SANGAM

Development Challenge For Nepal
Sangam Prasain

Political instability, bureaucratic hassles, frequent strikes, bandhs, power outages, growing impunity and deteriorating industrial and investment climate, unemployment and inadequate infrastructure have pushed Nepal on path of critical development.
The protracted political transition and the weak government are dragging the country into a low development trap, paralysing the state’s ability to concentrate on physical infrastructure, resource distribution system, corruption control and mostly overcoming the poverty.
The current economic scenario suggests there is a need to allocate more resources to develop physical infrastructure.
Status
Various national and international development reports have claimed that the weak performance on the economic and social development was driving Nepal behind other South Asian countries’ economic status.
In terms of per capita Gross Domestic Product (GDP) Nepal is the lowest in the region. Per capita GDP in 2000 prices was estimated at US$243 for Nepal compared with $439 for Bangladesh, $660 for Pakistan, $686 for India, $1,144 for Sri-Lanka, $1277 for Bhutan and $3,668 for Maldives. In terms of per capita GDP, Nepal is now where Sri Lanka was in 1960s, Pakistan was in 1970s and India and Bhutan were in 1980s.
On poverty benchmark, remittance flow and investment in rural infrastructure have helped reduce poverty incidence from 42 per cent to 31 per cent between 1996 and 2004. The global economic meltdown might also hamper the remittance inflow.
However, the GDP registered an impressive growth of 5.6 per cent in 2007/08 from the slim 3.0 per cent in 2006/07; the surge was driven by good harvest in the agricultural sectors and rise in the tourists’ inflow but not due to the improvements in the economic fundamentals.
The first among past and future development constraints of Nepal is: weak governance.
Conflict put Nepal above the South Asian average in four of the six governance related indicators.
The most drastic decline was in the political stability indicators, where Nepal’s percentile dropped from 26.9 in 1996 to 2.9 in 2007. During the same time the voice and accountability dropped from 46.4 to 22.6, government effectiveness from 51.4 to 31.0 and the control of corruption from 44.2 to 30.4 percent. This was below the South Asian average for all aspects.
The deterioration of the governance led to deterioration of the major economic indicators. The foreign direct investment was also badly affected with aggregate investment volumes falling to only $9.0 million during 2001/07.
The impact on the domestic manufacturing industry was also severe, with the numbers of operating small and cottage manufacturing units declining by about 30 per cent from 1999/2000 to 2003/04. However, investment rate as a percentage of GDP, after falling to about 88 per cent of 2000 levels in 2003 had made a recovery and was estimated in 2007 at about 104 per cent of the 2000 levels.
In the infrastructure development, the annual average growth rate dropped from 4.9 per cent during 1991-2000 to less than 3 per cent during 2001-2006. The Asian Development Bank (ADB) study estimated a loss of about Rs.10 billion to Rs.15 billion for the three week strikes in April 2006. Its study estimates that in the first nine years of conflict about 5,100 establishments were destroyed or badly damaged and infrastructure worth $129.6 million was damaged.
Similarly, Nepal has the lowest coverage of infrastructure in the South Asian countries. As indicated by the Global Competitiveness Report 2008/09, of the 134 countries, the report ranked Nepal 130 compared with Pakistan (62), India (90), Sri Lanka (101) and Bangladesh (121).
Nepal ranked lowest in electricity and road transport but was more comparable with other South Asian countries in communication.
In the communication sector, Nepal has considerably improved, though they remain deficient in rural areas. Telephone penetration has reached 18.86 per hundred populations.
According to Nepal Living Standards Survey 2003/2004 only 37 per cent of the households have access to electricity in their house.
Nepal is facing unprecedented energy crisis for the last four years. With continuous load-shedding as high as 16 hours a day, it is adversely impacting the economic scenario in the recent years. Of the feasible potential of 43,000 megawatts, Nepal has so far utilized a mere 560 MW, which is just 1.3 per cent of the total feasible potential.
Likewise, Nepal’s export is considered small and low in technological quality. In the manufacturing sub sector, the export base is small and the export of goods and services accounted for only 8.2 per cent of GDP in 2007, down from the high of 12.8 per cent in 2001 and 2002.
Nepal’s labour productivity of GDP per workers is the lowest in South Asia. In 2006, Nepal’s GDP per works was estimated at $614 in 2000 terms, which was about two thirds of labour productivity in Bangladesh, one third that in India and Pakistan, and one fourth that in Bhutan and Sri Lanka.
All these development constraints can be attributed to the coefficient of education, which is significantly negative. Government has been focusing on the development of education, but economy is not growing much in response to that, resulting in numbers of unemployed educated people.
Experts say that education expenditure in Nepal has been benefiting foreign countries and Nepal is just receiving remittance, but not internal output production and employment generation. Moreover, Nepal education so far has not been able to develop entrepreneurship skill in the economy.
Likewise, Nepal’s development constraints are also related with the health sector. Coefficient of health sector is found insignificant and negative.
Need
Thus, there is an urgent need of bringing the peace process to its logical conclusion that determines the political stability and responsibility of the government and the political party’s leaders towards the pragmatic development models and agendas.
Nepal has committed to sustain double economic growth, improve infrastructure access, generate employment and alleviate poverty. In the pursuit of inclusive development gaols, the government has to overcome various hitches. Overcoming a number of constraints particularly, the infrastructure and poverty level, will require substantial increase in levels of development and recurrent expenditures.