Friday, May 17, 2019

तीव्र तथा दिगो वृद्धिको महत्त्वाकांक्षा

यो बिचार कान्तिपुरमा जेठ १, २०७६ प्रकाशित भएको थियो। 



राष्ट्रपति विद्यादेवी भण्डारीद्वारा प्रस्तुत सरकारको नीति तथा कार्यक्रम कर्मकाण्डी खालको लाग्छ । त्योभन्दा पनि आर्थिक वृद्धि किन सरकारले तोकेको ८ प्रतिशत लक्ष्यभन्दा कम भयो ? आर्थिक वर्ष २०७६/७७ को बजेटका लागि स्रोत निक्र्योल भइनसक्दै प्रधानमन्त्री केपी शर्मा ओलीले सामाजिक सुरक्षा भत्ता, कर्मचारीको तलब र निर्वाचन क्षेत्रका नाममा सांसदको बजेट बढाउने घोषणा किन गरे ?

यी दुई विषयले अर्थतन्त्रमा कस्तो असर पर्छ भन्नेमा विचार-विमर्श भएको छैन । दुुई तिहाइ मत प्रँप्त सरकारको आधार वर्षमै अर्थमन्त्री युवराज खतिवडाले राखेको लक्ष्यभन्दा कम आर्थिक वृद्धि हुँदैछ । स्थिर सरकार भएकाले काम फटाफट गर्ने विश्वाससाथ २०७५/७६ को बजेटमा ८ प्रतिशत आर्थिक वृद्धिको लक्ष्य राख्दा प्रायः अर्थशास्त्री र नीति विश्लेषकहरूले महत्त्वाकांक्षी भनी उल्लेख गरेका थिए ।

अर्थमन्त्री खतिवडाले ‘यो सरकार पहिलेको जस्तो होइन र बजेट विनियोजन पहिलेको जस्तो छैन’ भन्दै आर्थिक वृद्धिको लक्ष्य कुनै हालतमा पुरा गरिछाड्ने दाबी गरेका थिए । यो लक्ष्य किन भेटिएन भनी नीति तथा कार्यक्रममा केही बोलिएन । ‘मेरो सरकारले लिएका आर्थिक नीतिहरूको कार्यान्वयनबाट उत्साहजनक परिणाम देखिन थालेको छ । पछिल्ला दुई वर्ष औसत ६ प्रतिशतभन्दा माथि र यो वर्ष ७ प्रतिशत आर्थिक वृद्धि हुने भएकाले दोहोरो अंकको आर्थिक वृद्धिको आधार तयार भएको छ’, यतिमात्रै भनियो ।

सरकारले बजेट ल्याउँदा आर्थिक वृद्धि आधारभूत मूल्यमा ८ प्रतिशत हुने लक्ष्य राखेको थियो । अहिले आर्थिक वृद्धि ७ प्रतिशत भयो र लक्ष्य नजिक पुग्यौँ भन्दैछ । सरकारले लिएको लक्ष्य आधारभूत मूल्यमा थियो । अहिले भनेको ७ प्रतिशत वृद्धि उत्पादक मूल्यमा हो । आधारभूत मूल्यमा वृद्धिदर ६.८ प्रतिशत हुने प्रारम्भिक अनुमान गरिएको छ ।

उत्पादकको मूल्यमा आधारित वृद्धिदर आधारभूत मूल्यमा भन्दा बढी हुन्छ । यसमा कर जोडेर सहुलियत घटाइन्छ । अझ आफू अनुकूल तथ्याङ्क व्याख्या गर्नैका लागि ‘पछिल्ला दुई वर्ष औसत ६ प्रतिशतभन्दा माथि र यो वर्ष ७ प्रतिशत आर्थिक वृद्धि’ भनिएको छ, जबकि पछिल्ला दुई वर्ष पनि औसत ७ प्रतिशत वृद्धिदर थियो ।

उद्योगको असर

लगातार तीन वर्ष ६ प्रतिशतभन्दा माथिको आर्थिक वृद्धि पहिलोपटक हो । यो गौरव गर्नलायक उपलब्धि हो । सरकारले आर्थिक आधारहरू तयार भइसकेकाले अब केही वर्षमै दोहोरो अंकको वृद्धि हुन्छ भन्दैछ । तर यसै आर्थिक वर्षमा लक्ष्यभन्दा कम आर्थिक वृद्धि हुनुुको मुख्य कारण औद्योगिक क्षेत्रको सुस्तता हो । समयमै मौसमी वर्षा, भूकम्पपछिको पुनर्निर्माणमा भएको प्रगति, सेवा क्षेत्रमा पर्यटन र खुद्रा व्यापार (जुन आयातमा निर्भर छ) ले ६.८ प्रतिशत वृद्धि पुर्‍याएको हो । यो वृद्धिमा कृषि क्षेत्रको १.६ प्रतिशत बिन्दु, औद्योगिक क्षेत्रको १.३ प्रतिशत बिन्दु र बाँकी सेवा क्षेत्रको योगदान छ । सेवा क्षेत्रभित्र पनि थोक तथा खुद्रा व्यापारको वर्चस्व छ । अर्थतन्त्रमा थोक तथा खुद्रा व्यापारको आकार औद्योगिक क्षेत्रको बराबर नै हो ।

औद्योगिक क्षेत्रमा ४ वटा आर्थिक क्रियाकलाप पर्छन् । खानी तथा उत्खनन, उद्योग, विद्युत, ग्यास तथा पानी र निर्माण । निर्माण सम्पन्न भई केही साना तथा मझौला विद्युत आयोजनाबाट राष्ट्रिय प्रसारण प्रणालीमा विद्युत थपिँदा र वर्षा राम्रो भएकाले खोलाको बहाव बढ्दा भइरहेका विद्युत आयोजनाले धेरै विद्युत उत्पादन गर्दा यो क्षेत्रको वृद्धि सर्वाधिक १२.४ प्रतिशत हुने प्रक्षेपपण गरिएको छ । भूकम्पपछिको पुनर्निर्माणमा चाहिने ढुङ्गा, गिटी, बालुवा र माटो उत्खननले यो क्षेत्रको वृद्धिदर ८.५ प्रतिशत हुने आँकलन गरिएको छ ।

तर निर्माण र उद्योग क्षेत्रको वृद्धिदर घटेको छ, जसले समग्र औद्योगिक क्षेत्रको वृद्धिदर अघिल्लो वर्षको ९.६ प्रतिशतबाट घटेर यो वर्ष ८.१ प्रतिशतमा पुग्यो । माथिल्लो तामाकोशी, मेलम्ची खानेपानी आयोजना र राष्ट्रिय गौरवका आयोजनामा अपेक्ष्ँितभन्दा ढिला काम हुँदा निर्माण क्षेत्रको वृद्धिदर ८.९ प्रतिशतमा सीमित भएको छ । निजी क्षेत्रको घट्दो लगानी वा विश्वासको संकट र आन्तरिक तथा बाह्य बजारमा हाम्रो उद्योगको बढ्दो लागत तथा घट्दो गुणस्तरले उद्योग क्षेत्रको वृद्धिदर ५.८ प्रतिशतमा सीमित भएको छ ।

सरकारले निजी क्षेत्रको विश्वास जित्न नसकेको यो तथ्यांकले देखाउँछ । उत्पादनको प्रतिस्पर्धात्मक क्षमता बढाउन पूर्वाधारको पर्याप्ततादेखि व्यवसाय सहजीकरणमा निर्णायक कदम चाल्नसकेको छैन । डेढ महिनाअघि बजेट ल्याएर पनि खर्च गर्ने क्षमता र पद्धतिमा नयाँपन ल्याउनसकेको छैन । नयाँपनका नाममा प्रधानमन्त्री, अर्थमन्त्री र विभागीय मन्त्रीहरूले सचिव, सहसचिव र आयोजना प्रमुुखलाई भेला पारेर निर्देशन दिनेभन्दा बाहेक केही गरेको देखिँदैन ।

वित्तीय संघीयतालाई प्रभावकारी कार्यान्वयन गर्न प्रदेश र स्थानीय सरकारलाई आयोजना हस्तान्तरण गरेको छैन । क्षमता विकास र आवश्यक सबै कानुन र संस्थागत संरचना बनाइदिएको छैन । यसैकारण कुल सरकारी स्थिर पुँजी निर्माणको वृद्धिदर यो वर्ष ८.१ प्रतिशतमा झर्दैछ । अघिल्लो वर्षको यस्तो वृद्धिदर २९.४ प्रतिशत थियो । काममा ढिलासुस्ती, बजेट तयारी र कार्यान्वयनको कर्मकाण्ड र आश्वासन धेरै गर्ने तर उपलब्धि थोरै भए पनि बढाइ-चढाइ आफ्नै गुणगान गाउने संस्कृतिको परिणाम हो यो ।

तीव्र वृद्धिको महत्त्वाकांक्षा

सरकाद्वारा बहुप्रचारित ‘अर्थतन्त्रको जग बलियो भइसक्यो र अब रफ्तारमा आर्थिक वृद्धि हुन्छ, आउने वर्ष करिब ९ प्रतिशत र त्यपछि १० प्रतिशतभन्दा माथि’बारे चर्चा गरौँ । आर्थिक, प्रशासनिक र संस्थागत आधारहरू बलियो भइनसकेकाले यस्तो उपलब्धि हुने कम सम्भावना छ । ७ प्रतिशतभन्दा माथि आर्थिक वृद्धि लगातार २५ वर्षभन्दा बढी समयसम्म १५ भन्दा थोरै देशले गरेका छन् । चीन, वोत्सना, ब्राजिल, जापान, द. कोरिया, सिंगारपुर जस्ता मुलुक यस कोटीमा पर्छन् ।

आर्थिक रूपान्तरण गर्ने पाँच तत्त्व छन् । विश्व व्यापारका अवसरलाई आफ्नो हित हुनेगरी नीति ल्याउनु र प्रतिस्पर्धी उत्पादन गर्नु । आर्थिक स्थिरता र वित्तीय अनुशासन कायम राख्नु । उच्च बचत तथा लगानी दर कायम राख्नु । बजार अर्थव्यवस्थालाई स्रोतहरूको उचित परिचालन गर्नदिनु र प्रतिबद्ध, विश्वसनीय तथा सक्षम सरकार हुनु ।

यी पाँच तत्त्वमध्ये स्थिर सरकार बाहेक हामीसँग भरपर्दा आधार छैनन् । त्यसैले आर्थिक वृद्धि तीव्र हुने आधार तयार भइसक्यो भनी विश्वास गर्न गाह्रो छ । २०३७/३८ सालमा आर्थिक वृद्धि ८.९ प्रतिशत थियो, तर त्यसले निरन्तरता पाएन । त्यसको अघिल्लो वर्ष ०.३ प्रतिशत आर्थिक वृद्धि भएको थियो । अघिल्लो वर्षको न्यून वृद्धिको प्रभाव थियो, आर्थिक चमत्कारले भएको थिएन ।

भूकम्पपछिको आर्थिक वृद्धिदर पनि यस्तै थियो । जसलाई सरकारले दिगो भइसकेको देखाउन तीन वर्ष ६ प्रतिशतभन्दा माथिको वृद्धिदर भनी अर्थ्याइरहेको छ । २०७३/७४ मा ७.७ प्रतिशत वृद्धि अघिल्लो वर्षको आधार अति नै कम (नाकाबन्दीका कारण ०.२ प्रतिशत वृद्धि) भएर र दुई चरणको स्थानीय निर्वाचन खर्चबाट हुनगएको थियो । २०७४/७५ मा ६.३ प्रतिशत वृद्धि केन्द्रीय र प्रादेशिक चुनावको खर्च, विद्युत आपूर्तिमा सुधार र पुनर्निर्माणका कामले गर्दा भएको थियो ।

यो वर्षको ६.८ प्रतिशत वृद्धि अनुकूल वर्षा, पुनर्निर्माण र पर्यटन र थोक तथा खुद्रा व्यापारले भएको हो । चुनाव र पुनर्निर्माण सधैं हुंँदैनन् र यिनले गर्दा हुने आर्थिक वृद्धि दिगो हुन्न । प्रायः आर्थिक वृद्धि मनसुनी तत्त्व र विप्रेषण आय (रेमिटान्स) ले धानेको आयातित वस्तुको खपतबाट भएको छ । यो संरचना चाँडै परिवर्तन हुनेवाला छैन ।

त्यसो भए गर्ने के त ?

उच्च तथा दिगो आर्थिक वृद्धि धान्न सरकारले वितरणमुखी बजेटभन्दा आपूर्ति क्षमता बढाउने वित्तीय र मौद्रिक नीति ल्याउनुपर्छ । चालु खर्च बढेर, राजस्व परिचालन लक्ष्यभन्दा कम भएर बजेट घाटा धान्नै नसक्ने अवस्था छ । आयात बढेर चालु खाता घाटा अहिलेसम्मकै सबैभन्दा उच्च भइसक्यो । विस्तारित र कमजोर मौद्रिक नीतिले ऋण वृद्धि निक्षेप वृद्धिभन्दा धेरै छ । बजारमा उत्पादनशील क्षेत्रमा कर्जाको अभाव छ । कथंकदाचित कर्जा उपलब्ध भए पनि व्याज चर्को छ ।

विस्तारित नीतिले आयातको खपत बढाएको छ, भुक्तानीको सन्तुलनमा घाटा भएको छ । कुनै क्षेत्रमा कर्जा धेरै गएको छ, तिनीहरूले आयात गरेका सामान वा कच्चा पदार्थ आयात गरेर बनाएका सामान नबिकेर गोदाममै थन्किएका छन । यसो गर्दा बैंकको ऋण तिर्न गाह्रो हुन्छ र खराब ऋण बढ्दै जान्छ । समग्र बैंकिङ क्षेत्रको वित्तीय जोखिम बढ्छ । मौद्रिक नीति बैंकिङ जोखिम कम गर्ने, ब्याज स्थिर राख्ने, उत्पादक क्षेत्रमा बढी ऋण परिचालन गर्ने र तरलता समस्या सम्बोधन गर्ने खालको हुनुपर्छ । अनि मात्र आर्थिक वृद्धि उच्च र दिगो हुने सम्भावना रहन्छ ।

अन्तर्राष्ट्रिय मुद्रा कोषले सरकारलाई विस्तारित बजेट र मौद्रिक नीति नल्याउन सुझाव दिइसकेको छ । नत्र भविष्यमा अचानक समायोजन गर्नपर्‍यो भने अर्थतन्त्रमा नराम्रो असर पर्न सक्छ । राष्ट्रपतिले नीति तथा कार्यक्रममा प्रतिबद्ध गरेका वितरणमुखी कार्यक्रम अन्तर्राष्ट्रिय मुद्राकोषले दिएको सुझाव विपरीत छ । मौलिक हक पूरा गर्ने भन्दैमा अर्थतन्त्रले धान्नै नसक्नेगरी वितरणमुखी बजेट ल्याउन हुन्न । वित्तीय अनुशासन पालना भएन भने अर्थतन्त्रमा नराम्रो असर पर्छ । अबको बजेटले चालु खर्चलाई कित ‘फ्रिज’ गर्ने नत्र भने घटाएर पुँजीगत खर्च बढाउने हो । सामाजिक सुरक्ष्ाँमा रकम वितरण गर्ने वैकल्पिक बाटो खोज्नुपर्छ । विकास निर्माणमा सांसदको भूमिका तजविजी खर्चको अधिकार हैन, संस्थागत संरचनामै भूमिका बलियो बनाउनेतर्फ लाग्नुपर्छ । क्षेत्रगत कार्टेलभन्दा निष्पक्ष बजार व्यवस्थालाई प्रबद्र्धन गर्ने नियामक तथा संस्थागत संरचनालाई प्रोत्साहित गर्नुपर्छ । प्रायः सबै क्षेत्रमा संरचनात्मक परिवर्तनको आवश्यकता छ ।

Thursday, May 9, 2019

Reliability of India's new GDP series data

Pritam Bhattacharya writes in Mint on how and why experts are questioning the reliability of India's GDP statistics:

Over the past few years, a growing number of economists and analysts have raised questions about India’s new gross domestic product (GDP) series. One of the key bones of the contention is related to the use of a new database on companies, MCA-21. Critics had pointed out that this database could include ghost firms that exist only on paper, and had demanded that the database be made public.
[...]Historically, the CSO relied on a sample survey conducted by the RBI to compute estimates for the corporate sector. The RBI sample consisted of only a few thousand companies, and hence the estimates were blown up (or multiplied) in proportion to the coverage of the paid up capital of the sample companies to the total number of companies registered with the ministry of company affairs (MCA).
This methodology was questioned, among others, by the Rangarajan Commission, which pointed out that the presence of a large number of fictitious or shell companies in the MCA records tended to lend an over-estimation bias in the GDP numbers.
Ahead of the base-year revision in 2015, a sub-committee appointed by the Advisory Committee on National Accounts (ACNAS) suggested the use of a new database, MCA-21, to construct the new GDP series. But instead of using the estimates generated from the database directly, as agreed upon by the sub-committee, the CSO scaled up even these estimates to account for non-reporting companies, which had declared returns in earlier years.
[...]The root of the problem was that no one really knew, or bothered to ascertain, the true size of the universe of genuine companies in India. Nor was any attempt made to verify the extent to which MCA-21 data was accurate, or to validate it using other databases (such as the Annual Survey of Industries, or ASI). As it turns out, NSSO field staff has now found that many companies reported to be “active" companies by the MCA are actually ghost companies that exist only on paper.
[...]There were other questions raised about the new methodology, including the use of formal sector indicators to estimate informal sector growth, such as using growth rates of the organized manufacturing industry to estimate growth for unorganized manufacturing. Others pointed to the potential mis-classification of industries, which meant that growth in one sector might well have been attributed to another. Still others argued that the use of inappropriate deflators tended to overstate the real GDP growth numbers, i.e., the GDP growth adjusted for inflation.
[...]“Our official statisticians know that the costs of under-estimating GDP growth are far higher than that of over-estimating," said one of the former NSC members cited above. “If the numbers are being jacked up, either because of depressed deflators, or any other reason, you are less likely to be questioned."

Government says there is no impact of MCA-21 irregularities on GDP estimates.  

“It is emphasised that there is no impact on the existing GDP/GVA estimates for the corporate sector as due care is taken to appropriately adjust the corporate filings at the aggregate level based on the paid up capital," the ministry of statistics and programme implementation (MoSPI) said on Thursday adding the data shortcomings are known. 
“The issue of coverage, quality and timeliness of the MCA database vis-à-vis the Annual Survey of Industries had been discussed in detail in the various meetings of the Advisory Committee on National Accounts Statistics and adopted only thereafter,” it said pointing out that the methodologies followed for the 2011-12 series and also the back-series calculations are there in public domain. 

Tuesday, April 30, 2019

Third country trade via China, BRI and Nepal, disinterest in SSF and sugar politics

Nepal signs deal with China to access seven Chinese sea and land ports

From The Kathmandu Post: Nepal and China on Monday signed the Protocol on Implementing Agreement on Transit and Transport and six other agreements in Beijing after delegation level talks between President Bidya Devi Bhandari and her Chinese counterpart Xi Jinping at the Great Hall of the People. Minister for Foreign Affairs Pradeep Gyawali and Minister for Transport of China Li Xiaopeng signed the agreement on behalf of their respective governments, according to the Nepali Embassy in Beijing. The protocol had been pending since Nepal and China signed the Transit and Transportation Agreement in March 2016 during Prime Minister KP Sharma Oli’s visit to the northern neighbour.

The Transit and Transportation Agreement was signed just months after an undeclared Indian border blockade was lifted, with a view to diversifying Nepal’s trade and paving the way for landlocked Nepal to carry out third country trade through ports in the northern neighbour. But for the third-country trade via China to commence, the protocol was a must.

The signing of the protocol makes it possible for Nepal to use four Chinese sea ports--in Tianjin, Shenzhen, Lianyungang and Zhanjiang--and three land ports--in Lanzhou, Lhasa and Shigatse--for third-country import. It will also allow Nepal to carry out exports through six dedicated transit points between Nepal and China.

>>Other agreements include:

  • Handover Certificate of Grant-Aid for the Repair and Reinforcement Project of the Existing China-aided Projects
  • Agreement on Economic and Technical Co-operation
  • Minutes of Meeting on Strengthening Assistance Co-operation in the Field of Livelihood in the Northern Region of Nepal
  • Agreement on Co-operation and Mutual Administrative Assistance in Customs Matters
  • MoU on Co-operation on Standardization between Nepal Bureau of Standards and Metrology (NBSM) and Standardization Administration of China (SAC)
  • Agreement on Preventing the Theft, Clandestine Excavation and Illicit Import and Export of Cultural Property
Meanwhile, a joint communique of the Leaders' Roundtable of the 2nd Belt and Road Forum for International Cooperation included "the Nepal-China Trans-Himalayan Multi-dimensional Connectivity Network, including Nepal-China cross-border railway"


Govt continues sugar import restriction until mid-July

From myRepublica: Though Prime Minister KP Sharma Oli had said that he was ‘tricked’ by sugar mills to restrict the import of sugar, the government has continued the quantitative restriction until mid-July. The restriction that was in place until Chaitra end (April 13) was extended till mid-July. According to a notice published in the Government on Nepal Gazette on April 15, the deadline for the import restriction was extended until July 16. The decision to give the import restriction of sugar continuity was taken a week after Prime Minister Oli’s statement criticizing sugar mills for ‘tricking’ him into imposing the quantitative restriction on import of sugar. 

According to the quantitative restriction which was put in place in April 14 last year, the import of sugar exceeding a total quantity of 94,900 tons was restricted. As sugar of that quantity has already been imported, there won’t be sugar imports anymore. The decision to impose restriction on imports, however, was not free from the controversy. Consumer activists have criticized the government for bowing down to sugar mills’ pressure to restrict imports which prompted price hike immediately after the imports came to a halt. Even Prime Minister Oli, after seven months of the decision, had admitted at a public program that sugar mill owners misled him about the scenario of supply and production of their products to make him impose the restriction. But instead of course correction, the government has not allowed the deadline for the sugar import restriction to lapse. 

Concluding that there was ‘collusion’ between government officials and the sugar mills to artificially drive up prices, the Public Accounts Committee, upon the recommendation of its sub-committee, instructed the Commission for Investigation of Abuse of Authority to investigate.

Employers hesitant to join Social Security Fund

From Nayapatrika: सरकारले निकै तामझामका साथ सुरु गरेको सामाजिक सुरक्षा कार्यक्रम कार्यान्वयनमै आशंका उब्जिएको छ । देशभर करिब साढे ९ लाख रोजगारदाता रहेको भए पनि अन्तिम दिन शनिबारसम्म सामाजिक सुरक्षा कोषमा आबद्ध हुने रोजगारदाताको संख्या नगन्य छ । सातै प्रदेशका रोजगारदातालाई सूचीकरणका लागि दिएको समय समाप्त भइसक्दासमेत कोषमा शून्य दशमलव २७ प्रतिशत अर्थात् २ हजार ४ सय ८२ रोजगारदाता मात्रै आबद्ध भएका छन् । ऐनको व्यवस्थाअनुसार कोषमा रोजगारदाता आबद्ध नभएपछि कोषको कार्यान्वयनमै आशंका उब्जिएको हो । पछिल्लोपटक रोजगारदातालाई कोषमा आबद्ध हुने म्याद आगामी असार मसान्तसम्मका लागि थप गरिएको छ । 

कोषको अनलाइन प्रणालीमार्फत रोजगारदाताले सूचीकरण गर्न सक्ने व्यवस्था मिलाइएको थियो । रोजगारदाताले आफू सूचीकरण भएको तीन महिनाभित्र आफ्नो रोजगार सम्बन्ध कायम रहेका श्रमिकलाई कोषमा सूचीकरण गराउनुपर्ने कानुनी व्यवस्था छ । कोषका अनुसार आबद्ध केही रोजगारदाताले हालसम्म ४ हजार ६ सय ३८ श्रमिकलाई मात्र कोषमा सूचीकृत गराएका छन् । सरकारी सेवामा बहाल रहेका तथा सरकारी कोषबाट पारिश्रमिक पाउने व्यक्ति, अनौपचारिक क्षेत्रका श्रमिकहरू र स्वरोजगारीसमेत सामाजिक सुरक्षा कोषमा समेट्ने भनिए पनि सरकारले त्यसतर्फ कुनै कदम चाल्न सकेको छैन । 

How can Nepal sustain high growth rate?

It was published in The Kathmandu Post, 29 April 2019



Maintaining the current growth rate long-term requires devising a number of sustainable macro-economic policies.

The Central Bureau of Statistics estimated that the economy would likely grow at 6.8 percent in 2018/19, up from 6.3% last year. Since this is the third consecutive year the economy grew by over 6%, some analysts and the government are arguing that the economy is on a solid footing and that double-digit growth is within reach. Finance Minister Dr. Yuba Raj Khatiwada recently argued that the government’s economic outlook is realistic and that it is natural to have large fiscal and current account deficits in an emerging economy like ours.

However, the reality is different. Growth rates in the last three years are above the historical average, beyond the economy’s estimated productive capacity, and are not supported by strong economic fundamentals. The estimated growth rate for FY2019 is well below the government’s ambitious 8 percent target. Expansionary fiscal and monetary policies are increasing external and financial sector vulnerabilities. An unsustainably high current account deficit and large balance of payments shortfall along with declining foreign exchange reserves may compel the government to go for an abrupt policy adjustment in the near future. Fiscal and monetary policies should be sound and geared toward increasing private sector investment along with public capital spending absorption capacity to sustain high growth rates. 

Industrial slowdown

In FY2019, bumper agricultural harvest and pickup in services sector activities and reconstruction related works contributed the most to maintain high GDP growth. Specifically, robust agricultural output is underpinned by favorable monsoon, and high services sector output is supported by wholesale & retail trading, tourism and real estate activities. Wholesale and retail trade activities, whose share of GDP is equal to that of the entire industry sector (composed of mining and quarrying; manufacturing; electricity, gas and water; and construction), mainly depend on remittance-financed imported goods. These drivers of growth are not sustainable and pretty much exogenously driven. 

Instead, industrial output grew at a lower rate than last year because manufacturing and construction activities slowed down. Within industrial sector, electricity, gas and water subsector grew at the fastest rate: 12.4%, up from 9.6% in FY2018 as additional electricity was connected to the national grid and a favorable monsoon increased water flow, which then boosted hydroelectricity generation of projects that depend on run-of-the-river type production. Similarly, mining and quarrying activities are projected to grow at 9.5%, up from 8.9% in FY2018, as mining and quarrying of stones, sand, soil and concrete intensified in response to large and growing demand for reconstruction related materials. The haphazard mining and quarrying of riverbeds and hills, sometimes at the initiation of local governments, is one of the factors for this sub-sector’s robust growth. 

However, slow public capital spending, especially the setback in Melamchi water supply and delay in Upper Tamakoshi hydroelectricity, both of which were expected to be completed by this year after multiple time extensions, dragged down construction sector growth to 8.9% from 10% last year. Similarly, manufacturing activities are projected to grow by 5.8%, much lower than 9.2% in FY2018, indicating the lack of private sector investment as well as loss of both domestic and external markets due to eroding cost and quality competitiveness. Stable supply of electricity and improved industrial relations were not sufficient to jack up manufacturing output. 

It shows that there has not been much improvement in increasing capital spending despite unveiling the budget one-and-a-half months before the start of the fiscal year. The fiscal transfers to subnational governments (which come under recurrent budget of federal government, but capital budget of provincial and local bodies) are not used to create productive capital assets, but on activities that increase unproductive imports (such as vehicles) and on petty projects with high transaction cost but low productive value. No wonder, public gross fixed capital formation is projected to decrease by 8.1%, from 29.4% growth in FY2018.  Furthermore, despite all the talk about investment-friendly legal and operational environment, manufacturing sector growth tanked. Repeated talk about improvements in business climate and adequate supply of inputs (such as electricity and road network) is not translating into action on the ground.

What next?

The foundation for sustaining high economic growth is not solid yet. The 7.7 percent growth in FY2017, the highest since 7.9 percent growth in FY1994, was largely due to a base effect and high spending during the first two phases of local elections. In FY2018, spending during local and parliamentary elections gave a temporary boost to aggregate demand along with notable progress in industrial sector as better electricity supply and a pickup in post-earthquake reconstruction work increased economic activities. In FY2019, it was favorable monsoon, reconstruction works and robust services output underpinned by wholesale and retail trade, tourism and real estate activities. These factors do not alone sustain high growth rate, as they are susceptible to exogenous shocks beyond the control of the government. Furthermore, there will not be elections and reconstruction related temporary fiscal stimulus forever. 

We need to expand supply capacity of the economy to sustain high growth rate and this expansion should be in line with our capacity to manage fiscal and monetary policies. For instance, an expansionary fiscal policy has led to large increase in budget deficit, which in turn is increasing imports and subsequently current account deficit. In addition, it is either crowding out private investment or raising their cost of borrowing. Similarly, expansionary monetary policy has increased credit growth more than deposit growth and that it is flowing mostly to support higher consumption and import. Imports and capital goods accumulation have grown at such a rate that the private sector is worried about slowdown in sales and rapid building up of inventory or stocks. Overly accommodative monetary policy has raised non-performing assets, decreased credit flows to productive sectors, and increased financial sector vulnerabilities. 

To sustain high growth rate, monetary policy should be tightened to ensure that credit growth is in line with deposit growth, consistent with regulatory requirements, and that it goes to productive sectors to augment supply capacity. Meanwhile, fiscal policy should rationalize recurrent spending but increase quantum and quality of capital spending. On regulatory and institutional front, the government should foster competition rather than sectoral cartels. Structural reforms should be implemented, including revising procurement laws and easing procedures to doing business.

The efficiency gains from these measures will contribute to accelerate economic activities on a high and sustainable path, and are better than expansionary fiscal and monetary policies designed to boost short-term aggregate demand at the cost of medium-term fiscal and monetary soundness. Furthermore, they will ensure that productive or supply capacity increases too in a sustainable way.

Saturday, April 27, 2019

CBS projects Nepal's GDP to grow at 6.8% in FY2019

On 26 April, Central Bureau of Statistics (CBS) estimated that Nepal’s economy (at basic prices) would likely grow at 6.8% in FY2019, up from 6.3% revised estimate for FY2018. However, the projected growth rate is lower than the government’s 8% target. This is the third consecutive year GDP grew by over 6%. The 7.7% growth (at basic prices, FY2001=100) in FY2017 was the highest since FY1994, when GDP grew by 7.9%. That was largely due to a base effect and spending during the first two phases of local elections. 

In FY2018, spending during local and parliamentary elections gave a temporary boost to aggregate demand along with notable progress in industrial sector as better electricity supply and a pickup in post-earthquake reconstruction work increased economic activities. 

In FY2019, bumper agricultural harvest and pickup in services sector activities contributed the most to the GDP growth. Specifically, agricultural, industrial and services sectors are projected to grow by 5.0%, 8.1% and 7.3%, respectively. Agricultural sector contributed 1.6 percentage points, industrial sector 1.3 percentage points and services sector 3.9 percentage points to the overall projected GDP growth of 6.8%. These projections are based on eight to nine months data. 

Specifically, electricity, gas and water sub-sector is projected to grow at the fastest rate (12.4%, up from 9.8% in FY2018), followed by wholesale and retail trade (10.9%, down from 12.3% in FY2018), mining and quarrying (9.5%) and construction (8.9%). These indicate accelerated work in hydroelectricity generation and ongoing construction as well as pickup in reconstruction related activities (public as well as private housing and infrastructure). The high wholesale and retail trade activities are related to the burgeoning import growth and remittance income.  Overall, robust agricultural output is underpinned by favorable monsoon and timely availability of agricultural inputs, and high services sector output is supported by wholesale & retail trading, tourism and real estate activities.

Agricultural output is projected to grow at 5.0%, up from 2.8% in FY2019, largely due to a bumper agricultural harvest (thanks to favorable monsoon) and increase in output of forestry products used for reconstruction activities. In addition to record paddy output, which has a weight of 20.8% in overall agricultural GDP basket and is expected to grow by 8.9% (up from 1.5% decrease in FY2018), good harvest of vegetables, wheat, maize and potato boosted agricultural sector growth. Agricultural commercialization and availability of chemical fertilizers and irrigation facilities also helped to increase agricultural output. 

Industrial output is projected to grow at 8.1%, down from 9.6% in FY2018 and 12.4% in FY2017. Within industrial sector, electricity, gas and water subsector grew at the fastest rate: 12.4%, up from 9.6% in FY2018. About 22MW of additional electricity was connected to the national grid and a favorable monsoon increased water flow, which then boosted hydroelectricity generation of projects that depend on run-of-the-river type production. More electricity is expected to be added to the national grid by the end of this fiscal year. Mining and quarrying activities are projected to grow by 9.5%, up from 8.9% in FY2018, as mining and quarrying of stones, sand, soil and concrete intensified in response to large and growing demand for reconstruction activities. The haphazard mining and quarrying of river beds and hills, sometimes at the initiation of local governments, is one of the factors for this sub-sector’s robust growth.

Meanwhile, construction and manufacturing activities slowed down. Construction activities are projected to grow by 8.9%, down from 10% in FY2018, largely due to the slow capital spending (especially the setback in Melamchi water supply and delay in Upper Tamakoshi hydroelectricity, both of which were expected to be completed last year). Manufacturing activities are projected to grow by 5.8%, much lower than 9.2% in FY2018, indicating the lack of private sector investment as well as loss of both domestic and external markets due to eroding cost and quality competitiveness. Stable supply of electricity and improved industrial relations were not sufficient to jackup manufacturing output. 

Services output is projected to grow at 7.3%, marginally up from 7.2% in FY2018. Within service sector, wholesale and retail trade activities are expected to grow by 10.9%, down from 12.3% in FY2018. This reflects continued strong import demand (as remittance-financed imported goods are traded in the domestic market) and sale of agricultural and industrial goods. Record tourist arrivals and stable supply of electricity underpinned activities in hotels and restaurants. However, 8.3% projected growth for this sub-sector is slower than 9.8% in FY2018. Tourist arrivals increased by 24.8%, reaching a record 1,173,072 in 2018, up from 940,218 in 2016. Expansion of communications network as well as smooth operation of transportation services (including air transport) pushed its growth to 5.9% from 4.6% in FY2018. Financial intermediation is projected to grow by 6.2%, slightly lower than 6.4% in FY2018, reflecting income of NRB, BFIs, insurance board and companies, securities board, EPF and CIF. Real estate activities have picked up and consultancy businesses have flourished, pushing real estate, renting and business activities growth to 6.1%, up from 5.2% in FY2018. All other services sub-sectors are expected to grow by over 5%. 

On the expenditure side, GDP (at market prices) grew by 7.1%, up from 6.7% in FY2018. Consumption accelerated but public fixed investment (public GFCF) decelerated, indicating a slowdown in capital spending. A much higher increase in import and a slower increase in export meant that net export was negative. 

Here are some takeaways from the latest GDP estimate.

First, three consecutive years of over 6% growth is quite remarkable. But, recall that in FY2017 it was a base effect, in FY2018 it was elections and in FY2019 it was favorable monsoon and pick-up in retail and wholesale trade (along with tourism and post-earthquake related reconstruction activities). It means that it was a consumption-led growth (supported by higher remittance income and public recurrent expenditure). Consumption contributes more GDP growth than any other component (except change in stock, which is not a reliable measure but adds up to total GFCF since it is derived residually and statistical discrepancy or error is included). Change in stocks at 25.3% of GDP is unusually high.

Second, is this going to be sustainable? The government is hoping that investment will increase in large infrastructure projects and construction related activities there will drive demand. If this happens along with a substantial uptick in capital spending absorption capacity, then growth around 6% is achievable (favorable monsoon and tourism factors as always). Else, growth may decelerate in the coming days. Note that monetary and fiscal policies have been expansionary, resulting in high credit growth as well as high import growth. The current account deficit is increasing alarmingly, balance of payments is in deficit and forex reserves are decreasing. The government may not be able to continue with larger fiscal deficit (also fiscal stimulus) or distributive programs. It will have to wind down unnecessary expenditure (mostly from recurrent budget) while keeping capital expenditure high and efficient. So, unless public and private investments increase further, this streak of growth rate is not sustainable. 

Third, the slow public capital spending may be one of the reasons why the government was not able to attain its GDP growth target of 8%. Public gross fixed capital formation actually decreased by 8.1%, from 29.4% growth in FY2018. The unveiling of budget one-and-a-half months prior to the start of the fiscal year did not help. Chronically low capital spending is a structural as well as procedural issue. The fiscal transfers to subnational governments (which come under recurrent budget of federal government, but capital budget of provincial and local bodies) are not being used to create capital assets, but on activities that increase unproductive imports (vehicles, etc).

Fourth, despite all the talk about investment-friendly legal and operational environment, manufacturing sector growth plunged to 5.8% from 9.2% in FY2018. Talk is not reflecting into action on the ground. If investment and industrial activities do not pickup, then it will be hard to maintain growth rate of 6% (we are reaching the fiscal limit of public capital spending given the large and growing recurrent spending commitments). Manufacturing sector is just 6.3% of GDP. The high credit growth used to finance imported goods but continued liquidity tightness (with high interest rates) may be affecting manufacturing output. This sector is losing both in terms of cost and quality competitiveness.  

Fifth, like in FY2018, it’s the wholesale and retail trade that is contributing the most to the growth. Out of 6.8% projected GDP growth, this sub-sector alone contributed 1.6 percentage points. Its share in GDP is about 14.8%, which means it as big as the entire industry sector (composed of mining & quarrying, manufacturing, electricity gas and water, and construction). High import growth and remittance income fuel growth of this sub-sector. So, even a marginal optimistic growth projection for retail and wholesale trade activities makes a huge different to overall growth rate because its share in GDP is the largest and also contributes the most to GDP growth rate. 

Sixth, per capital GDP has increased to US$1034, thanks to a double-digit growth of nominal GDP (14.3%, up from 13.3% in FY2018). The size of the economy is projected to increase to US$30.5 billion. Per capita gross national disposable income (which factors in remittances as well) is projected to be US$1364, up from US$1290 in FY2018. Gross domestic savings (GDP minus final consumption) has increased to 20.5% of GDP, up from about 10% of GDP four years ago. What is happening is that on the expenditure side consumption is lowered but gross investment is increased drastically (by increasing change in stocks). This doesn’t fit well with the supply-side data on high services output but restrained industrial output (especially manufacturing and construction). 

Seventh, the economy can sustain growth of over 6% with an appropriate mix of macroeconomic strategies, financial arrangements, smart project execution, and supportive institutions and policies. Government has an important role to play in providing critical infrastructure, addressing market failures, designing a growth-enhancing tax regime, and implementing business-friendly policies to usher in a meaningful structural transformation. It also needs to enhance both the quantum and quality of public capital spending to over 8 percent of GDP annually. Again, the key going forward would be to increase private investment and to reduce fiscal deficit without jeopardizing quantum and quality of capital spending. 

Eighth, for the first time the CBS released provincial GDP estimate. The share of province 3 is the highest (41.4%), followed by province 5 (13.1%), province 1 (14.6%), province 2 (12.8%), Gandaki (8.3%), Karnali (3.4%), and Sudur Paschim (6.4%). Province 5 grew at the fastest rate (7.4%). The CBS released just growth estimates but not the actual numbers (constant prices) for last year and this year.

Wednesday, April 17, 2019

Bherai Babai tunnel breakthrough, cash transfer or public investment and effect of home assigned civil servants

From The Kathmandu Post: The Rs33.18 billion Bheri Babai Diversion Multipurpose Project in Surkhet has crossed a major milestone with the completion of a tunnelled connection, allowing diversion of water from Bheri River to Babai River for irrigation and power generation. Four years after the national pride project was inaugurated by the late Sushil Koirala in April 2015, the Bheri Babai project marked the tunnel breakthrough one year before the original deadline--thanks to a number of factors, including the use of technology, topography and well-coordinated efforts.
In a first, the 12-km tunnel was dug using a tunnel boring machine built and installed by a US-based manufacturer. The civil contractor for the project is China Overseas Engineering Group. Oli described the project as a great example of global partnership in development, saying the achievement was a result of the synergy between a Chinese construction company, American technology and Nepali manpower. With this, the major Rs10.57 billion tunnel component of one of the major strategic projects of the country, which is expected to ease the food crisis in the mid-western region by increasing agricultural yield, has been completed. The second component--hydroelectricity and other structures worth Rs12.10 billion--is expected to begin a few months from now.
The tunnel with a capacity to divert 40 cubic metres of water per second will be used to irrigate 51,000 hectares of land throughout the year in Banke and Bardia districts and generate 46 megawatt electricity. Although the government had invited bids in July 2012, lack of resources and delay in contractor appointment had pushed the project inauguration to April 2015. “Technology definitely played a crucial role, but that aside, the contract was not divided into many portions and contractors were selected accordingly,” said Upadhyay. “More importantly, the project was free from bureaucratic hassles and issues that cropped up at the construction site were resolved then and there.”

>>This multipurpose project, the first-of-its-kind inter-basin water transfer project in Nepal, has the potential to irrigate 51,000 hectares of land year-round in Banke and Bardiya districts when it comes in full operation. This will boost agricultural productivity and income of people in the two districts as well in adjoining districts (positive spillovers). Furthermore, 46 MW hydroelectricity from the project itself will be a boon to Province 5 and Karnali (water comes from Bheri Ganga Municipality of Surkhet District, Karnali Province).

That said, we don't yet know when the projects will come into operation. The procurement to construct a dam to divert water to the tunnel is yet to be done. Similar is the case with construction of power house. It might take another five years. 


Cash transfer vs. public services

Khemani et al. write in Future Development blog: In a survey conducted in rural Bihar over November-December 2018, they asked people if they preferred cash transfers if the budget would come from expenses earmarked for other kinds of spending.
Two different trade-offs with targeted cash transfers were presented in the allocation of (a hypothetical) additional budget for the block, a key local administrative unit in India. Respondents were told that since the (hypothetical) additional budget would be limited, the cash would come at the expense of either public health and nutrition services for children in their block or improving the quality of roads.
Of the approximately 3,800 respondents, only 13 percent chose cash if it came at the expense of spending to improve public health and nutrition (preferred by 86 percent of respondents). In contrast, if the cash came at the expense of improving roads throughout the block, the number rises to 35 percent of respondents choosing cash. These percentages are the same when we restrict the sample to respondents with little or no education, or to those who belong to historically disadvantaged caste groups. That is, the poor and less educated are overwhelmingly choosing public health over cash.
Meanwhile, David Evans writes in CGD blog
Listen to the voices of citizens. But before throwing the cash transfer baby out with the bathwater, let’s make sure those citizens have clear information about their trade-offs.

Should civil servants be allowed to serve in their home areas?

Xu et al. write in VoxDev: that assigning civil servants to their home areas may limit their ability to provide effective public services. Social proximity adversely affects bureaucrat’s performance through political favoritism. 
Our main finding is that officers allocated to their home state perform worse than comparable officers who are allocated to non-home states. On average looking across the entire nation, we find that officers allocated to their home states are deemed to be more corrupt and less able to withstand illegitimate political pressure. The extent to which home allocations worsen performance, however, varies substantially across states. Home-state officers perform worse in states that score higher on corruption as measured by the Transparency International score. Consistent with this subjective evidence we find that, in the more corrupt Indian states, home-allocated officers are more likely to be suspended primarily due to having court cases pending against them. 
We provide corroborating evidence that home officers, especially more senior ones, are more susceptible to capture by the political elite by investigating differential patterns of political interference in the careers of IAS officers based on their proximity to chief ministers, the political heads of Indian states.

Wednesday, April 10, 2019

Economic transformation in Nepal

Yurendra Basnett, Sameer Khatiwada and I have contributed a chapter on economic transformation in Nepal in a new book titled "The Politics of Change: Reflections on Contemporary Nepal", published by Social Science Baha and The Asia Foundation. 


Bizmandu ran a three-part series based on the chapter :