State of cooperatives and BFIs in FY2012
|Financial institution||Deposit (Rs bn)||Lending (Rs bn)|
|BFIs (mid-July 2012)||1071.39||779.56||213|
Wednesday, December 26, 2012
Friday, December 21, 2012
|Total illicit financial outflows from South Asia (USD million)|
|HMN + GER||2007||2008||2009||2010|
Monday, December 17, 2012
Saturday, December 15, 2012
Wednesday, December 12, 2012
Policy initiatives, especially clear rules, price signals and risk-return incentives
Technology and infrastructure to address specific challenges in the value chain
Market structures that enables producers to meet consumers’ needs efficiently
Human capital to constantly innovate and stay competitive
Friday, December 7, 2012
“We accent IC only from our customers. It might be surprising for people of other places but it’s a common practice here,” Ram Datta Yadav, a vegetable vendor at a local fair, said. he further said that other traders are also using IC in local markets.
Ram Udgar Yadav, a local customer also said local people use IC to purchase goods as they trust Indian currency more than Nepali banknotes. “Even if we wish to exchange Nepali rupees, we have a compulsion to pay high exchange rate,” he said.
Nabin Yadav of Bharanwarajpur of Siraha also said that all the transactions from real estate to household goods takes place through Indian currency. “Traders also expect IC from the buyers and buyers also find it more convenient to make purchases in IC,”added he.
Average annual growth rate, 1992/93-2009/10
Nepal's trade with India (Rs billion)
Exchange rate (NRs/IRs)
Tuesday, December 4, 2012
In this year’s Article IV Consultation, the IMF has warned that the political uncertainty is complicating macroeconomic management in Nepal. The usual narrative about economic growth, expenditure concerns, and greater reliance on remittances for financing consumption and imports holds.
The IMF projects real GDP growth to decline to 3.8% in FY2013, thanks to unfavorable monsoon which affected agriculture production, slower services activity due to a potential decline in remittance growth, and a slowdown in growth in India (lower export demand, weaker inward investment, and possibly less remittances). The IMF’s latest growth projection exactly matches the ADB’s latest projection in ADO Update. But, while ADB projected inflation to be at 8.5%, the IMF projects it to be 8.3%.
Some notable observations and suggestions include:
- Quasi-fiscal liabilities continued to rise through financial losses at the Nepal Electricity Authority and Nepal Oil Corporation. Build political consensus to adopt an automatic price adjustment mechanism while putting in place well-targeted subsidies to protect the vulnerable.
- Significant restructuring of the financial system has yet to emerge, and balance sheet risks from concentrated exposure to a moribund real estate market are high.
- Focus on sound policies and structural reforms should be maintained. In 2011, the IMF suggested to enact structural reforms to raise productivity and potential growth.
- Enact a full budget and strengthen public management to ensure full executive of capital budget.
- Enhance revenue mobilization efforts but saw work on further tax and customs administration reforms.
- Targeted and well sequenced acceleration of financial sector reforms, including the amendment of NRB Act to improve the governance of the financial sector.
- A tightening of monetary policy may be used to signal commitment to price stability and support exchange rate peg.
- Open market operations and regular auction of T-bills good to mop up excess liquidity.
- Enhance the business environment, remove infrastructure bottlenecks, increase transparency, and improve governance.
The projection of major macroeconomic indicators for FY2013 are shown in the table below.
|Real GDP growth||4.8||3.9||4.6||3.8|
|CPI (period average)||9.5||9.6||8.3||8.3|
|Total revenue and grants (% GDP)||18||17.7||18.3||18.1|
|Expenditure (% GDP)||18.8||18.6||18.2||18.6|
|Broad money (%change)||14.1||12.3||22.7||12.5|
|Domestic credit (%change)||16.8||14.6||8||14.4|
|Private sector credit (%change)||14.2||13.9||11.3||13|
|Gross investment (%GDP)||37.1||32.5||32.8||32.9|
|Private investment (%GDP)||30||25.3||25.7||26|
|Central government (%GDP)||7.1||7.3||7.1||6.9|
|Gross national saving (%GDP)||34.7||31.6||37.5||33.5|
|Current account (%GDP)||-2.4||-1||4.7||0.6|
|Trade balance (%GDP)||-25.6||-23.6||-23.7||-27.3|
|Gross official reserves (US$ million)||2,844||3,085||4,307||4,595|
|Public debt (%GDP)||35.4||33.3||33.3||31.3|
|GDP at market prices (Rs billion)||1,193||1,368||1,557||1,750|
|GDP at market prices (US$ billion)||16||19||19.4||20.3|
Friday, November 30, 2012
According to a new WB policy research working paper by Martin Kanz, the debt relief to indebted farmers (given by the Indian government) didn’t increase investment and productivity. In June 2008, the Indian government waived debt owed by poor farmers (US$14.4 billion = 1.6% of GDP) to commercial and cooperative banks between 1997 and 2007. The small and marginal farmers owning less than two hectares of land got 100% debt waiver and farmers owning over two hectares got 35% debt relief if the remaining 75% was settled (in drought-affected districts, 25% or Rs 20,000 relief, whichever is greater, if the remainder is settled).
The three major findings of the study that should be considered while unveiling similar programs in the coming days are:
- Debt relief failed to reintegrate recipient households into formal lending relationships. Kanz found that the households that had all of their debt cancelled borrowed, on average, 6 percentage points less from formal sector sources than households in the control group.
- Debt relief doesn’t increase investment or productivity of beneficiary households. The productivity of debt relief households after end of the program declined in absolute terms and lagged up to 14 percentage points behind the productivity of households in the control group.
- Debt relief strongly affects the expectations of households regarding the reputational consequences, i.e. they get singled out in the market and might face borrowing constraints in the future. It might lead to decline in investment (risk profile of debt relief households goes up).
Below is the abstract from the paper:
This paper studies the impact of a large debt relief program, intended to attenuate investment constraints among highly-indebted households in rural India. It isolates the causal effect of bankruptcy-like debt relief settlements using a natural experiment arising from India's Debt Relief Program for Small and Marginal Farmers -- one of the largest debt relief initiatives in history. The analysis shows that debt relief has a persistent effect on the level of household debt, but does not increase investment and productivity as predicted by theories of debt overhang. Instead, the anticipation of future credit constraints leads to a greater reliance on informal financing, lower investment and a decline in productivity among bailout recipients. The results suggest that one-time settlements may be insufficient to incentivize new investment, but can have significant real effects through their impact on borrower expectations.
Repeated bail out of indebted households could induce moral hazard and deteriorate rural credit markets (plus investments).These debt reliefs are usually politically motivated and serve to boost popular rating and perception while impacting budget balance. Here, I am not saying that there shouldn’t be debt relief at all of heavily indebted farmers. The issue is that if such reliefs are to be repeated or voters expect one from their elected representatives, then it might promote a dangerous trend where households keep on piling up debt beyond their means on expectations that one day it will be waived by a populist leader. Debt relief of indebted farmers has to be highly targeted and it shouldn’t have any whiff of popularity.
In 2008, the then finance minister of Nepal also introduced debt relief (following the Indian example) of poor and indebted farmers. Even though the money is already spent (via the state-backed BFIs), the effectiveness of this one-off intervention is yet to be evaluated.
Monday, November 26, 2012
The latest remittances update by Ratha, Aga and Silwal notes that worldwide remittances, including those to high-income countries, are expected to total US$534 billion in 2012, and projected to grow to US$685 billion in 2015. They forecast remittances to developing countries to grow at an estimated 7.9% in 2013, 10.1% in 2014 and 10.7% in 2015 to reach US$534 billion in 2015. Developing countries are expected to receive US$406 billion in remittances in 2012. In terms of absolute flows, India is estimated to receive the highest remittances (about US$70 billion), followed by China (US$66 billion), the Philippines (US$24 billion), Mexico (US$24 billion), Nigeria (US$21 billion), Egypt (US$18 billion), Pakistan (US$14 billion), Bangladesh (US$14 billion), Vietnam (US$9 billion) and Lebanon (US$7 billion). The overall estimated growth of remittances for 2012 is slight lower than earlier forecast, reflecting the weak economic projections in Europe, the GCC countries, Russia and the US.
It is just formal flows. The real flows, including those from informal channels, is expected to be even higher. The size of remittance flows to developing countries is almost three times the ODA. In Nepal’s case, it is five times the ODA. By the way, the total remittance outflows in 2012 from Nepal is estimated at US$39 million, up from US$32 million in 2011.
The strong economic activities in the Gulf helped boost remittance inflows to Nepal, and South Asia and MENA regions. Additionally, the depreciation of local currency against the major foreign currencies also encouraged migrants to remit more money home (the “sale effect”). South Asia is estimated to receive US$109 billion in migrant workers’ remittances in 2012 and is forecast to receive US$144 billion in 2015 (see the table).
Migrant remittance Inflows (US$ million)
|Remittances as a share of GDP, 2011 (%)|
Saturday, November 24, 2012
The cash transfer will replace subsidies for kerosene, LPG, pension payments as well as wages from job guarantee schemes. Anyone familiar with the burden of subsidies and social protection payments in the developing world will realize how big and far-reaching the new reform initiative is going to be.
The welfare program is big on all counts: expected big multiplier impact as a result of cash transfers directly to poor household’s account, big central and state governments spending bill, big administration to implement the program, and big political step ahead of the election in 2014. Compared to MGNREGA, the new program is much, much more bigger (annually IRs 40,000 crore for MGNREGA against Rs 400,000 crore for cash transfers). The Indian government says that the cash transfer scheme will be "fiscally neutral" since existing indirect subsidies is to be replaced by direct cash transfers. Sounds incredible. Lets see how close they can get to the target of fiscal neutrality (India’s fiscal deficit is increasing and is a cause for concern for the MoF and the markets).
The program is to be launched on 1 January 2013 and expected to be completed by April 2014. The basis for cash transfer to BPL households is the Aadhar, which provides unique identification number to each resident and will enable them to, among others, open bank accounts where the government will directly transfer cash-- cutting middlemen, administration hassles and leakages.
Below is an infographic from The Times of India:
Thursday, November 22, 2012
Global temperature is now 0.8°C above preindustrial levels. It could cross 4°C by the end of the century in the absence of collective efforts by global community.
Extreme heat waves will be experienced during almost all summer months in many regions. Increase of 6°C or more would be expected in the Mediterranean, North Africa, Middle East and parts of the US.
Likely rise in sea level by 0.5 to 1 meter by 2100. Many small islands may not be able to sustain their populations.
Most vulnerable regions are in the tropics, sub-tropics and towards the poles.
Agriculture, water resources, human health, biodiversity and ecosystem services are likely to be severely impacted.
CO2 concentration has increased from 278 ppm in preindustrial time to 391 ppm in September 2012 with rate of rise now at 1.8 ppm per year.
Emissions of CO2 are at 35000 million metric tons per year and projected to rise to 41000 million metric tons per year in 2020.
Over the last decade the average rate of sea-level rise has increased to about 3.2 cm per decade. With this rate, it could be over 30 cm of additional sea-level rise in the 21st century. Limiting temperature to 2°C would likely reduce sea-level rise by about 20 cm by 2100 compared to a 4°C world.
Record minimum Arctic sea ice in September 2012, halving the area of ice covering the Arctic Ocean in summers over the last 30 years.
The heat wave of 2010 in Russia claimed 55000 lives. It also resulted in 25% crop failure, burned areas at more than 1 million hectares and cost US$15 billion. With 4°C rise in mean temperature, such heat waves are likely to be a normal feature.
The 202 drought in the US impacted about 80% of agricultural land, making it the most severe drought since the 1950s.
Substantial increases in stunting due to malnutrition are projected to occur with warming of 2°C to 2.5°C, especially in Sub-Saharan Africa and South Asia, and this is likely to get worse at 4°C.
- Increased trade means increased production, which means increased emissions—scale effect
- Greater specialization on production and export of goods might lower or increase emissions depending on the production structure, i.e. if it is polluting or non-polluting economic activity (think of coal and hydroelectricity respectively)— composition effect
- Technology transfer might promote ‘cleaner’ ways to produce goods— technique effect
Monday, November 19, 2012
Under a euro-centered growth shock, the median LIC would suffer a significant loss in output, fiscal balances would worsen, and more than half of all LICs would see reserve coverage fall below three months of imports. External financing needs would also rise. Given donors’ fiscal constraints, aid is unlikely to come to the rescue as it did in 2009. Countries would either have to take on more nonconcessional debt, deplete reserves, or make pro-cyclical policy adjustment. The IMF would also likely be called upon to provide additional financial assistance.
The effects of a protracted global growth slowdown would be less severe in the short run. However, due to permanent output losses that accumulate over time, the effect would be substantial in the medium term. Absent adjustment, additional external financing needs would mushroom: since this is unsustainable, almost all LICs would need to adjust to some degree depending on prevailing cyclical conditions, supported by Fund financing. Policymakers would have to balance their adjustment decisions with the need to support or maintain growth and preserve priority spending.
Thursday, November 15, 2012
How much does changes in labor earnings influence poverty (by income source)? A recent study by Inchauste et al. (2012) shows that change in labor income was the largest contributor to poverty reduction in 16 countries. Specifically, labor income accounted for more than half of the change in poverty in 10 countries and over 40% in another four countries.
Now, why has labor income increased? The reasons could be more working people, higher earnings per workers, changes in occupation structure or sectoral composition of employment, and improved human capital (education, skills and experience) among others. The authors focus on Bangladesh, Peru and Thailand to find out the answer. Their analysis shows that the largest contributor was labor-market related factors such as returns to land and experience in Bangladesh, returns to land in Peru, and returns to education and experience in Thailand. In other words, it is the increase in real earnings and higher productivity.
Furthermore, the study shows that a declining dependency rate accounted for over a fifth of the reduction in poverty in 10 countries (more impact in Paraguay and Costa Rica) and transfers and other non-earned incomes account for over a quarter of the reduction in poverty in 9 countries. The authors looked into the major factors that impact poverty: growth rate, redistribution, demographics, growth in labor income and growth in non-labor income. It doesn’t account for the impact of increase in access to and quality of public services that are not part of household income.
The non-labor incomes (as a result of targeted social protection programs) were relatively more important in accounting for changes in extreme poverty (US$2.5 a day) in Argentina, Brazil, Chile, Costa Rica, Ecuador, Romania and Thailand.
Interestingly, the study shows that, in Nepal, employment and earnings, followed by non-labor income (public transfers and remittances) and declining dependency rate, had the largest impact on poverty. In contrast to this finding, an analysis of poverty in Nepal between the same time period (1995/96 and 2003/04—first and second living standards surveys) done in 2006 by the World Bank showed that the increase in remittances contributed between one-third to one-half of overall reduction in headcount poverty rate (from 42 percent to 31 percent). There has been a drastic change in household consumption and income profile in Nepal since 2004. While 23.4% of households received remittances in 1996 and 31.9% of households in 2004, it increased to 55.8% in 2011.
Between 2004 and 2011, overall remittance income increased from Rs 46 billion to Rs 259 billion (in 2011, internal remittances were Rs 51 billion and external remittance were Rs 208 billion). Per capita remittances increased from Rs 2100 to Rs 9245 over the same period. The impact of transfers (remittances) has been much more higher in reducing poverty between 2004 and 2011 than between 1996 and 2004 (note that it is in terms of consumption, not income). Remittances have tremendously boosted consumption expenditure of poor households. More on the impact of remittances on Nepali economy here.
The table below gives a snapshot of poverty, remittances and labor income in Nepal between 1995/96 and 2010/11.
Key findings of Nepal Living Standards Surveys
|NLSS I||NLSS II||NLSS III|
|Absolute poverty (% of population)||41.8||30.8||25.16*|
|Percentage of household receiving remittances||23.4||31.9||55.8|
|Total amount received (Rs billion)||13||46||259|
|From within Nepal||6||11||51|
|From outside Nepal||7||35||208|
Share of total amount of remittances received by household
|From within Nepal||44.7||23.5||19.6|
|From other countries||22.4||53.3||69.1|
|Share of agriculture sector in wage employment||53||37||35|
|Share of non-agriculture sector in wage employment||47||63||65|
|Mean daily wage (Rs)|
Tuesday, November 6, 2012
Recognizing the crucial role governments play in supporting the economy (especially during times of crisis) and providing foundations for private sector dynamism, McKinsey & Company has started the McKinsey Center for Government (MCG). Along with it came the first publication titled ‘Government Designed for New Times’, which contains discussion on the role of government in the coming days, ways to boost efficiency and induce effective execution of key decisions.
Below is a summary of some of the contributor’s views on the role of government and ways to enhance its efficacy. [The Nepali government can learn a lot from international best practices in making government productive and government services effective and efficient.]
Five lessons learnt by Tony Blair, former prime minister of Great Britain and Northern Ireland, in leading government transformation:
- Governance (particularly government effectiveness or capacity in government to get things done) should be at the heart of political debate.
- Aim for systemic change, not incremental change to allow government to keep pace in a rapidly changing world (emerging new economic powers; new technologies in communications, energy and medicine; climate change; financial crisis).
- Right conceptual analysis leads to best systemic change and delivery as the best policy comes from a clear, rigorous intellectual approach.
- The people that enact policy and the ones that gets appointed to key posts matter. Management skills are better in private sector. It is better for public sector employees to spend some years in private sector and then come back to public sector.
- Governments around the world can learn from each other.
Michael Fullan, special adviser to the premier and minister of education in Ontario, offers four directional advise to improve all systems in reasonably short period of time:
- Accountability dilemma (building accountability within the system rather than relying on external control)
- Policy-overload dilemma (don’t develop plans that are too complex, too vague, and contain too many priorities; be focused)
- Capacity-building dilemma (development of individual and group efficacy, especially in skills, resources and motivation)
- Sustainability dilemma (accountability, policy focus and capacity building might lead to sustainability)
Diana Farrell, co-founder of McKinsey Center for Government, discusses how governments can do more and better with less (in short, tap into the mission-driven mind-set of public sector employees).
- Design and execute multiyear reforms that goes beyond mundane initiatives designed to improve management capability. Aim for big reforms and make big (not incremental) shifts in amount of time, energy and resources required. E.g. expenditure and revenue plans, employment plans, etc)
- Invest in capabilities needed for success, especially employing best practices in technology and operations, organization and human resources, and budgeting and finance. E.g. vocational education, updated data, implement the latest proven project management techniques)
Saturday, November 3, 2012
Prabhakar Ghimire reports (his blog here) that the Ministry of Agriculture and Development estimates food production to decline by 563,000 MT.
- Paddy production to fall by 14.2%. Total paddy output is expected to drop by 720,000 tons this year compared to 5.07 million tons recorded last year. Plantation was done in just 91% of total paddy land. Dhanusha and Siraha, key paddy producing districts, reported plantation in just 49 percent and 50 percent of paddy land
- Maize production to fall by 10%. Total maize production is expected to drop by around 164,000 tons.
- Demand for cereals could rise by 100,000 tons to 5.3 million tons this year.
- At least 27 districts will face food deficit this year.
Thursday, November 1, 2012
Below is an abstract from their paper:
China's government economic stimulus package in 2008-09 appears to have worked well. It seems to have been about the right size, included a number of appropriate components, and was well timed. Its subnational component was designed to maximize the impact of the stimulus package on the economy and minimize the potential procyclical elements that are usually built into subnational fiscal mechanisms in federal countries. Moreover, China's massive fiscal stimulus played an important role in the overall recovery of the global economy. Using a simple analytical framework, this paper focuses on two key factors behind the success of the stimulus: investments in bottleneck-easing infrastructure projects and countercyclical nature of subnational spending based on the assumption that well-chosen infrastructure projects could improve business climate and thereby crowd in the private investment. The paper concludes that the expansionary subnational government spending played a key role in strengthening the overall impact of the stimulus and sustaining growth. It also highlights the importance of public investment quality and cautions about the sustainability of local government financing through the domestic banking system and increases in local governments off balance sheet or contingent liabilities. These lessons may be of particular relevance today for China, as well as other countries, in formulating policy response to another global economic slowdown or crisis, possibly as a result of the Eurozone turmoil. For China, investing in urban infrastructure and green economy, as well as in higher quality and better targeted social services, will be crucial for improving income inequality and inducing a more inclusive growth path.
Monday, October 29, 2012
- While the ranking in registering property has improved by two positions and ranking in getting electricity is unchanged, the ranking in all other indicators has declined. The largest decline (9 positions) is in dealing with construction permit indicator.
- In South Asia region, Nepal has the best ranking (21) in registering property. It requires 3 procedures, 5 days and 4.9% of property value to register a property in Nepal. The regional averages are 6 procedures, 100 days (250 days in Afghanistan), and 7.3% of property value.
- In terms of documents to export, Nepal has the worst performance in the region, requiring 11 documents against the regional average of 8. Sri Lanka has the best performance with just 6 documents required for exporting a container.
- In terms of number of procedures required to enforce contracts, Nepal has best performance in the region with 39 required procedures as against 43 for regional average.
- In terms of time taken to resolve insolvency, Nepal has the worst performance in the region. While it takes 5 years to resolve insolvency in Nepal, the regional average is 3 years (in Maldives it is just 1.5 years). Furthermore, recovery rate is also the lowest in Nepal (24.5 cents on the dollar) compared 29.1 for the region (50.6 for Maldives).
|Nepal's ranking (out of 185 countries)|
|Topics||DB 2013 Rank||DB 2012 Rank||Change in Rank|
|Starting a Business||105||102||-3|
|Dealing with Construction Permits||97||88||-9|
|Getting Electricity||96||96||No change|
|Trading Across Borders||171||170||-1|