Nepal’s prolonged economic downswing is more dangerous than political predicament

Professor, Dr. Madan K. Dahal, Former HoD Economics, TU

The Telegraph Weekly’s association with this humble but yet highly competent Nepali scholar dates back to decades. Frankly speaking, he is among those few Nepal’s “world class brains” who has ever encouraged this newspaper to go in for academic, partisan less and objective analysis of the contemporary political events unfolding in the country to which we have been doing honestly.

He is one of the valuable “assets” of the nation but unfortunately largely ignored by the Nepali State. However, his sharp brain and deep knowledge in the domain of Economics that he possesses in abundance has been fortunately appreciated by foreigners and various donor agencies both within and without.

Professor Dr. Madan Kumar Dahal, to me is first a guardian and later a friend. I value his friendship.  He is undoubtedly a genius in the domain of Economics and is rated among the few Nepali scholars who could compete easily with their foreign counterparts be it in the presentation of seminar papers or making a lecture on contemporary world economy. He is simply a reservoir of knowledge, to say the least.

 Prof. Dahal is a doctoral degree holder in the field of Economics (Government Finance) from the University of Bombay, India. He is in the teaching profession since more than three decades.

Apart from his daily teaching routine at the TU, Professor Dahal is also regularly involved in developing, introducing and implementing curricula on Economics in higher education (Certificate, Bachelor and Master’s levels) at Tribhuvan University.

Dr. Dahal who is currently serving the TU (Tribhuvan University) in the economics department.  He has also served as an international financial consultant in various international organizations and as well in international governments. To name a few, Dr Dahal has also exhibited his expertise for the ADB, World Bank, UNDP, USAID, ILO, DANIDA, FINNIDA, IDE, UNOPS-Malaysia, FES/Germany, SAARC, SANEI and Global Development Network (GDN).

In addition to these, Prof. Dahal is a visiting Professor at the University of Boulder, Colorado, USA.

Of late, Dr. Dahal as a financial Management expert has also worked for a World Bank/Government of Sri Lanka Project quite recently being in Sri Lanka.

Professor Dahal has several publications to his credit, contributed as author/co-author/editor, for example, Foreign Aid and the Role of NGOs in Nepal(FES), India’s Aid Policy to Nepal(BPKIF), Impact of Globalization in Nepal(NEFAS), Economic History of Nepal, 1768-1952(NEFAS) to name a few among others.

The list of his CV might consume pages and pages which we can’t afford.

Last week, we approached this suave but yet brilliant persona for an exclusive interview on contemporary political events unfolding in the country and also to know his views as regards the new fiscal year budget that the government is all set to present. Below the results: chief editor.

TGQ1: Prof. Dahal, we have been told that the Interim government is all set to go in for a Three Year Interim Development Plan for the country. If so, what sort of planning be made so that it benefits the majority of the people? Also tell us what basics must be included in the said plan that is markedly different that the previous ones but in more ways than one serve the need of the nation in the given changed political context? Have you any tangible suggestions to the government? Your comments please!

Dr. Dahal: The preparation for a Three-Year Interim Development Plan (2007-2010) is under progress and likely to be inducted upon expiry of The Tenth Plan (2002-2007) on July 15, 2007. The Tenth Plan came into existence during conflict, while the forthcoming Eleventh Plan is under formulation amidst transition to peace. The Tenth Plan accorded a top priority to economic growth and poverty alleviation. The next Interim Development Plan should focus on ensuring security to investment, creating employment opportunities through private sector involvement in both informal and manufacturing and services sectors, promoting optimal and judicious allocation of resources to backward areas especially for empowering local bodies, and strengthening industrial competitiveness to maximize the benefits from globalization in the areas where comparative advantage does exist. I find a limited prospect for substantial departure in formulating the 3-Year Interim Development Plan due to emerging uncertainty and risks. However, the government should strengthen its efforts to bring back the economy into normalcy during the next plan period in cooperation with private sector and donors especially through initiating reconciliation programs, and prepare a ground for take-off to make a quantum jump in the economic front. The twin objectives comprising growth and poverty alleviation will have to remain at the center-stage of the next plan.

TGQ2: The time for the presentation of a new budget for the Fiscal year is also round the corner. How the budget should look like, what should be accorded top priorities; of what size and dimension it should be; and how those should be implemented by the Interim government so that the impending budget assures each and every segment of the people? Your remarks please!

Dr. Dahal: The economy is passing through a critical phase of poverty and stagnation engulfed by recession, a mild-phase of conflict, inefficiency and corruption. The forthcoming budget for FY 2007/08 should largely confine to addressing these acute and intractable issues facing Nepalese economy for a long time. However, the new budget must focus on mobilizing internal resources without creating excess burden to taxpayers, not only for meeting recurrent expenditures but also to generate surplus for counterpart funding. Although a prime crosscutting issue is inadequacy of resources to sustain development activities and poverty alleviation programs, capacity for government spending is conspicuously poor resulting in diminutive growth. Thus, the new budget should strike at maintaining a balance between growth and poverty alleviation. The government should accord a high priority to execute reconciliation programs comprising reconstruction, rehabilitation and reintegration. The forthcoming budget should stress on to promote foreign employment, provide dignified package of incentives to civil servants, army, police, and teachers receiving fund from treasury, adjust subsidy to poor farmers at a reasonable level; ensure conducive investment climate to spur business and industrial activities. In addition, the government must make an effort to provide good governance through improving accountability and transparency, and by maintaining fiscal discipline. Under the existing circumstances, there is limited scope to formulate an ambitious budget. However, it would be pragmatic to keep the fiscal deficit within the range of 5 percent of GDP and, subsequently, maintain budgetary deficit preferably to the level not exceeding 1 percent of GDP. This depends on the quantum and regular flow of both bilateral and multilateral assistance available to Nepal for the next FY. The productivity of foreign aid must be maximized by establishing ownership of recipient countries over donor funded projects. Recent trends exhibit that recurrent expenditures are increasing alarmingly in excess of growth in revenue. Therefore, it is necessary that rise in government expenditures must be accompanied by proportionate growth in revenues. In order to attain desirable growth priority should be accorded to expedite Public-Private Partnership (PPP), and initiate mega-projects especially construction of highways, fast track roads, hydropower, and tourism development under BOOT. Also it is imperative to develop the strategy for maximizing benefits from the economies of neighborhoods especially from India and China.

To my projection, the total expenditure (budget) for next FY 2007/08 should not exceed Rs. 165 billion, while revenue targets could level to Rs. 97 billion, and foreign aid to be mobilized to the tune of Rs. 68 billion. Considerable degree of personal and business deductions, exemptions and rebates are required to sustain economic momentum and provide a new lease of life to the economy. In the forthcoming budget for FY 2007/08, I strongly envisage and recommend the government to:

(a) Provide cheaper kerosene to commoners,

(b) Increase magnitude of incentives to fixed income groups,

(c) Provide relief to displaced and victims of conflict,

(d) Effectively implement reconciliation programs to be set for the target groups,

(e) Attract and ensure security to FDI and indigenous investment,

(f) Foster foreign employment to mobilize remittances at a greater scale,

(g) Increase productivity of foreign aid, and

(h) Ensure good governance for better results and delivery of goods and services to the people.   

TGQ3: Nepali leaders have been found in talking much on political matters only. Don’t you think that the most important part that is the over all “development of the nation” remains ignored even after the April change last year. The economic aspect is missing in the midst of politics, we presume. How you interpret this phenomenon? Do you subscribe to their line of considerations or disapprove? Your personal views please!

Dr. Dahal: The successive governments in the past and also today are preoccupied with crisis management and, unfortunately, they are less involved in the result-oriented process of economic development. Currently, economic agenda is subdued by political agenda and, thus, economic development is not a priority.  Underdevelopment encapsulated by corruption and inefficiency is threat to democracy and continuity of democratically elected government. As of ADB’s projection economic growth rate in Nepal is likely to remain compressed to 2.8 percent, lowest in South Asia region; while China has set target for 10.4 percent growth rate followed by India with 9.6 percent for the next FY. A little trickle down from economic advancement of two big neighboring economies will help create positive impact on Nepalese economy. Unfortunately, we are totally failure in galvanizing economic support from neighboring countries. There is need to initiate formulating a perspective plan comprising twenty years to transform the economy from a low to upper middle income economy during the next twenty years. In my opinion, the vision or mission of Nepalese economy is to build a strong economic nation-state through active participation of the people by ensuring a high quality of life to each individual and household within given timeframe. In a developing economy like Nepal prolonged economic downswing is more dangerous than political predicament.

TGQ4: How you Prof. Dr. Dahal as a senior economist of the country with international standing, assess the unfolding political events in the country more so after the Maoists joined into the mainstream politics of the country recently. Is the country’s politics going in the right direction or it is simply the other way round? Your opinions please!

Dr. Dahal: The major responsibility of the government is to guarantee peace and provide security to its citizens, maintain law and order, run day-to-day administration, design appropriate strategy for economic development, and establish credibility and gain popularity by holding election of the Constituent Assembly in stipulated timeframe. These are the measuring indicators to judge whether politics is moving towards right direction or vice-versa.

TGQ5: A section of the economists say that Nepali currency needed a change in its existing exchange rates with the Indian currency. If done so, what substantial changes in our export/import performances such an adjustment will bring about? Or are there some other effective economic procedures which if adopted would enhance the country’s economic stamina and allow Nepal to be less dependent on Indian economy? Your suggestions please!

Dr. Dahal: In recent years, Nepal’s economic relations with India is strangulated by decelerating quantum of foreign aid as of international comparison, negative trade balance, and fixed exchange rate.  Nepalese economy is highly dependent on India, for various economic and non-economic factors. Although this is the era of interdependence, excessive dependence with one country may jeopardize the prospect for economic development as per the spirit of globalization and liberalization. However, FDI in joint ventures from India occupies 35 percent of total, but lacks implementation of mega-projects especially in infrastructure, hydropower and tourism development. The exchange rate between Nepali and Indian currency is fixed at ICRs. 100 = NCRs. 160 for a number of years, which is not convertible to Indian currency. Once we cross the border value of our currency compared to Indian currency becomes less than half. Nepali people are poor by more than 1.6 times with respect to Indian people due to existing exchange rate. Therefore, now the time has come to economically back up Nepali currency to make the exchange rate at par with Indian currency in future. We have to export more to India especially high value crops and other exportable items, mobilize higher level of remittances through official channel, attract more FDI in joint ventures, and review existing Nepal-India Trade Treaty to further promote exports from Nepal to India. The appreciation of Nepali currency with Indian currency entirely depends on how fast Nepalese economy will move to catch the rising waves of economic development in India.

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