Sunday, June 24, 2012

NEPAL: Prime Ministers and the economy

Here is a snapshot of how the economy (related one here as well) fared during various prime ministers since 1990/91 in Nepal. The highest GDP growth rate was 7.9 percent in 1993/94. Fiscal deficit widened the most in 2008/09, which shows how much Nepal is unable to match rising expenditure with revenue. FDI committed by authorized firms at DoI was the highest in 2010/11 (annual FDI growth rate was the highest in 1992/93). Initially due to conflict and now due to lack of job opportunities (new investors are reluctant to come and existing ones are perishing due to labor problems, high cost of production resulting from inadequate supply of electricity and supply-side constraints), the number of migrants is increasing.

The soaring expenditure and the inability to match it up with revenue (see widening fiscal deficit) is resulting in a situation where the economy is increasingly reliant on foreign aid to fund most of its reform programs and development works. Inflation was the highest in 1991/92 (due to the turmoil in the Gulf then and its impact on oil prices, the shock the economy got following economic blockade by India in 1989, and sudden change in economic structure following liberalization in 1992).

Based on the figures seen here, make you own judgment regarding which leader/party delivered growth and prosperity to the Nepali people.


Prime Ministers and Economy
    billion %
Prime Ministers  Fiscal year Fiscal balance FDI-authorized firms Remittance Aid disbursement BoT Inflation
KPB 1990/91 -10.66 0.41 2.13 5.99 15.03 9.81
KPB/GPK 1991/92 -11.26 0.60 2.32 7.80 16.32 21.05
GPK 1992/93 -11.96 3.08 2.99 9.24 17.15 8.86
GPK 1993/94 -11.62 1.38 3.47 11.56 31.66 8.95
GPK/MMA 1994/05 -10.55 0.48 5.06 11.25 45.64 7.66
MMA/SBD 1995/96 -13.82 2.22 4.28 14.29 56.14 8.13
SBD/LBC 1996/97 -14.36 2.40 5.60 15.03 70.01 8.09
LBC/SBT/GPK 1997/98 -17.78 2.00 6.99 16.46 61.49 8.33
GPK/KPB 1998/99 -17.99 1.67 10.31 16.19 56.49 11.38
KPB/GPK 1999/00 -17.67 1.42 12.66 17.52 64.13 3.39
GPK 2000/01 -24.19 3.10 47.22 18.80 63.54 2.43
SBD 2001/02 -22.94 1.21 47.54 14.38 61.25 2.89
SBD/LBC 2002/03 -16.44 1.79 54.20 15.89 78.22 4.75
SBT/SBD 2003/04 -15.83 2.76 58.59 18.91 81.89 3.96
SBD/KG 2004/05 -18.05 1.64 65.54 23.66 89.85 4.54
KG 2005/06 -24.78 2.61 97.69 22.04 100.90 7.96
KG/GPK 2006/07 -30.09 3.23 100.14 25.85 138.60 6.4
GPK 2007/08 -33.41 9.81 142.68 29.30 178.56 7.7
PKD 2008/09 -49.80 6.26 209.70 36.35 222.40 13.2
PKD/MKN 2009/10 -41.20 9.10 231.73 49.77 314.66 10.5
MKN/JNK 2010/11R   10.05     332.97 9.60
JNK/BRB 2011/12P            

Few caveats:

  • Depending on the nature of expenditure (especially capital expenditure) there is a lag of few months to years. So, expenditure in nth year might only show its effect after n+k years, where k>=0. It means GDP growth figure during the tenure of a certain prime minister might not fully reflect the impact of his (no female PM yet!) expenditure programs or reforms.
  • That said, over 50 percent (70 percent in 2010/11) of total expenditure is recurrent expenditure. Capital expenditure is well below 20 percent. It means the impact of most of the expenditure is more or less reflected in the figures.
  • The increasing fiscal deficit shows the difference between expenditure and revenue. We are spending beyond our means!
  • FDI is related to those committed by firms registered at Department of Industry. It doesn’t mean that the committed money is actually invested. Nevertheless, it reflects investors’ confidence on the economy.
  • High remittance inflows could be viewed as a proxy for high number of migrants seeking jobs abroad. It then means the lack of employment opportunities in the economy. Note that it is also affected by the openness of government policies regarding foreign employment and the demand for Nepali workers abroad.
  • The aid dependency is increasing as Nepal is unable to satisfy its expenditure with domestic revenue. The table shows aid disbursement, i.e. how much of the committed money actually came to Nepal. Note that the discrepancy between commitment and disbursement might also be because of low absorption capacity of our system.
  • The balance of trade (merchandise goods only) shows the difference between value of imports and value of exports. The high figure means imports outpacing exports. It points to our inability to produce goods demanded in the market, the lack of export competitiveness, eroding strength of manufacturing sector, and high dependence on imported items (primarily financed by remittances).
  • Inflation is the least understood beast in our economy! It is mainly affected by prices in India (due to pegged exchange rate), prices of petroleum products, domestic supply constraints and increase in demand due to rise in income arising from high wages and remittance inflows.

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