Kathmandu, March 28

The government has taken the first major step towards framing the Vision 2030 document, a blueprint that lays the groundwork for transforming Nepal into a middle-income country in the next one-and-a-half decades.

‘Vision 2030’ will basically chart out strategies and action plans to raise Nepal’s per capita income by more than three folds to $2,500 by 2030, eradicate poverty and rapidly improve other major socio-economic indicators by ensuring social justice.

The blueprint is being prepared at a time when Nepal has promulgated a new constitution and is planning to focus on rapid and inclusive economic growth to raise the living standard of all the people and share prosperity.

“The new constitution has heralded a new era of people’s sovereignty, democracy and fundamental rights. The main challenge before us now is to economically and socially empower people by rapidly implementing economic and social agenda enshrined in the constitution. This would be possible through structural transformation of existing economic and social institutions, production relations and social values. We have to accomplish these tasks by strategically reorienting our existing development policies, plans and implementation mechanisms ... for which a long-term development strategy must be chalked out,” Prime Minister KP Sharma Oli told the International Seminar on Envisioning Nepal 2030 held here today, which was participated by renowned domestic and international economists, policymakers and development experts, such as Bibek Debroy, Justin Yifu Lin, Joon-Kyung Kim, Ajay Chibber, Nagesh Kumar, Bindu Nath Lohani, Shankar Sharma and Swarnim Wagle.

The National Planning Commission (NPC), which is preparing the blueprint, will incorporate recommendations and feedback collected from the conference to prepare the final Vision 2030 document.

Most of Asian economies were poor till the 1950s. Then rapid economic growth took place in Japan, followed by Korea and many other East Asian and Southeast Asian countries. Soon, China joined bandwagon and Indian economy is now catching-up at a rapid pace.

“Transformation (in all these economies) took place in several phases, normally starting from agriculture-based economy to export-oriented and labour-intensive manufacturing, and gradually to high-value industries,” said Wencai Zhang, vice president of the Asian Development Bank, one of the co-hosts of today’s conference. “The governments played an important role during these (phases) by showing strong leadership, building infrastructure, promoting private sector development, emphasising on human capital development and attracting foreign capital to finance investment.”

While these initiatives helped many Asian economies to accelerate growth, Nepal is still trapped in low-investment, low-growth equilibrium largely because of political and policy instability, low capital expenditure which has widened infrastructure gap and non-functioning markets. These lapses have turned Nepal into one of the poorest Asian economies.

“Nepal must step-up and sustain a growth in the range of six per cent to eight per cent per year to make meaningful headway in uplifting the living standard of people,” said NPC Vice Chairman Yubaraj Khatiwada. “To achieve this growth rate, we must ramp up capital expenditure and make sure public investment equivalent to 8.5 per cent of the gross domestic product is made every year to bridge the infrastructure deficit.”

One of the reasons why Nepal is still poor is because many are still trapped in subsistence agriculture.

“Nepal must diversify from this and focus on continuous industrial upgrading so as to increase labour productivity and income,” said Lin, former senior vice president and chief economist of the World Bank.

For this, a sound industrial policy must be framed, added the director of Centre for New Structural Economics at Peking University in China. He, however, acknowledged most of the industrial policies have failed to generate desired outcomes in the past because ‘they targeted sectors which defied the economy’s comparative advantages’.

So, the country should target sectors that confirm to the economy’s latent comparative advantage, added Lin. Latent comparative advantage refers to industries with low factor costs of production but very high transaction costs, which erode their competitiveness in domestic and international markets.

“This is where the government should step in and help the firms overcome coordination and externality issues to reduce the risk and transaction cost,” Lin said, adding, “In this regard, the government must compensate pioneering firms (that have made attempts to tap latent comparative advantage) by extending tax incentives, direct credit for investment and foreign exchange facility.”

The expansion of South Korea’s shipping industry is an example of how benefits can be reaped by exploiting latent comparative advantage.

In the end, triggering economic growth is all about relieving the most binding constraints so as to create jobs that ensure decent wages, said Swarnim Wagle, senior economist and former NPC member.

Added Wagle: “To address this issue, the country needs to create an Economic War Room to launch the next wave of reforms, engineer a big push in infrastructure, manage public savings and public expenditure, reorient production and introduce smart social security.”