

Nepal has been ranked in 118th position – out of 144 nations – on annual list of the best countries for business in 2015, according to the 'Best Countries of Business in 2015' published by the Forbes magazine.
In South Asia, Nepal is behind Sri Lanka (91), India (97), Bhutan (101) and Pakistan (103) but ahead of Bangladesh (121).
The Forbes' ranking of the 'Best Countries of Business in 2015' is calculated on the basis of trade freedom, monetary freedom, property rights, innovation, technology, red tape, investor protection, corruption, personal freedom and tax burden.  
Nepal is almost at the bottom of the ranking. innovation, technology, monetary freedom, trade freedom and corruption, coupled with political uncertainty and a difficult business climate affected the country's overall ranking, according to the report.
Likewise, the report further states that Nepal is among the poorest and least developed countries (LDCs) in the world with one in almost four citizens living below the poverty line. "Nepal is also heavily dependent on remittances which amount to as much as 22 per cent to 25 per cent equivalent to the gross domestic product (GDP). Agriculture is the mainstay of the economy, providing a livelihood for more than 70 per cent and accounting for a little over one-third of the economy," the report states.
Additional challenges to Nepal's growth include its landlocked geographic location, persistent power shortages, underdeveloped transportation infrastructure, civil strife and labour unrest, and its susceptibility to natural disaster, the report further clarified. "Lack of political consensus in the past several years has delayed national budgets and prevented much-needed economic reform, although the government passed a full budget in 2013 and 2014."
Denmark tops the list, followed by New Zealand, Norway, Ireland and Sweden, according to the report that has placed Chad at the bottom of the list.

Top 5
1. Denmark
2. New Zealand
3. Norway
4. Ireland
5. Sweden

Bottom 5
144. Chad
143. Guinea
142. Libya
141. Haiti
140. Myanmar

Monday, December 14, 2015

Nepal to become poorest country in South Asia

Nepal is heading toward becoming the poorest country in South Asia, thanks to the prolonged Madhes unrest and the Indian economic blockade.
Currently, Nepal is the third poorest country in the region after Bangladesh and India, according to the latest  World Bank report, which has not included Afghanistan, the newest member of the regional body, SAARC.
However, the current Tarai-Madhes unrest and Indian blockade are pushing almost one million more Nepalis into extreme poverty. They will be joining the nearly one million already nudged into extreme poverty by the devastating earthquakes of April and May.
According to a central bank report - 'Impact of India's unofficial blockade on Nepal's economy' - some 800,000 more Nepalis will be pushed below the poverty line due to the current Indian embargo. This conclusion is based on a study of the losses faced by agriculture, industry as well as the service sector.
Currently, one in almost four Nepalis (23.7 per cent) is under the extreme poverty line - living on  $1.25 or less per day - and one in two (56 per cent) is under the poverty line of $2 per day, compared to 43.3 per cent in Bangladesh and 23.6 per cent in India living under the extreme poverty line, and 76.5 per cent and 59.2 per cent respectively under the poverty line, says the report.
The current political impasse coupled with the devastating earthquakes is going to push around 2 million Nepalis under the extreme poverty line. This means the rate of poverty is going to increase by almost 7 per cent, according to former vice-chairman of the National Planning Commission (NPC), Deependra Bahadur Kshetry. “It could be even worse in reality, due to the severe impact of the current fuel shortage, especially cooking gas,” he added
The increase in poverty in a very short span of time - eight months from April to December - is going to render the country the poorest in the region, he said.
Worse still, the population in the Tarai-Madhesh is going to be the poorest in the country as they have lost their employment and remain barred from economic activity due to the unrest.
According to the Small Area Estimation of Poverty conducted by the Central Bureau of Statistics (CBS) in 2013, the districts that were once prosperous - including Saptari, Siraha, Rautahat, Bara and Parsa - dropped into the list of the poorest districts following the Madhes movement in 2005-06. These same districts are going to be hit hard again as the current Tarai-Madhes agitation has forced some 2,200 industries to close, leaving around 220,000 people unemployed, as per figures from the Federation of Nepalese Chambers of Commerce and Industry (FNCCI).
 “From being the poorest country in the region in 1990, Nepal had improved its position to the third poorest behind Bangladesh and India," according to the World Bank global poverty estimates that monitor trends and progress toward achieving the Millennium Development Goals (MDGs). but the world has moved on to Sustainable Development Goals (SDGs) from this year.
Nepal moved ahead of Bangladesh in 1999 and India in 2008.
The recent World Bank global poverty estimates update has assessed poverty using two internationally comparable poverty lines - $1.25 and $2 per capita per day. Both international poverty lines are converted to local currency using the latest (2005) Purchasing Power Parity (PPP) exchange rates.

Wednesday, December 2, 2015

Permanent mechanism for addressing crisis suggested

Experts have suggested a permanent mechanism for fighting the current crisis and also for addressing long-term problems. They have recommended setting up a permanent mechanism – of at least joint-secretary level and including the Finance, Foreign and Commerce and Supplies Ministries – also to facilitate and fast-track intergovernmental cooperation.
Speaking at an interaction organised by Nepal Republic Media today, they also recommended governance efficiency and the promotion of track-2 diplomacy that includes the private sectors of both countries, for the immediate resolution to the current crisis.
They, likewise, recommended effective talks with the agitating Tarai-Madhes centric parties, and with India too for the early solution of the crisis.
In the absence of inter-governmental cooperation, it has taken long to seal a commercial petroleum deal with China, they observed, adding that government inefficiency has fuelled the black market, and the state coffer is losing Rs 3 billion in revenue from petroleum imports per month. "Consumers are compelled to pay Rs 400 per liter of petrol and Rs 6,000 for a cylinder of cooking gas in the black market and the government is losing Rs 3 billion in revenue from petroleum products per month," said trade economist Purushottam Ojha.
If the government does not rein in the black market immediately, it could hit the state mechanism and the state machinery will be unable to function, he added.
Likewise, suggesting that the government immediately start talks with the agitating parties and ensure energy and food security, he said India should be dealt with diplomatically. "Nepalis were united during earlier blockades – in 1970 and 1990 – by India," he said, "However, this time they are divided, which has given room for outsiders to interfere."
The Indian blockade violates international, regional and bilateral treaties, Ojha added. "Nepal, as a member of the World Trade Organisation (WTO), must internationalise the violation of its rights as a land-locked country," he said, also criticising the government for its lack of diplomatic skill. "The delay in signing a commercial agreement with China for the supply of petroleum products is also unacceptable to the people," said Ojha, who was commerce secretary for long.
Nepal needs to have good trade relations with both India and China, he suggested, adding that it is not good to play India against China.
Likewise, entrepreneur Ananda Bagaria said that the government should immediately start effective talks with the agitating political parties, and chart out short, medium and long term programmes to address crisis such as the current one. "It's high time Nepal revised the Nepal-India trade treaty for the greater benefit of Nepal."
The government should hold talks and promote domestic production in the short term, whereas in the medium term it should prioritise agriculture, and boost exports to India to develop interdependency in the long term, he suggested. "The government should also revise its policies and promote indigenous industry to develop a self-sustainable economy in the long term."
Nepal Freight Forwarders Association president Rajan Sharma seconded Bagaria's ideas. "In the short term, the government should use diplomatic, political and human rights channels to solve the current crisis, whereas in the long term, it should develop hydropower and open the six customs points on the China border, apart from revisiting the Nepal-India Trade Treaty," he suggested.
The Chinese government had earlier asked Nepal to work on opening the six customs points on Nepal-China border. However, the government and the vision-less bureaucracy did not give ear to the Chinese government's request, Sharma added.
Asking the government to sit with the private sector to chart out a plan to fight the current crisis, Sharma complained that the government has not been giving an ear to the private sector, which was suffering badly due to Tarai-Madhesh unrest and Indian economic blockade.