Trade deficit drops but government struggles to meet revenue target

Though, the trade deficit has decreased – as it has wished – it failed to meet the revenue mobilisation putting the Finance Ministry under pressure to manage resources.
The Department of Customs data reveals that the trade deficit – in the first five months of the current fiscal year – has widened by only 6.3 per cent to Rs 533.64 billion as the export jumped by around 27 per cent to Rs 47.61 billion, whereas imports fell by 4 per cent to Rs 581.25 billion. “Processed soybean oil and palm oil have knocked juice, jam and footwear off the list of largest exports to India, pushing the exports up,” the department data reveals. However, Nepal does not produce any soybean or palm oil, and traders import crude oils from Brazil, Argentina, Ukraine, Indonesia, Australia and other countries which they process and export to India without paying a penny in tariffs.
Under the South Asian Free Trade Area (SAFTA) agreement, zero tariffs are levied on goods exported from underdeveloped countries like Nepal, and Nepali traders have been importing crude palm oil from third countries by paying minimum customs duty, and then exporting the finished product to India free of customs duty.
The government, but, failed to meet revenue mobilisation target also due to low imports as the revenue from imported goods shrank by Rs 6 billion between mid-July and mid-December. The department's data reveals that the government collected import taxes worth Rs 150.81 billion, down by Rs 5.52 billion from Rs 156.33 billion collected during the same period last year.
The government has set a target of collecting 45 per cent of the total targeted tax revenue through tariff on imported goods. In the first five months, customs offices collected only 34 per cent of the annual target to collect Rs 447.59 billion from import tariffs. “Out of the total import taxes, the government has targeted to collect Rs 196.62 billion in value added tax (VAT), Rs 187.30 billion in customs and Rs 63.67 billion in excise imposed on the imported goods. But according to Financial Comptroller General Office (FCGO) data, the overall tax mobilisation – as of December – stood at a mere 31.24 per cent of the targeted tax revenue of more than Rs 1 trillion.
In the last fiscal year 2018-19, the government had set revenue collection target at Rs 945 billion, which was later revised to Rs 860 billion. However, the government even missed the revised target by almost Rs 25 billion, according to the FCGO data.
And this fiscal year too, finance minister will fail to meet revenue mobilisation target also due to his own policy to discourage imports of luxury items and automobiles.

Government plans joint-venture bank to facilitate Nepal-China trade

The government is planning to set up a Nepali-China joint-venture (JV) bank to facilitate the trade between the two countries through banking facility.
Addressing the traders at an interaction – organised by Nepal Chamber of Commerce (NCC) here today – finance secretary Rajan Khanal said that the government is holding talks with the Chinese authorities to establish a JV financial institution to facilitate trade with the China through the banking system. “Establishment of a JV bank will make the Letter of Credit (LC) opening easy that will help formalise the trade,” he said, adding that a Chinese bank is likely to come to Nepal soon. “There is also a probability to create a JV with a government-owned bank.”
The private sector is also trying to bring a Chinese bank in Nepal to facilitate the trade with the northern neighbour since long. But they have not been successful in bringing any of them due to lack of suitable partner. “The traders are using Telex Transfer (TT) also known as wire transfer or draft to make the payment to the Chinese traders,” Khanal said, adding that the LC is an instruction from the importers to a bank in a foreign country to pay the money to the exporters when the required conditions are met while TT is the transfer of money from one bank account to another through electronic means.
The trade between Nepal and China is increasing in recent years. Nepal imported goods worth Rs 186.6 billion in the first 11 months of the current fiscal year 2018-19 from China, while it has exported goods worth Rs 1.96 billion to the northern neighbour.
Khanal, on the occasion, also said that the government is serious about addressing the grievances of the private sector. “The government is trying to create investment friendly environment with better incentives and tax waiver policies,” he said, asking the traders, however, to not run the businesses on tax incentives. “As Nepal is the members of the World Trade Organisation (WTO) and South Asia Free Trade Area (SAFTA), duties on import of foreign goods will go down gradually so you have to develop competitiveness.”
Likewise, revenue secretary Lal Shankar Ghimire, on the occasion, said that the government is planning to establish a Revenue Board in the first month in the next fiscal year.
The government has promised to establish a permanent Revenue Board since long. “It will come into existence from the beginning of the next fiscal year,” he said, adding that the government wants to have an intensive discussion with the private sector to make the board more effective, as the government wants to facilitate the business environment, “The Finance Ministry is developing a home delivery system for the Permanent Account Number (PAN) cards, which would be implemented soon.”
Ghimire also informed that the government is trying to protect the domestic products that have potential to make the country self-reliant. “The protection could sometimes be harmful for the consumers as the consumers have less choice, and the government also losses revenue but protection measures are being applied to let the domestic business grow and reduce the whopping trade deficit based on rising imports.”
President of the NCC Rajesh Kazi Shrestha, on the occasion, demanded the government not to promote industries that import raw materials. 

Nepal can increase exports to South Asia by four-fold: World Bank

Nepal has the potential to increase exports to South Asian countries four-fold, according to a report.
Man-made trade barriers have held back intraregional trade in South Asia, reads the report, ‘A Glass Half Full: The Promise of Regional Trade in South Asia’, Launched here in the capital today. "If these barriers were reduced, intraregional trade could grow from its current value of $23 billion to $67 billion."
Intraregional trade in South Asia remains one of the lowest in the world and accounts for about 5 per cent of the region’s total trade, compared with 50 per cent in East Asia and the Pacific, highlights the report launched at a discussion programme hosted by the World Bank in partnership with the South Asia Watch on Trade, Economics and Environment (SAWTEE). "Nepal mostly exports to South Asia and has a trade deficit of $10.8 billion which is equivalent to 37 per cent of its GDP."
The report also assesses the gap between current and potential trade in South Asia and provides a roadmap for deepening regional trade. It identifies four critical barriers to regional trade: tariffs and para tariffs, real and perceived non-tariff barriers, connectivity costs, and a broader trust deficit.
“Situated in the world’s fastest growing region, Nepal’s potential to expand trade in goods and services is promising,” said World Bank country manager for Nepal Faris Hadad-Zervos. "Addressing its own protectionist policies will help Nepal significantly increase its exports not only to South Asia, but also to the rest of the world."
South Asian countries impose greater trade barriers for imports from within the region than from the rest of the world. More than one-third of intraregional trade falls under sensitive lists, which are goods that are not offered concessional tariffs under the South Asian Free Trade Area (SAFTA). More than 36 per cent of Nepal’s imports from South Asia are under sensitive lists, more than any other country in the region.
The report recommends targeting sensitive lists and para tariffs to enable real progress on SAFTA and calls for a multi-pronged effort to address non-tariff barriers, focusing on information flows, procedures, and infrastructure.
Likewise, connectivity is a key enabler for robust regional cooperation in South Asia. Though repeatedly discussed on increasing connectivity, poor land and air connectivity prevent South Asian countries from reaping the benefits of shared borders, the report adds.
"There are no flights between Nepal and Sri Lanka, the Maldives, or Afghanistan," World Bank Lead Economist and lead author of the report Sanjay Kathuria said, adding that there is only one flight per week between Nepal and Pakistan. "Lack of connectivity is a key contributor to the high cost of trade between Nepal and South Asia and improving connectivity will take Nepal a long way."
The report also suggests that policy makers in South Asia may draw lessons from the India-Sri Lanka air services liberalisation experience, where liberalisation was gradual and incremental, but policy persistence paid off.

Private sector suggests premier to seek implementation of earlier agreements with India

The private sector has suggested Prime Minister KP Sharma Oli to seek assurance of implementation of previous agreements with India during the latter's visit scheduled for next week.
Asking the 'nationalist PM Oli' to focus on improving relations with the southern neighbour and lure more Indian investment into the country, the private sector today at the meeting with him and prominent ministers of his cabinet at PM's official residence Baluwater, also recommended the premier to seek assurance of implementation of Pancheswar Multipurpose Project to harness Nepal’s water resources for the benefit of both the nations and better utilisation of line of credit facility extended by India.
Signing the Mahakali Treaty and Pancheswar Multipurpose Project, more than 2 decade ago, the incumbent premier Oli had then claimed that Nepal would get Rs 130 billion annually from India from the project. However, in last almost 25 years down the line, thousands of cubic metres of water has flown down the Mahakali river but the country has not received a single penny but is reeling under acute shortage of electricity as the power cut has reached 13 hours a day, currently.
Likewise, the country is facing shortage of essential drugs and fuel due to blockade by India since – against the Nepal's right to land-locked country – last four months after the promulgation of Constitution by the Constituent Assembly (CA) on September 23.
Thus, the private sector asked the premier to ensure free and smooth trans-shipment facility for Nepal from India as a land-locked country. Some 20,000 industries have been closed and around 400,000 have been employed due to Indian blockade since last months that created shortage of raw materials and petroleum products through Nepal-India border customs. Indian Oil Corporation (IOC) is the sole petroleum products suppliers to Nepal Oil Corporation (NOC). But the IOC has not been supplying petroleum products, according to the agreement saying that it has no orders from Indian government to supply fuel to Nepal.
The visit is also expected to clarify on the bilateral agreements as time and again Nepal has been blocked the essential supplies including petroleum products and medicines despite the bilateral agreements, regional and sub-regional agreements, and global agreements including Nepal's right to land-locked countries.
The premier had invited the private sector for consultation on pertinent issues that need to be raised during his visit to the southern neighbour scheduled from February 19 to 24.
According to Federation of Nepalese Chambers of Commerce and Industry (FNCCI) president Pashupati Murarka, the prime minister also asked for an integrated proposal from the private sector.
"The government has also identified matters that need to be raised during my visit to India, and we will also integrate the proposal from the private sector during the talks," Murarka quoted the prime minister as saying during the talks with Private sector representatives including FNCCI, Confederation of Nepalese Industries (CNI), Nepal Chamber of Commerce (NCC), Nepal-India Chamber of Commerce and Industry (NICCI).
The prime minister also told the private sector that his visit will be focused on improving and strengthening bilateral ties with India. Deputy prime minister and foreign minister Kamal Thapa, finance minister Bishnu Prasad Paudel, commerce minister Deepak Bohara, industry minister Som Prasad Pandey and high-level bureaucrats were present during the meeting.
A 15-member private sector team will also be part of the Prime Minister’s delegation to India. Apart from New Delhi, Oli is also scheduled to visit the economic capital of India, Mumbai.

Permanent mechanism for addressing crisis suggested

Experts have suggested a permanent mechanism for fighting the current crisis and also for addressing long-term problems. They have recommended setting up a permanent mechanism – of at least joint-secretary level and including the Finance, Foreign and Commerce and Supplies Ministries – also to facilitate and fast-track intergovernmental cooperation.
Speaking at an interaction organised by Nepal Republic Media today, they also recommended governance efficiency and the promotion of track-2 diplomacy that includes the private sectors of both countries, for the immediate resolution to the current crisis.
They, likewise, recommended effective talks with the agitating Tarai-Madhes centric parties, and with India too for the early solution of the crisis.
In the absence of inter-governmental cooperation, it has taken long to seal a commercial petroleum deal with China, they observed, adding that government inefficiency has fuelled the black market, and the state coffer is losing Rs 3 billion in revenue from petroleum imports per month. "Consumers are compelled to pay Rs 400 per liter of petrol and Rs 6,000 for a cylinder of cooking gas in the black market and the government is losing Rs 3 billion in revenue from petroleum products per month," said trade economist Purushottam Ojha.
If the government does not rein in the black market immediately, it could hit the state mechanism and the state machinery will be unable to function, he added.
Likewise, suggesting that the government immediately start talks with the agitating parties and ensure energy and food security, he said India should be dealt with diplomatically. "Nepalis were united during earlier blockades – in 1970 and 1990 – by India," he said, "However, this time they are divided, which has given room for outsiders to interfere."
The Indian blockade violates international, regional and bilateral treaties, Ojha added. "Nepal, as a member of the World Trade Organisation (WTO), must internationalise the violation of its rights as a land-locked country," he said, also criticising the government for its lack of diplomatic skill. "The delay in signing a commercial agreement with China for the supply of petroleum products is also unacceptable to the people," said Ojha, who was commerce secretary for long.
Nepal needs to have good trade relations with both India and China, he suggested, adding that it is not good to play India against China.
Likewise, entrepreneur Ananda Bagaria said that the government should immediately start effective talks with the agitating political parties, and chart out short, medium and long term programmes to address crisis such as the current one. "It's high time Nepal revised the Nepal-India trade treaty for the greater benefit of Nepal."
The government should hold talks and promote domestic production in the short term, whereas in the medium term it should prioritise agriculture, and boost exports to India to develop interdependency in the long term, he suggested. "The government should also revise its policies and promote indigenous industry to develop a self-sustainable economy in the long term."
Nepal Freight Forwarders Association president Rajan Sharma seconded Bagaria's ideas. "In the short term, the government should use diplomatic, political and human rights channels to solve the current crisis, whereas in the long term, it should develop hydropower and open the six customs points on the China border, apart from revisiting the Nepal-India Trade Treaty," he suggested.
The Chinese government had earlier asked Nepal to work on opening the six customs points on Nepal-China border. However, the government and the vision-less bureaucracy did not give ear to the Chinese government's request, Sharma added.
Asking the government to sit with the private sector to chart out a plan to fight the current crisis, Sharma complained that the government has not been giving an ear to the private sector, which was suffering badly due to Tarai-Madhesh unrest and Indian economic blockade.

SAARC nations ink power deal opening regional trade

South Asian countries today signed a last-minute deal to trade electricity among themselves opening opportunities for development of hydropower projects in Nepal.
Before the SAARC summit concluded here in Kathmandu, foreign ministers of all the eight countries signed the SAARC Framework Agreement on Energy Cooperation and Electricity Trade that will boost the investment and trade, apart from a greater regional connectivity.
The deal will also ensure electricity trading through grid connectivity.
Howver, the eight countries failed to sign two pacts – one on motor vehicle and another on railways – that could have increased intra-regional connectivity to fuel trade in the South Asia.
SAARC Energy Center – based in Islamabad of Pakistan had long been doing groundwork – and SAARC energy ministers had finalised the draft framework agreement at a meeting in New Delhi on October 16-17.
The framework provisions South Asian governments to enable their agencies for grid connectivity, policy harmonisation and trading as well as facilitating the supply of electricity to power-deficit cities
The framework agreement comes into effect from today.
After the signing of the agreement of the concluding session, SAARC chair and Prime Minister Sushil Koirala announced that the two pacts which will boost connectivity and encourage people-to-people contact and movement of goods will be approved within three months.
At the end of the two-day 18th SAARC summit – which took place after three years, a 'Kathmandu Declaration' was also adopted. The 'Kathmandu Declaration' recognised that after nearly 30 years of its existence, it was time to "reinvigorate' SAARC's regional cooperation and 'revitalise' the bloc as an effective vehicle to fulfill the developmental aspirations of the people in the region.
The summit declaration also identified trade as a key area with leaders renewing their commitment to achieve South Asian Economic Union in a phase-wise and planned manner through a free trade area, a customs union, a common market, and a common economic and monetary union.
The declaration said the leaders unequivocally condemned terrorism and violent extremism in all its forms and manifestations and underlined the need for effective cooperation among the member states to combat them. The SAARC leaders also directed respective authorities to ensure full and effective implementation of the SAARC Regional Convention on Suppression of Terrorism.
Koirala also declared that the 19th SAARC Summit will be held in Islamabad of Pakistan in 2016.
The SAARC member countries – Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka – host the summit alphabetically every year, though it has been held in three years this time. The two-day SAARC Summit – started yesterday – was attended by Presidents of Afghanistan, Sri Lanka, the Maldives, and Prime Ministers of India, Pakistan, Bangladesh, Nepal and Bhutan.


Nepal to benefit
KATHMANDU: Nepal will benefit from the energy agreements among the SAARC nations. Currently, some Indian companies are giving special interest to invest in the energy sector in Nepal, but Bangladesh has also shown in joint investment in hydropower in Nepal to meet its increasing energy demand.
Investment Board of Nepal has recently signed agreements of 900-MW each Upper Karnali and Arun III hydropower projects.
According to the agreements, Nepal will get 306-MW power free of cost. Nepal will also get free shares of the Upper Karnali and Arun-III. The Arun III is going to Rs 1 billion worth shares to locals, while the country will get 27 per cent share of the Upper Karnali.
Likewise, the government is planning to invest Rs 100 billion soft loan from India in Budhigandaki Hydropower.
These projects will not only help Nepal reduce ballooning trade deficit with India, but also help meet rising energy demand in India.
Currently, India has been providing electricity to Bangladesh. India has also promised Pakistan and Afghanistan to provide 1,000 MW each soon. However, India is a net buyer of power from Bhutan, currently, as India has already signed bilateral energy trading agreements with Bangladesh and Bhutan.
September's Nepal-India Power Trade Agreement (PTA) has opened door to sell the electricity produced in Nepal to Bangladesh. But the SAARC framework agreement has expanded the opportunity to regional level.
Similarly, World bank is helping construction of Dhalkebar-Muzaffarpur Transmission Line that will help cross border connectivity. Some 1,400 MW of power can be exported and imported through the transmission line.

'Improve attitude, embrace technology to give positive message of customs'

Finance Minister Shankar Prasad Koirala today asked the customs officials to improve their attitude as the customs department has become a synonym for corruption.

Addressing the 62^nd International Customs Day, here in the valley, he said that the department must embrace new technology, and boost infrastructure. "The customs should be paperless," he said, asking the officials to facilitate the trade instead of taking the customs as only the revenue mobilisation centre. "The customs point of any country is the indicator of a country's economic health and physical development."

Nepal has committed in the international forums like World Trade Organisation (WTO), SAFTA to facilitate trade. And trained human resources is key to facilitate the trade, Koirala added. "Use of information technology will promote transparency, and boost confidence and trust. However, strong will power is important to bring in a change."

Likewise, finance secretary Shanta Raj Subedi, on the occasion, said that there is some 40 per cent of illegal trade and customs leakages, but no one is ready to take responsibility. "It’s a shame to read about Nepal as a transit point for smuggling of gold, red sandalwood, drugs and fake currency," he said, urging for a reform in the customs..

Asking the revenue administration not to take extra benefit – as they have been paid cent per cent incentives from the government – Subedi said that it’s a serious issue of honesty.

Suggesting to form a Revenue Board and customs barrack, secretary at the Office of Prime Minister Krishna Hari Baskota said the reform is necessary for the revenue administration.

Likewise, chief of Revenue Division of Finance Ministry Rajan Kjanal said that the customs is not only a checking point but also border management. "Its reform is a must."

However, director general of the Customs Department Surya Prasad Acharya claimed that they are focusing on trade facilitation, checking of illegal trade, infrastructure development and auto-customs. "

The International Customs Day is celebrated in some 179 countries that are the members of World Customs Organisation. Nepal took membership of the organisation in 1985.

Indian PM Singh suggests Nepal to boost investment

Indian prime minister Dr Man Mohan Singh suggested Nepal to increase investment in productive industries, hydropower and infrastructure development.

During a meeting with SAARC commerce ministers today in New Delhi, he also urged Nepal to increase investment in economic development.

He also suggested commerce minister Shankar Prasad Koirala to increase domestic production to bridge trade deficit.

Returning from New Delhi Koirala today briefed the media that the fifth SAARC Business conclave has decided development of entrepreneurship, energy and future course for the regional prosperity.

The SAARC commerce ministers, on the occasion, unitedly decided to work for trade facilitation, infrastructure development, and enhance supply capacity of landlocked countries in the region, he said, adding that the effective implementation of SAFTA will help develop the South Asia.

During the meeting with the Indian commerce minister, Nepal also discussed on petroleum pipe line and transit facility to increase Nepal's third country export.

Responding to Koirala's request, Sharma suggested to increase investment in energy to narrow down the trade deficit, though India is positive to help solve transit issue.

The active participation of private sector and government will make economic development possible, Koirala added.

Higher cost discouraging intra-regional trade

The cost of trading within the region among South Asian countries is twice, and in some cases, even three times, than trading with countries outside the region, according to the minister.

It is important to improve trade facilitation in South Asia to increase the intra-regional trade, said finance minister Shanker Prasad Koirala inaugurating a two-day inception meeting of two projects, ‘Trade and Transport Facilitation Audit in South Asia’ lead by South Asia Watch on Trade, Economics and Environment (SAWTEE) and ‘Promoting Micro, Small and Medium Enterprises (MSMEs) for Inclusive, Equitable and Sustainable Development in South Asia’ lead by UNDP Asia Pacific Regional Centre (APRC), Bangkok, both supported by the Australian Agency for International Development (AusAID), started in Kathmandu today.

Despite the existence of several regional efforts like Agreement on South Asian Free Trade Area (SAFTA), intra-regional trade in South Asia has remained extremely modest due to a number of factors – one of which is trade and transport facilitation-related bottlenecks – he said, expressing hope that the two projects will create a momentum in South Asia and contribute to transforming the region into an international trading hub.

Australian ambassador to Nepal Glenn White, on the occasion, said that since the latest Aid for Trade Report has highlighted the importance of regional projects for enhanced trade, the current initiatives taken by SAWTEE, UNDP APRC and their regional partners would be extremely beneficial in advancing regional economic integration in South Asia.

Likewise, country director of UNDP Nepal Shoko Noda pointed out that unrealised economic potential of women was getting increasing recognition in the global political and economic sphere. “South Asian countries, which hold immense potential in advancing MSMEs, and in which a large number of women are engaged, will not only contribute to increase economic growth of these countries but also empower women,” she added.

Secretary General of the SAARC Chamber of Commerce and Industry Iqbal Tabish mentioned the benefits of trade liberalisation that will not be realised unless trade facilities are rationalized. “Some 75 per cent of MSMEs in South Asia are operating informally and argued that informality of MSMEs has limited their growth potential,” he said, adding that bringing them within the legal purview of the state can lead to higher growth of the sector.

Despite the fall in traditional trade barriers, costs related to trade facilitation, infrastructure and transit have risen over the years, which has promoted informal trade in South Asia, said chair of inaugural session and executive chairman of SAWTEE Dr Posh Raj Pandey. “It has also forced exporters, businesses and consumers to bear additional cost burden,” he said, adding that trade facilitation is a must for effective trade integration.

Welcoming the guests, chief executive director of SAWTEE Dr Ratnakar Adhikari highlighted the main features of the projects and their objectives.
“Trade facilitation audit study project will aim to identify regional benchmark for trade facilitation measures in South Asia, assess the cost incurred due to lack of regional trade connectivity and thickness of borders, as well as the benefits of removing trade barriers, and most importantly, estimate the investment required to address the identified bottlenecks,” he said. “Similarly, the other project will focus on identifying market access barriers faced by MSMEs and advocate for the removal of such barriers.”
More than 50 participants, including researchers, policy makers, private sector representatives and media from different South and Southeast Asian countries are participating in the inception meeting.

SAARC finance ministers agree to strengthen regional economic integration

The sixth SAARC Finance Ministerial Meeting today concluded in Colombo promising to strengthen economic integration of SAARC towards South Asian Economic Union, also through early implementation of regional trade agreement.

They have decided to remove existing tariff and non-tariff barriers (NTB) for the early implementation of South Asian Free Trade Area (SAFTA) and enhance mutual cooperation in key sectors like tourism and agriculture, apart from SAARC Development Fund (SDF) – that aims to alleviate poverty – and discussed on SAARC Investment Fund, apart from SAARC Promotion and Protection of Investment, grater flow of capital and intra regional long term investment, SAARC Agreement on Avoidance of Double Taxation, and SAARC Customs Cooperation,  as approved in the fifth SAARC Finance Ministers meeting held in Bangladesh capital Dhaka last year.
The South Asian finance ministers also decided to improve the existing mechanisms, through review, rationalisation and reinvigoration, and make SAARC better known and understood by International Institutions and Governments around the world.

They have also resolved that the SAARC – the home to some 1.2 billion people – must speak unitedly to the world. South Asia represents about 20 per cent of the world population, which has great potential to enhance and promote relations among the member states, and lobby for the regional benefit.

The finance ministers also committed unitedly in protecting the region from adverse effects of global financial crisis and strong US dollar that has made the regional currencies weaker, apart from fighting against energy crisis and rising petroleum prices.

Addressing his South Asian counterparts on the occasion, finance minister Shanker Prasad Koirala stressed the need to launch people-centric economic activities for the benefit of the region.

 “We can reap the benefits of regional cooperation through active participation of private sector in the exchange of trade, commerce and financial cooperation,” he said, underscoring the necessity to carry forward the concept of SAARC Energy Ring and the regional energy trade as the region is energy starved despite the huge potential for energy development. “Apart from energy, better connectivity will also enhance regional integration,” he added.

The seventh meeting of SAARC Finance Ministers and Finance Secretaries will be held in Nepal in 2014.