South Asian academicians suggest ‘corrections’ for macroeconomic stability

Kathmandu, May 10

South Asian academicians, who have gathered here to attend the conference of ‘South Asia Network of Economic Research Institutes (SANEI)’, have suggested some corrections in the Nepali economy for macro stability as the country has embarked on a journey towards federalism.

Delivering his keynote speech in the conference, former finance minister Ram Sharan Mahat highlighted that reforms in the economy should be a continuous process to attract investment as the country needs huge investment to address the structural bottlenecks of the economy — yawning infrastructure gap, low productivity, lack of job opportunities, sluggish export and ballooning imports.

As per Mahat, the country has been able to maintain macro stability despite suffering for long from political turbulence in the last two decades. “Economic reforms initiated in the 1990s were unprecedented and they have increased revenue of the government exponentially to around 24 per cent of gross domestic product, created ground for private sector and foreign investment, sharply reduced poverty and also achieved the targets set by Millennium Development Goals.”

He further stated that Nepal has performed better in many indicators in terms of nutrition safety, gender sensitiveness, and has been a champion in reducing women and child mortality, and school enrolment of children (especially girls), among others.

Despite being a laggard in growth, Nepal has sharply reduced poverty in the last two decades by more than half,

according to Mahat. However, there are challenges ahead that should be handled carefully. “Rampant migration of youths has led to loss of productivity and competitiveness at home, causing low growth and depopulation is under way in some of the mountainous districts.”

And the rapid expansion of the non-tradable sector is a major threat for the economy and external balances, as per Mahat. Non-tradable sector are those sectors in which production and services are only for domestic consumption, he stated.

“Decline of export-import ratio to below 10 per cent and low public investment compared to GDP could pose serious challenges in the future,” Mahat said. He further highlighted that the sub-national governance, together with accumulating stress on current account and an emerging tendency to overreach on regulatory matters governing private sector represent major risks in the economy.

Likewise, speaking in the programme, Mahendra P Lama, professor at Jawaharlal Nehru University, New Delhi, said that Nepal’s straight move from primary (agro, forestry) to tertiary sector (service-related) bypassing the manufacturing sector could be costly for the country. “Manufacturing sector is important for the sustainability of the economy as it creates jobs, raises national productivity, substitutes imports and the economy has multiple advantages of protecting and promoting manufacturing sector,” he said. Nepal’s economy is an urban-centric supra economy that will face institutional laggard in the federal system, he opined.

Ejaz Ghani, head of trade and industry, Pakistan Institute of Development Economics, said that the over-dependence on remittances could be risky for Nepal and suggested the country to diversify revenue sources, as the country has currently been collecting 50 per cent of the total tax revenue from imports.

Similarly, Nisha Taneja, professor of Indian Council for Research on International Economic Relations, said that Nepal’s trade concentration with India has been increasing due to the currency peg with the southern neighbour. However, the long-term strategy of the government of India to devalue its currency with yuan to minimise the rising imports from China could have an adverse impact in the Nepali economy in future.