Better governance, key to investment climate

Lalitpur, May 10: Former Minister for Finance Dr. Ram Sharan Mahat has said that improved governance was the key to raising investment efficiency and promoting investment climate.

"Good governance implies a strong rule of law, elimination of red tape, timely decision making and a bureaucratic culture that is friendly towards private investment," he said while delivering the keynote speech on 'Economic reforms in South Asia: with special reference to Nepal', organised by the South Asia Network of Economic Research Institutes (SANEI) on Thursday.

The two-day conference will deliberate on tax policy and reforms in South Asian countries.

He suggested the government revamp a large number of business-related laws.

According to him, unstable politics in the past took its toll in the quality of public administration, with frequent transfer of administrative heads and staff, resulting in accountability problem.

Dr. Mahat stated that depoliticisation of the bureaucracy and stability in the administration, and strengthening government institutions with adequate and qualified human resources should be the priority to raise efficiency.

Saying that instability of the government and bureaucracy took its toll of economic growth, he expressed hope that as Nepal has entered an era of political stability, there was an opportunity to expedite the second generation economic reforms.

"The recently-elected government has ample electoral mandate, offering the possibility of policy predictability, consistency and hard decisions. At the same time, the country soon will have steady supply of reliable and clean energy, and utilising the growing availability of concessional finance from the existing multilateral development banks and other sources will support infrastructure financing," said Dr. Mahat.

The orchestrator of economic liberalisation in the country in the early 1990s pointed towards the need of increasing investment, both domestic and foreign, and accelerating growth.

Nepal's public investment is not only low at around 5 per cent of the Gross Domestic Product (GDP), but also inefficient as reflected in the high incremental capital-output ratio, he said.

According to Dr. Mahat, the under-spending of the capital budget is also due to the inefficiency in the public and private sector.

He said that for the effective implementation of federalism, there was a need to invest in the capacity building of all the three levels of governments.

President of Global Development Network Prof. Pierre Jacquet said that in many countries, rich people had various opportunities to escape taxes or under-declare income, and they might have an incentive to slow down the process of reform.

"The prevalence of an informal economy, weakness of the tax administration and weak statistical bases have severe repercussion on the tax system of the developing nations," he said.

He said that the reforms in the tax system needed political commitment for better policy design and implementation.

Member of the National Planning Commission Dr. Ram Kumar Phuyal said that a better tax policy could support economic growth of the country.

Coordinator of SANEI and Executive Director of the Institute for Integrated Development Studies (IIDS) Dr. Bishnu Dev Pant said that study and research on the reform of tax policy was important for the South Asian region due to the rapid economic growth here.

Published in The Rising Nepal daily on 11 May 2018.