Wednesday, September 4, 2013

Improved competitiveness of Nepali economy in 2013

According to the Global Competitiveness Report 2013-2014, Nepal’s ranking in economic competitiveness improved to 117 (out of 148 countries) in 2013 from 125 (out of 144 countries) in 2012. In South Asia, Pakistan has the lowest ranking (133), followed by Nepal. India has the best ranking (60), followed by Sri Lanka (65), Bhutan (109) and Bangladesh (110).

The main reason for the improvement came from better ranking in macroeconomic environment (rank 41 from 56 last year) and health and primary education (rank 88 from 109 last year). The ranking in other pillars of competitiveness has deteriorated, especially labor market efficiency, in which Nepal is ranked 127 out of 144 countries. The worst ranking is in infrastructure (144 out of 144 countries).

The overall message is that while Nepal’s macroeconomic management has improved, which had positive impact on overall competitiveness, the quality of infrastructure relative to other countries has deteriorated. The reasons behind the improvement in macroeconomic management are very weakly related to the strengthening of the economic fundamentals. It has more to do with robust revenue growth hinged to remittance-fueled imports, the inability of the government to spend budget in time (thus low borrowing), rise in national savings due to high remittance inflows, etc.

Within macroeconomic environment, Nepal ranks as follows:
  • Gross national savings (% of GDP): 14
  • Public debt (% of GDP): 47
  • Budget balance (% of GDP): 37

Within infrastructure, Nepal ranks as follows:
  • Quality of overall infrastructure: 132
  • Quality of roads: 126
  • Quality of railroad infrastructure: 121
  • Quality of air transport infrastructure: 131
  • Quality of electricity supply: 144
  • Mobile telephone subscriptions/100 population: 135
  • Fixed telephone lines/100 population: 116

Competitiveness is defined as “the set of institutions, policies, and factors that determine the level of productivity of a country”.The ranking is based on global competitiveness index, which comprises of 12 categories – the pillars of competitiveness – which together gives a picture of a country’s competitiveness landscape. The pillars are: institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market development, technological readiness, market size, business sophistication and innovation. 

Nepal is still a factor-driven economy but its macroeconomic environment is better than that of other factor-driven economies. Its labor market efficiency is below the standard of other factor-driven economies. Nepal still has a long way to go to become an efficiency-driven and then innovation-driven economy.

In the survey result included in the same report, respondents identified government instability as the top problematic factor for doing business. The others are corruption, inefficient government bureaucracy, inadequate supply of infrastructure, policy instability, and restrictive labor regulations, among others.