Nepal tops regional ranking in inclusive development index

Nepal is not only advancing – in the last five years – in the Inclusive Development Index (IDI) but also ranks first in the South Asian region, a global report published today shows.
"Under the developing economies category, with overall score of 4.24, Nepal ranks 27th on the IDI, showing remarkable improvement over the last five years,” the Inclusive Growth and Development Report-2017 published by the World Economic Forum (WEF) reads.
"Nepal ranks 26th in Growth with a score of 3.35, whereas the country ranks 51st in Inclusion with a score of 3.25, but ranks 1st in Intergenerational Equity with a score of 6.11.”
“Intergenerational equity, which refers to whether economic performance is being pursued at the expense of future generations, is another limitation of GDP," the report reads, adding that increasing output, which at first glance would be 'good' for GDP, may come at the expense of externalities such as environmental damage, reduced leisure time, or the depletion of natural resources. "In other words, there is no link between GDP and the sustainability of the economy."
Though the country is ranked second to Lesotho – under the developing economies – for most improved five-year trend, it far below at 72 in GDP per capita, the report adds.
“Nepal, among the six countries, registered IDI scores that are 20 or more places higher than its GDP per capita rankings, suggesting that its development model is considerably more balanced and inclusive than that of countries with a comparable national income per capita.”
Notably, Nepal’s poverty rate has declined by 25 percentage points in this time, and its income inequality – net income Gini – by almost 8 percentage points, it reads, adding that Nepal outperforms all others on the intergenerational equity pillar during the most recent year, and has relatively low unemployment, including youth unemployment, and strong female participation in the workforce. “However, it performs poorly on GDP per capita and labor productivity.”
The framework indicates that the informal sector is dogged by low wages, leaving many workers in poverty. Priority areas include tackling corruption and administrative barriers to starting and growing a business, as well as continuing to improve infrastructure and basic services including education; particularly the availability and quality of vocational training, the report added.
Regionally, Nepal ranked 27th is followed by Bangladesh at 36th, Sri Lanka at 39th, Pakistan at 52nd and India at 60th in the IDI -2017.
The Inclusive Development Index (IDI) has been calculated by giving equal weight to the three pillars – growth, inclusion, and intergenerational equity – as well as the 12 indicators therein. However, if the bottom-line measure of national economic performance is sustained, broad-based progress in living standards, then a case could be made that the indicator or indicators that most closely approximate this concept should be weighted more heavily.
As measured by household surveys, median household income is attracting growing interest as an alternative to GDP per capita, the more commonly cited measure of a country’s material wellbeing. One drawback with GDP per capita is that it takes no account of distribution: it simply divides a nation’s income by the size of its population, the report states, adding, “If inequality in that country is very high, the resulting figure will provide a misleadingly optimistic suggestion of living standards for most individuals.”
Analysis of the 12 Key Performance Indicators (KPIs) that comprise the Inclusive Development Index, alongside the seven pillars of Policy and Institutional Indicators, suggests that median household income is indeed a reasonable proxy for inclusive growth and development as a whole even though it captures only one of the four dimensions of broad-based progress in living standards – income; opportunity; security; and quality of life – emphasised in the report.

IDI-2017 (Nepal)
GDP – 3%
Labour productivity and growth – 2%
Health lIfe expe nctancy trend – 1 yrs
Employmemt trend – (-0.3%)

Net Income GINI Trend – (-7.7)
Poverty Trend – 25.3%
Wealthy GINI Trend – 11.8
Median Income Trend – $1.2

Adjusted Net Savings Trend – 3.4%
Carbon Intensity Trend KG per$ of GDP – (-4.4)
Public Debt Trend – (-3.7%)
Dependency Ratio Trend – (-8.8%)

Overcoming development challenges key: US ESCAP

Countries in South Asia, including Nepal will have to overcome a number of development challenges, including large concentration of poverty and hunger, rising inequality, poor levels of human development, wide infrastructure gaps, lack of diversified base for high value added products and exports, widespread food and energy insecurity, and high risk of disaster, in order to realise development potential, according to a new report.
Low growth in Nepal in recent years has largely been due to political instability, frequent strikes, persistent labour problems, and acute electricity shortage, said United Nations Economic and Social Commission for Asia and the Pacific (UN ESCAP) report 'Forward-looking Macroeconomic Policy: For Inclusive and Sustainable Development,' released globally today.
Though gross domestic product (GDP) growth improved to 4.5 per cent in the last fiscal year from a fiscal year ago's 3.8 per cent, it could not ensure equality due to the failure of the macroeconomic policy, said National Planning Commission (NPC) vice chair Deependra Bahadur Kshetry, launching the report here today in the valley.
Economic growth alone can hardly address poverty, he said, adding that growth should benefit the people. "If the growth is not shared by the society, it will invite conflict as economic insecurity has also risen amid rapid growth in Asia and the Pacific, where more than one billion workers are in vulnerable employment."
Nepal, out from a decade of armed conflict — also due to social disparity — has not been able to post promising growth post-2006, when the armed party came into mainstream politics agreeing to draft a Constitution that would guarantee people their fundamental rights including economic freedom. But the frequent change in government has failed the people in ensuring policy stability that could attract more investment and boost exports.
The country's exports stood at Rs 51.01 billion in the first eight months of the current fiscal year 2012-13, against imports of Rs 360.56 billion, making a trade deficit of Rs 309.55 billion, according to the central bank's data.
"With a large merchandise trade deficit and slowdown in growth of overseas remittance, the current account balance has turned into a deficit in recent years," the report said, adding that the cost of production of agriculture and industrial products has been rising due to acute electricity shortages and rising labour wages due to increasing export of labour.
Supply side constraints and rise in cost of production have pushed inflation to a double digit currently, when inflation in India has come down to a single digit.
"Inflation stood at 10.2 per cent in the eight months of the current fiscal year," according to the central bank. However, UN ESCAP's report noted that inflation in Nepal is closely linked to inflation in India because of fixed exchange rates between the currencies of these countries as well as the close economic ties among them, apart from about two-thirds of Nepal's total trade taking place with India only.
The rising inflation has also pushed people towards poverty.
"Without inclusive growth, poverty cannot be eradicated," Kshetry said.
Not only Nepal, but South Asia's economic, social and environment priorities must be balanced in favour of eradicating extreme poverty and hunger, the report prescribed, adding that the tax-to-GDP ratio has been improving due to growing tax revenue lately. "The budget deficit in recent years has also been about 3.5 per cent of GDP."

Over half of the population living under $2-a-day poverty line
KATHMANDU: Over half of Nepal's population is living under $2-a-day poverty line, according to UN ESCAP that has revealed that the income equality also stood at 32.8. "In early 1996, some 89 per cent of Nepalis used to live under $2-a-day poverty line, but in 2010, it reduced to 57.3 per cent," it said, adding that Nepal had 35.2 Gini coefficient in 1995, whereas in 2010, it stood at 32.8. Gini coefficient measures the inequality among values of a frequency distribution like levels of income. A Gini coefficient of zero expresses perfect equality, where all values are the same or everyone has an exactly equal income. More the Gini coefficient maximum the inequality.

Expansionary budget will only fuel inflation, widen rich-poor gap

Despite resistance from the opposition, the caretaker government is planning to bring an expansionary budget of over Rs 450 billion — Rs 21 billion more than the Rs 429 billion ceiling approved by the three-year interim plan — with populist and distributive programmes like Youth Self Employment Programme that has already failed.
“Inefficient bureaucracy and government populism will hit people as inflation will spiral,” says former secretary Dr Bhola Chalise.
Though the government claims to provide relief to the people, the expansionary and consumption budget will hit the poor, the most, as it would widen the rich-poor gap, he added.
Around 10 per cent increase in narrow money supply — money considered most readily available for transactions and commerce — will push inflation up by 4.7 per cent, according to empirical studies.
Increased inflation coupled with absence of production in an economy heavily dependent on import is widening the rich-poor gap. “The consumption budget could not ensure inclusive growth,” he added.
In the past ten years, the Gini-coefficient, which measures income inequality among the population, increased from 34 to 47.3 indicating that the gap between the rich and poor has widened, according to Human Development Report 2011.
The country has not seen any new investment due to increased vulnerability and political uncertainty, forcing the youth to seek employment abroad.
The government has also failed to spend on development work that could have created employment despite the timely budget last fiscal as the country has eroded its appetite for investment due to weak leadership and institutions.
The special budget had allotted Rs 20.96 billion under capital expenditure — development expenses — but could spend only Rs 2.77 billion in the first three months of the current fiscal. “The ministry had projected expenditure of Rs 4.88 billion by the end of the fourth month (mid-November), on the basis of the expense pattern of last fiscal,” according to finance secretary Shanta Raj Subedi.
However, recurrent expenditure — administrative expenses — increased by over 100 per cent since the last five years from Rs 98.17 billion in 2007-08 to Rs 226.61 billion in 2011-12.
A budget is an essential tool for setting goals, establishing reasonable boundaries for meeting those goals and measuring one’s performance and holding one accountable to those boundaries.
But the political deadlock after ‘the death’ of the Constituent Assembly (CA) and absence of parliament resulted in uncertainty of the country’s 62nd budget. Due to absence of people’s representatives, lack of accountability has also increased.
“The budgetary system has also become a victim of financial indiscipline, myopic vision and inconsistency, as well as donor-driven priorities, victimising the nation leading to misuse of taxpayers’ money,” said former finance minister and Nepali Congress leader Ram Sharan Mahat.
The Supreme Court stay order against doling out tax payers’ money to disqualified UCPN-M combatants also exposed the government’s lack of accountability.
The country would not have been divided on the budget had the Maoists been committed to norms of parliamentary democracy and respected people’s rights. The UCPN-M’s frequent obstruction of the budget in past years is now haunting it, as the government is finding its own budget impossible to sell.
The opposition, including Congress and UML are opposed to a budget without political settlement and the ruling UCPN-Maoist is hell bent on bringing the budget, if necessary by force. That would push the country on the path of confrontation, further deepening the crisis.

Can Nepal achieve double digit growth

The caretaker government led by Prime Minister Dr Baburam Bhattarai have been stressing on double digit growth. The budget preparation is going on full swing and it is, according to finance minister, supposed to prepare a base for double digit growth.
The idea of double digit growth in itself is not bad but in absence of policy and political stability coupled with weak law and order situation domestic and foreign investors are losing confidence on the country. The political uncertainty has made the investors flee the country as some of them have already started campaigning for the law to invest abroad.
Not only the investors but also the common people — that the UCPN-Maoists claimed to be fighting for — are confused. The gap between haves and have-nots is increasing. In the last one decade, the Gini-coefficient — that measures the income inequality among the entire population of the country — has increased from 34 to 47.3 indicating that the gap is widening further.
But the UCPN-Maoists, instead of creating investment-friendly environment to attract investment that could create job and bridge the gap between rich and poor, are involved in further lengthening the political transition for their political interest.
After a decade-long people's war — in their own words — that took lives of thousands of Nepali youths, the UCPN-Maoists are concentrating now on state capturing instead of developing the nation.
It took over half a century and thousands of people's sacrifice for UCPN-Maoists ideologue Dr Bhattarai to understand that Nepal needs to create jobs that could only reduce the inequalities in income level.
It was in 1959 that Nepali Congress government led by BP Koirala had envisioned of increasing national income, bringing about the fundamental changes in the agriculture, providing adequate social welfare programmes for the people, solving the problem of unemployment and reducing the inequalities in income levels and the distribution of wealth.
But the incumbent Prime Minister, who is prescribing the double digit growth has anything different in the budget for the fiscal year 2012-12 to offer to the people from what BP's government had in 1959, over half century ago, said.
The budget presented by the then finance minister Suvarna Shamsher on August 9, 1959 had cautioned against excessive dependence on foreign aid for development projects. But Dr Bhattarai led government has planned to get commitment of over Rs 100 billion in foreign aid instead of creating jobs inside the country that is only increasing the country's dependency on foreign aid.
Though, the UCPN-Maoists led government time and again claim to create employment and bring inclusive growth, it was Nepali Congress government led by BP Koirala in 1959, that had outlined employment creation and inclusive growth as BP Koirala strongly believed that economic disparity will bring friction and tension in the society. He was a visionary and had foreseen conflict in the making that the UCPN-Maoists led in 1996.
But after a decade long armed conflict that was based on the widening gap in the society between the rich and poor, the UCPN-Maoists came to power but failed to deliver.
For a decade, youths of this country were forced to the jungle and after a decade, with uncertain future, they are forced to search their destiny in the Gulf countries. Dr Baburam Bhattarai came to power on August 28, 2011 and by the end of the 10th month of the current fiscal year some 313,093 youths have left the country in search of greener pasture, due to the government’s failure in creating jobs for them.
Prime Minister BP Koirala on June 26, 1960 — at a press conference of the second five-year plan — had spelled out his goal to create 50,000 new jobs and increasing national income by 30 per cent. BP Koirala knew that the country has twin problems – unemployment and poverty, and without creating employment and more investment on agriculture, the economy cannot grow.
If the UCPN-Maoists are claiming that the country has moved forward, they are wrong. The country is rather moving backward to half a century as the UCPN-Maoists ideologue Dr Bhattarai is prescribing the same solution for the country what BP Koirala did in 1959.
For a decade from 1996 to 2006, the UCPN-Maoists destroyed the infrastructure and agriculture forcing the people to leave their farm and shift to the urban areas for security, and after they entered into the peace agreement in 2006 and ascended the power being the largest party in the Constituent Assembly, they destroyed the governance, policies and the hopes of the Nepalis by forcing the industries to shut down increasing unemployment and destroying the economy.
As it was not enough, instead of promulgating the Constitution, they forced the Constituent Assembly to death on May 27 and send the country to never ending political transition. Never in the history of the country, the political parties were so weak and the society so divided.
Its not that the UCPN-Maoists have not understood that political system alone cannot guarantee peace and development in absence of economic growth but the largest party siding with the regressive forces forced the country to the unending turmoil for its own interest. They seem to be obsessed with their party thinking that the party is bigger than the country. But parties can never ever be bigger than the country; Dr Bhattarai might take another half century to understand it.
The UCPN-Maoists used the power to hijack the economy and captured the state as they have been repeatedly claiming but the Nepali Congress and CPN-UML never took it seriously adding the woes of the people further.

Expansionary budget fails to create jobs, widen rich-poor gap

Successive budgets have failed to create employment but increased the rich-poor gap making poor, the poorer and rich, the richer despite the government's claim of inclusive growth.
In the fiscal year 2006-07 — when the country entered into the peace process — the total budgetary outlay stood at Rs 143.91 billion, whereas after the seven years, the caretaker government of Dr Baburam Bhattarai is planning to bring Rs 429 billion budget for the fiscal year 2012-13 through ordinance.
"The expansionary budget will only add to the woes of the common people as it will fuel price hike," said senior economist Prof Dr Bishwhambher Pyakurel. "The 10 per cent increase in narrow money supply — money that is considered to be the most readily available for transactions and commerce — will push inflation to 4.7 per cent up," he said, adding that in a country, which has no production and is dependent on imports, the expansionary budget will push the number of poor up widening the rich-poor gap.
"The increasing petroleum prices in the international market and policy distortion like political pressure to subsidise the petroleum products will increase poverty as neither would it support inclusive growth nor reduce inequality," he added.
In the past ten years the Gini-coefficient — that measures the income inequality among the entire population of the country — increased from 34 to 47.3 indicating that the gap between the rich and the poor has grown further, according to the Human Development Report 2011 of the UNDP.
The country has not seen any new investment due to rising vulnerability and uncertainty, apart from government's inefficiency that has forced the unemployed youths seek employment opportunity abroad. "The government has also failed to spend on development works — that could have created employment — despite timely budget for the current fiscal year," the senior economist said, adding that the country has eroded its capacity due to weak leadership and institutions.
On one hand, the country is passing through a phase of unabated acceleration in the size of current expenditures to as high as three-fourths of the total expenditures, and on the other, capital expenditure is suffering from the problems of delayed and lethargic implementation and gradual erosion in the government's capacity to spend.
The Finance Ministry that is preparing the country's 62nd budget — for the fiscal year 2012-13 — though claims to create employment and support inclusive growth, is only increasing the total outlay size but cannot guarantee investors the predictability that they seek to invest.
"The UCPN-Maoists have failed to create conducive environment for investment," Pyakural added.
The extreme polarisation among the political parties after May 27 has also created doubt that the election could be held on November 22 as was announced by Dr Baburam Bhattarai forcing the investors seek for alternatives.
Fiscal policy — popularly known as a budget — is not only the income and expenditure statement of a government, it is rather a political party's — that is in power — vision document of the development. But the UCPN-Maoists policy distortion and inefficiency, and protracted political transition will further aggravate the challenges and increase the country's dependency on foreign aid, despite UCPN-Maoists tall claim of making the country independent.

The budgetary outlay
2006-07 — Rs 143.91 billion
2007-08 — Rs 168.99 billion
2008-09 — Rs 236 billion
2009-10 — Rs 285.93 billion
2010-11 — Rs 337.90 billion
2011-12 — Rs 384.90 billion
2012-13 — Rs 429* billion
(*Ceiling given by National Planning Commission for the next fiscal year's budget. Source: Finance Ministry)

Income inequality on rise, rich are getting richer and the poor are getting poorer

The rich are getting richer and poor poorer as Nepal's income inequality has been rising in the last ten years widening the rich-poor gap, according to a report.
In the past ten years the Gini-coefficient increased from 34 to 47.3 indicating that the gap between the rich and the poor grew further, according to the Human Development Report 2011 released by the UNDP here today.
The Gini-coefficient measures the income inequality among the entire population of the country. The higher the number, the more income is being taken in by a small group. Likewise if most of the money is being made by the majority of the population, the lower the Gini-coefficient will be. It is the measure of the deviation of the distribution of income — or consumption — among individuals or households within a country from a perfectly equal distribution. A value of zero represents absolute equality, a value of 100 absolute inequality.
Almost 41 per cent of income or consumption is held by the highest 10 per cent of the populace and only 2.6 per cent of the income is shared by lowest 10 per cent of the populace as income distribution can vary greatly from wealth distribution in a country.
Nepal not only has the highest Gini-coefficient in Asia but also in the South Asian region meaning Nepal has the highest income inequality in the region, the annual report of the UNDP said.
The gap between the rich and poor has been increasing in a country that has 25.2 per cent of the populace, who does not even earn Rs 54 a day, new national poverty line, according to Nepal Life Standard Survey III published by the Central Bureau of Statics (CBS) recently.
However, Nepal has improved in the Human Development Index (HDI) that stands at 0.458, though inequality adjusted GHDI stands at 0.301. The HDI stood 0.455 in 2010.
The Human Development Report introduced a new way of measuring development by combining indicators of life expectancy, educational attainment and income into a composite human development index (HDI). The breakthrough for the HDI was the creation of a single statistic which was to serve as a frame of reference for both social and economic development. It sets a minimum and a maximum for each dimension, called goalposts, and then shows where each country stands in relation to these goalposts, expressed as a value between 0 and 1.
The composite HDI has three dimensions — health, education and living standard — and four indicators — life expectancy at birth, mean years of schooling and expected years of schooling, and gross national income per capita. The decent standard of living component is measured by GNI per capita (PPP$) instead of GDP per capita (PPP$). The HDI uses the logarithm of income, to reflect the diminishing importance of income with increasing GNI. The scores for the three HDI dimension indices are then aggregated into a composite index using geometric mean.