Its overall score has decreased by 0.3 point from 54.1 points in 2018 Economic Freedom Index, with lower scores for trade freedom and government spending exceeding improvements in labour freedom and monetary freedom.
Nepal is ranked 34th among 43 countries in the Asia–Pacific region, and its overall score is below the regional and world averages, the 2019 Economic Freedom Index, published by the Heritage Foundation, revealed.
There is a fundamental lack of entrepreneurial dynamism in landlocked and isolated Nepal that holds back long-term development, it reads, adding, “Although the government signed a trade and investment deal with India to increase Nepal’s hydropower potential, foreign investment has been hampered by political uncertainty, a history of statism, and a difficult business climate.”
Cronyism, a burdensome approval process, and a lack of transparency are other impediments, it adds. “Property rights are undermined by an inefficient judicial system that is subject to substantial corruption and political influence.”
Nepal, the youngest federal republic since 2008, is wedged between India and China. In the decade since then, Nepal has faced nearly continuous political instability, and it remains one of the world’s poorest and least-developed countries.
With a two-third majority, the communist government led by Prime Minister KP Oli – the 41st prime minister of Nepal – is more conservative towards the foreign investment and private sector.
Though, in 2018, China and Nepal agreed to establish a rail link and signed a deal to boost Chinese investments in Nepal’s power grid, it still seems political gimmick as China has been repeatedly saying that linking Kathmandu with Kerung by rail is more costly and technically expensive.
The economic freedom report reveals that people in countries with greater economic freedom tend to be happier about their lives. Nepal government is planning to conduct Happiness survey, but mostly unfree economy will have to work hard to make the country happy.
Likewise, men and women tend to fare equally in countries with greater economic freedom, it reads, adding that greater economic freedom is associated with more political rights and civil liberties. "Most importantly, extreme and moderate poverty are lower in countries with more economic freedom."
RULE OF LAW
Property Rights-39.2
Government Integrity-26.2
Judicial Effectiveness-34.7
Property rights are not protected effectively, and it can take years to resolve property disputes. The law provides for an independent judiciary, and the courts are generally reliable, but they remain vulnerable to political pressure, bribery, and intimidation. There are numerous reports of corrupt practices undertaken with impunity by government officials, law enforcement officers, and political parties that undermine the rule of law.
GOVERNMENT SIZE
Government Spending-83.7
Tax Burden-84.0
Fiscal Health-98.5
The top individual income and corporate tax rates are 25 percent. Other taxes include value-added and property taxes. The overall tax burden equals 18.7 percent of total domestic income. Over the past three years, government spending has amounted to 23.3 percent of the country’s output (GDP), and budget surpluses have averaged 0.2 percent of GDP. Public debt is equivalent to 27.1 percent of GDP.
REGULATORY EFFICIENCY
Business Freedom-61.8
Labor Freedom-47.9
Monetary Freedom-69.4
The economy lacks the entrepreneurial dynamism needed for stronger economic growth and long-term development. Despite some streamlining of the process for launching a business, other time-consuming requirements reduce the regulatory system’s efficiency. Labor regulations remain obsolete, and underemployment persists. The government has expanded its renewable energy subsidy to private developers of smaller hydropower minigrids.
OPEN MARKETS
Trade Freedom-60.4
Investment Freedom-10.0
Financial Freedom-30.0
The combined value of exports and imports is equal to 51.8 percent of GDP. The average applied tariff rate is 12.3 percent. As of June 30, 2018, according to the WTO, Nepal had nine non-tariff measures in force. Nepal’s statist approach to economic management and development has been a serious drag on trade and investment activities. About half of adult Nepali have access to an account with a formal banking institution.
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