'Economy is at the critical juncture'

Kathmandu, Mar. 30: Finance Minister Dr. Yuba Raj Khatiwada said on Friday that the national economy was at a critical stage and the treasury was fast depleting. 

“The macroeconomic indicators are not positive, the informal economy is flourishing, economic activities have shrunk in the absence of a favourable investment climate, and public finance management is challenging due to the growing trend of non-budgetary expenditure,” he said while interacting with journalists at the Ministry of Finance following the issuance of the white paper on the current economic status of the country. 

He said that financial discipline was not followed by the past governments, and tax waiver was provided against the established system and norms. 

“Capital formation activities are sluggish, both on the public and private fronts. Execution of development projects is not satisfactory, and almost all such projects are witnessing time and cost over-runs,” he said.

In his ‘brutal’ assessment and presentation, Dr. Khatiwada said that it was a fair diagnosis of the national economy.  

While the nation is aspiring to graduate to the status of a developing nation from its current status of a ‘Least Developed Country’ by 2022, there is a huge gap in funding to meet the Sustainable Development Goals (SDGs). 

According to the National Planning Commission’s recent estimates, Nepal needs to invest Rs. 1.7 trillion year on average to achieve the 17 SDGs while the size of the current fiscal year’s budget is about Rs. 1 trillion. 

So the country has a challenge to board the private sector, which is supposed to invest about 60 per cent of the total SDG investment in the development process and create a linkage among the public, private and cooperative sectors to mobilise resources. 

Likewise, Nepal has long failed to execute development projects well, which resulted in poor capital expenditure. In the past several years, the average size of the development budget is 21 per cent of the total budget of each fiscal year, and only 72 per cent of the capital budget, on average, has been spent. 

According to the Finance Minister, there was problem in the fair distribution of the achieved economic growth, while more than two decades went in vain due to the armed conflict, prolonged political transition and policy uncertainty. 

He criticised the banks and financial institutions (BFIs) for the unfair competition of the interest rates. 

He said that the Nepali capital market was surficial and had a constrained base. 

“Though 208 companies are listed in the Nepal Stock Exchange (NEPSE), about 75 per cent of them are BFIs, and they contribute to 81 per cent of the trading of the securities in the stock market. The hydroelectricity sector has a 5 per cent share while manufacturing and hotel sector have only a 3 per cent and 2 per cent share respectively,” said Dr. Khatiwada. 

According to him, the NEPSE index was unstable due to the lack of institutional investors, shortage of liquidity, growing interest rate and supply of large number of shares. 

He expressed serious concern over the diminishing export trade. With the failure and collapse of export-oriented manufacturing industries, the import-export ratio has been continuously increasing.

The contribution of the manufacturing sector to the Gross Domestic Product (GDP) of the country has come down to 5 per cent from 14 per cent about a decade and half ago. 

Finance Minister Khatiwada pointed towards the need for a review of the privatisation modality since the privatised public enterprises have either been shut down or were contributing less revenue than when they were run by the government. 

“The government should run businesses in the non-profitable sectors that provide basic goods and services to the people and let the private sector run the profitable ventures,” he said. 

However, he said that the present government held tremendous opportunity due to a majority of the Left Alliance in the parliament and political stability, and could develop long-term development strategies and plans. 

Similarly, implementation of federalism and active and autonomous governments at the provincial and local levels would help identify new avenues of resources and set priorities for local development. 

“Likewise, the international community is interested in supporting Nepal in its development endeavours. In addition to that, we have an opportunity to exploit and harness the natural resources and develop in various sectors, including information technology,” said. Dr. Khatiwada. 

He stated that reforms in every economic sub-sector will begin at the earliest. 

Published in The Rising Nepal daily on 31 March 2018.