Policy paper 2007-08 : Grim outlook for national economy

The eight party coalition government has completed almost four months in office and the legislature-parliament has completed the ritual of formulations and deliberations on the government’s “annual policies and programmes, 2007-08”. The parliament had interesting discussions on the Economic Survey 2006-08 and the budget for fiscal year 2007-08. These documents are generally viewed as policy papers that indicate the health and direction of the economy. However, the documents were viewed both within the parliament and outside it as aimed at maintaining status quo, with no meaningful measures for laying the ground for future structural changes and critical reform. It is most unfortunate that the government has missed a great opportunity to forge a national consensus on economic policies.

Despite a promising picture presented by the finance minister last year during his budget speech, which forecast a high economic growth and better economic performance, the actual economic outlook was disappointing with 2.5% growth rate in 2006-07, 0.65% growth in the agricultural sector, 2.16% growth in industrial sector amidst the inflation rate of 6.8%, and even while about one-third of the Nepalis remained entrapped in extreme poverty. Nepal continued to be the poorest country in SAARC region and the 12th poorest in the world.

The finance minister, in his recent budget speech, reiterated the government’s political achievements but admitted that on the economic front, “significant promises remained undelivered”. Everyone is aware that industrial unrest, especially the law and the order situation, was unresolved, investment climate was deteriorating day by day, lack of competitiveness further eroded meagre exports. Besides, growing labour force without generation of new employment opportunities posed formidable challenges. In all this, the rhetoric of high growth, equity, inclusive socio-economic development and fair sharing of economic results remained limited to political speeches. The most disappointing part of the budget speech and the document on policies and programmes for 2007-08 was to overlook these critical challenges.

Politicians vouch to build a new Nepal. However their performance, especially on the economic front, indicates no commitment and willingness on their part to initiate measures to dismantle the age-old structures and institutions and lay the foundation for some radical but efficient new ones. It is very evident that the present leadership is incompetent and unwilling to initiate critical reform measures in areas of revenue mobilisation, public sector enterprise reforms and privatisation, agricultural sector production and productivity improvement, facilitating and strengthening private and business sector, institutional reforms and building climate for long-term investment and long overdue reforms in social sector, especially education, health and drinking water.

The government has not even been able to ensure regular supply of petroleum products, smooth operation of transport services, functioning of educational institutions and daily functioning of local government bodies. High economic growth and social development will not be possible with slow and undetermined steps. The government needs to realise that ignoring economic development would be most damaging to a democratic way of governance and long-term prosperity of the nation. Furthermore, if the government fails to galvanise and mobilise people’s support for steering necessary short-term changes and economic reforms, it may face serious constraints in achieving medium-term political stability. Even maintenance of the law and order situation in the immediate future might prove tricky.

Every Nepali is aware that the nation is in a transitional phase and all of us are eagerly waiting for the resolution of outstanding political debates through fair and peaceful Constituent Assembly election. It is true that political settlement and stability get the precedence, but it is also desirable and that the government addresses economic and critical priority development agenda. It is the responsibility of the national legislature as well as civil society and community-level organisations to ensure that responsible ministers heading economic portfolio take appropriate actions and remain on their toes to deliver required public services in economic areas.

Economic growth rate and employment opportunities must improve at a time when more than 30% of people remain in extreme poverty and 300-350,000 youths are entering working age on an annual basis. Every effort must be made to improve employment generation in rural areas through improvement and diversification in agro-related activities immediately. It is most disappointing that the current budget completely ignores this critical priority need. Hence there is an urgent need to correct it.

Dr. Dhungana is an economist