Monday, December 31, 2012

2012: Year of failed promises and disappointment

The year 2012 was a disappointing one for the business and economic sector, as the country could neither get a full-fledged budget nor any remarkable policy measure to encourage domestic investment, let alone foreign direct investment (FDI).
Dr Baburam Bhattarai, who is leading the caretaker government, after May 27 proved that his government is neither responsible nor honest in its attempts to propel economic growth, despite his tall talk of double digit growth.
“Rampant corruption, perennial power shortage, and political instability have been key in eroding investors’ confidence in the year 2012,” according to senior economist Prof Dr Bishwambher Pyakuryal.
Though the number of foreign direct investment has gone up, total capital investment has come down in the year, he said, adding that in a new trend India seconds China in foreign direct investment
(FDI).
Lack of investment has forced people — mostly the youth — to seek foreign employment. Though foreign employment has earned remittance for the country, it is pushing the country into the remittance trap in the long run, as remittance has only increased imports and only 2.4 per cent of the remittance has been used in productive sector for capital formation, according to Central Bureau of Statistics (CBS).
More than 554,441 Nepali youths migrated in 2012 in search of greener pastures due to the government’s failure in creating employment back home.
The World Bank has estimated that Nepal — as one of the largest remittance receivers among Least Developed Countries (LDCs) — could receive $5,115 million — compared to $4,217 million in 2011 — remittance in 2012. But the rising remittance has pushed imports up which has though helped the government meet its revenue mobilisation target but not propel the economy as the slowdown in remittance — as projected by the International Monetary Fund (IMF) — will put the economy in distress.
Likewise, the ‘death’ of the Constituent Assembly (CA) on May 27 has also hit the economy hard as the caretaker government of Dr Bhattarai failed to bring a full-fledged budget in the absence of a parliament. Instead of a full-fledged budget, the government brought an interim public expenditure arrangement twice —
on July 15 (Rs 1161.24 billion through ordinance) and on November 20 (Rs 351.93 billion) — this year, which will not only hit development activities but also hamper private sector investment due to the lack of new policy measures.
“The government’s failure in bringing the budget is the biggest disappointment of the year for the business fraternity that has been discouraged to pump in more investment due to the lack of investment-friendly policies,” according to president of Federation of Nepalese Chambers of Commerce and Industry (FNCCI) Suraj Vaidya.
“The government also failed to forge consensus on economic agendas,” he said, adding that it would have helped boost the morale of investors, despite political uncertainty.
The government’s inability to forge consensus on economic agendas with the opposition, failure to ‘walk the talk’, and over concentration in politics coupled with the delusion on economic policy helped the informal economy grow
and capital flight apart from hitting the monetary policy that has failed to crack a whip on rising inflation.
The price hike has been continuously looking up at over a double digit figure, also due to the continuous hike in prices of petroleum products.
The country witnessed the price of diesel go as high as Rs 99 per litre by the year end that will contribute to inflation floating over 10 per cent.
The state oil monopoly Nepal Oil Corporation (NOC) and Nepal Electricity Authority (NEA) incurred losses of Rs 13 billion (0.8 per cent of GDP) and Rs 6 billion (0.4 per cent of GDP) in fiscal year 2011-12, respectively, putting pressure on the economy.
The common people, for whom the UCPN-Maoist claim
s to have waged a decade-long war, have been cheated by Dr Bhattarai’s inability to tame inflation, and also the increasing load-shedding hours that has bled industries white.
By the year end, the country is reeling under 12-hour scheduled load-shedding, thus increasing the cost of production.
“Cost of production is increasing due to the rising cost of capital, labour and regular power outage,” according to president emeritus of Confederation of Nepalese Industries (CNI) Binod Chaudhary.
“Policy dilemma, increasing uncomfortable labour-management relations, and prolonged uncertainty due to the caretaker government’s ‘ego’ has forced industries to operate at half their capacities,” he said, adding that the
Nepal Investment Board which was formed after a decade of struggle has also been unable to prove its existence.
The industries have been operating at only 58 per cent of their total production capacity, according to the central bank’s latest report.
The result, the economy is projected to grow at 3.8 per cent — lowest in last four years — at th most optimistic note, according to IMF that has also blamed the government for the low economic growth due to its failure in providing fertilisers on time for good agriculture harvest — apart from erratic rain fall — that contributes one-third to the gross domestic product (GDP).
“Besides low agriculture production that will bring economic growth down, the total ratio of trade to GDP has also come down,” said Pyakuryal, adding that economic deterioration and political instability have a direct relation in Nepal’s case.

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