The Asian Development Bank (ADB), in its quarterly economic update, has painted a dismal picture of Nepal’s economy for the year 2006. The report is cause for serious concern as the growth outlook for the year is fraught with major risk factors like the adverse impact of delayed monsoon in 2005 on such major crops as paddy, rise in international oil prices with further scope for escalation, weaknesses in the external sector and the prevalence of a weak economic and investment climate in the country. Because of the decline in the readymade garment exports, the report also sees further worsening of the trade imbalances and negative economic growth. But, sadly, no alternative products have emerged to make up for the loss. With the current level of investment, which is less than 20 per cent of the GDP, Nepal

will have a tough time achieving a robust growth. The slow pace of structural reforms in the financial sector, public sector and economic governance aimed at boosting investment and productivity must be given a serious thought. One way of increasing the revenue would be to bring more business enterprises under the VAT system.

The lack of investor-friendly environment, political instability, and the government’s focus on combating the Maoist insurgency have severely affected the reform agenda, and the government has practically discarded the Tenth Plan. The policymakers must realise that the insurgency cannot be fought at the cost of an already neglected economy. Moreover, unnecessary government expenditure and the trend of diverting the budget are certainly not the solution. The persistent hard truth, however, is that unless the insurgency is brought to its logical conclusion and peace won and sustained, nothing much can be achieved. But in order to restore any semblance of normalcy, the government will have to make truly genuine efforts to respect the people’s pronounced aspirations for a political settlement leading to a durable peace in the country.