Economic complexity: Challenges and way forward

The efforts on corruption control should not be limited only to the continuation of government, but to broader reforms and good governance.

Photo: UNDP

Bishwambher Pyakuryal

  • Read Time 4 min.

Nepal had begun witnessing the impact of the global economic crisis, which was further exacerbated by the COVID-19. In a bid to save the economy from recession, various measures including a ban on import were put in place, which, however, resulted in growing inflation and declining revenue. It further hit the public spending. Production slump across the world in the wake of the  Russia-Ukraine crisis caused a heavy impact on food grains. 

Dependency on food grains grew alarmingly so was its price in the national and international markets. The government could not deliver relief to the poor farmers in such a plight. Its impact can be estimated from the very financial imbalance of the current fiscal year. 

Atmosphere for employment is not created unless there is satisfactory economic growth and the revenue suffices regular spending. If the country is to create an employment atmosphere, it must ensure loans to small and medium-scale industries, manage interest rates and increase productivity. 

Similarly, special initiative is required to make policy on the labour market sustainable and create a business environment. Although foreign migration has contributed to improve remittance, it is yet to contribute to the entire economy. The employment problem can not be solved until remittance ensures economic benefit. On the other hand, it is uncertain whether it will be a regular income. Most of those belonging to the working age population with energy are jobless. 

Even retention of workforce and sustainability of jobs are not guaranteed. It warrants the need of enforcing an unemployment insurance scheme. The temporary unemployment scheme enforced in the wake of COVID-19 can be a roadmap for this. A serious homework is necessary to assess the extent of unemployment insurance programmes that can be launched and how resources can be managed for it. Government can mull various other policies to assuage the mental and social pressures caused by unemployment which is triggered by the failure on financial management.

For example, the part-time jobs the workers are doing can be complemented by the government with other part-time jobs. Data collection on demand and supply of labour from various industries and working together with the private sector can be another measure to solve the unemployment problem. New opportunities can be identified at local levels by taking stock of workforce needs. 

Investment on skill development is equally essential with professional training, apprenticeship and entrepreneurship. Increase in minimum wage, reform in access to social security, eased realty transactions, and emphasis on progressive tax policy can contribute to reducing economic inequality, and poverty. It is not that easy in our economic and social context, but not unattainable either. 

Weak performance of the government is caused by lack of accountability and transparency. So, the endeavors going on against corruption at present must not be slowed and rolled back. But, the efforts on corruption control should not be limited only to the continuation of government, but to broader reforms and good governance. People are deprived of information on governance.

Making policy decisions with the public disclosure of information and facts and ensuring people’s participation for public interest will help the government earn trust. It is unfortunate that the investment atmosphere is still elusive in Nepal. The policy on operation of foreign banks in Nepal is not clear and not up to the international standard. It is difficult to send profit abroad from the investment here. 

The exchange service for foreign capital is also limited. Still, some sectors have a quota system in practice while investing. The long negative list for investment is discouraging the investors. Even the research conducted by a multinational company has mentioned that globally 65 percent firms regarded ban on ownership as the main reason behind non-investment. The most striking problem is the risk in trade and investment coupled with political uncertainty that deters foreign investors to come to Nepal despite legal clarity in terms of providing opportunity for foreign investment. 

There is low saving and negligible economic growth in Nepal, which had been further exacerbated after the Covid-19 pandemic. As such, the internal saving fails to impact positively on economic growth. In Nepal, the consumable items are imported. The trade deficit reaches nearly 30 percent of GDP. In the 10 months of fiscal year, 2079/80, the total commodity trade deficit stood at Rs 1242 billion. 

From India alone, Nepal imported the goods in Dollars worth over Rs 119 billion. For lack of bilateral investment treaty and free trade treaty with many countries, Nepal is losing chances of foreign investment. At least, if artificial intelligence and innovative technology were listed in national priority, the new technology could help ease our development track by completing the pending physical infrastructures. 

However, there are several sectors having potential for internal and foreign investments in Nepal like agriculture, agro-based industries, tourism, energy especially hydropower, industrial development, service, construction industry, minerals and mineral-based industries, textile and the industries based on it, information and communications technology, and infrastructures relating to this. Once the implementation manual is prepared for development of the potential sector, development of goods and services is possible from them to contribute to economic growth. 

The small and mid-scale industries can play an important role in employment creation and income generation. For them to be effective, financial access, productivity promotion, regional and global trade alliance, and skills development must be ensured with priority. Another need is the change in administrative structure in our country. 

It is upsetting that though the country had already adopted federalism, the governance system is not normalized and transparent, but getting more complicated. If there is no political consensus on State operation with inter-party consultation, the political willpower diminishes, thereby causing political instability. 

The budget seems contemporary, as it is silent on structural financial reform, treasury management, public administration, good governance, transparency and accountability. In conclusion, time has come to make the Prime Minister and ministers legally bound in their work areas to realize reforms in Nepal. Economic stabilization needs adequate attention on allocation of responsibilities because it can solve various problems facing the country as challenges that emerge after ban on import, operation of tight monetary policy, and public spending management with control and contraction of high inflation. 

In our governance where ‘double standard’ is common, it is not that easy to clearly allocate responsibilities and make self-evaluation of the contribution. If the performance of any minister is evaluated as per work procedure and system, it can help him/her to realize early on the ability to carry out the responsibility. The evaluation should be carried out by subject experts and the Prime Minister should have the guts to make public the performance evaluation results. 

{Pyakurel is a an economist and a former Nepali ambassador.}