Nepal 'mostly unfree' economy due to corruption, lack of investment freedom

Nepal's economic freedom ranking has dropped to 149^th in the 2014 from 141^st in the 2013 index making it the 'mostly unfree' economy.

Nepal’s economic freedom score is 50.1, making it the 149th freest economy – in the 2014 Index – among the 178 economies, as its score decreased by 0.3 point since last year due to decline in investment freedom and freedom from corruption, though the country has seen modest improvements in business freedom, monetary freedom, and the control of government spending, the annual report published by The Wall Street Journal and a US-based think tank The Heritage Foundation.

Nepal is also ranked 34th out of 42 countries in the Asia–Pacific region, as its score remains far below world average of 60.3 points.

Nepal was first graded in the 1996 Index, and its economic freedom score since then has been largely stagnant, declining overall by less than half a point, the report said, adding that improvements in four of the 10 economic freedoms, including freedom from corruption, business freedom, monetary freedom, and trade freedom, have been more than offset by deterioration in other areas, particularly a 25-point decrease in investment freedom.

Nepal is considered 'mostly unfree' economy throughout its history due to a statist approach to economic management and development is a serious drag on business activity. "A lack of transparency, corruption, and a burdensome approval process impede much-needed private investment and production," it said, adding that property rights are undermined by the inefficient judicial system, which is subject to substantial corruption and political influence.

The index is calculated by the aggregate score of four of the freedom indicators rule of law, limited government, regulatory efficiency and open market. The four freedom indicators has 10 sub-indicators.

Under rule of law, Nepal could not fare well due to endemic corruption in politics and government. "Many members of the legislature have been accused or convicted of corruption in the past, but high-level officials are rarely prosecuted," it said, adding that graft is particularly prevalent in the judiciary, with frequent payoffs to judges for favorable rulings, and in the police force, which has been accused of extensive involvement in organised crime. As a result freedom from corruption score has dropped to 21.3 points, whereas score of property rights has also not improved and stood at 30 due to lack of effective protections for property rights.

Likewise, fiscal freedom (85.9) and government spending (89.6), the two sub-indicators under the limited government, have seen improvement. "The top individual income and corporate tax rates are 25 per cent," the report said, adding that other taxes include a value-added tax (VAT) and a property tax. "The overall tax burden is 12.6 per cent of gross domestic income. Government expenditures are steady at around 19 per cent of GDP, and public debt is about 33 per cent of the domestic economy."

But the government’s ability to produce a budget has come into question because of political instability, it added.

The regulatory efficiency, there are three sub-indicators, of which score of labour freedom has decreased to 43.8 but business freedom (58.5) and monetary freedom (76.3) scores have seen improvement. "Bureaucracy and a lack of transparency often make business formation and operation costly and burdensome," it said, adding that business start-up is now more streamlined, but obtaining necessary licenses continues to be time-consuming. "But labour regulations are rigid, and restrictions on work hours remain stringent. The government provides extensive subsidies to the state-owned electricity and oil companies."

The fourth and most important freedom indicator open market also has three sub-indicators, of which only one trade freedom has increased score to 61. Investment freedom score decreased to the lowest of five points, whereas financial freedom score remained static at 30 points. "Nepal’s average tariff rate is 12 per cent," it said, adding that tariffs are a significant source of government revenue. "Consumers are not allowed to import used products. Foreign investors face government screening and a challenging economic environment. The financial sector remains fragmented and government ownership and influence in the allocation of credit remain substantial," the 20th edition of the index revealed, adding that economic freedom once again on the rise. "Much of the momentum lost during the past five years has been regained and the global average economic freedom score in the 2014 Index is 60.3, the highest average in the 20-year history of the index. The average is 0.7 point higher than last year and a 2.7 point improvement from 1995.

Soaltee bags World Travel Awards

Soaltee Crowne Plaza Kathmandu has won the prestigious World Travel Awards 2012 — also described as the ‘Oscars of the travel industry’ by the Wall Street Journal — for 'Nepal’s Leading Hotel'.
"We are absolutely delighted to win the award,” Soaltee Crowne Plaza Kathmandu general manager Nalin Mandiratta said, speaking on the award distribution ceremony in Singapore.“It makes us proud to be recognised on a global platform,” he said, thanking his team members for making the guests happy and creating a Great Hotel Guests Love.
Established in 1993, the World Travel Award serves to acknowledge, reward and celebrate excellence across all sectors of the global travel, tourism and hospitality industry.
Nominations are gathered by region and voting is carried out by millions of travel agents and tourism professionals from more than 164 countries, including visitors to World Travel Award’s website who are encouraged to submit their votes via the online voting system.
Listed at Nepal Stock Exchange, Soaltee Crowne Plaza Kathmandu is a five star deluxe hotel managed by InterContinental Hotels Group PLC and boasts an array of amenities like 282 rooms, seven meeting spaces, city’s finest specialty restaurants and bars, state-of- the-art fitness centre, beauty salon along with various recreational facilities making it a preferred destination for business meetings, leisure and all celebrations.
The preferred destination for business meetings, leisure and all celebrations in Kathmandu, Soaltee had posted Rs 300.58 million gross operating profit by the end of last fiscal year (June 30, 2012) compared to Rs 245.84 million in the same period of a fiscal year ago. Likewise, in the first quarter of the current fiscal year, the hotel has posted Rs 45.08 million gross operating profit compared to Rs 42.39 million in the same period a fiscal year ago. Soaltee has listed 17,908,990 unit shares at Rs 10 per unit at the Nepse and its shares were last traded at Rs 312 per unit.
Similarly, InterContinental Hotels Group (IHG) is the world’s largest hotel group by number of rooms. IHG owns, manages, leases or franchises, through various subsidiaries, over 4,400 hotels and more than 645,000 guest rooms in 100 countries and territories around the world. The Group owns a portfolio of well recognised and respected hotel brands including InterContinental Hotels & Resorts, Hotel Indigo, Crowne Plaza Hotels & Resorts, Holiday Inn Hotels and Resorts, Holiday Inn Express, Staybridge Suites and Candlewood Suites and also manages the world’s largest hotel loyalty programme, Priority Club Rewards with 48 million members worldwide.IHG has 1,400 hotels in its development pipeline, which will create 140,000 jobs worldwide over the next few years. InterContinental Hotels Group PLC is the Group’s holding company and is incorporated in Great Britain and registered in England and Wales.

Nepal mostly unfree economy: Survey

Nepal has scored 52.7 making its economy the 130th in economic freedom, according to the 2010 Index published by Heritage Foundation and Wall Street Journal.
“Its score is 0.5 point lower than last year, reflecting declines in five of the 10 economic freedoms due to political instability,” said report. Nepal is ranked 28th out of 41 countries in the Asia–Pacific region, and its score is below the world and regional averages.
The county falls in the mostly unfree country as according to its score. If a country scores from 50 to 59.9 it is in the mostly unfree category, whereas those scoring 60 to 69.9 are moderately free, 70 to 79.9 mostly free and 80 to 100 are the freest economy. The countries scoring 0 to 49.9 are repressed. Seven countries fall in the freest category, 23 countries fall in mostly free, 43 countries fall in moderately free category, 55 countries fall in mostly unfree category and 36 countries fall in repressed economies and four countries are not ranked in the total of 188 economies ranked in the list.
“Nepal’s economy is characterised by a combination of rapid population growth and inadequate economic growth that has led to widespread, chronic poverty,” the report said. “The weak reform efforts have failed to stimulate broad-based economic growth,” it added.
The report hails the state’s continuation to hamper private-sector development but it says political instability weakens the country’s ability to implement economic reform or create a stable environment for development.
Although reforms in Nepal’s trade regime are slowly having an effect, the average tariff rate remains high, according to the report. “Foreign investments must be approved or face licensing requirements. A lack of transparency, corruption, and a burdensome approval process impede much-needed private investment growth. Property rights are undermined by the inefficient judicial system, which is subject to substantial corruption and political influence.”
Economic freedom is the fundamental right of every human to control his or her own labour and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please, with that freedom both protected by the state and unconstrained by the state. In economically free societies, governments allow labour, capital and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself.
The report measure ten components of economic freedom and their scores are then averaged to give an overall economic freedom score for each country.
In this year’s report, UK, US and China have fallen down the rank and Poland, Turkey and Mexico have improved significantly.
According to the report, Hong Kong remains the world's freest economy, followed by Singapore, Australia, New Zealand and Ireland.
Regionally, in Asia-Pacific region, Nepal ranks 28 out of 41 economies. But in South Asia, Nepal is behind all the country except Bangladesh. Bhutan is the freest economy in the report.

South Asian ranking
103 -- Bhutan: 57
117 -- Pakistan: 55.2
120 -- Sri Lanka: 54.6
124 -- India: 53.8
130 -- Nepal: 52.7
137 -- Bangladesh: 51.1
Maldives: -- N/A
Afghanistan: N/A

Nepal in figures
Population: 28.6 million
GDP: $31.8 billion ($1,112 per capita)
Unemployment rate: 20 per cent
FDI flow: $1 million

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Overall score: 52.7
Business Freedom: 59.4 (down as average is 64.6)
The overall freedom to start, operate, and close a business is limited under Nepal’s regulatory environment. Starting a business takes an average of 31 days, compared to the world average of 35 days. Obtaining a business license takes almost twice the world average of 218 days. Bankruptcy proceedings are lengthy and complex.

Trade Freedom: 58.8 (down as average is 74.2)
Nepal’s weighted average tariff rate was 13.1 percent in 2007. The government continues to implement reforms, but import bans, services market access barriers, import taxes, import and export licensing, non-transparent regulations, weak enforcement of intellectual property rights, inadequate infrastructure and trade capacity, and customs corruption add to the cost of trade. Fifteen points were deducted from Nepal’s trade freedom score to account for non-tariff barriers.

Fiscal Freedom: 86.6 (up as average 75.4)
Nepal has moderate tax rates. Both the top income tax rate and the top corporate tax rate are 25 percent. Other taxes include a value-added tax (VAT) and a property tax. In the most recent year, overall tax revenue as a percentage of GDP was 9.6 per cent.

Government spending: 92.3 (up as average 65)
Total government expenditures, including consumption and transfer payments, are low. In the most recent year, government spending equaled 16.0 percent of GDP. The state oil company is a drain on the economy.

Monetary Freedom: 77.8 (down as average is 70.6)
Inflation has been moderately high, averaging 7.4 percent between 2006 and 2008. Although most price controls have been eliminated, the government regulates the prices of petroleum products and telecommunications services and subsidizes companies in strategic sectors. Five points were deducted from Nepal’s monetary freedom score to account for policies that distort domestic prices.

Investment Freedom: 15 (down as average is 49)
Nepal is generally open to investment in many sectors, but investments must be approved, and many face licensing requirements. Bureaucracy and regulatory administration are burdensome, non-transparent, inconsistently implemented, and inefficient. Political instability, pervasive corruption, and inadequate infrastructure and administrative capacity also inhibit investment. Residents may hold foreign exchange accounts in specific instances; most non-residents also may hold such accounts. Convertibility is difficult and not guaranteed. Most payments and transfers are subject to prior approval by the government. There are restrictions on most capital transactions, and all real estate transactions are subject to controls. Foreign investors may acquire real estate only for business use.

Financial Freedom: 30 (down as average is 48.5)
Nepal’s fragmented financial system is heavily influenced by the government. Financial supervision is insufficient, and anti-fraud efforts are lacking. Regulations are not transparent and fall short of international standards. The banking sector dominates the financial sector, and there are approximately 20 commercial banks operating in the country. The number of other financial intermediaries has increased in recent years, but the high cost of credit and limited access to financing still deter entrepreneurial activity. Nepal’s government-owned banks represent more than 30 percent of total banking assets and account for more than half of total bank branches. The central bank has gradually phased out “priority sector” financing activities whereby banks must lend a certain amount to government-designated projects.

Property Rights: 35 (
Nepal’s judicial system suffers from corruption and inefficiency. Lower-level courts are vulnerable to political pressure, and bribery of judges and court staff is endemic. Weak protection of intellectual property rights has led to substantial levels of optical media copyright piracy.

Freedom from Corruption: 27
Corruption is perceived as widespread. Nepal ranks 121st out of 179 countries in Transparency International’s Corruption Perceptions Index for 2008. Foreign investors have identified corruption as an obstacle to maintaining and expanding direct investment, and there are frequent allegations of official corruption in the distribution of permits and approvals, the procurement of goods and services, and the awarding of contracts. The governmental Commission for the Investigation of the Abuse of Authority, mandated to investigate official acts of corruption, claimed a 75 per cent success rate concerning corruption cases it filed, but some cases involving politicians were not filed or were defeated in court.

Labour freedom: 44.7 (down as average is 62.1)
Nepal’s labor regulations are restrictive. The non-salary cost of employing a worker is low, but laying off an employee is difficult.