RENDEZVOUS
Due to the overlapping inter-related challenges such as jobs recovery from the pandemic, inequality, climate change, and global economic issues, among others, development partners have suggested Nepal accelerate good investments and policy implementation, while creating inclusive opportunities and green jobs. Meanwhile, the government of Nepal, along with the World Bank and other development partners, has prepared the GRID Strategic Action Plan (SAP) 2024-34 that includes 10 priority transitions supported by significant external financing from the development partners for both ongoing and pipeline projects. It also includes a new set of multi-donor flagship-grade investment programmes for key transitions. The SAP is currently under review by the government and is expected to be finalised shortly. Sangay Sherpa from The Himalayan Times caught up with World Bank Managing Director for Operations, Anna Bjerde to gain her insights into the region's current economic situation and how Nepal can capitalise on key sectors and areas which show growth potential. Excerpts:
Could you elaborate on the key factors contributing to the projected 3.9 per cent economic growth for Nepal this fiscal year and the challenges foreseen?
Predicting economic growth at a time of crisis and uncertainty is certainly difficult. The World Bank has projected Nepal's economy to grow from about 1.9 per cent in the last fiscal year to 3.9 per cent in this fiscal, which is relatively not so bad compared to many other countries around the world. However, it is also not enough for Nepal to meet its developmental needs and the growth rate is still lower than the average growth anticipated in the South Asia region.
The government's dedicated measures in lifting the import restrictions, loosening the monetary policy and a rebound in tourism are a few reasons why we anticipate growth for the country this year.
At the same time, there are also challenges that we think need to be addressed to witness a growth of six per cent or more as targeted by the government of Nepal, which the country needs.
Productivity in the country is weaker than it needs to be, which is crucial for a country to increase its trade competitiveness. Nepal used to export 20 per cent worth of GDP just two decades ago, which has now slumped to below 10 per cent. Nepal has huge prospects in the hydropower sector which has been under large-scale development.
The IT service is another sector with immense potential that the country can tap into, which also provides an opportunity for growth. In addition, the private sector here is eager to contribute more but there are still some steps that need to be taken to facilitate greater private sector participation in the economy.
The ongoing Israel-Hamas crisis is pretty significant and will be another blow to the global economy. We have faced many such blows, starting with the COVID-19 pandemic, and Russia's invasion of Ukraine which caused a huge impact not only on the region but globally. At present, we have yet another regional conflict which has the potential to have global spillover effects.
Although we are starting to see inflation ease in a lot of countries, food inflation remains high. The World Bank predicts oil prices will go up, which will put a dent in the global economy as well as the South Asia region.
What sectors show the most growth potential, and how can the government and private sector capitalise on these opportunities?
Nepal's hydropower sector has a huge potential. Many of the country's neighbours need clean energy for their decarbonisation plan which provides an opportunity for growth. However, it requires a significant amount of investment, so we need to look at the public-private opportunities. We have seen some good developments in the participation of the private sector in hydropower but there is still quite a lot that needs to be done.
There has also been an increase in digital internet connectivity and internet usage in the country. We think Nepal could be a bit more radical in its strategy to bring about more digital experiences and opportunities and integrate that into its economy as well as society. When public administration, business transactions, and activities go digital, you see an upstream in services, which is a crucial part of the economy.
We have seen countries go from very low levels of exports of IT services to it playing a huge part in the GDP composition. Finally, we are worried about out-migration, especially of the young people. So, making sure that young people get the skills they need and have job opportunities here in Nepal is another important factor. That is where I think the private sector comes in. It is pivotal to create an environment for the private sector for job creation so that the youth can find the jobs they want and need.
In light of the global economic context, as mentioned in the South Asia Development Update and Nepal Development Update, how does Nepal's economic growth compare to other developing countries?
The average annual growth rate for the region is about six per cent. Nepal is below that at 3.9 per cent, but still above regional peers like Sri Lanka and Pakistan who have been dealing with a contracting economy as well as various other challenges. So, on the one hand, relative to the region as a whole, Nepal's growth rate is lower than it should be and the country still lacks a much more robust growth-oriented strategy.
Another area that I think is an area of opportunity is the Green, Resilient, and Inclusive Development (GRID) because it can attract a lot of investment into the country both from the private sector and also the donor communities who are very much committed to helping Nepal.
Can you share how the World Bank and developing partners are supporting Nepal's economic and sustainable growth?
The Kathmandu Declaration of 2021 was important as it unified the government and all of its ministries and agencies around a common agenda as well as the development partners. The level of coordination I have seen here is higher than others which is very helpful.
We have also come out with a communiqué that tries to pursue the 10 strategic action plans that are very comprehensive across sectors and also focus on the participation of all three tiers of government which I think is important for Nepal. The inclusive approach of the GRID agenda is important because a lot of the development also needs to take place out of Kathmandu valley where you have a lot of people who still need basic services.
So it's important to make sure that there is a national strategy that also involves various tiers of government in the planning and the execution of projects.
The World Bank is currently working on an Evolution Roadmap under its new leadership to respond to the most pressing needs of people and the planet. What will this mean for Nepal? Also, how does the Nepali experience lend itself to the new World Bank approach?
Our Evolution Roadmap is a response to the calling we got from shareholders a year ago and I think we have come a long way since. The major objective of the Evolution Roadmap is to be able to provide our clients with quick support, at scale, and with greater impact, and that requires a change in what we call our playbook that extends from the way we prepare our project, work with our clients to implement projects by building greater local capacity, and having more funding for ourselves to be able to provide to our clients and partners.
Our objective is to be able to do much more at a faster pace and get the results quicker. I think for Nepal, the GRID agenda provides a very unifying, focused approach and framework which is helpful. As part of the GRID agenda, the inclusion part is important because human capital is something we worry about. Even in Nepal, the human capital index is on the lower side at just over 40 per cent which indicates that the productivity of a child born today is 60 per cent less than their potential.
The government of Nepal is willing to work on health, education, and nutrition while we would very much like to accelerate the development efforts here in the country.
Also, Nepal's voice in the international community matters, and the country is getting coverage from the World Bank under the International Development Association (IDA). I think there is a lot Nepal can do in helping to shape the IDA agenda which is building resilience and adaptation to climate change which it needs to do. It is also an agenda where we need to make sure that we have this greater involvement of the private sector and Nepal still needs to think through some of these business-enabling provisions that can make it easier to get the private sector involved.
