Ranjan Parajuli, Ph. D.
Back then to the era of 1950s, the time the tradition of presenting annual budgets promulgated in Nepal, many things are rolling-over the roads leading to fiscal accounts, government expenditure and earnings. They, since then, showed many hopes and beliefs that the country is marching towards the prosperity, by then, unfortunately rooted towards prosperity of “Family-regimes” -the RANAs, “Royal Diasporas” and continuing then-after to the so-called “democrats” and “revolutionary icons”. The flame illuminating the hopes for the prosperity never extinguished, nonetheless, people started thinking “are we just sitting below the lights, and because of that we are not feeling any brightness” (in Nepali, batti muni adhyaaro”), or, we are mis-guided, cheated, and brushed with chants and slogans of populist words/theories. It’s our duty to identify the real cause and suggest accordingly to the concerned authorities.
Now, let’s move to the philosophy of economics.
“Classical free trade” philosophy started in the 18th century- hats off to the wishful thoughts of Adam Smith. The era of 1970s, the time world started to play the economic orchestra and served for the process of economic liberalization, privatization and globalization. In fact, is started to boom the fiscal properties, and bringing ideas for reaching alchemy of economic development. After the cessation of the Second World War, numerous appreciative opportunities, such as breakthrough of economic discourses and innovations started to make “resilient economic practices”. Emphasis were also started to strengthen the diplomatic relations among nations for economic liberation(s) and paradigm shifts for a prosperous and sustained economic growth. As a result European countries and United States of America were able to trigger the pace of the economic and social developments at their own level. In spite of these, anomalies in economic and social theories may exist in different countries, as per their strategies to address the public necessities.
Now, let us go back to local level from the global euphoria of economics. I wrote similar, more-or less-same thing before (June 2015), and now trying to give a flash back and mapping if I can provide answers to some questions that were raised by then. The fundamental question: what we achieve -in terms of economic development, social development, and many other cultural developments so far, in the country? I concluded, “We- all are confused, every pennies/rupees of the country’s economy are confused”. The “Confusion” is- we have claimed that we are marching towards “socialist economy” (please refrain the definition from any political theory). Here, “socialist economy” is used to represent the proper/democratic distribution of resources to people and provide economic opportunities to people. “Socialist economy” for enhancing the pillars of basic needs of the people, such as in the education, health and so on.
Author: Ranjan Parajuli, PhD
Like in 2015, again I started wondering what should be the point of penetration that I need to make to cover the above global and local socio-economic foundations, and check if we achieved anything. Records of December 2018 showed the annual GDP growth rate of 7.1% (in 2014, was 6%) – good, but trade deficit averaged to -307 million USD (from 2001-2018). The economy, which is heavily supported by remittances (as of 2019, this amounts to about 22-25% of GDP), is fragile.
The fragility is due to growing failures in improving diplomatic gestures and relations; increasing dominance of “sick vendors” in transacting labour across the border; increasing ’interest of cutting down foreign labors” in many countries, and lots of insecurities labors are facing till date. Agriculture, one of the important tools to ensure “sovereignty”, is degrading-despite majority of the population are believed to be pursuing agrarian business, its contribution to GDP is one-third. There are some positive indicators such, as gross national savings (33.94% of GDP in 2015) was slightly above the word average; investment was (28.94% of GDP). Meanwhile, unemployment rate hovers high, around 50%. It does not mean that there are no any hopes for improvement, there are, but the threats prevail- if growth of economic indicators can be sustained. The only way to sustain is- how we a make the cash flow more vibrant, how we utilize the capitals for oscillating the financial flows for increasing the benefits and enhance the financial liquidity. The next question then arise is- will these be able to support “socialist-economy” as defined above?
World Bank said that Nepal has acquired attractive progress over the last few years by being able to reduce the population living on less than $1.25 by half compared to the situation seven years back, i.e. from 53% to 25% between 2003 and 2011. Furthermore, one of the recent studies of Asian Development Bank (ADB) also stressed that the thresholds of $1.25 per day might not be the measure to accommodate the extent of extreme poverty in the region, for instance, it is also essential to integrate the repercussions of factors such as the cost of consumption specific to Asia’s poor; spurs in the food costs and vulnerability to natural disasters, climate change, economic crises, and other shocks to the economy. There are also claims that the social indicators e.g. education, health and gender mainstreaming are also in progress. Appreciating these progresses, now the next question is how to utilize these social capitals to transform the physical capitals into financial capitals and have the return in the same order or alike. I started wondering again, “what would be the primarily pre-requisites for such transformations?” are these progresses enough to make an equal pace with other adjoining Asian countries, at least?” Are all these revealing the fact, even though there are some positive figures, but insignificant to increase the welfare to the population, insufficient to make the economic system more resilient? For example, consumption stood at 76% of the GDP (for 2016-2017), which is the main growth driver, but how sustainable it is (since it is mainly rooted due to increasing remittance)? The question will exist, at least, until and unless a clear strategy to define “foreign employment” and balance of “local labour forces” are not in place.
The distribution of economy should be rooted with the earnings. For this, I have a simple sentence, if I have money in my pocket, or if I have capacity to put money in my pocket then I owe the capacity to purchase goods in the market.
Here, “I” mean “country”, “money = economy” “purchase goods= social welfare provision costs”. Then, what are the pre-requisite tools to support this? Of course, again the “economy”: “balance of payment”, “public spending”, “and private spending” and the nexus among them. The budget balance (% of GDP) for the year 2017 was -3.3% (expected to be -4.6% of the GDP). Later back few years, the average share of exports to the GDP between 1996 -2013 was 21.7% (i.e. this proportion is running out of the GDP) and for the same period the import share was 8.7% of the GDP, at 2014 price. The government expenditures of the country for 2014 was 19.2% of the GDP, the Economy Watch revealed it. The overall balance for the year 2013 was 5.2% of the GDP. Until and unless, proper utilization of the resources is not made, it would be just myth “welfare based economic development”. Should I say “distributive economy” if I cannot put ample of money in the basket and pulling out more than I have on it. Rest assured, the government of Nepal, and the financial “kingpins”.
Then, I felt to jump back with the same obvious claims- “the major challenge to the country’s economy is its inability to integrate the domestic economic system/sub-systems with the regional and global economies and upscale the benefits of the globalization”. A clear example is that how and in what extent we have been able to practice our economic diplomacy with the north and south corridors of the future uprising economies; are we utilizing the benefits of our strategic locations of residing on such geo-political plates where two points of economic corridors China and India are growing? In one of the study it is further stressed that among all of our constraints to upscale the economic growth, the weak “economic diplomacy” has been a vital component particularly after the 1990s. The questions thus arise from these are:
(i) What sort of policies and regulations did we and should we now have to make for the advancement in the production system, transformation and exchange of goods and services among other countries,
(ii) What was our basis of exchanging the labour forces in different corners of world,
(iii) What kind of economic and political negotiations we made to ensure the sustained and healthy working environment of Nepalese people working in different stressful areas, and if did nothing remarkable what we should do now
(iv) What are our national norms and guidelines to increase the foreign investments, etc. These are the food for thoughts at the political level, I wish some of them have been practiced, internalized, integrated, and or, if not, whether will be made in the near future by our political mainstreams?
Borrowing ‘theory of relativity’ here, “the physical laws have to be recognized and comparability should be made, as a basis to measure and move for progress ahead”. A quick snapshot analysis among our peers. Economic performance of Nepal is painfully lacking behind from last three decades while other South Asian economies were enjoying the growth in some of the economic indicators. If per capita growth is regarded as an indicator then the country’s per capita gross domestic product (GDP) have been the lowest in the region. As of the statistics published by the International Monetary Fund and World Bank in April 2015, it was argued that with the price of 2014, the per capita GDP of Nepal was estimated at around $2200-$2300 compared with $2900-$3000 for Bangladesh, $4600-$4700 for Pakistan, $5400-$5800 for India, $9700-$10,000 for Sri Lanka, Bhutan $7400-$7600, and $11,000-12,000 for Maldives. In terms of per capita GDP, as of last decade and in the price of the year 2000, the status of per capita GDP of Nepal in 2007 was the status of Sri Lanka which was in 1960, Pakistan in 1970, and India and Bhutan in 1980. So what went wrong? Some probable answers to this could be:
(i) Lack of diplomatic integrations in the economic reformations and weakening after 1990s,
(ii) Political and economic insurgency because of the so-called “peoples’ war for a decade of 1996-2006, halting all the accessibilities to social and economic structures,
(iii) Ill-considerations in the economic and financial disbursements in the periodic development plans and inability to rationally utilize huge chunk of allocated money etc.
So, where and how we headed up to here (this pulse of time)?
A unique “capacity enigma” is inherent with our economic situations, i.e. it has always enough capacity to collect revenues and allocate budgets to invest in the basic infrastructures, but never succeed to spend its funds, especially the capital budget. For instance, in one of the news it was reported that the average capital expenditure absorption rate (the difference between planned and actual capital expenditure) was about 71 percent in the last decade. So, here is the barrier to economic development, as if capital budgets are put in a “brown sack” and placed in a ditch and buried. So can we expect anything, such like growth is going to happen from such ill-plans and implementation modalities? I think the only thing that may happen with this is that it will rotten the balance of payment, purchasing power capacity and so on. So, it is the necessity of the government’s administrative system to fix the problems related to such fragile efficiency of utilizing the capital budgets. We are entreating foreign aids and loans every year, but never cashed-them in an objective manner’. The scenarios that showed the unfortunate situations where we were unable to spend the amount should justify the fact. Foreign aid accounts for 22% of the government budget and half of government’s capital expenditure.
We often claim that accessibility, affordability and availability of goods and services are the key drivers of development, and most importantly for the sustainable access to development carriers and their use. Per capita electricity consumption of Nepal is far below than other adjoining south Asian countries, (134 kWh, as of 2014), road density (108 km per 100 sq. k land, as of 2000, which is indeed not much increased so far), irrigated land (28% of the total agricultural land, as of 2014), GDP per unit of energy use (5.78 in constant 2011 PPP dollars), whereas other South Asian countries has progressed in a multi-fold scale compared to our country. I am sure that no remarkable changes are made in the improvement of such status, as in the past decades we have been doing nothing, but uttering a lot on never-ending political deadlocks and just manifesting the development budgets with no any real meaning of providing tangible returns to public and entrepreneurs. Hence, provisions of significant services to public are with nothing new flavours added; so, then what happened to the allocation of budgets and their disbursement modalities? Financial returns from such attitudes can thus never gain a capacity for reshaping the socio-economic status of the population. Have we ever realized the budgetary plans really addressing such issues and have we ever felt this at the implementation level? I am not sure, whether it has. ! If anyone felt these, I would be happy to learn.
We can see tremendous opportunities to repair economic systems and make our spending rationale in some distinct clusters (improvement of public service, social securities, financial securities and soft loans to small and medium entrepreneurs etc.); to maintain the surplus and manage the prevailing deficits in the fiscal budgets. Higher capital spending is required to build physical infrastructures, to increase the road density, increasing the effective energy intensity, health and social services. If the country cannot make the spending, then it can at least allocate the unspent funds as in the form of special development investment packages, clearly highlighting the economic sectors that can be considered periodically to have chance to utilize them, wherever relevant. For instance, it can allocate special public investment funds to upscale the cottage industries, trade and business, in addition to the normal planned budgets and to increase the quality and quantity of services. Having money in the ”ditch” can never be smarter than disbursing them to the public and private entrepreneurs in a planned and definite regulated manner, providing the potential beneficiaries of such funds subsidized interest rates, so that it can maintain the momentum of cash flows in an economy. These are the ways of putting money to “my pocket” so that I owe capacity to “distribute”. Is this happening? May be the provision of “come crores of national earnings directly to parliamentarians” can do- should people believe, No not at all. PM Oli and the peers, I am afraid-is this your theory for leading towards “socialist-economy”?
It has been said that despite of poor and ineffective management of financial flows in the agriculture system, it has always been able to support the balance of payment of the country trying for bringing to the positive sides, particularly because of the earnings from the export commodities, especially to India. For instance, although GDP registered an impressive 5.6% growth in 2007/08 compared with 3.0% in 2006/07, the surge was largely due to timely rains leading to a good harvest of main agricultural crops and to a rise in tourist arrivals, and not due to major improvements in economic fundamental foundations. So, should we always depend on such natural gifts and always remain happy saying “we have them” or make a corridor where the economic tram can be guided, operated and controlled and rationally use them. Please be assured the planners the drivers sitting over the economic wings of my country. Despite such realizations, it was never treated rationally with effective monetary tools, whether subsidising on the upfront capital cost that are required for their sustained growth. If the problem is capital budget, we have enough un-spent. I agree that there could be some legislative and conflict of interests in the disbursement of such funds, but the government can promulgate laws stating, “in the cases of country political and administrative system unable to make sufficient public spending the remaining chunk of funds can be utilized in development activities in agreed proportions”. Budget is a tangible quantity, it can be measured and thus it should be able to say, the taxed amount shall be utilized in such a manner so that the discouraged products would create market for sustained and qualitative products which make displacements in the conventional market. For instance, if it says, “we will increase the import tax to petrol” then it should also say that “while doing so we will encourage our beneficiaries to use renewable sources and the government can assist financially by this much of amount while doing so”. Necessary discourse can be initiated and can also plan the budget realizing the capacity that we owe. It should be embodied with required funds and plans of financial disbursement. Having such, then the un-spent capital budgets can be used proportionately in the agreed and prioritized activities. The sector can be periodically prioritized and assisted. There could be other options as well. I can see the roads paving towards the “social welfare enhanced economy”, ways leading for “enhancing the guts of the poor”. Do you see, Ministry of Finance, and other allied wings to upgrade rural employment and economy of the country?
Now the country has drafted the constitutions and aided regulations/laws, thus it is the right time to look back and think ahead-what can be done, and what we are doing right now. The country has “majority ruled” government and found “full-fledge” government running for 5-years after many decades. The politicians and government officials, especially leaders are uttering many welfare-oriented doors. Nevertheless, to ensure and strengthen the claims, harmonisation and consistency among the political class, institutions, and the bureaucratic systems are needed, which is indeed “flowing down with river streams” with no benefits. It should be the time to revise the economic policy of the country and to be assured that the economic system can facilitate to narrow the gap between poor and rich; increase the social securities in the form of improving the access to basic pre-requisites for the advancements of the social capital of the country. The constitution has the same “belief” and “the direction”, isn’t it?
Taxation policies, their allocation and management as such should be formulated ensuring their utilization for enhancing the physical capitals of the country. National consumption is the value of goods and services bought by people, where individual buying would act to aggregate the financial flows over time and space. Hence, consumption is normally the largest GDP component, and its level and dynamics can be treated as one of the strong indicator to judge the economic performance of a country. The fiscal policies of our country thus should also put forward how the national consumption can be up-scaled, identify the barriers in the path, and then delineate necessary provisions to guarantee the fixation of problems in the next fiscal budgetary years. I hope leaders, planners, bankers and administrative mechanism knows how to look on such prospects. I am not an expert on such.
So, is the cloud roaring above the cabinet house, uttering, “Provision of social welfare-based economy” and “leading for socialist-economy” is really a myth, disguise or felicity? Rest assured our financial hubs.
(Initiated with reference to the author’s discourse made in July 2015 on the similar issue-the author. The author Dr. Ranjan Parajuli has already served more than seven years in Energy Development activities in Nepal and is currently residing in Fayetteville, Arkansas, United States. He has the expertise on Sustainability. He has been a long time contributor for the Telegraph Weekly and to the telegraphnepal.com)