Nepal's economic freedom ranking
has dropped to 149th in the 2014 from 141st in the 2013
index making it the 'mostly unfree' economy.
Nepal’s economic freedom score is
50.1, making it the 149th
freest economy – in the 2014 Index – among
the 178 economies, as its score decreased by 0.3 point
since last year due to decline in
investment freedom and freedom from corruption, though
the country has seen modest improvements in business
freedom, monetary freedom, and the control of government spending, the annual
report published by The Wall Street Journal and a US-based think tank The
Heritage Foundation.
Nepal is also ranked 34th
out of 42 countries in the Asia–Pacific region, as its score
remains far below world average of 60.3 points.
Nepal was first graded in the 1996 Index, and its economic freedom
score since then has been largely stagnant, declining overall by less than half
a point, the report said, adding that improvements in four of the 10 economic
freedoms, including freedom from corruption, business freedom, monetary
freedom, and trade freedom, have been more than offset by deterioration in
other areas, particularly a 25-point decrease in investment freedom.
Nepal is considered 'mostly unfree' economy throughout its history
due to a statist approach to economic management and development is a serious
drag on business activity. "A lack of transparency, corruption, and a
burdensome approval process impede much-needed private investment and
production," it said, adding that property rights are undermined by the
inefficient judicial system, which is subject to substantial corruption and
political influence.
The index is
calculated by the aggregate score of four of the freedom indicators rule of law,
limited government, regulatory efficiency and open market. The four freedom indicators
has 10 sub-indicators.
Under rule
of law, Nepal could not fare well due to endemic corruption in politics and
government. "Many members of the legislature have been accused or
convicted of corruption in the past, but high-level officials are rarely
prosecuted," it said, adding that graft is particularly prevalent in the
judiciary, with frequent payoffs to judges for favorable rulings, and in the
police force, which has been accused of extensive involvement in organised
crime. As a result freedom from corruption score has dropped to 21.3 points,
whereas score of property rights has also not improved and stood at 30 due to
lack of effective protections for property rights.
Likewise, fiscal
freedom (85.9) and government spending (89.6), the two sub-indicators under the limited
government, have seen improvement. "The top individual income and
corporate tax rates are 25 per cent," the report said, adding that other
taxes include a value-added tax (VAT) and a property tax. "The overall tax
burden is 12.6 per cent of gross domestic income. Government expenditures are
steady at around 19 per cent of GDP, and public debt is about 33 per cent of
the domestic economy."
But the government’s
ability to produce a budget has come into question because of political
instability, it added.
The regulatory
efficiency, there are three sub-indicators, of which score of labour freedom has
decreased to 43.8 but business freedom (58.5) and monetary freedom (76.3) scores
have seen improvement. "Bureaucracy and a lack of transparency often make
business formation and operation costly and burdensome," it said, adding
that business start-up is now more streamlined, but obtaining necessary
licenses continues to be time-consuming. "But labour regulations are
rigid, and restrictions on work hours remain stringent. The government provides
extensive subsidies to the state-owned electricity and oil companies."
The fourth and most
important freedom indicator open market also has three sub-indicators, of which
only one trade freedom has increased score to 61. Investment freedom score decreased
to the lowest of five points, whereas financial freedom score remained static
at 30 points. "Nepal’s average tariff rate is 12 per cent," it said,
adding that tariffs are a significant source of government revenue. "Consumers
are not allowed to import used products. Foreign investors face government
screening and a challenging economic environment. The financial sector remains
fragmented and government ownership and influence in the allocation of credit
remain substantial," the 20th edition of the index revealed, adding that economic freedom once again on the
rise. "Much of the momentum lost during the past five years has been
regained and the global average economic freedom score in the 2014 Index is 60.3, the highest average in
the 20-year history of the index.
The average is 0.7 point higher than last year and a 2.7 point improvement from
1995.
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