The country aspires to move forward towards rapid economic development after the promulgation of the new constitution, which has paved the way for a stable political environment along with reforms on the legal and administrative front. The government has also initiated second generation economic reforms to create a conducive environment for investment and build confidence among investors as the country sorely lacks investment in infrastructure and production sector. However, the reform process has not been gathering momentum as expected. The government has to address some structural problems of the economy, such as ballooning trade deficit, low employment generation and low productivity. Pushpa Raj Acharya and Sabin Mishra of The Himalayan Times caught up with State Minister of Finance  Udaya Shamser Rana, to learn what the government is doing to take the country towards higher growth trajectory. Excerpts:

How does the government plan to take forward the country’s economy? People are expecting an economic transformation after the promulgation of new constitution that is expected to end political instability, which is considered a major factor for slow economic progress.

Nepal lags behind in economic development due to various reasons and political instability was one of them. But it had been portrayed as the major cause for the slow pace of economic development to cover up the inefficiencies of those who were in power. I would like to present an example of South Asian economies like Sri Lanka and Bangladesh. They moved far ahead economically than Nepal despite conflict and political instability. We are lagging behind due to the inefficiency of political leaders, bureaucracy and private sector as well. We have to build a transparent and efficient administrative system, frame investment friendly laws and get rid of red tape mentality. The government has taken some initiatives to bring reforms in the foreign investment regime through amendment of some crucial acts and is also trying to raise the efficiency of the bureaucracy, which is fundamental to march towards economic development. Bridging the yawning gap in infrastructure, and reforms on the legal and administrative front will provide ample space for the private sector to grow. This will address some of the major challenges of the economy that are low productivity and less job generation in the country as a result of which a large number of youths have been compelled to go abroad to seek job opportunities and contribute to the country’s economy through remittance. In recent days, we have become over dependent on remittance to make our foreign exchange reserve robust and this may push us towards economic failure if we cannot strengthen our production base, boost exports and stimulate the tourism sector.

So what do you think should the government do in the short term, medium term and long term to develop a robust production base?

We have to attract foreign investment and also encourage domestic investors in bot the production sector and infrastructure sector. It requires huge investment to develop next generation infrastructure and the country does not have ample resources to invest in infrastructure to bride the yawning infrastructure gap. Infrastructure is critical to unleash the economic potential. However, there is negative mindset among some of the political parties regarding attracting foreign investment in the infrastructure sector, like for mega hydropower projects, express ways and railways, among others. Political propaganda against foreign investment in the name of national interest is not good for us. We all have to put in a serious effort to bring foreign investment in the country through necessary reforms. The government has been trying its best to attract foreign investment and encourage domestic investors to make investments to address our supply side constraints and for infrastructure development.  We have to provide support for entrepreneurship development, give tax incentives for small businesses and ensure security for large scale foreign and domestic investments. Secondly, in the medium term we have to set a target to develop the country as an export driven economy as we have enough potential to reap benefit from power export, export of high value agricultural products and we do have competitive edge in some other products as well. We have to focus on the sustainability of the growth and environment-friendly production techniques in the long run.

You mentioned that economic reforms are crucial for attracting investment. However, the reform process seems to have stalled. What is your plan to expedite the second generation economic reforms initiated by the government of late Sushil Koirala?

Reform is a continuous process. It has not stalled. You can see the changes and quick service delivery in the telecommunications, financial services and revenue administration and same needs to be done in various other sectors, which will ensure security of returns. If you compare the financial services, telecommunications services, revenue administration with the situation a decade ago you will see transformative changes. We have been simplifying the process to ensure effective and efficient service delivery from the government, promoting competition and providing level playing field for private sector players. We have also been taking the initiative to expedite government-run development projects by identifying the major bottlenecks of development expenditure. Development projects often suffer from the rent-seeking attitude of the politicians, bureaucrats, oversight agencies and contractors. Politicians, bureaucrats, court, oversight agencies, private sector and other stakeholders have to change their attitude to bring about positive changes. I am hopeful that the change is inevitable as the youths have been creating pressure against the rent seeking attitude of the state actors.  Another silver lining for the Nepali economy is migrant returnees, who are embracing entrepreneurship after returning to the country. They can play an essential role for the transformation of the country’s economy.

Proper implementation of development budget has long been an issue as the government’s development expenditure has remained low since last several years. How can we overcome this challenge?

The budget for this fiscal has also taken some measures for the proper implementation of the budget. The fiscal budget has envisioned bringing reforms from the phase of project preparation to making the contractor liable. The major reason for the low development expenditure is lack of project preparedness. Ministries related with the development projects ask for resources that are required for the implementation of the project without necessary groundwork, like detailed design and right of way clearance, among others to take forward the development projects. We have to develop a project bank to bring foreign investment in our priority sectors, like hydropower, tourism and agriculture. If foreign investors show interest to invest in Nepal, we have to be able to give them the best options and this will be possible by setting up a project bank. The Investment Board Nepal recently developed and showcased some infrastructure projects, that need to be expanded to production sector too.

As the country has adopted a federal system of governance, the recurrent expenditure is expected to skyrocket. How can the government minimise recurrent expenditure at the federal, provincial and local level, so that investment in development projects could be increased?

It is true that the recurrent expenditure will go up as the government has to make expenses on the salaries of the government staffers, construction of government buildings, to buy vehicles and in other unproductive sectors. We have to increase the revenue base so that our capacity for the development expenditure will go up. On the other hand, we have to improve the capacity to properly spend the budget allocated for development projects, which in turn helps in capital formation.