Raghab D Pant:

We have a new Minister of Finance, a new Governor of the central bank and the not-so-new Vice -Chairman of the National Planning Commission (NPC). They are the real framers, respectively, of fiscal, monetary and development policies of the country, though in recent days the coordination in these three areas appears so weak that I will not hesitate to recommend appointing a ‘super coordinator’ to coordinate the policies and programmes of these institutions. In particular, each of the coordinators has fully realised that in the second half of the current fiscal year, and even thereafter, the external environment and the internal programme implementation capability will be totally different from the past so that they will not be able to achieve the original macro economic goal of both short and long term nature. Unfortunately, none of them has changed the policy measures or adjusted the macro target to produce the desired or possible results.

To begin from the beginning, that is, the Tenth Plan which is also the Poverty Reduction Strategy Paper (PRSP) of the government. It was prepared with the financial and technical assistance of the World Bank and the International Monetary Fund (IMF) and, as expected, was very popular among the donor agencies. Commented Takatoshi Kato, Deputy Managing Director of the IMF, on October 20, 2004: “Nepal’s PRSP continues to provide a sound basis for achieving higher growth and poverty alleviation.” As a result, the Fund has approved in principle a three year US$ 72 million loan under its Poverty Reduction and Growth Facility (PRGF) on October 31, 2003 to implement Nepal’s economic and financial policies during 2003/04-2005/06. The Bank has similarly approved in principle a loan of US$ 70 million for the budgetary support to implement poverty reduction programmes. The government, on the other hand, has envisaged that the growth in the gross domestic product (GDP), with the proposed financial assistance provided by the Fund and the Bank, will reach 5-6 per cent by 2005-06, and “under more favourable conditions such as rapid improvement in security and recovery in the domestic economy, GDP growth rates could reach 6-7 per cent”

The economy in the last two years grew, on average, by 3.1 per cent, about 50 per cent of the target. It is only 0.4 per cent higher than the annual growth in population with virtually no impact on the poverty rate. The current year is not expected to be any different, nor can the economic growth rate reach 6-7 per cent or even 5-6 per cent in the next fiscal year as promised by the then Minister of Finance and the NRB governor in their letter of October 23, 2003 to the Managing Director of the IMF. Obviously, the overall poverty rate will not decline to 30 per cent in the Tenth Plan period, though some of the Herculean surveys undertaken by the Central Bureau of Statistics may show otherwise.

How do we move from here? The NPC, responsible for coordinating the preparation of the Tenth Plan, has just disappeared. I have not noticed a single NPC member talking on the recent economic issues, nor does it seem to have monitored the economic trends to fine-tune the policy measures or to initiate new economic programmes. The annual meeting of the National Development Council, the highest policy making authority under the chairmanship of the Prime Minister, has not been held for the past three years. The mid-term review of the Tenth Plan, supposed to be completed by the end of last year, has not yet been started.

The Ministry of Finance, and subsequently the Minister of Finance, appear to have their own problems, specially after the suspension of aid by some of the donors. True, they have published the mid-term review of the budget with new estimates of foreign assistance and domestic loan. Surprisingly, they have published only the new statistical figures without bothering to analyse their impact on the poverty reduction programmes as developed in the current year’s budget. No official institution has bothered to make public its view on the recent trends in the economy.

The Minister of Finance has recently announced that the PRSP or the Tenth Plan is not relevant for the country as it does not integrate the national security problems with the development issues. Though it is not difficult to understand the Minister’s intention, this observation has puzzled many development economists, myself included, and economic reporters. It is legitimate to ask now how will the government solve the problem? Is it going to prepare a revised Tenth Plan or an Eleventh Plan that will help to mobilise both internal and external resources, at least at the current rate? If not, how will it prepare next year’s development budget? What will guide the annual selection of the development programmes for the public sector? In the meantime, how will the fiscal policy be coordinated with the monetary policy developed by NRB? There are many issues that have to be solved, but both NRB and NPC are maintaining their customary silence for reasons best known to themselves.

The suspended development aid may be back soon. But if a few responsible institutions of the government have their way, we may lack suitable policy and programmes to use future assistance from the donors. Perhaps, we need a ‘super coordinator’ to coordinate the national fiscal, monetary and development policy.

Dr Pant is an economist