Tuesday, November 13, 2018

Nepal Investment Summit: Rhetoric vs Reality

It was published in The Kathmandu Post, 12 November 2018, p.8

Tangible outcomes must be met before holding the next Nepal Investment Summit

The government is planning to organise an investment summit around March 2019 despite having nothing much to show since Nepal Investment Summit in March 2017. The Investment Board of Nepal (IBN), which is spearheading the idea of organising the summit, wants to boast about the government’s ‘stable politics’ and investment policies, especially after the elections. However, this rhetoric means nothing to investors if the government cannot show them tangible outcomes that would facilitate investments in ways that are different from previous years.

Organising a grand summit for fleeting fanfare does not constitute promotion of the country as an investment destination. Investors will be more interested in concrete accomplishments since the last summit, the government’s promises vis-à-vis its pro-activeness in amending and implementing legislations, and the resulting number of successful commercial deals and projects signed. Or else, it will simply be yet another summit that leaves us with little more than photo-ops, self-glorification, and never-ending commitments.

Little progress

Investors from seven countries signed letters of intent to invest US$13.5 billion-in sectors including hydropower, airlines, tourism, agriculture, railways, and infrastructure-during the investment summit in 2017. About 61 percent of it came from Chinese investors.

The summit in 2017-organised to promote Nepal as an investment destination for the next decade-targeted diplomatic missions in the country, current and potential foreign investors, media, nonresident Nepalis, experts, and private actors. The hype before the event and the rousing fanfare immediately after the investment commitments were made tapered off in no time. The investment promotion agencies have not been successful in transitioning from intent to commitment to investment. Although the summit had broad political support, the IBN has failed to do the required follow-up work with the seriousness it deserves. All we are getting is bureaucratic lip service. 

Let’s look at the outputs thus far. First, foreign direct investment (FDI) commitments increased from 0.6 percent of gross domestic product (GDP), or about Rs.150 billion, in 2016/17 to about 1.9 percent of GDP (Rs556 billion) in 2017/18. However, none of the investment commitments in new projects can be traced back to the investment summit in 2017. Meanwhile, actual FDI investment increased from 0.5 percent GDP to 0.6 percent of GDP over the same period. Again, none of these are even remotely related to the investment summit.

Second, one of the main points trumpeted by the IBN to justify the new summit is that the time is different now. Yes, the two big communist parties forged an alliance, forming Nepal Communist Party, and formed a majority government not only at federal level, but also provincial and local levels. However, this alone is not a harbinger of political and policy stability. The previous summit had support from the same political parties and politicians. The co-chair of the ruling party was the prime minister during the investment summit last year.

Third, a cosmetic change in government leadership but not in governance style that produces promised outputs does not mean much to investors. They are interested in whether the government is keeping its promises in a timely manner, and how easier it is for them to invest, earn and repatriate income. There is hardly anything to show on this front. The previous summit was tagged as an effort to promote Nepal for the next ten years. However, after just two years, devoid of any commendable result, the IBN is proposing for a new investment summit. It does not send a good signal of consistent leadership with concrete vision and viable work plan. Furthermore, inconsistencies, especially policy reversals to benefit a particular group of investors, unnerve genuine investors. For instance, the controversy over re-awarding Budhi Gandaki project by the cabinet to a foreign firm with a questionable record in Nepal is a case in point.

Fourth, latest global reports that track the progress of our economy relative to itself and to other economies are not encouraging either. Nepal ranked 109 out of 140 economies in the Global Competitiveness Report 2018, which evaluates an economy on a range of factors such as institutional quality, state of infrastructure, business dynamism and innovation capability. Nepal’s rank was 108 in 2017 but it slipped by one position to be the least competitive economy in South Asia. In terms of enabling environment such as institutions, infrastructure, ICT adoption, and macroeconomic stability, Nepal’s relative standing is not encouraging.

Similarly, Doing Business Report 2019 indicates an economy that did not make any progress in making business operations smooth and hassle-free last year. Nepal scored 59.63 (rank 110 out of 190 economies), lower than 59.95 last year, indicating that doing business, in fact, was made burdensome. Nepal fares notably low in enforcing contracts, resolving insolvency, getting credit and paying taxes.

Simplify process

The overall outcomes since the last investment summit are not encouraging at all. The economy is not agile and future-ready enough to entice investors. It doesn’t even have basic infrastructure and proactively supportive institutions to create a foundation for enhancing productivity. Instead of wasting time and resources on another investment summit, the IBN should do the necessary to follow-up on the investment commitments made during last year’s summit. Meantime, the government should be doing the needful to develop a conducive legal and regulatory framework to attract more FDI, starting with approval of foreign investment and public-private partnership legislation.

The next five years should be marked by notable progress in reducing barriers to doing business in Nepal: aiming for the best investment destination by ensuring speedy clearance of investment proposals, requiring the lowest number of documents to enter, operate and exit the market, and making bureaucracy and government leadership the most efficient in South Asia region. Boasting about these tangible milestones is more meaningful than just claiming political stability under the communist leadership, which is already vulnerable to a resurgence of factionalism within the party. 

Wednesday, October 17, 2018

Nepal ranked 109 out 140 economies on economic competitiveness

The World Economic Forum has published an updated version of its global competitiveness rankings by including potential of and opportunities from rapid technological change (dubbed as the Fourth Industrial Revolution [4IR]), which is also one of the critical factors for higher productivity and an important determinant of long-term growth and income.

The new report is named Global Competitiveness Report 2018 (GCI 4.0 2018) and includes a number of new, critically important factors such as entrepreneurial culture, companies embracing disruptive ideas, multistakeholder collaboration, critical thinking, meritocracy, social trust. These factors complement traditional components such as ICT and physical infrastructure, macroeconomic stability, property rights, and years of schooling. They together enhance human capital, innovation, resilience and agility. This year’s report also introduces a new benchmark that scores an economy from 1 to 100 (the largest figure being called the frontier that each country should aspire to reach).

The index includes 98 indicators grouped into 12 pillars of competitiveness: Institutions; Infrastructure; ICT adoption; Macroeconomic stability; Health; Skills; Product market; Labour market; Financial system; Market size; Business dynamism; and Innovation capability. Some of the pillars of competitiveness are the same as in the previous reports, but some are different or regrouped (especially those to do with ICT and innovation).

The 2018 ranking is not compatible with rankings in the past. However, they include backcasting estimation for 2017 that can be compared with 2018 edition. The logic behind the change in competitiveness scoring is that the pathway to prosperity through progressive industrialization by leveraging low-skilled labor is now diluted by the advent of the 4IR. The cost of technology and capital is lower than ever (but would still require a number of other factors for adoption). It calls for a holistic approach to competitiveness, as a good performance in one pillar doesn’t make up for a poor performance in another (investing in technology without investing in digital skills will not yield meaningful productivity gains). All pillars are weighted equally rather than according to a country’s current stage of development.

With a score of 85.6, the United States is the closest economy to the frontier, the ideal state (100), where a country would obtain the perfect score on every component of the index. The other in top 10 are: Singapore, Germany, Switzerland, Japan, Netherlands, Hong Kong SAR, the United Kingdom, Sweden and Denmark.

In South Asia, all economies need to enhance innovation capacity, technological readiness and address the usual development constraints related to institutions, infrastructure and skills. In ICT adoption and innovation capability, the region lags behind from the rest of the world (although India is an outlier with 31st rank).

India leads the region in all areas of competitiveness except for health, education and skills, where Sri Lanka boasts the highest life expectancy (67.8 years) and the workforce with the highest amount of schooling (9.8 years). The report notes that India has invested more heavily on transport infrastructure and services, while Sri Lanka has the most modern utility infrastructure. The quality of Indian research institutions stands out in the region.

In South Asia, India ranks 58th (up five places compared to 2017 backcast edition), followed by Sri Lanak (rank 85), Bangladesh (rank 103), Pakistan (rank 107), and Nepal (rank 109). All countries in the region, except India, saw their rank deteriorate compared to the 2017 backcast estimate. 

Nepal is the least competitive country in South Asia. It ranks 109 out of 140 economies included in the report. In none of the four broad components it ranked below 100. Its overall comparable rank in 2017 was 108.

In enabling environment component, it ranks 108 out of 140 economies. Within this component, the ranking on institutions is 98, infrastructure 117, ICT adoption 101, and macroeconomic stability 96.
  • Within institutions pillar, the worst ranking is on quality of land administration (133) and intellectual property protection (122). The ranking on organized crime is also pretty bad. The beast ranking is on shareholder governance.
  • Within infrastructure pillar, the ranking is the worst: above 100 in all of the subcomponents (except for airport connectivity, on which it ranks 75).
  • Within ICT adoption pillar, the best ranking is on mobile cellular telephone subscriptions per 100 people (57) but fares worst in internet subscriptions and users.
  • Within macroeconomic stability pillar, it ranks 116 in inflation and 82 in debt dynamics (this one was one of the best in previous reports but looks like the fast accumulation of debt is a factor here)
In human capital component, it ranks 103 out of 140 economies. Within this component, the ranking on health is 102 and skills 106.

In markets component, it ranks 105 out of 140 economies. Within this component, the ranking on product market is 130, labor market 125, financial system 58, and market size 84.

In innovation ecosystem component, it ranks 105 out of 140 economies. With this component, the ranking on business dynamism is 98 and innovation capacity 110.

Despite the importance of 4IR now, for many of the low-income countries (also least competitive ones), the main causes of slow growth and low level of prosperity continues to be ‘old’ development issues such as institutions (security, property rights, social capital, checks and balances, transparency and ethics, public-sector performance and corporate governance), infrastructure (road, rail, air, electricity, water connectivity) and skills (education, critical thinking). They cannot ignore these issues and hope to achieve technology-based leapfrogging.

For non-least competitive economies, the policy approach should incorporate 4IR. For instance, investment in broader measures of competitiveness today to sustain growth and income in the future; enhancing the fundamentals of competitiveness today to improve resilience to shocks; supporting those who lose out to globalization; enhancing agility and future-readiness; ensuing effecting institutions to promote competitiveness; strengthening financial system; and proactive, far-sighted leadership.

Sunday, October 14, 2018

Nepal's fares better than most South Asian countries on the state of human capital

This year’s World Development Report focuses on the changing nature of work and the importance of productive human capital. The report argues that there is no need to become overly fearful of robots taking over jobs that have traditionally been done by humans. 

Technological progress (innovation) reshapes work, and firms adopt new ways to produce goods and services and to expand markets. Governments too can make use of technology to delivery effective public services. Differences in human capital now will have profound implication on productivity of the next generation of workers. 

Key highlights:

Technology changes the nature of labor demand, especially it reduces demand for low skilled workers but raises premium on high-order cognitive skills. This is especially true in the case of manufacturing jobs in some advanced economies and middle-income countries. But then technology has provided new opportunities to create new jobs, increased productivity and helped to deliver effective public services. 

Digital technologies allows firms to scale up or down production quickly; and platform marketplaces allows faster diffusion of technology to benefit general public.   

Three types of skills are particularly important: advanced cognitive skills (complex problem solving), socio-behavioral skills (teamwork), and skill combinations predictive of adaptability (reasoning and self-efficacy). 

Investing on human capital, especially education and health, must be a priority for governments. Policy measures include investing in people through nutrition, healthcare, quality education, jobs and skills. Accumulation of knowledge, skills and health helps citizens realize their potential and make them productive. Investment in physical and human capital complements each other. Creating formal jobs, better access to internet, investment in roads and municipal infrastructure, and social protection are vital to enhance human capital. Focusing on early childhood, tertiary education, and adult learning outside jobs could help in adapting to skills readjustment. 

The changing pattern of jobs and skills landscape necessitates social protection as well. Eight in 10 people in developing countries receive no social assistance, and 6 in 10 work informally without insurance. The report recommends expanding social protection coverage to cover the neediest people (and eventually universal coverage), exploring the feasibility of universal basic income, and placing community health workers on the government’s payroll. 

To create fiscal space, developing countries need to increase tax base (such as property taxes in urban municipalities and excise duty on sugar or tobacco), enhance efficiency of public administration (indirect taxes, reforming subsidies, closing global tax loopholes) and reduce the size of informal sector. Addressing informality in the absence of social protection for workers is a challenging policy issue.

Human Capital Index

The WDR 2019 also includes Human Capital Index (HCI), which measures “the amount of human capital that a child born in 2018 can expect to attain by age 18, given the risks of poor health and education that may exist in the country where she lives”. HCI ranges between 0 and 1, with a higher score indicating that a child born today achieves full health (defined as no stunting and survival up to at least age 60) and completes her education potential (defined as 14 year of high-quality school by age 18). 

Specifically, it is a composite score of five indicators: (i) the probability of survival to age five; (ii) a child’s expected years of schooling by her 18th birthday; (iii) harmonized test scores as a measure of quality of learning; (iv) adult survival rate (fraction of 15 year olds that will survive to age 50); and (v) the proportion of children who are not stunted. Indicators (ii) and (iii) is a measure of expected years of quality-adjusted schooling, which combines quantity and quality of education. Indicators (iv) and (v) are related to health dimension. 

For instance, Nepal has a HCI score of 0.49, meaning that a child born today in Nepal will only be half as productive as she could have been relative to the benchmark of complete education and full health. You could also think this of as the possibility of doubling GDP in the future if Nepal reaches the benchmark of complete education and full health. Nepal’s HCI is higher than the average for South Asia region.

On Nepal and South Asia:

Nepal ranked 102 out of 157 countries covered in the report. India ranked 115 (and has rejected the findings). Sri Lanka ranked 74.

Human Capital Index: A child born in Nepal today will be 49 percent as productive when she grows up as she could be if she enjoyed complete education and full health. In 2017, the HCI for Nepal is higher than what would be predicted for its income level. 
  • In South Asia, Sri Lanka had the highest HCI score (0.58) followed by Nepal (0.49), Bangladesh (0.48), India (0.44), Afghanistan (0.39), and Pakistan (0.39).
Probability of Survival to Age 5: 97 out of 100 children born in Nepal survive to age 5. 
  • In South Asia, probability of survival to age 5 is the highest in Sri Lanka (99 out of 100 children), followed by Bangladesh and Nepal, India, Afghanistan and Pakistan. 
Expected Years of School: In Nepal, a child who starts school at age 4 can expect to complete 11.7 years of school by her 18th birthday. 
  • In South Asia, expected years of school is highest in Sri Lanka (13), followed by Nepal, Bangladesh, India, Pakistan and Afghanistan. 
Harmonized Test Scores: Students in Nepal score 369 on a scale where 625 represents advanced attainment and 300 represents minimum attainment.
  • In South Asia, students’ harmonized test scores is the highest in Sri Lanka (400) followed by Nepal, Bangladesh, India, Afghanistan and Pakistan. 
Learning-adjusted Years of School: Factoring in what children actually learn, expected years of school is only 6.9 years. Children in Nepal can expect to complete 11.7 years of pre-primary, primary and secondary school by age 18. However, when years of schooling are adjusted for quality of learning, this is only equivalent to 6.9 years: a learning gap of 4.8 years.
  • In South Asia, learning-adjusted years of school is the highest in Sri Lanka (8.3 years), followed by Nepal, Bangladesh, India, Afghanistan and Pakistan.
Adult Survival Rate: Across Nepal, 85 percent of 15-year olds will survive until age 60. This statistic is a proxy for the range of fatal and non-fatal health outcomes that a child born today would experience as an adult under current conditions.
  • In South Asia, adult survival rate is the highest in Bangladesh and Sri Lanka (0.87), followed by Nepal, Pakistan, India and Afghanistan. 
Healthy Growth (Not Stunted Rate): 64 out of 100 children are not stunted. 36 out of 100 children are stunted, and so at risk of cognitive and physical limitations that can last a lifetime.
  • In South Asia, Sri Lanka has the highest fraction of kids under 5 NOT stunted (0.83), followed by Nepal, Bangladesh, India, Afghanistan and Pakistan. 
UNDP’s HDI and WB’s HCI are complementary. HDI is a composite index of life expectancy, education and per capita income. HCI is also a similar index but it links the five indicators to (future) productivity and income levels. In other words, it shows how improvements in the current education and health outcomes shape the productivity of the next generation of workers. HCI touches upon SDGs 3 and 4. 

Meanwhile, India 

Friday, October 5, 2018

सरकारले गरेका काम कसरी मूल्यांकन गर्ने?

सेतोपाटीमा असोज १४, २०७५ मा प्रकाशित लेख। 

प्रधानमन्त्री केपी शर्मा ओलीले मन्त्री र सरकारी कर्मचारीलाई भन्दै आएका छन्, 'जनताले देख्न र महशुस गर्न सक्ने गरी परिणाममुखी विकास निर्माणका काम गरेर देखाउनुहोस्।'

उता, अर्थमन्त्री युवराज खतिवडा समग्र आर्थिक प्रगति मूल्यांकनमा आर्थिक वर्ष २०७५/७६ लाई आधार वर्ष मान्नुपर्ने धारणा राख्छन्।

यसको तात्पर्य, यो सरकारको बजेट कार्यान्वयनबाट मात्र आधार वर्ष निर्माण हुनेछ। त्यसपछि बल्ल सुन्तलालाई सुन्तलासँग तुलना गरेजस्तो उपयुक्त हुनेछ।

उसो भए यो सरकारले २०७५/७६ मा गरेका काम कसरी मूल्यांकन गर्ने त?

यो सरकारले २०७४ फागुन ३ देखि काम सुरु गरेको हो। आर्थिक वर्ष २०७४/७५ को झन्डै आधा समयदेखि यही सरकारले काम गरिराखेको छ। त्यसैले, बजेट कार्यान्वयनका केही पक्ष छाडेर समग्र अर्थतन्त्रको अवस्था र प्रगति मूल्यांकन गर्दा अघिल्लो वर्षदेखि नै गर्नुपर्ने हुन्छ।

सामाजिक, कूटनीतिक, राजनीतिक, शान्ति र सुशासनजस्ता महत्वपूर्ण पक्षमा भएका प्रगति सम्बन्धित विज्ञले गर्लान्। यो लेखले २०७४/७५ मा भएका बृहत अर्थशास्त्रका विभिन्न पाटाको समीक्षा गर्नेछ। यो आर्थिक वर्षमा सरकारले गरेका काम कसरी मूल्याकंन गर्ने भन्नेमा लेख केन्द्रित छ।

विशेषगरी बृहत अर्थशास्त्रका चार मुख्य क्षेत्रमा हामी यहाँ चर्चा गर्नेछौं।

सबभन्दा पहिला, वास्तविक क्षेत्रको कुरा गरौं।

यसमा आर्थिक वृद्धिदर, प्रतिव्यक्ति आय, रोजगार सिर्जना, लगानी लगायत क्षेत्र समेटिने छन्। अघिल्लो आर्थिक वर्ष कुल गार्हस्थ्य उत्पादन (जिडिपी) ५.९ प्रतिशत वृद्धि भएको थियो। यो वर्षको बजेट र मौद्रिक नीतिको लक्ष्य ८ प्रतिशत छ। अहिलेसम्मको स्थिति हेर्दा वास्तविक उपलब्धि यो लक्ष्यभन्दा कम हुनेछ।

हामीले ध्यान दिनुपर्ने गैरकृषि क्षेत्रको वृद्धिदर हो। कृषि क्षेत्र सरकारको कामभन्दा मनसुनमा भर पर्छ। गैरकृषि भन्नाले उद्योग र सेवा क्षेत्रलाई चिनिन्छ। जिडिपीमा उद्योग क्षेत्रको हिस्सा झन्डै १५ प्रतिशत छ भने सेवा क्षेत्रको ५३ प्रतिशत छ।

गत वर्ष प्रतिकूल मौसमका कारण कृषि उत्पादन २.८ प्रतिशत मात्र वृद्धि भयो। उद्योग क्षेत्र ८.८ प्रतिशत वृद्धि भयो। बिजुली आपूर्ति र व्यवस्थापन सुधारले माथिल्लो तामाकोशी र मेलम्चीजस्ता ठूला पूर्वाधार आयोजनामा राम्रो काम भएको थियो।

भुइँचालोपछि पुनर्निर्माणले पनि गति लिएको थियो। त्यस्तै, बढ्दो पर्यटक आगमन, सहज बिजुली आपूर्ति र चुनाव बेला भएको खर्चका कारण सेवा क्षेत्र ६.६ प्रतिशत वृद्धि भएको थियो।

विगत सरकारले भन्दा भिन्न तरिकाले काम नगर्ने हो भने उद्योग र सेवा क्षेत्र वृद्धिदर अघिल्लो वर्षभन्दा बढ्न मुश्किल छ। राष्ट्रिय गौरवका आयोजनाको प्रगति, मासिक सरकारी खर्चको सम्भावित गति र ढाँचा, उच्च व्याज दर र निजी क्षेत्रको हालसम्मको शिथिलता हेर्दा आर्थिक वृद्धि लक्ष्य चुनौतीपूर्ण देखिन्छ।

यो सरकारको चुनौती उद्योग र सेवा क्षेत्रको वृद्धिदर अघिल्लो वर्षभन्दा बढाउनु हो। गत वर्ष चुनावताका जस्तो अर्थतन्त्रलाई बढावा दिने खालका अल्पकालीक खर्च पनि अहिले छैन। त्यसैले, यो सरकारले समयमै बजेट कार्यान्वयन, निजी क्षेत्रको लगानी वृद्धि, पुनर्निर्माण, उच्च पर्यटक आगमन र सुशासनजस्ता महत्त्वपूर्ण पाटामा ध्यान दिन जरुरी छ।

अघिल्लो वर्षभन्दा धेरै आर्थिक वृद्धि भयो भने त्यसको सकारात्मक प्रभाव लगानी, रोजगार, पर्यटक आगमन, प्रतिव्यक्ति आयजस्ता महत्त्वपूर्ण आर्थिक सूचकमा देखिन्छ।

सरकारको मूल्यांकन गर्दा आर्थिक वृद्धिदरका साथै यस्ता सूचकमा भएको परिवर्तन पनि हेर्न जरुरी छ।

गत वर्ष प्रत्यक्ष विदेशी लगानी जिडिपीको ०.६ प्रतिशत थियो। पर्यटक आगमन झन्डै १० लाख थियो। प्रतिव्यक्ति आय अमेरिकी डलर १००३.६ थियो। कृषि, निर्माण, ऊर्जा, उद्योग, खनिज, सेवा र पर्यटन क्षेत्रमा लगानी प्रतिबद्धता जिडिपीको ११.७ प्रतिशत थियो।

त्यस्तै, प्रत्यक्ष विदेशी लगानी प्रतिबद्धता जिडिपीको १.९ प्रतिशत थियो। सरकारी कुल स्थिर पुँजी निर्माण ७.८ प्रतिशत थियो भने निजी कुल स्थिर पुँजी निर्माण २६.३ प्रतिशत थियो।

दोश्रो, सरकारको कामसँग प्रत्यक्ष सरोकार राख्ने वित्तीय क्षेत्र हेरौं।

अर्थमन्त्री खतिवडाले केही हदसम्म वित्तीय अनुशासन कायम गरेर २०७५/७६ मा १३ खर्ब १५ अर्ब रुपैयाँको बजेट ल्याए। आर्थिक वृद्धिदर ८ प्रतिशत र मुद्रास्फिति दर ६.५ प्रतिशतको लक्ष्य छ।

हालका केही वर्षमा चालू खर्च यसरी बढिरहेको छ, कर राजस्वले पनि धान्न गाह्रो छ। एकातिर खर्च धान्न हम्मे छ, अर्कातिर विनियोजित बजेट खर्च हुन सकेको छैन।

पछिल्लो पाँच वर्षमा विनियोजित बजेटको पुँजीगत खर्च जम्मा ७२ प्रतिशत थियो। झन् पुँजीगत खर्चको मासिक ढाँचा हेर्ने हो भने त लगभग ४० प्रतिशत खर्च आर्थिक वर्षको अन्तिम महिनामा हुने गरेको छ।

यसले कम खर्चका साथै कम गुणस्तरका आधारभूत संरचना बनाइएको संकेत गर्छ। आयोजना तयारी तथा कार्यान्वयनको संरचनात्मक कमजोरी, आयोजना व्यवस्थापन तथा ठेकेदारको कमजोर क्षमता, प्रान्तीय तथा स्थानीय तहमा आयोजना कार्यान्वयन गर्न सक्ने जिम्मेदार व्यक्तिको अभाव र योजना तथा सञ्चालन तहमा राजनीतिक हस्तक्षेप लगायत कारणले वास्तविक पुँजीगत खर्च विनियोजित बजेटभन्दा कम भएको हो।

यी समस्या अर्थमन्त्री खतिवडाले खासै सम्बोधन गरेका छैनन् भनेर आलोचना हुँदा अर्थ मन्त्रालयले बजेट कार्यान्वयन बेला सम्बोधन गर्ने बताएको थियो।

सरकारको यो वर्षको काम मूल्यांकन गर्दा विनियोजित बजेटको तुलनामा वास्तविक पुँजीगत खर्च अघिल्ला वर्षभन्दा धेरै भयो कि भएन भनेर हेर्नुपर्छ। अर्थ मन्त्रालय र सरकारको काम मूल्यांकन गर्दा लक्ष्यभन्दा बढी राजस्व असुलीलाई मात्र प्राथमिकता दिएको पाइन्छ। तर, प्रान्तीय तथा स्थानीय सरकारको बजेट कार्यान्वयन गर्नसक्ने क्षमता वृद्धि गर्न केन्द्रीय सरकारले (विशेषगरी अर्थ मन्त्रालय र राष्ट्रिय योजना आयोग) तदारुकतासाथ काम गरेको अहिलेसम्म देखिएको छैन। भुइँचालोले ध्वस्त घर र आधारभूत संरचना पुनर्निर्माणमा पनि खासै उल्लेखनीय उपलब्धि भएका छैनन्।

यो सरकारले बढ्दो वित्तीय घाटा कम गर्न कस्ता कदम चाल्छ भन्ने पनि हेर्नुपर्छ। जस्तै, अनावश्यक र अनुपयुक्त चालू खर्च घटाएर उत्पादक क्षमता बढाउन कत्तिको सफलता पाएको छ भन्ने महत्त्वपूर्ण हुन्छ। वित्तीय घाटा जिडिपीको १० प्रतिशत हुने अनुमान छ। यस्तो ठूलो वित्तीय घाटाले मुद्रास्फिति र आयात बढाउनुका साथै बैंकिङ तरलतालाई असर गर्छ। सर्वसाधारण जनता र व्यापारीले बैंकबाट लिने ऋणको व्याज उच्च तथा अस्थिर हुन जान्छ।

त्यस्तै, सञ्चालनमा रहेका ३७ सार्वजनिक संस्थानमध्ये कतिले घाटाबाट नाफा कमाउन थाले भन्ने पनि हेर्नुपर्छ। कमजोर वित्तीय अवस्थाका बाबजुद उत्पादकत्व वृद्धि गर्ने खालका पुँजीगत खर्चलाई निरन्तरता दिनुपर्ने बाध्यता भएका बेला घाटामा चलेका सार्वजनिक संस्थानलाई जनताबाट उठाएको राजस्व खन्याएर अनुदान दिनु अनुचित आर्थिक नीति हो।

तेस्रो, मौद्रिक क्षेत्रमा मुद्रास्फिति दर ६.५ प्रतिशतभन्दा कम, बैंकिङ तरलताको सहजता, बैंकबाट लिने ऋणको व्याज अहिलेभन्दा कम र स्थिर, वित्तीय पहुँचमा वृद्धि, अनुत्पादक पुँजीमा कमी र उत्पादक क्षेत्रमा बढ्दो ऋणजस्ता सूचकलाई तुलनात्मक रूपले हेर्नुपर्ने हुन्छ।

वास्तवमा मुद्रास्फिति दर अघिल्लो वर्षभन्दा थोरै (४.२ प्रतिशत) भयो भने यो सरकारले जस लिने हो। मुद्रास्फिति दरलाई सरकारको नीतिका अलावा बाह्य कारकले पनि असर गर्छ। त्यसैले, सरकारको बजेट लक्ष्यसँग तुलना गर्दा बढी सान्दर्भिक हुन्छ।

भारतमा बढ्दो मुद्रास्फिति दर, अक्सर बढिरहेको तेल र खान पकाउने ग्यासको मूल्य, कमजोर विनिमय दर र आपूर्ति पक्षसँग सम्बन्धित बाधाले नेपालमा वस्तु तथा सेवाका मूल्यमा असर गर्छ। यो सरकारले आपूर्ति पक्षसँग सम्बन्धित समस्या समाधान गरेर वस्तु तथा सेवामा बढ्दो मूल्यको चाप कतिसम्म कम गर्ने पहल गरेको छ भन्ने महत्त्वपूर्ण हुन्छ।

आकासिँदै गएको ऋणको व्याज घटाएर साधारण जनता र व्यवसायीलाई कत्तिको राहत महशुस हुन्छ भन्ने पनि ख्याल गर्नुपर्छ।

हामीले याद गर्नुपर्ने के पनि हो भने, सरकारले धेरै आन्तरिक ऋण उठायो भने निजी क्षेत्रले लिने ऋणको व्याज बढ्न जान्छ। सरकारले आन्तरिक ऋण उठाउँदा बजारमा भएको तरलतालाई कत्तिको ध्यान दिएर उठाएको छ भन्ने अहम् हुन्छ।

बैंकिङ सेवा नपुगेका स्थानीय तहमा यो वर्ष कति हदसम्म सेवा विस्तार हुन्छ भन्ने पनि महत्त्वपूर्ण छ। कुल बैंकिङ ऋण वृद्धिमा उद्योग तथा उत्पादनमूलक क्षेत्रले बढी ऋण पाउँछन् कि थोक र खुद्रा व्यापारले पाउँछ भन्ने पनि नियाल्नुपर्छ।

अहिले कुल बैंकिङ ऋणको २० प्रतिशत थोक र खुद्रा व्यापारले पाउँदै आएको छ। उद्योगले जम्मा ११ प्रतिशत जति पाएको छ। बैंकिङ क्षेत्रमा अहिले ॠणको वृद्धिदर निक्षेपभन्दा धेरै छ। उच्च लाभ कमाउने होडमा खराब कर्जा पनि बढ्ने जोखिम हुन्छ।

केही अघिसम्म धेरैजस्तो बैंक तोकिएको पुँजी पर्याप्तता अनुपातको सेरोफेरोमा बसेर करोबार गर्दा माग भएजति कर्जा स्वीकृति गर्न सकिराखेका थिएनन्। यो समस्याको दीर्घकालीन सुधार गर्न सरकार र राष्ट्र बैंकले कस्तो रणनीति अवलम्बन गर्छन् भनेर पनि हेर्नुपर्छ।

चौथो, अहिले सबभन्दा बिग्रेको स्थिति बाह्य क्षेत्रको छ।

चालु खातामा घाटा बढेर जिडिपीको ८.२ प्रतिशत भएको छ। जुन आर्थिक वर्ष २०५२/५३ यताकै सबभन्दा धेरै हो।

केहीअघिसम्म बचतमा रहेको चालु खाता २०७४/७५ को बढ्दो व्यापार घाटा र घट्दो विप्रेषण आयले ठूलो घाटामा छ। यो वर्ष चालू खातामा घाटा बढेर गत ५० वर्षमा भन्दा धेरै हुने हो कि गत वर्षभन्दा थोरै हुने हो, हेर्न बाँकी नै छ। साह्रै कम निर्यात, अत्यधिक आयात र सामान्य विप्रेषण आयले चालू खातामा घाटा झन् बढ्ने देखिन्छ।

यो सरकारले निर्यात प्रवर्द्धन गर्न र आयात प्रतिस्थापन गर्दै स्वदेशी उत्पादन बढाउन चालेका परिणामउन्मुख कामहरू मूल्यांकन गर्नुपर्छ।

चालू खातामा घाटा बढ्दै गयो भने बाह्य क्षेत्रको जोखिम पनि बढेर समग्र अर्थतन्त्रलाई हानी पुर्याउँछ। यसले विदेशी मुद्रा भण्डार घटाउँछ। विदेशी मुद्रा भण्डारअनुसार देशले कति महिनाको आयात धान्न सक्छ निर्धारण गरिन्छ। यसले सम्भावित प्रत्यक्ष विदेशी लगानीलाई असर गर्छ। समग्र भुक्तानीको सन्तुलन बिगार्छ।

यो वर्ष भुक्तानीको सन्तुलन घाटामा जान सक्ने सम्भावना छ। चालू खातामा भएको ठूलो घाटाले कम घरेलु बचतलाई संकेत गर्छ, जुन सरकारको लापरवाह वित्तीय नीति र अनुत्पादक तथा अनावश्यक क्षेत्रमा बढी कर्जा प्रवाह भएर हुन्छ। सरकारले बढ्दो 'दोहोरो घाटा' (वित्तीय र चालू खातामा घाटा) कम गर्दै आर्थिक वृद्धिदर र मुद्रास्फिति दरको लक्ष्य प्राप्त गर्नुपर्ने चुनौती आएको छ।

झन्डै दुईतिहाइ बहुमत भएको सरकारले यसो-उसो नभनी समयमै परिणाममुखी आर्थिक र विकास निर्माणका काम गरेर देखाउनुपर्ने अवस्था आएको छ। सरकारले गर्ने कामको प्रभाव प्रत्यक्ष वा अप्रत्यक्ष रूपमा माथि उल्लिखित वास्तविक, वित्तीय, मौद्रिक र बाह्य क्षेत्रहरूसँग सम्बन्धित प्रमुख समष्टिगत आर्थिक परिसूचकहरूमा प्रतिबिम्बित हुन्छ।

यो 'आधार वर्ष' मा भएका आर्थिक उपलब्धि तिनै सूचक तथा बजेटमा गरेका प्रतिबद्धताका आधारमा मूल्यांकन गर्नुपर्छ। हामीले अरू देशको प्रगतिसँग पनि तुलना गर्नुपर्ने हुन्छ। जस्तै- डुइङ बिजनेस रिपोर्ट, विश्व प्रतिस्पर्धात्मक परिसूचक लगायतमा नेपालले तुलनात्मक रूपले अघिल्लो वर्षको आफ्नै र अहिलेको अरू देशको अवस्थामा सुधार गरेको छ कि छैन हेर्नपर्छ।

Tuesday, September 25, 2018

Is moving production out of China to avoid US tariffs feasible?

The Trump administration imposed an addition 10% tariff (will jump to 25% by the end of the year) on $200 billion worth of Chinese imports to the US. This is in addition to 25% tariff on $50 billion worth of Chinese imports. The escalating trade war between the US and its usual trading partners is forcing companies to rethink if it is as appropriate, profitable and reliable to continue producing goods in China as it was before. However, relocation to countries such as Bangladesh, Cambodia, Ethiopia, Thailand, and Viet Nam may not be that easy. 

Companies have two choices: (i) to raise productivity sufficiently so that the gains offset the cost escalation due to additional tariffs (think in terms of marginal effect); and (ii) to relocate production somewhere else to take advantage of cheaper labor and business costs but with no change in tariff structure. The first option is almost impossible in the immediate term. The second option is doable, but are there necessary physical and social infrastructures in place to realize it in other countries?

Convenience and reliability of production, transportation and distribution are of paramount importance. Good roads for workers to commute, reliable and unclogged transportation network for ferrying goods in and out of the country, political stability and disciplined trade unions, good governance, and adequate supply of electricity  are some of the supply-side constraints that need to be addressed in addition to business-friendly policies. This, at least, applies to Nepal.

Excerpt from a news story from NYT:

Huffing, snorting and in no hurry to move, the big-horned bovines occasionally meander across the Khmer-American Friendship Highway, the dusty, 140-mile route linking Phnom Penh’s factories with the port in the coastal city of Sihanoukville. They are not the only potential obstacles. At quitting time, factory workers heading home on foot and motorbikes clog the road. For factory owners on deadline, those crowded roads can mean frustrating delays.
[…]But China will be hard to quit. From zippers and rivets on jackets and jeans to the minerals used in iPhones, China makes or processes many of the ingredients that go into today’s consumer goods. It has a dependable source of workers who know how to hold down factory jobs. It has reliable roads and rail lines connecting suppliers to assembly plants to ports. Countries like Vietnam and Cambodia, by contrast, lack China’s vast supplier base and dependable roads. More workers have to be trained. Many companies have to start from scratch.
[…]One day a few years ago Mr. Bobrovizki arrived at his factory to find several unions had locked it. Negotiations took weeks. In Cambodia some unions are backed by the party of Hun Sen, the prime minister, adding to political risks for foreign companies.“I lost half a million dollars in those two weeks that they blocked my gate,” Mr. Bobrovizki said.
[…]One American company recently told a supplier with a factory in Phnom Penh that it wants to take its China production down to zero as soon as possible in order to avoid tariffs, said Bradley Gordon, a lawyer who advises multinational companies in Cambodia. That Phnom Penh factory plans to hire 1,000 more workers in the next month and employ nearly 10,000 workers by next year.
Still, China remains an efficient place to do business. Its logistics network is vast and quick-moving. Over the past three decades, China has built 4.7 million kilometers, or about 2.9 million miles, of highways. It has 13 of the world’s 50 largest ports, and three of the top five. China’s sheer manufacturing capabilities are unrivaled. One measure of its output, called manufacturing value added, shows that China makes roughly as much as the United States and Japan combined.

Meanwhile, companies producing electronic goods are already thinking of moving part of production value chain out of China. Here is a news story from Reuters:

[…]Several companies, including SK Hynix of South Korea and Mitsubishi Electric, Toshiba Machine Co. and Komatsu of Japan, have been plotting production moves since July, when the first tariffs hit, and the shifts are now underway, company representatives and others with knowledge of the plans said. Others, such as Taiwanese computer-maker Compal Electronics and South Korea’s LG Electronics, are making contingency plans in case the trade war continues or worsens.
[…]The quick reactions to the U.S. tariffs are possible because many large manufacturers have facilities in multiple countries and can move at least small amounts of production without building new factories. Some governments, notably in Taiwan and Thailand, are actively encouraging companies to move work from China.
[…]At SK Hynix, which makes computer memory chips, work is underway to move production of certain chip modules back to South Korea from China. Like its U.S. rival, Micron Technology, which is also moving some memory-chip work from China to other Asian locations, SK Hynix does some of its packaging and testing of chips in China, with the chips themselves mostly made elsewhere. Most of SK Hynix’s production will not be affected, the source added, since China’s dominance in computer and smartphone manufacturing makes it by far the largest market for DRAM chips.
[…]Toshiba Machine Co. says it plans to shift production of U.S.-bound plastic molding machines from China to Japan or Thailand in October. The machines are used for making plastic components such as automotive bumpers. “We’ve decided to shift part of our production from China because the impact of the tariffs is significant,” a spokesman said. Mitsubishi Electric, meanwhile, says that it is in the process of shifting production of U.S.-bound machine tools used for metal processing from its manufacturing base in Dalian, in northeastern China, to a plant in Nagoya.

Monday, September 24, 2018

Budhi Gandaki project re-awarded to Chinese firm, MPs to execute 20 projects, and more

From The Kathmandu Post: Budhi Gandaki Hydropower Project, once again, has fallen into politicking. The KP Sharma Oli administration last week decided to rope in China Gezhouba Group Corporation (CGGC), reverting the erstwhile Sher Bahadur Deuba government’s decision to develop the 1200MW project with internal resources. The Cabinet meeting on Friday directed the Energy Ministry to initiate the process to award the project to the Chinese developer. As per the Cabinet decision, the ministry has been asked to hold talks with the Gezhouba, prepare a proposal, and strike a deal to execute the $2.5 billion reservoir project.

Following the government decision, the Energy Ministry will now invite the Chinese company for talks and prepare a draft of the memorandum of understanding (MoU) before signing it, according to multiple sources at the ministry. “The understanding will be signed to execute the project under the engineering, procurement, construction and financing (EPCF) model,” said one senior official.

Multiple sources at the Energy Ministry said the proposal was taken to the Cabinet directly by the Prime Minister’s Office (PMO) without involving Energy Ministry officials. “We came to know that the Chinese developer had filed an application at the prime minister’s office, expressing interest in executing the project under the EPCF model,” said another official who spoke on condition of anonymity because he wasn’t allowed to discuss details of the proposal. Energy Secretary Anup Kumar Upadhyay, however, said he was unaware of the recent development and has yet to receive instructions from the PMO.

Local Infrastructure Development Partnership Programme: Guideline allows MPs to execute 20 projects in single constituency

From The Kathmandu Post: Going against the budgetary provision, the government on Friday endorsed the working procedure of Local Infrastructure Development Partnership Programme, which not only increased the number of projects, but also allowed lawmakers to have their say in project selection. Government officials said the working procedure has effectively ended the efforts to make the programme less distributive, as it has allowed federal lawmakers to execute as many as 20 projects in a single constituency.

The programme is modified version of controversial Constituency Infrastructure Special Programme (CISP) and the Constituency Development Programme (CDP) implemented through lawmakers. According to officials at the Federal Affairs Ministry, the option of selecting as many as 20 projects goes against the current fiscal year budget that states maximum of five projects related to road, drinking water, irrigation and river control could be carried out in one constituency. While drafting the working procedure, the ministry had proposed for selecting maximum 10 projects within five areas. However, after a strong pressure from the lawmakers, the number was doubled to 20.

After a strong lobby from lawmakers, it has given sole authority to select the projects to a committee headed by directly elected lawmaker and represented by parliamentarians from proportional representation and the lawmaker in the National Assembly. This goes against the provision of the current budget which had envisioned forming a committee co-ordinated by directly elected representative from particular constituency and represented by members of federal parliament, provincial parliaments and heads of the local governments.

Cabinet approves splitting of CAAN

From The Himalayan Times: The Cabinet meeting on Friday gave permission to the Ministry of Culture, Tourism and Civil Aviation (MoCTCA) to split the Civil Aviation Authority of Nepal (CAAN) into two different entities — regulatory body and air navigation services provider.

“Since the Cabinet has given permission to split CAAN into two entities, MoCTCA and CAAN will frame a new act to implement the decision,” said Sanjeev Gautam, director general at CAAN. He further mentioned that after the formulation of the new act, MoCTCA will first forward it to the Parliament for approval. “After it is endorsed by the Parliament it will come into implementation.” In 2012, the government had formally announced that CAAN would be divided into two separate autonomous bodies. The government had said it would create two entities by dividing CAAN so as to improve the regulatory mechanism and also to develop civil aviation infrastructure.

Sunday, September 16, 2018

Twin deficits in Nepal

It was published in The Kathmandu Post, 14 September 2018

Nepal’s external sector has remained fairly stable for more than a decade. The current account balance--a measure of the country’s earnings from and expenditure on traded goods and services--has been positive for most of the time despite a weak export performance, thanks to large remittance inflows. Unfortunately, the external situation took an unexpected turn last year: The current account deficit swelled to a level not seen since the fiscal year 1995-96.

The expected large increase in imports along with a widening fiscal deficit (the difference between government revenue and expenditure) has increased the odds of external sector instability. It will deplete foreign exchange reserves and deter foreign direct investment as investors worry about the country’s ability to supply them convertible currency for repatriation of their return on investment. The government faces the delicate task of addressing twin deficits (large fiscal and current account deficits) without reining in productivity-enhancing expenditure and intermediate goods import.

High imports

In fiscal 2017-18, the current account deficit widened to 8.2 percent of the Gross Domestic Product (GDP), around $2.4 billion, up from a deficit of just 0.4 percent in the preceding year, but sharply down from a surplus between 2011-12 and 2015-16. The last time the current account deficit was above 6 percent of the GDP was during the four consecutive years before the country embraced liberalisation reforms, and in 1995-96. This time, despite large official workers’ remittances, which was almost insignificant then, the current account deficit has increased drastically, led by an ever-increasing trade deficit.

The current account balance includes the value of transactions with other countries in merchandise goods, services, income and transfers. The merchandise trade deficit reached a record 37.7 percent of the GDP owing to stagnating exports (about 3.1 percent of the GDP) but large imports of about 40.8 percent of the GDP. The country’s exports have been suffering from a range of supply-side constraints such as inadequate supply of infrastructure (particularly electricity and road network), labour disputes and political instability, high cost of finance, lack of required human resources and technical know-how, ad hoc non-tariff barriers, and policy implementation paralysis. Recently, two of the major constraints, political instability and supply of electricity, seem to have been taken care of. The other constraints continue to affect industrial output.

Meanwhile, imports of fuel and agricultural and industrial goods have been surging due to increased demand for imported products in the absence of sufficient and competitive domestic production. It widened the trade deficit which is so high that even a surplus in other components (including remittances) of the current account was not enough to balance it. Tourism receipts are meagre compared to its potential, and remittance inflows are moderating due to a decrease in the number of outbound migrant workers.

The government and some economic analysts argue that the high current account deficit is not a bad thing because it will help boost growth in the coming years. Normally, a moderate level of current account deficit due to imports of large machinery and intermediate goods may be beneficial to low-income countries like Nepal. The theoretical logic is that they not only boost current growth prospects but also expand potential growth because the large imports will enable exports to grow in the future and narrow the trade deficit. However, in reality, this is hard to achieve due to the nascent financial market, which normally plays a vital role in efficiently allocating capital, and weak institutional and governance regimes.

Nepal’s current import basket is hardly composed of productivity-enhancing machinery and intermediate goods. Imports of petroleum, the top import item, account for about 11 percent of total imports. The other imported products are used in the industrial sector as raw material or intermediate goods and are either consumed domestically or exported. The issue is that domestic value addition in these industries is low, and the likelihood of a drastic change in the productivity-output landscape anytime soon is also unlikely. The top imported goods have hardly changed in recent years.

The top five imports from India are petroleum products, vehicles and spare parts, MS billet, machinery and parts, and cement. They accounted for 50 percent of total imports from India last year. Note that imports from India make up about 65 percent of total imports. Agricultural items such as rice and vegetables also feature high on the import list from India. From China, we are importing electrical and machinery parts and readymade garments. From the rest of the world, our top imports are gold and silver, aircraft and spare parts, and agricultural products. A government obsessed with revenue mobilisation has no incentive to reduce imports of vehicles and machinery parts because taxes on them are an important source of customs revenue.

Boost earnings

Nepal cannot do much to alter the pegged exchange rate with the Indian rupee. However, the government could proactively work to address the supply-side constraints which are forcing companies to operate below their installed capacity and increasing their cost of production. Currently, costly production is not only substituted by competitive imports, but exports are also declining as price competitiveness is eroding despite the competitive advantage from preferential treatment accorded to our exports.

Increasing exports and tourism receipts besides replacing substitutable imports by domestic production is an ideal policy. However, this will be realised only after we take care of the binding supply-side constraints and infrastructural and services related issues in the tourism sector. In addition to implementing timely trade and industry related policies, foreign direct investment should be increased for which the existing laws and the Investment Board Act need to be amended. Until then, the government should advocate a policy to reduce unnecessary public spending and unproductive private sector credit flows that support imports. The large current account deficit right now reflects low domestic savings and high consumption, indicating a reckless fiscal policy and credit flows to unproductive sectors.