Nepal mostly unfree economy: Survey

Nepal has scored 52.7 making its economy the 130th in economic freedom, according to the 2010 Index published by Heritage Foundation and Wall Street Journal.
“Its score is 0.5 point lower than last year, reflecting declines in five of the 10 economic freedoms due to political instability,” said report. Nepal is ranked 28th out of 41 countries in the Asia–Pacific region, and its score is below the world and regional averages.
The county falls in the mostly unfree country as according to its score. If a country scores from 50 to 59.9 it is in the mostly unfree category, whereas those scoring 60 to 69.9 are moderately free, 70 to 79.9 mostly free and 80 to 100 are the freest economy. The countries scoring 0 to 49.9 are repressed. Seven countries fall in the freest category, 23 countries fall in mostly free, 43 countries fall in moderately free category, 55 countries fall in mostly unfree category and 36 countries fall in repressed economies and four countries are not ranked in the total of 188 economies ranked in the list.
“Nepal’s economy is characterised by a combination of rapid population growth and inadequate economic growth that has led to widespread, chronic poverty,” the report said. “The weak reform efforts have failed to stimulate broad-based economic growth,” it added.
The report hails the state’s continuation to hamper private-sector development but it says political instability weakens the country’s ability to implement economic reform or create a stable environment for development.
Although reforms in Nepal’s trade regime are slowly having an effect, the average tariff rate remains high, according to the report. “Foreign investments must be approved or face licensing requirements. A lack of transparency, corruption, and a burdensome approval process impede much-needed private investment growth. Property rights are undermined by the inefficient judicial system, which is subject to substantial corruption and political influence.”
Economic freedom is the fundamental right of every human to control his or her own labour and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please, with that freedom both protected by the state and unconstrained by the state. In economically free societies, governments allow labour, capital and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself.
The report measure ten components of economic freedom and their scores are then averaged to give an overall economic freedom score for each country.
In this year’s report, UK, US and China have fallen down the rank and Poland, Turkey and Mexico have improved significantly.
According to the report, Hong Kong remains the world's freest economy, followed by Singapore, Australia, New Zealand and Ireland.
Regionally, in Asia-Pacific region, Nepal ranks 28 out of 41 economies. But in South Asia, Nepal is behind all the country except Bangladesh. Bhutan is the freest economy in the report.

South Asian ranking
103 -- Bhutan: 57
117 -- Pakistan: 55.2
120 -- Sri Lanka: 54.6
124 -- India: 53.8
130 -- Nepal: 52.7
137 -- Bangladesh: 51.1
Maldives: -- N/A
Afghanistan: N/A

Nepal in figures
Population: 28.6 million
GDP: $31.8 billion ($1,112 per capita)
Unemployment rate: 20 per cent
FDI flow: $1 million

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Overall score: 52.7
Business Freedom: 59.4 (down as average is 64.6)
The overall freedom to start, operate, and close a business is limited under Nepal’s regulatory environment. Starting a business takes an average of 31 days, compared to the world average of 35 days. Obtaining a business license takes almost twice the world average of 218 days. Bankruptcy proceedings are lengthy and complex.

Trade Freedom: 58.8 (down as average is 74.2)
Nepal’s weighted average tariff rate was 13.1 percent in 2007. The government continues to implement reforms, but import bans, services market access barriers, import taxes, import and export licensing, non-transparent regulations, weak enforcement of intellectual property rights, inadequate infrastructure and trade capacity, and customs corruption add to the cost of trade. Fifteen points were deducted from Nepal’s trade freedom score to account for non-tariff barriers.

Fiscal Freedom: 86.6 (up as average 75.4)
Nepal has moderate tax rates. Both the top income tax rate and the top corporate tax rate are 25 percent. Other taxes include a value-added tax (VAT) and a property tax. In the most recent year, overall tax revenue as a percentage of GDP was 9.6 per cent.

Government spending: 92.3 (up as average 65)
Total government expenditures, including consumption and transfer payments, are low. In the most recent year, government spending equaled 16.0 percent of GDP. The state oil company is a drain on the economy.

Monetary Freedom: 77.8 (down as average is 70.6)
Inflation has been moderately high, averaging 7.4 percent between 2006 and 2008. Although most price controls have been eliminated, the government regulates the prices of petroleum products and telecommunications services and subsidizes companies in strategic sectors. Five points were deducted from Nepal’s monetary freedom score to account for policies that distort domestic prices.

Investment Freedom: 15 (down as average is 49)
Nepal is generally open to investment in many sectors, but investments must be approved, and many face licensing requirements. Bureaucracy and regulatory administration are burdensome, non-transparent, inconsistently implemented, and inefficient. Political instability, pervasive corruption, and inadequate infrastructure and administrative capacity also inhibit investment. Residents may hold foreign exchange accounts in specific instances; most non-residents also may hold such accounts. Convertibility is difficult and not guaranteed. Most payments and transfers are subject to prior approval by the government. There are restrictions on most capital transactions, and all real estate transactions are subject to controls. Foreign investors may acquire real estate only for business use.

Financial Freedom: 30 (down as average is 48.5)
Nepal’s fragmented financial system is heavily influenced by the government. Financial supervision is insufficient, and anti-fraud efforts are lacking. Regulations are not transparent and fall short of international standards. The banking sector dominates the financial sector, and there are approximately 20 commercial banks operating in the country. The number of other financial intermediaries has increased in recent years, but the high cost of credit and limited access to financing still deter entrepreneurial activity. Nepal’s government-owned banks represent more than 30 percent of total banking assets and account for more than half of total bank branches. The central bank has gradually phased out “priority sector” financing activities whereby banks must lend a certain amount to government-designated projects.

Property Rights: 35 (
Nepal’s judicial system suffers from corruption and inefficiency. Lower-level courts are vulnerable to political pressure, and bribery of judges and court staff is endemic. Weak protection of intellectual property rights has led to substantial levels of optical media copyright piracy.

Freedom from Corruption: 27
Corruption is perceived as widespread. Nepal ranks 121st out of 179 countries in Transparency International’s Corruption Perceptions Index for 2008. Foreign investors have identified corruption as an obstacle to maintaining and expanding direct investment, and there are frequent allegations of official corruption in the distribution of permits and approvals, the procurement of goods and services, and the awarding of contracts. The governmental Commission for the Investigation of the Abuse of Authority, mandated to investigate official acts of corruption, claimed a 75 per cent success rate concerning corruption cases it filed, but some cases involving politicians were not filed or were defeated in court.

Labour freedom: 44.7 (down as average is 62.1)
Nepal’s labor regulations are restrictive. The non-salary cost of employing a worker is low, but laying off an employee is difficult.