Slim chances of upgrading into middle income country status by 2030: WB

Kathmandu, May 23:

The World Bank (WB) Tuesday said that without comprehensive reforms to addressing its long-standing challenges, Nepal would probably not become a lower-middle-income country before 2030.

“Despite rapid reduction in poverty, Nepal’s development path is not helping it escape from a low-growth trap,” said the bank in a report ‘Climbing higher: Toward a middle income Nepal’.

It said Nepal’s recent history of development was marred by a paradox.

“Many countries in the world have experienced rapid growth but modest poverty reduction, as income has increasingly concentrated in the hands of the wealthy. Nepal, however, has the opposite problem – modest growth but brisk poverty reduction,” reads the report.

Nepal has halved the poverty rate in just seven years and witnessed an equally significant decline in income inequality, but the country remains one of the poorest and slowest-growing economies in Asia, with its per-capita income rapidly falling behind its regional peers and unable to achieve its long-standing ambition to graduate from the low-income status.

Nepal has a plan to graduate to a developing country status from its current least developed country status by 2022 and aspires to become a middle income country by 2030.

“The current state of Nepal’s economy not only reflects the enormous obstacles to development, but also poor policy choices that have resulted in weak performance of the large agricultural sector, low public poor policy choices that have resulted in weak performance of the large agricultural sector, low public investment and capital accumulation, and low productivity growth,” says the Nepal Country Economic Memorandum.

According to the bank’s study, during the past 45 years (1970-2014), Nepal grew at an average annual rate of 4 per cent, while the growth rate of per capita income was the lowest in South Asia, averaging just 2 per cent during this period.

The report has concluded that the large-scale migration was not a sign of strength, but a symptom of deep, chronic problems.

It also noted that the most detrimental aspect of large-scale migration, perhaps, is that it relieves the pressure on policy makers to be more accountable and to deliver results.

“All these factors combined mean that Nepal could be stuck in a low-growth, high-migration equilibrium for years to come. A systematic assault is needed to break the vicious cycle and create the right balance between job creation at home and export of labour,” says the WB’s senior economist and lead author of the report, Damir Cosic.

The report has suggested tackling the persistent challenges of low investment and weak productivity by restructuring its public investment programme, reducing th cost of doing business, integrating the economy with the rest of the world, and intensifying the level of competition in the domestic market in sectors such as transport, logistics and telecommunications.

Nepal under performs in terms of public investments, with an average of 4.5 per cent in 2007-2015 period while the South Asian average in the same period was 7.1, India 7.8 and Ethiopia 15.4 per cent.

Likewise, it has recommended unleashing large investments in hydropower, revitalising the existing sources of growth through reforms in agriculture, improving productivity and releasing labour for new sources of growth, and investing in people.

Speaking at an interaction on the report later in the afternoon, former vice-chairman of the National Planning Commission Dr. Yubaraj Khatiwada said he didn’t buy the pessimistic scenario of the country as presented by the report.

“However, more efforts are needed to save agriculture from dragging the growth rate down. Likewise, we have given more priority to tourism and the small and medium enterprises sector,” he said.

Former finance secretary Rameshwor Khanal said that the country was slow in implementing economic reforms as efforts for the same were pending for a long period of time.

He also noted that it was also the dearth of visionary leadership that was deterring the country from the rapid pace of development.

President of the Federation of Nepalese Chambers of Industry Bhawani Rana said low productivity was the primary reason behind the poor performance of the economy.

She said that wages had been raised, but productivity couldn’t rise in comparison to the wages.

“We need to think about lowering the cost of production and increasing productivity,” she said.

The programme was jointly organised by the World Bank and Society of Economic Journalists – Nepal (SEJON).