The white paper issued by the government has drawn flak from the main opposition Nepali Congress, which has criticised it of containing misleading figures that are contrary to the real picture. The opposition claims that the economy is not in as bad a shape as portrayed by the white paper as it has highlighted only the negative aspects of the economy concealing positive aspects like sound macro balance, reforms in revenue sector and prudent fiscal management. Ram Sharan Mahat, former finance minister and leader of Nepali Congress, spoke to Pushpa Raj Acharya of The Himalayan Times on the weaknesses and strengths of the economy. Excerpts: The Nepali Congress has stated that the white paper has not presented the actual reality of the economy. What aspects of the white paper are you not satisfied with? The white paper presented in the parliament by the new government should have been to give a snapshot picture of the current economic status, stating both the strengths and weaknesses based on facts. However, it looks very biased and has tried to paint a very dismal picture of the economy, which is not correct. There are various positive sides to the economy, which have been concealed and only the darker side has been presented comparing data in a very inconsistent manner with various time frames. The government wants to give an impression that the economy that they have taken over is in a very bad shape. This is misleading and contrary to reality. What are the positive sides of the economy that should have been mentioned? The economy has positive sides also like the revenue situation has improved a lot and the government is in a very comfortable revenue situation. The state treasury reportedly has a surplus of Rs 271 billion even now, and one-third of it belongs to the local bodies. The state coffer is not empty as stated in the white paper. Revenue growth in the past has been very satisfactory due to many reforms introduced in the past.  In the last 25 years, annual revenue has jumped from Rs 12 billion annually to Rs 730 billion as of now. The annual revenue growth is around 20 per cent, which is very appreciable. Nepal’s tax to gross domestic product ratio is 24 per cent, which is one of the highest in the developing world and highest in South Asia. The finance minister seems worried about public expenditure growth, which is 17 per cent per annum. However, he has not mentioned the annual revenue growth of 20 per cent that has made it easy to finance the budget through internal sources. In fact, we have even received compliments from the international community regarding the high revenue to GDP ratio. Dependence on external sources has gone down tremendously. When we were preparing the first budget in 1991 after the  people’s movement, around 35 per cent of the budget financing came from external sources. Now the actual dependence is 12 to 15 per cent, which is another achievement. This shows our fiscal side is on the path of self-reliance. The dependence on external support is declining and our debt to GDP ratio is one of the lowest in the world at around one-fourth of the GDP, which are positive signals. Do you mean to imply that the white paper contradicts the real situation? The purpose of the white paper I feel has been brought to blame past governments or put them in a bad light. Commenting on Nepal’s economic performance, World Bank’s recent report has said that Nepal is a leader in poverty alleviation although it is a laggard in growth. Growth is low because of the long political turmoil, long period of insurgency, and unstable political situation, among others that led to lack of good governance in the past. The political instability obviously created uncertainty and unpredictability in public policy, which affected administrative and economic performance. Even after the peace process, there were 10 different governments in a decade, which is responsible for low growth. Regarding poverty alleviation and social progress, Nepal’s achievement is one of the best globally. In the hunger index, International Food Policy Research Institute has said Nepal’s achievement is the best in South Asia, in terms of declining hunger and malnutrition. Average life span in Nepal has gone up from 54 years to 71 years in the last 26 years. These are credible achievements. We have made such progress even during a situation where we went through a long period of insurgency and political turmoil. The whitepaper states that the population living below poverty line is 28.6 per cent. Is this data misleading? It depends on which poverty index you are using. If you are using multi-dimensional poverty index, it is about 28 per cent. If you measure income poverty it is around 21 per cent of the total population. But you have to compare it with what the situation was 20-25 years back. Poverty has declined by more than half. The decline in Nepal’s poverty level has been at a faster pace than the rise in income level. Also, access to social and economic services like health, education facilities, road, electricity, telecommunication and drinking water has also registered massive expansion. Do you think the government can lure foreign investment after revealing a depressing economic situation? The way in which the economy has been presented in the white paper will not give a good signal to prospective investors. If public finance is so depressing, how can we encourage investors to come to Nepal. This is a misleading signal to foreign capital while the need is to create more investment friendly climate to encourage external investment. To attract investment, we need an investment friendly atmosphere, rule of law, policy consistency and sound fiscal status and management also is an attraction. At the moment, the government has a comfortable majority in the parliament without any risk to its survival. Despite the fact that the ruling parties have 60 per cent majority in the parliament they are trying to lure more parties to garner two-third majority and in the process have expanded the number of ministries from 15 to 21. There are also talks of policy makers and leaders threatening to impeach the judiciary and officials of other constitutional organs. This is like trying to force the constitutional bodies like the judiciary and others to act in accordance to the wishes of the government. This is against a sound democratic practice, which is key to move towards solid democratic path and ensure rule of law. When there is no guarantee of rule of law and fair judgement from constitutional bodies including judiciary, it will not create a congenial atmosphere for rule of law. When investors have doubts about the quality of governance and rule of law in the country, naturally, they will not be encouraged to make investments. The white paper has envisioned to orient resources from the financial sector towards the productive sector. It means the government might direct banks and financial institutions to provide certain per cent of loan portfolio to productive sector. Can the government enforce a directed lending policy in a liberal economy and what could be its impact on the financial sector? I am not against the idea that banking policy should reflect the national priorities in sectors like industry, agriculture and electricity production. I favour bank lending more to the productive sector. There is plenty of demand from productive sector. During my tenure as finance minister, I had announced government subsidised credit not exceeding six per cent from banks for agriculture production but now I hear complaints from farmers that it is very difficult to avail the subsidised agricultural loan although the government has guaranteed to pay the subsidised part of the interest. The central bank should issue a strong directive to the banks to channel more investment to diversify and commercialise agro production taking benefit of government subsidy. Banking sector must be active and take a leading role in providing loans to the productive areas like agriculture, tourism, energy and industry. The government leadership has prioritised some high profile development agendas, such as railway connectivity from China to Kathmandu and further to Lumbini and purchasing the country’s own ship. Do you think these goals are feasible? There is a tendency to raise aspirations and expectations of the people with such promises. The government has been selling dreams. It is good to have a railway network but we require huge capital investment. We will need grants for big investment projects like this. Borrowing money for capital intensive projects must be justified by our macro affordability, rate of return apart from social justification. We must be careful that such projects do not lead us to a debt trap. I favour giving priority to immediate needs than selling dreams although it is easy to sell dreams because people do not expect it to materialise immediately. For example, priority should be given to enhancing the capacity of our airports including Tribhuvan International Airport and quality of other infrastructure to translate the vision of bringing two million tourists by 2020. Similarly, immediate priority should be to reduce pollution in Kathmandu Valley. The other priority should be on converting the fair-weather roads — 83,000 km — into all-weather roads to uplift the quality of rural life. The government should also ensure the completion of ongoing infrastructure projects on time by ensuring proper quality of the infrastructure projects. The stock market index plunged considerably since the formation of the new government. Despite that, the finance minister said the stock market was not strong through the white paper. What could be the repercussions to the economy if the stock market actually crashed? I do not want to comment on what the finance minister said. What I would like to say is that the government has failed to generate public confidence in the capital market. The stock market, which is often regarded as a barometer of the current investment climate, has depressed badly after the formation of the new government. Since the new government was formed around 25 per cent of market capitalisation has gone down. This is not a good sign for investors. This shows that the government has not been able to inspire investment. Even initial public offerings (IPOs) of some companies have been undersubscribed. In the past, most IPOs were oversubscribed. It seems the finance minister is more worried about fiscal management in future. What is your suggestion to stop fiscal anarchy? I support any initiative taken by the new government towards better fiscal management and prudent fiscal policy. In the last two-and-a-half years the trend has been moving towards consumption expenditure, distributive programmes and non-budgetary spending. This must be reversed as it will not help the economy. One point highlighted by the white paper is that social security expenditure is almost five per cent of the GDP, which is very high. If the concern of the white paper is to stop unproductive, consumptive and distributive programmes, that is a positive. The times ahead are challenging as there are three tiers of government now and the recurrent (administrative) expenditure of the government will increase tremendously. The number of elected representatives at various levels, who will have to be paid monthly remuneration, has exceeded 10,000. The fiscal burden of the three tiers of government as well as various constitutional and advisory bodies, administrative entities and security services will be tremendous. Under such circumstances, you need to have a very careful and well thought-out fiscal management approach for long-term sustainability of the economy. The government must stop unproductive and reckless expenditure and it should be leaner.