Economic revival still a far cry

Even one year after the devastating earthquake, the government has not been able to provide shelters to quake-hit populace, let alone reviving their livelihood. The economy that was shaken by the earthquakes of April 25 and May 12, and hundreds of aftershocks throughout the year, further crumbled due to the India-imposed economic blockade.
The government apathy toward its citizens, political bickering, chronic red tape, lack of absorptive capacity, and eroding government capacity to spend budget coupled with bureaucratic and procedural delay forced quake-hit people to live under open for almost a year.
The government – post-earthquakes that floored above 800,000 private buildings, except thousands of public buildings including hospital, schools and police posts and heritage sites – had shown the urgency for mobilising resources for reconstruction by organising the International Conference on Nepal’s Reconstruction (ICNR) within three months, on June 25, 2015. The National Planning Commission (NPC) and the then government led by Sushil Koirala did a commendable job by bringing all the development partners to one platform for rebuilding and rehabilitation of quake-hit populace.
The international development partners, who were initially surprised by the government’s efficiency and urgency for rebuilding people’s lives and reviving their livelihood, pledged some $4.1 billion for reconstruction. Of the total pledge, the development partners have already signed agreements worth $1.28 billion, realising the urgency of the situation.
But lack of political consensus for economic priority has stalled not only the reconstruction of physical infrastructure damaged by the earthquakes, but also failed, miserably, to address people’s economic revival, according to senior economist Prof Dr Bishwhambher Pyakuryal.
The devastating earthquake made Nepal lose properties worth $7 billion. And the Indian economic blockade immediately after the promulgation of new constitution by the people – a six and half decades old Nepali dream – has also bled the economy $7 billion, making a total of $15 billion – around 70 per cent of country’s total GDP of $21 billion.
According to the central bank, the blockade hit the income of the people and sent 2.5 per cent to 3 per cent of Nepalis below national poverty line though the earthquake had only damaged properties. It means the 13th periodic plan's target of reducing the poverty to 18 per cent from current 23.8 per cent is unachievable as some 1 million people is going to fall below the national poverty line. "The government has, even after a year, failed to address the people in reviving their livelihood that could have helped them come out of poverty trap,” Pyakuryal said, adding that the loss of agriculture land like rice fields – due to earthquake – is going to hit the agriculture output, pulling economic growth down. “The non-agriculture sector’s growth has also been hit hard due to the blockade.”
Macroeconomic indicators have been alarming due to the government’s lack of seriousness, he added.
Foreign investment commitment has come down to Rs 8 billion in a year post-earthquake – from April 13 2015 to April 12, 2016 – compared to Rs 67 billion a year ago. The country has also witnessed a drop of around 45 per cent in migration compared to last year, which is going to hit the remittance inflow, in the next fiscal year.
Thus, the devastating earthquakes and India-imposed blockade that cost the country one-third of the economy is definitely going to pull economic growth to the lowest in last three decades. According to the Nepal Rastra Bank (NRB), World Bank (WB), Asian Development Bank (ADB), International Monetary Fund (IMF), the GDP growth could be somewhere between -0.9 per cent and 1.7 per cent in the current fiscal year due to insensitiveness of the government toward the urgency.
The situation could have been better had the incumbent Khadga Prasad Sharma Oli-led government been serious toward its citizen’s plight. On one hand the government has not been able to spend resources it has and on the other the spending of taxpayer’s money has not been transparent. According to the 53rd annual report of the Auditor General, total unaccounted expenditures increased to Rs 328.52 billion by the end of the last fiscal year 2014-15. The amount is some 40 per cent of the total annual budget of the current fiscal year. But the increment in development budget spending is too low to compare with the irregularities revealed in the report.
According to the central bank, capital expenditure increased by only 1.1 per cent to Rs 22.97 billion in the eight months of the current fiscal year 2015-16, compared to the same period of the last fiscal year. "Such expenditures had increased by 39.4 per cent in the same period of the last fiscal year 2014-15," it reads.
The eroding government capacity has also been revealed by the central bank report as the government has a surplus of Rs 31.75 billion budget on cash basis. The country could construct a mega hydropower plant – that could increase industrial capacity – from the surplus budget, had the government and bureaucratic capacity been enhanced.
Economy is actually not only about money. It is also about value produced by the money. “If the government spends Re 1, it will add value worth around Rs 4,” according to Pyakuryal. Thus, the failure of the government in spending Rs 90 billion reconstruction budget – set aside by the budget for the current fiscal year – will also have a huge impact on the economy.
“The government has been overlooking the alarming situation,” according to a former member of the National Planning Commission (NPC) Chandramani Adhikari. "The bureaucracy has to be regularly pinched to remind the urgency of the situation."
The governance and administrative structure is also a huge constraint that has blocked not only the economic reconstruction but also the overall reconstruction, a highly placed bureaucrat, who does not want to be named, seconded Adhikari. “Bureaucracy is the major roadblock for reconstruction and development. Instead of removing these problems, the political leadership is busy postponing them,” he said, adding that the bureaucratic dilemma, despite the formation of National Reconstruction Authority (NRA), and also delayed appointment of the NRA chief executive, who was supposed to be one of the development experts, also made the lives of people more miserable.
The authority was formed to fast track the reconstruction and rehabilitation along with reviving lost livelihood of quake-hit people. But its leadership has become redundant. Though, the chief executive, appointed by Prime Minister Oli himself, has legitimacy, he lacks competence and acceptance, two of the three important factors for a good leadership.
It is a fact that the political leadership failed to minimise the impact created by the earthquake and the blockade. The social impact, during the blockade, was more alarming than the economic one. Hospitals ran out of medicines, and most of the schools were closed. Similarly, reconstruction works were stalled and fuel shortage hit the economy more coupled with power outage of around 12 hours daily, industrial and business activities chocked, agriculture sector suffered due to shortage of fertilizers and tourism nosedived.
But instead of carefully reconstructing the economy and promoting transparency, the Oli government enticed the situation to become more destructive. The government overlooked black economy, claiming to rescue the people out of supply shortages, promoted crony capitalism and discouraged the private sector by pushing them on the verge of closure.
During crisis, a government could claim that it will print more money and distribute it to the people, also to create egalitarian society, to pull its populace out of poverty trap and make them rich. But printing money to pay for unproductive work just inflates prices, stealing from those who are still productive. And the Oli government did exactly that to discourage the productive people and sector and promoted his cronies in the name of liberal economy which sent the inflation overboard.
“This year will be remembered as the year of stagflation led by high inflation, low employment and low economic growth, and the rise of parallel economy that has left us with a herculean task of rebuilding lives, economy and infrastructure,” another senior economist Prof Dr Madan Dahal said.
The situation could have been different, if the government had common sense on economy, and zeal to rescue and save the people from severe poverty cycle. According to the central bank, rebound in economic activities is expected following the gradual normalisation in the supply of fuel along with other essential commodities in the country. “The reconstruction of physical structures ravaged by the earthquakes is to underpin the rebound,” it said, adding that consequently, the production of construction materials such as cement, rod, and concrete and zinc sheet is likely to rise. “It is likely to generate a salutary impact on job creation."
The capacity utilisation of manufacturing sector is also expected to grow with the ease in supply of fuel and other essential raw materials. Similarly, with the onset of adventurous tourist season, tourism growth is expected, if the government instills some confidence on travel entrepreneurs. “There is immense scope for rebounding tourism in faster pace,” said the general manager of Soaltee Crown Plaza, the oldest deluxe five-star hotel in the country, Upal Majumdar. "But there needs to be massive media campaigns in the tourist source markets telling the world that Nepal is ready to welcome tourists,” he added.
But even after one year of the devastating earthquake, with international and domestic resources in hand, the government has miserably failed to utilise them to put people back to their homes and they are still living under the open sky.