White paper fails to white wash finance minister's image

Mired in a controversy over supplementary budget coupled with poor economic performance, the Finance Ministry today issued a White Paper that has nothing new except some political slogans and regular promises.
"The economy is not in comfortable position," said deputy prime minister and finance minister Bharat Mohan Adhikari issuing the White Paper that according to him is expected to give direction to the ailing economy.
"Agriculture and industry could not contribute to the economy as they should have been," he said, accepting that gross domestic product (GDP) growth has also failed the government projection in the budget for the current fiscal year.
"The ministry has started preparation for the budget for the fiscal year 2011-12," Adhikari said, adding that the new budget will focus on Small and Medium Entreprises (SMEs), and women entrepreneurship, boosting manufacturing and strenghtening cooperatives for commercialisation of agriculture and service sector.
The opposition Nepali Congress has asked the government to follow the regular process while bringing the budget that takes almost one-and-a-half month, but the the cabinet has decided to bring the budget for the next fiscal year on May 3. The finance minister also didnot look confident that the budget could be announced on May 3. "It could be some days later," he added.
Adhikari also accepted that the government has failed in creating employment and cracking whip on price hike, let alone meet the inflatio ntarget and growth projection.
"The government has also failed in creating investment friendly environment to lure more investment," said central bank governor Dr Yubraj Khatiwada.
"One one hand private sector is not feeling confortable to invest and on the other the government also could not spend," he said, adding that the escalating price of petroleum products in the international market has hiked the cost of economy.
The economy has also contracted due to sharp fall in real estate and share prices due to wrong policies, according to the governor. "The central bank has given a shock treatment to the real estate and share market through Monetary Policy," he reasoned, adding that the shock treatment was necessary to bring the sectors back to health.
However, the governor blamed the political instability for most of the economic troubles.

Mum on NOC loan

KATHMANDU: Deputy prime minister and finance minister Bharat Mohan Adhikari scaped the question on how the finance ministry is going to tackle the Nepal Oil Corporation's rising bill. The NOC is in loss of Rs 1.77 billion according to its supplier Indain Oil Corporation's rate of April 1. The state oil monopoly has been asking the government to provide it a grant or loan to pay for the bills that could guarantee the smooth supply of petroleum products.

FM to visit US
KATHMANDU: The finance minister is visiting the US on Tuesday evening with a troup of five secretaries and high level officials from Energy, Home, Commerce and Supplies and Finance Ministries. "I will take part in hydro developers meet and disaster management meet apart from signing Trade and Investment Framework Agreement (TIFA) on April 15 and reviewing the bilateral ties between the US and Nepal," he said, adding that Nepal is in focus of this year's disaster meeting as it is high earthquake prone country in the world.

Premier vows peace, security

Prime Minister Jhalanath Khanal promised investment-friendly environment, peace and security today addressing the 45th annual general meeting of Federation of Nepalese Chambers of Commerce and Industry (FNCCI) and National Commerce Day here in the valley.

He also appealed entrepreneurs to be 'neat and clean' by avoiding fake VAT bills to evade tax. "The government is committed to take serious action against those invloved in fake VAT bill scam," he said.

On the occasion, FNCCI president Kush Kumar Joshi urged the government not to treat regular tax payers and non-payers equally. "The government should discourage intimadation and bring culprits to book to ensure better industrial environment," he said, urging for immediate Chamber Act that is a need of the hour.

"The umbrella organisation of Nepali private sector has reached minimum wage deal with trade unions but some of the faction are again creating trouble and bargaining," Joshi added.

Reiterating the government's commitment on implementation of minimum wage deal between employers and employees, the preemier said that government is also committed to implement Industrial Policy.

Despite huge potential, Nepal has not been able to exploit the natural resources, Khanal said, adding that the nation will undergo an industrial revolution after the completion of the peace process. "However, industrial peace is key to economic revolution," he added.

Joshi agreed that economic revolution can institutionalise the achievements of second mass movement.

Election on Tuesday

KATHMANDU: The FNCCI annual general meeting is scheduled to elect on Tuesday its 61-member central working committee for a three-year term. Suraj Vaidya and Ajad Shrestha are contesting for presidential post with their panel. Both the panels have their strength and weakness but the coming leadership of private sector must be strong enough to face challenges from different quarters on liberal economic policy and private sector's role in economic growth of the country.

Community plans to invest on fast track road

Private sector is planning to invest on infrastructure and that too through a Users’ Community Group on a much-needed fast track road that links the Valley with the Sounthern planes.
Some 21 village development committees (VDCs) in Makawanpur are planning a company for a proposed 50-km Kathmandu-Hetauda fast track road that will not only reduce driving length between the two cities to one hour by consuming less fuel but also help reduce population concentration in Kathmandu Valley, said Federation of Nepalese Chambers of Commerce and Industry (FNCCI) Kush Kumar Joshi.
Though, Hetauda-Kathmandu aerial distance is only 37 km, the present road – Tribhuwan Highway – that links the two cities is 133-km. Currently, travellers have to spend more than eight hours to reach Hetauda from Kathmandu, and pay high fares.
Of the four roads – Tribhuwan Highway, Chhaimale-Sisneri, Phakhkle-Kulekhani-Pharping, Ganeshman Marg (Chitlang) and Prithvi highway – that link Kathmandu with Hetauda currently, the proposed Hetauda-Sisneri fast track is the shortest and practical as it needs only up gradation, Joshi, who is the coordinator of the Users’ Committee Group that is planning to construct Kathmandu-Hetaud Fast Track, informed. "The proposed Hetauda-Kulekhani-Kathmandu fast track will be started in a year after a final study."
The idea of the constructing fast track road has been floated since Girija Prasad Koirala became the Prime Minister post 1990 movement, but could not be materialised. But this time, the locals are committed to construct the dream highway, he said, adding that the locals whose land will be used for road and labourers will get share in the company.
Some 2,000 vehicles ply on the existing seven-km long road that will be widened according to the proposed four-lane fast track design.
"By the side of the proposed fast track many satellite cities can also be developed that will reduce the population concentration in the overcrowded Valley,” Joshi said, adding that a preliminary study showed that a tunnel – of a length of two to three kilometers –has to be constructed in a section of the proposed fast track near Phimphedi.
The government has also been planning Kathmandu-Hetauda fast track at an estimated cost of around Rs 50 billion but the proposed fast track road will be more practical as it will run through Bagmati river corridor though overlaps some section of the government planned fast track road, according to the community.
The fast track will also improve trade linkage with India – Nepal’s largest trading partner – and link the Asian Highway making the country a transit route.

Over dependence on foreign job market to hurt economy

Weakening overseas demand could dampen growth that could feed economic and social instability, according to International Labour Organisation's (ILO) latest report.
"In some economies like Nepal, Bangladesh, Sri Lanka and the Philippines, which rely heavily on remittances to maintain macroeconomic stability and support investment and consumption, weakening overseas demand for their workers could dampen growth and feed economic and social instability," the report said, adding that both migrant sending and receiving countries have felt the impact of the global crisis.
Similarly, Asian Development Bank's (ADB) flagship publication Asian Development Outlook 2011 also stated creating jobs for the country’s burgeoning young population is a major challenge, unless managed properly, it could put at risk the country’s economic growth prospects.
Some 450,000 workers enter the labour market annually. More than half of them seek — and get — jobs in the Middle East and East Asia, particularly low-end work in construction and manufacturing. "But it is Nepal that bears the social costs," the ADO stated.
The country has received Rs 138.9 billion remittance -- that was 11.7 per cent more than the same period last fiscal year -- in first seven months of the current fiscal year, according to the central bank.
However, according to ILO, demand for foreign labourer in the Republic of Korea -- one of the key lucrative destination for Nepalis -- has weakened sharply since 2008.
"The number of foreign workers employed under the Employment Permit System (EPS) rose to around 181,000 in 2008 but decreased in 2009 and fell again in 2010 to around 64,000," the ILO said, adding that reduced demand for foreign labours from these regions would hurt sending countries labour markets, in particular in South Asia and in Nepal.
The trend of youth going for overseas jobs, if reversed, due to current unrest in the Middle East, the country could have to bear more than a social cost as it could lead to social unrest back home.
While under- and unemployment are widespread in all segmentsof the population, the position is particularly depressing for youth. Their nationwide unemployment rate is twice the national average. It is even worse in urban areas, where the decade-long conflict, lack of job opportunities in rural areas, and the concentration of higher level education institutions there have contributed to an influx of younger people, according to the report.
The ADO has suggested reform in the labour laws that according to the report is the most rigid in South Asia and modify cirriculum. "Labour Law is a major block to job creation, and need to be reformed to facilitate quicker recruitment and release of workers," it suggested. "Moreover, the academic curriculumneeds to be modified to reflect labour market needs and to facilitate self-entrepreneurship, in part to capitalise on close ties to India and its prominence as a business services hub."
Progress toward completing the peace process, thereby leading to stronger investor confidence, will be important for faster job creation.

PAC tacks ‘criminal´ tag on finance ministry

Lawmakers at a parliamentary Public Accounts Committee meeting today labelled the Ministry of Finance as a ‘bigger criminal’ for protecting VAT “Directing the ministry to initiate action against VAT defaulters and submit a report in 15 days, the parliamentary committee called the ministry protector of criminals,” said PAC Secretary Som Bahadur Thapa.
Earlier, the House panel had asked the ministry to provide names of the firms and entrepreneurs involved in using fake VAT bills to evade tax. But the ministry had provided the number of firms involved in evading tax, saying the Tax Law bars it from exposing the names of the firms that are under investigation.
But lawmakers today lashed out at the ministry, saying it was using legal procedures as a facade ‘to save the criminals’. “How can the ministry save criminals and bypass the parliamentary committee?” wondered the lawmakers.
The lawmakers today used the term ‘criminal’ which Deputy Prime Minister and Finance Minister Bharat Mohan Adhikari has been repeatedly using for VAT evaders. Minister Adhikary recently had told the media that using fake VAT bills was a crime equivalent to printing fake currency notes. However, action against the VAT defaulters has failed to gain momentum.
PAC on April 1 had summoned Minister Adhikary and Revenue Secretary Krishna Hari Baskota to furnish details of the fake VAT bill scam. But Adhikari had cold-shouldered the PAC call and, instead, had organised a press meet to defend his position on allegations that he had pressured Finance Secretary Rameshwor Khanal to resign. According to Secretary Khanal, who is on home leave till April 13, Adhikary had piled pressure on him to ‘be soft on tax evaders’.
Adhikari, who was harping on a supplementary budget, on April 3 appeared before PAC and told lawmakers that he was preparing to bring an early budget.
“There’s enough room to doubt the government intention,” said former finance minister and Nepali Congress leader Ram Sharan Mahat. “Adhikary now has gone on the defensive and is trying all face-saving measures as Khanal’s resignation exposed the ill-intention of pardoning the VAT evaders through a supplementary budget, that too without keeping the Ministry of
Finance in loop,” said officials at the Ministry of Finance, adding, the government will lose over Rs 2 billion if the VAT evaders were let off scot-free.
The revenue mobilisation does not look encouraging in the wake of the possibility that the government won’t be able to meet the target of Rs 216.64 billion, projected by the earlier government.
The then finance minister Surendra Pandey had forced Rs 337.9 billion budget through ordinance on November 20, four months behind schedule.

Secondary market reflects economic growth

Though secondary market has been hovering around 356 points lately, investors need not worry, as it just reflects the country's economic growth.
Once the economy starts picking up, the share market will also perform better.
Unlike traditional school of thought, domestic share market did not use to reflect country's economy but in the last five years, the Nepal Stock Exchange (Nepse) index has started reflecting the country’s economy, according to a study by Securities Research Centre and Services (SRCS).
When there is surplus savings, the prices of shares increases. “But the plunge in employment and low savings have pulled the share market in the recent years,” said former chairman of capital market regulator Dr Chiranjivi Nepal.
The correlation between the secondary market index and economic growth is positive. “The correlation between then stands at 0.61, which is positive,” according to the study.
“Since last five years, the domestic secondary market has started to reflect real economic growth,” chairman of the SRCS Rabindra Bhattarai said, adding that macroeconomic indicators like interest rates, price hike, employment and microeconomic indicators must reflect in the share market.
However, the impact of economy on share market is 37 per cent, meaning still other factors like investors’ behaviour and manipulation are prevalent. During the high days of share market, when it touched all time high of 1,175 points in 2008-09, the Price Earning (PE) ration of some companies that has no growth prospect also touched 400. But a company that has no growth prospect and has PE ratio above 25 are over-valued by the manipulators.
“The share market started reflecting economic growth also due to listing of the shares of those companies that have more contribution in the growth,” he said. The telecom sector contributes nine per cent in the GDP growth and the listing of Nepal Telecom share has made the share market more realistic too, whereas banks and financial sector has one third domination in the secondary market but they contribute only four per cent in the GDP.
“The listing of more agro-based industries like Dairy Development Corporation will make share market a real mirror of the economy as the agriculture sector contributes 33 per cent in the GDP,” he said, adding that the hydro power companies like Chilime Hydro and Arun Valley Hydro have also made the share market more reflective of economic growth.

Fiscal year – GDP growth rate -- Nespe Index
2007-08 – 5.8 per cent – 963.36 points
2008-09 – 3.77 per cent – 749.10 points
2009-10 – 3.97 per cent – 477.73 points
2010-11 – 3.47 per cent – 377.63 points

ADB, Japan to reduce poverty in disadvantaged communities

The Asian Development Bank (ADB) and the Government of Japan are providing assistance to develop new livelihood opportunities and improve income in some of Nepal's poorest and most disadvantaged communities.
A $2.7 million grant from Japan Fund for Poverty Reduction, administered by ADB, will be used to support targeted and sustainable development programmes for marginalised groups including Dalits and Hill Janajatis, who have the highest poverty rates in the country.
"The goal of this initiative is to reduce both income and non-income poverty and to empower disadvantaged groups in the target districts," principal country specialist at ADB's Nepal Resident Mission Paolo Spantigati said.
Ethnic minority groups often face difficulties in accessing the benefits of government's development efforts. As marginalised communities, they struggle to assert their rights in decision making and have missed out on mainstream efforts to create new livelihood opportunities.
The project will fund a series of activities to address these obstacles, including training for village members to produce community action plans which will be used to identify viable income-generating activities. Skills training will be given to one family member from each of the 2,000 poorest households in the target communities to help them start micro-businesses, with a revolving seed fund of $300,000 established for this purpose. Another $100,000 will be set aside to support larger business ventures for communities, where there are prospects for high returns.
Given past difficulties in including marginalised groups in development activities, the project will incorporate several innovative features, including a strong focus on social empowerment, including awareness campaigns to overcome discrimination. It will also take a broader approach to livelihood development which goes beyond mere skills training to include access to finance, and support for links to markets. A key component will be empowering women, with targets set for their involvement in community courses and entrepreneurship training.
Along with Japan's contribution of $2.7 million, the government will provide non-cash assistance of $60,000 with beneficiary communities contributing nearly $20,000 in kind for a total project cost of almost $2.8 million.
The Ministry of Local Development will be the executing agency for the project, which will be implemented over four years.