Kathmandu, March 3

As the country aspires to graduate to the league of middle income countries by 2030, Nepal has to sustain a high annual  growth rate of seven to eight per cent to achieve the set target, says a recent study of the World Bank Group.

The Systematic Country Diagnostic (SCD) prepared by the largest multilateral development partner has said that the current trend of growth will be insufficient for the country to achieve its target.

At current growth rates trend, Nepal’s per capita income would reach only $958 in 2030, which would be insufficient to graduate from low-income country status, as per SCD. On the other hand, sustaining growth is another major challenge for Nepal, as the growth is driven by remittance-dependent private consumption rather than investments.

The SCD has underpinned the necessity of higher rates of productivity growth and structural transformation required for rapid growth and employment generation. Despite easy availability of financing for investment at present, public investment remains low and it is unable to crowd in the private investment in the economy.

The country’s foreign direct investment is merely 0.4 per cent of the country’s gross domestic product (GDP), which is the lowest in the world. The country requires $8 billion inflow of FDI to be at the par with the least developed countries’ average.

The SCD suggests that productivity can also be boosted by returnee migrants, who come back with experience in a new sector, cash in their pockets, and a strong desire to be entrepreneurs.

The private sector has been since long seeking intervention in two key areas — physical infrastructure and governance — to unleash the potential of private sector growth in the country. In line with this, the multilateral development partner has suggested making interventions in different areas that can be classified under six broader categories.

As the World Bank Group frames the country partnership framework (CPF) which determines the areas of cooperation from the World Bank based on recommendations of the SCD, this document is significant for World Bank’s future cooperation in the country.

The SCD has recommended promoting private investment to create more jobs, which will generate employment in high-return sectors from the current predominance of low-return sectors like agriculture. Increase in private investment in high-return sectors, like value addition in IT industry, linking domestic production units with large-scale industries, agro processing, among others, will also subsequently help to enhance the skills of workers.

If the government is able to address the constraints of private investment, individuals could become more productive employees and entrepreneurs.

Outmigration of youths could have considerably positive impacts on the country’s development trajectory over the medium term if constraints related to pursuing entrepreneurial investment by remittance recipients and returnee migrants were addressed, according to SCD.

The SCD has also recommended harnessing the potential of natural resources. The constraints to private investment are apparent in natural resource development, like managing forests for optimum benefit and harnessing hydropower potential.

The SCD has cited an example of the aforementioned sectors and underscored the need of investment to benefit from utilising the natural resources in a sustainable manner.

Another crucial area is to enable people to invest in education, skills, healthcare and nutrition by minimising inequality. Stating that human capital is essential for increasing efficiency and addressing sources of fragility, the SCD has underscored the need of equitable distribution of resources.

Increasing resilience to natural disasters and health shocks is another area in which the country has to pay attention. Lack of resilience to disasters makes the country vulnerable in terms of attaining prosperity.

The SCD also underlined the need for increased inclusiveness in political process and strengthening the rule of law to address sources of fragility in federal Nepal.

Public institutionsPrivate sector investmentHuman capitalNatural resourcesResilienceMore from migration
Support for the federal transition and increased inclusiveness in the political processEncourage investments in infrastructure (roads and electricity)Address barriers to health and education posed by remoteness, low income, and normsSupport agricultural growth by improving market access, and year-round irrigation (particularly in the Tarai)Increase action to reduce environmental riskIn addition to addressing constraints to private sector investment:
Improve accountability and strengthen rule of lawStrengthen regulation and reduce government involvement in marketsReduce the role of social networks and nepotism in labour marketsEnable private sector investment in hydropowerImprove targeting and coverage of social protectionProvide information, language, and soft skills for migrants
Priorities outlined
Invest in capacity at sub-national levelsIncrease openness by reducing tariffs and increasing FDIReduce high malnutrition ratesImprove planning and inter-agency coordinationEnable the development of insurance markets, particularly in healthDiversify destinations for temporary migration
Increase access to credit for women, rural entrepreneurs, and SMEsSupport the provision of quality secondary health and education

Source: Nepal Systematic Country Diagnostic, World Bank Group