Thursday, May 10, 2018

Nepal needs huge investment for speedy economic growth

Nepal needs huge investment for speedy economic growth.
Delivering his keynote speech in the conference of South Asia Network of Economic Research Institutes (SANEI) today, former finance minister Ram Sharan Mahat said that Nepal needs huge investment for speedy economic growth and also to sustain federalism.
Following the establishment of a federal system, the government needs to make large budget allocations for regular expenditure. The administrative expenses of the three tiers of government – federal, provincial and local – amount to at least 40 per cent of the country’s GDP, Mahat said, adding that the federal transition cost is likely to stand at 3 per cent to 4 per cent of GDP annually for the next four years.
Highlighting that reforms in the economy should be a continuous process to attract investment as the country needs huge investment to address not only growing investment but also the structural bottlenecks of the economy including yawning infrastructure gap, low productivity, lack of job opportunities, sluggish export and ballooning imports, Mahat said that the country has been able to maintain macro stability despite suffering for long from political turbulence in the last two decades. “Economic reforms initiated in the 1990s were unprecedented and they have increased revenue of the government exponentially to around 24 per cent of gross domestic product, created ground for private sector and foreign investment, reduced poverty and also achieved the targets set by Millennium Development Goals (MDGs)."
He also argued that Nepal has performed better in many social indicators including nutrition safety, gender sensitiveness, and has been a champion in reducing women and child mortality, and school enrollment of children (especially girls), life expectancy.
However, slow development in the manufacturing sector, increased migrant worker departures, widening gap between exports and imports, bureaucratic inefficiency, political instability and widespread corruption have prevented the country from achieving its economic goals.
"There are challenges too," Mahat cautioned, adding loss of productivity and competitiveness at home, causing low growth and depopulation is under way in some of the districts to the economy. "The agriculture land in the villages is barren due to lack of youth migration."
Likewise, the rapid expansion of the non-tradable sector is a major threat for the economy and external balances, he said, adding that non-tradable sector are those sectors in which production and services are only for domestic consumption.
He also highlighted the sub-national governance, together with accumulating stress on current account and an emerging tendency to overreach on regulatory matters governing private sector represent major risks in the economy.
Likewise, Prof at Jawaharlal Nehru University, New Delhi, Mahendra P Lama, on the occasion, highlighted Nepal’s straight move from primary sector like agro and forestry to tertiary sector like service sector bypassing the manufacturing sector could be costly for the country. "Manufacturing sector is important for the sustainability of the economy as it creates jobs, raises national productivity, substitutes imports and the economy has multiple advantages of protecting and promoting manufacturing sector,” he said, adding that Nepal’s economy is an urban-centric supra economy that will face institutional laggard in the federal system.
The South Asian experts, on the occasion, urged Nepal to formulate better fiscal measures and enhance tax reform to achieve its economic reform targets. They called for initiatives to reduce the existing high capital output ratio, improve road connectivity, ensure good governance and check the high recurrent expenditure as part of comprehensive economic reform.

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