Interim Plan: Focus on pro-poor economic growth

"Interim plan should enhance policy credibility and stability to build confidence of private and foreign investors"

An interim plan is temporary in nature, but in light of the targeted period of three years, the new Interim Plan can be termed a mid-term plan. Nepal’s economic development in the past half-century reveals that most of the objectives and policies, though commendable, failed in their implementation. This raises the question of how the forthcoming plan can be designed in a realistic way.

The erstwhile plans were based on the fundamentals of a mixed economy, the scenario all but impossible in the present context of big coalitions. A development plan should be based on an overall economic environment taking into consideration factors like the economic system and its dimensions, business cycles, financial progress and regional and global integration. The economic vision can be translated into action by closely linking it with political, cultural, business and technological environments and with an added emphasis on private sector-led growth.

A cursory survey of the 10th Plan, known as the Poverty Reduction Strategy Paper, offers the situational analysis acknowledging income-based and human-dimensional poverty.

The urban-centric economic growth, little access to income generation, social exclusion and poor governance have been blamed for rural poverty. The single objective to alleviate poverty in the 10th Plan has focused on these issues.

Based on the hypothesised poverty line in measuring absolute poverty and indicators of Living Standard Measurement Survey, the percentage of people living below the poverty line came down from 42 pc to 31 pc during 1995/96-2003/04 mainly due to remittances, urbanisation, higher income from agriculture and other sectors.

However, the increase of Gini Coefficient, an important indicator of poverty, during the period led to a widening disparity between the rich and the poor, resulting in the failure of pro-poor economic growth programme. The economic empowerment index (0.34) is the lowest among all, indicating a low level of income, limited access to productive assets and lack of employment opportunities in rural areas. Nevertheless, the root causes of poverty and its solutions have been visualised in order to address people’s aspirations and donors’ expectations.

Millennium Development Goals (MDGs) are long-term missions with special focus on human dimensional aspects and global partnership for development. The Medium Term Expenditure Framework can be an effective mechanism for prioritising development/capital expenditure.

The changed political context has brought into focus the issues of poverty, socio-political and economic inclusion, good governance, public-private partnership and pro-poor patterns of growth.

Thus, the interim plan, with a new vision of prosperity, modernity and justice for a new Nepal should be aimed at enhancing policy credibility and stability. This will help build the confidence of the private sector and foreign investors for a fast-track development. It is important to keep in mind that domestic resources are not sufficient for recurrent/regular expenditure.

Nonetheless, the new situation is challenging as the conflict-hit country is expected to spend more on reconstruction, rehabilitation and re-integration. The country’s high dependence on foreign assistance/investment leaves the government with no choice but to mobilise additional financial resources.

But if the major donor countries/agencies feel that the government is pursuing a socialistic policy that will hamper efficiency, the economic development of the country will be in jeopardy. Nepal has instituted the policy of deregulation, privatisation and liberalisation for the country’s alignment with the goal of regional and global integration, which will lead to the recognition of Nepal by global economic powers. Nepal can benefit by maintaining peaceful democratic politics aimed at long-term stability. With geographic proximity to two emerging economic powers, Nepal could gain a strategic benefit with this configuration. Proper utilisation of resources with greater transparency and accountability is also the core concern of donors.

Fiscal policy is a short-term measure to be guided by the medium-term interim plans, which should, in turn, be consistent with the MDGs’ long-term targets. For this, the planning document will have to identify necessary resources to finance more feasible development programmes together with rebuilding conflict-hit infrastructure. For this, the requirement of the resources will increase manifold.

To amass resources on such a scale, a Herculean effort will be called for. There is also a need for thoroughly reviewing various sectoral reform programmes and policies that have been implemented in the past with corresponding diagnostic prescription to improve their effectiveness.

Dr. Paudel is member of the RBB board