Lack of investment climate fuels capital flight

Lack of investment climate has fuelled capital flight, according to experts.

Speaking at an interaction here today, they blamed load-shedding, political uncertainty, donation terror by the ruling parties themselves, syndicate system and bandhs as reasons for potential investors being discouraged and entrepreneurship taking a back seat in the country.

"If the current transition prolongs, the situation will be more pathetic as capital flight will increase," said secretary at the Prime Minister's Office Krishna Hari Baskota. "There is a huge gap between imports and exports," he said, adding that the country has some 29 per cent more trade deficit only due to huge imports of petroleum products.

Due to the inability to manage government expenses and squeezing economic growth rate, the country has failed to attract investment, he added. "Lack of a full-fledged budget has also dogged development work and some government agencies will not be able to pay salaries to civil servants if the government fails to bring a full-fledged budget soon."

The country has been witnessing 10 per cent capital flight annually, said economist Dr Chiranjivi Nepal. "From 2002 to 2010, the country recorded capital flight of around Rs 70 billion," he said, adding that Nepal ranks eighth among the top 10 countries that have been witnessing capital flight. "China leads among the nations that have been witnessing capital flight."

According to Global Financial Integrity (GFI) — a programme of the Washington-based Centre for International Policy — Nepal had lost at least $1.88 billion (approximately Rs 161.38 billion) in illegal outflow of funds in 2010, up by 21.5 per cent as compared to 2009, largely due to export under-invoicing and import over-invoicing.

The report 'Illicit Financial Flows from Developing Countries: 2001-2010', has revealed that almost 10.35 per cent of the country's gross domestic product of last fiscal year was lost in capital flight.

Lack of investment climate in the country has fuelled capital flight, said vice president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) Pradeep Jung Pandey, speaking on the occasion.

"The government must focus on production if it wants to stop capital flight," he said, adding that donation terror by sister organisations of political parties, prolonged power shortage, ambiguous government policy, lack of full-fledged budget on time, and frequent bandhs and strikes have contributed to capital flight.