Worsening political crisis and the economy Urgency for stable grounds
We have yet to create suitable grounds in the economic front for overcoming deprivation and underdevelopment. Without this, the cherished goal of accomplishing double digit growth with equity led deprived people centered development will be impossible to achieve in the near future.
The resource endowments, competitive strength of various sectors of the economy and very laborious-energetic human resources of the country clearly show that Nepal has such a scope which is hardly found in countries with similar levels of socio-economic development.
In-depth exercise with a long term vision based on the assessment of the country’s potentials clearly corroborates this. But it is a matter of serious concern that when there were some rays of hopes in the economy amidst a gradual consolidation of the peace process, the political crisis has increased the possibilities of intensification of vulnerability of the people and the economy. This is also a period when wide-ranging adverse effects of the global financial crisis is looming in our economy.
In the past, the Nepali people were accustomed to assess the performance of the economy in a cosmetic way, simply in terms of trends in the macroeconomic aggregates.
As A. K. Sen rightly puts, in the neo-liberalism led policy orientation, the discussion even in the parliament of poor countries are confined to the state of deregulation, tariff rates or degree of trade liberalization and accompanying performance indicators rather than on more pertinent issues like the level of social development, unemployment or deprivation. After entering a new political era, we had started setting development agenda in a way that could facilitate a process of destroying old discriminatory or exploitative economic relations and carrying forward a new socio-economic transformation agenda.
It was recognized in principle that the inclusive development path by means of utilizing especially the deprived productive forces would provide a new impetus to sustainable growth and development.
At this juncture, it is essential that some sort of political stability is maintained. The latest estimates indicate that the growth of the economy may be around 3.9 percent in this fiscal year. The projection may have to be lowered further in the changed scenario. It is a matter of concern that even the unprecedented revenue collection could not be spent due to lack of coordination at the centre and understanding among the parties at the local level. Many programs with very positive impact either on employment generation or grass root level development remain standstill. Notwithstanding some rise in exports together with buoyancy in the banking and financial sector in terms of deposits and lending so far, investment in the productive sectors is a major problem. Without changes in the casino character of the economy, the fragility in the economy is bound to manifest. The investment is hard hit by a host of the problems including security.
There is a tendency of hundreds of small industries closing up due to erosion in competitiveness and lack of market. Absence of opportunities or rights and benefits on an equal footing has widened income and consumption level between the haves and have nots in the post liberalization period in an unprecedented way. Both formal and informal institutional barriers together with structural impediments governed by state induced discriminations still aggravate poverty intensity among certain caste or socio-economic groups leading to enormous rise in the income inequality in recent years.
The price rise at a very high rate is fuelling poverty and income inequality. Amidst rise in food prices, there are signs of growing food scarcity in various remote areas of the country. Mounting underemployment and unemployment are the major culprits and require a massive employment led development course to pin them.
The adverse effects of the global financial crisis and economic recession is steadily catching up with our economy. It will have multiple effects.
The reduction in foreign employment will have immediate effect on remittance inflow. This, in turn, will negatively affect the entire banking and financial system in addition to dampening imports and consequently government revenue.
There will also be reduction in household consumption and also be impacting the school drop
out rates and the primary health care system. Similarly, the reduction in investment even in unproductive areas would have contraction type effects in the economy with further adverse fall out on, among others, burgeoning unemployment. Tourism has already been affected.
All in all, unemployment, poverty and adverse effect on growth will be enormous at a time when the economy is in a poor shape. In such a situation, the economic and social cost of political deadlock will be extremely high. Hence, this is a time when aggressive economic stimulus package backed by strong political will is required.