No silver lining
Despite commitments by rulers and policy-makers to reduce the country’s excessive dependence on foreign aid, the situation has not improved over the past half century of planned development. At present Nepal’s foreign debt, put at Rs.232.77 billion, comes to nearly half of its GDP. This proportion might not by itself be appalling if the economy was growing, with increasing exports, to take care of the debts. But this is not the case. The situation has been made even worse by the effects of the Maoist insurgency and related developments. Non-productive expenses continue to soar. In the supplementary budget just announced for the second half of the current fiscal year, the government has allocated an additional more than Rs. 2.5 billion, almost all of it for financing the salary hikes and security expenses.
To finance the salary hike, the government has had to raise the value-added tax by three per cent. The internal debt accounts for over 18 per cent of the GDP, hardly a comfortable ratio. The grants that the country has received and writing off of debts by certain donors, for example, Japan, have prevented the situation from going completely out of hand. The ratio of foreign debts to grants has been rising, further increasing the debt burden. Today, every Nepali has on his or her head some Rs.10,000 foreign debt, and as much as Rs.17 billion goes into annual debt servicing alone, which accounts for between 15 and 20 per cent of the national budget. Certainly, this calls for serious thinking on the part of those who are at the helm of the national affairs.
What we have made of all those loans and how the general people have benefited from them are matters for serious analysis. Few disagree that the effectiveness of those huge loans has been far from satisfactory. The country’s deteriorating political and economic climate is bound to increase the dependence on external borrowings, which have been growing by an average 13 per cent over the past decade. This will reduce what remains of our independent economic and political decision-making power. Increasing reliance on loans will not only have adverse economic implications, it is also likely to have powerful negative political fallout. To avoid the prospect of the debt trap, the country has to ensure proper selection of projects and loans and their effective utilisation, even if it means resisting donors’ pressure, as well as putting in place effective mechanisms for checking corruption or pilferage of the loans and speeding up economic growth. All this brings the questions back to the political process and good governance, and this calls for radical reforms in the existing framework. Unfortunately, right now, there is no silver lining on the horizon.