Country’s gross national savings is not that bad but falls short of covering investment needs, hence government must work to attract FDI

Just as the fiscal year draws to a close, number crunching starts. Finance Minister Yubaraj Khatiwada presented “Economic Survey 2017-18” on Sunday, two days ahead of the fiscal budget for 2018-19, with some key economic indicators. This is the second official document on the country’s financial health by Khatiwada who in his white paper in March-end had painted a bleak picture of economy. The survey follows the Central Bureau of Statistics’ economic forecast unveiled in April. The economic scenario of the country for the ongoing fiscal stands as: economic growth of 5.9 per cent, the second highest in the last decade; country’s economy to grow to Rs 3007.24 billion; slowdown in remittance growth rate, widening trade deficit, ballooning balance of payments deficit and depletion in gross national savings. Low gross national savings causes country’s account deficit to widen, hence more investment becomes the key.

The gross national savings is the sum of a nation’s public and private savings. It is calculated by subtracting consumption and government expenditures by nation’s income from all sources. According to the Economic Survey, the country’s gross national savings is estimated to go down by 1.5 per cent to 43.9 per cent of the gross domestic product (GDP). The gross national savings last fiscal stood at Rs 1,198.54 billion – 45.4 per cent of the GDP which then stood at Rs 2,642.59 billion. While the gross national savings at 43.9 per cent of the GDP is a very healthy indicator – needless to say one of the best in the world – a little bit of maths does raise some concerns. The country’s gross capital formation for the last fiscal stood at Rs 1,208 billion (45.73 per cent of the GDP) while for this fiscal, the same is pegged at Rs 1,556.43 billion (51.75 per cent of the GDP). Hence, the gap in ratio between gross national saving to GDP and gross investment, or gross capital formation, to GDP is expected to widen by 0.4 per cent (negative) of the previous fiscal to 7.8 (negative) per cent this fiscal. From fiscal 2010-11 to 2015-16, the ratio of gross national savings to GDP was higher than the gross investment, but the net investment has been higher than the gross national savings from the last fiscal.

Going by the economic indicators, the country does have investable money – in the form of gross  national savings – but it is not sufficient to cover the investment needs. In light of the ambitious plans the government has floated through its policies and programmes presented last week, the country will certainly need more money for investment in different sectors. One of the key concerns in the country has been failure to mobilise available money in the development sector. There are already ample avenues for investment in the country. Some big projects, including national pride projects, have been in limbo – either due to misplaced priorities of the governments or failure to mobilise the money. Capital expenditure in Nepal has always been on the slower side. There is no other option than to attract foreign direct investment. For the government to deliver on its promise of development and prosperity, it must create favourable environment for foreign investors to put their money on Nepal.

Local level plans

The local level governments are required to follow the Directive on Formulation of Annual Plan and Budget recently prepared by the government. The government prepared the directive to ensure uniformity in the programmes they choose in line with the Local Government Operation Act, which governs all 753 local units. The directive requires local levels to attach priorities contributing to financial growth and poverty alleviation; increase employment opportunities, improve living standards of people and utilise local resources and skills, among others.

The directive has told the local levels to focus on financial, social, infrastructure, forest, environment and disaster management; good governance and institutional development. These are broadly the areas where local units can prepare plans and allocate resources for implementation. Details of the plans and budget to be prepared by the local units need to be forwarded to the federal Ministry of Finance within mid-December every year by getting them approved from the concerned executive officer. As the concept of local government is new in Nepal’s context, the directive will help them move forward systematically.