Thursday, August 30, 2018

750 MW West Seti project doomed, and BIMSTEC plan for $50 bn infrastructure projects


From The Kathmandu Post: The West Seti Hydroelectric Project has all but collapsed after the Chinese developer turned down the government request to execute the project citing financial infeasibility. The all-important two-day meeting between Investment Board Nepal (IBN) and China Three Gorges International (CTGI) ended inconclusively on Wednesday, with the latter expressing inability to move ahead despite assurance from the government on capacity optimisation and US dollar power purchase agreement. 

While the investment board has not categorically said the deal with the Chinese company is over, senior officials who spoke to the Post say this as the end of Chinese company’s involvement in the West Seti project. Whether or not the Chinese company will completely pull out of the project now entirely depends on Prime Minister KP Sharma Oli, and if he agrees to all the terms raised by the Chinese developer. Officials wouldn’t say if there were chances for such reconsideration.

The government side was flexible on addressing two major issues of the Chinese developer--dollar PPA and the downward revision of the project’s installed capacity. Officials present at the meeting said the Chinese developer did not show any intent to carry forward the project. Instead, the issue of resettlement and rehabilitation was brought forward by the Chinese company which it termed would be expensive and unpredictable. In a bid to make the project feasible, the investment board even made an offer to the representatives of the Chinese company, going beyond the guidelines issued by the government for the dollar-denominated power purchase. The official guidelines say the payment to the developer is made in convertible currency for a period of 10 years or until the time the project pays back the foreign debt, whichever is earlier. The investment board had offered to increase the period to 12 years for the West Seti project. The IBN also offered to downsize the project capacity to 600MW from 750MW.

Foreign ministers agree on projects worth $50b

From The Kathmandu Post: In an ambitious plan to connect the member states of BIMSTEC, foreign ministers from the seven-nation group identified and agreed on Wednesday to push forward 167 various connectivity-related projects at an estimated cost of $50 billion. The ministers agreed to approve projects, at least in principle, following a detailed study by the Asian Development Bank. The member states are developing BIMSTEC Transport Connectivity Master Plan, with a goal to complete it by the end of September 2018, Foreign Minister Pradeep Gyawali told the Post. 

The ADB study included transportation and cross-border facilitation, multimodal transport and logistics, infrastructure development, aviation, maritime transport, human resources development, as well as communication linkages and networking.
The BIMSTEC Transport Infrastructure and Logistic Study (BTILS) was updated by the ADB in 2014. Out of 167 projects, the study has prioritized 66 projects. 

Wednesday’s meeting also underlined the establishment of BIMSTEC Permanent Secretariat in Bangladesh; BIMSTEC Cultural Industries Observatory (BCIO) in Bhutan; and BIMSTEC Centre for Weather and Climate (BCWC) in India as some of the key achievements in institutional development.


Tuesday, August 28, 2018

नेरु भर्सेस भारु (विनिमय दर)

सेतोपाटीमा प्रकाशित विचार, भदौ ८, २०७५

सय भारतीय रुपैयाँ (भारु) बराबर कति नेपाली रुपैयाँ (नेरु) हुन्छ?

यसको जवाफ प्राय: हामी सबैलाई थाहा छ- १ सय ६० रुपैयाँ।

यो दर कहिले तय भयो? किन कहिल्यै घटबढ हुँदैन?

नेपालले भारतसँग आफ्नो मुद्राको विनिमय दर स्थिर राखेको छ। यसको मतलब, जसरी अमेरिकी डलर वा अन्य विदेशी मुद्राको दाँजोमा नेपाली रुपैयाँ दिनकै घटबढ भइरहन्छ, नेरु र भारुबीच त्यस्तो हुँदैन।

२०१६ सालसम्म नेपाली र भारतीय रुपैयाँको भाउ बराबर थियो। सय भारु बराबर सय नेरु। त्यसयता भारुको दाँजोमा नेरु सस्तो हुँदै अहिलेको अवस्थामा आइपुगेको हो।

यसबीच परिवर्तन हुँदै नभएको होइन। सन् १९६६, १९६७, १९७७ र १९८५ मा भारुको दाँजोमा नेरु सस्तो भएको थियो। सन् १९९१ र १९९३ मा महँगो भएको थियो। सन् १९९३ यता भने परिवर्तन गरिएको छैन।
बेलाबेला परिवर्तन भए पनि नेरु र भारुको मूल्य स्थिर राख्ने प्रणाली कायम छ। नेरुको अरु विदेशी मुद्रासँगको विनिमय दर पनि भारुको ती मुद्रासँगको विनिमय दरले नै निर्धारण गर्छ। अर्थात्, भारुको मूल्य अमेरिकी डलरसँग जसरी घटबढ हुन्छ, त्योसँगै नेरुको पनि हुन्छ।

एकथरी विश्लेषकहरू अहिलेको विनिमय दर पुनरावलोकन गर्नुपर्ने तर्क गर्दैछन्। उनीहरु नेपाली रुपैयाँ अझ सस्तो बनाउनुपर्छ भन्दै छन्। अर्काथरी विश्लेषक भने स्थिर विनिमय दरको व्यवस्था नै हटाउनुपर्छ भन्छन्।

नेपाल र भारतको अर्थतन्त्रमा सन् १९९३ यता ठूलो परिवर्तन आएको छ। व्यापार र लगानीका स्रोत विकेन्द्रीकरण भएका छन्। अर्थतन्त्रमा संरचनात्मक परिवर्तन भएको छ। अहिलेको विनिमय दर वा मुद्रा स्थिर रहने प्रणालीले अर्थतन्त्रको परिवर्तन प्रतिविम्बित गर्दैन। त्यसैले, भारुको दाँजोमा नेरुको मूल्य सस्तो बनाइयो भने नेपालले आफ्नो निर्यात बढाउन सक्छ। अझ विनिमय दर स्थिर रहने प्रणाली नै हटाइयो भने हामी आफ्नो मौद्रिक नीति स्वतन्त्र रुपले लागू गर्न पाउँछौं। भारतीय मौद्रिक नीतिको पुच्छर समाएर हिँड्नु पर्दैन।
यस्ता तर्क-वितर्कबीच आखिर हामीले के गर्न ठिक हुन्छ?

सबभन्दा पहिला मूल्य सस्तो हुनुपर्छ भन्ने तर्कमा चर्चा गरौं।

हामीले नेरु सस्तो बनायौं भने निर्यात सस्तो पर्छ, आयात महँगो।

मानौं, १ सय ६० रुपैयाँ पर्ने बिस्कुट हामीले भारत निर्यात गर्यौं। अहिलेकै विनिमय दरमा त्यो बिस्कुट भारतीय ग्राहकले १०० भारुमा किन्ने छन्। हामीले नेरु सस्तो बनाएर सय भारु बराबर १ सय ८० तोक्यौं भने त्यही बिस्कुट भारतीय ग्राहकलाई सस्तो पर्नेछ। उनीहरुले सय भारु तिर्दा १ सय ६० रुपैयाँको बिस्कुटसँगै २० रुपैयाँको थप सामान किन्न सक्ने छन्।

यसले नेपाली उद्योगलाई फाइदा हुन्छ। केही पनि अतिरिक्त मूल्यविना उही समान सस्तोमा बेच्न पाइन्छ। यसलाई हामी प्रतिस्पर्धात्मक मूल्य भन्छौं। नेपाली निर्यात सस्तो पर्यो भने भारतीय ग्राहकले धेरै माग गर्छन्। नेपाली उद्योगले आफ्नो क्षमता विस्तार गरेर धेरै सामान उत्पादन गर्न सक्छन्। यसले रोजगारी र आर्थिक वृद्धि हुन्छ।

यसरी नेरु सस्तो बनाउँदा हाम्रो व्यापार घाटा भने कम हुँदैन। किनभने, हामीले आयात गर्दै आएका सामान पहिलेभन्दा थप महँगो पर्न जान्छ।
कसरी?

अघिकै उदाहरणलाई उल्टोबाट हेरौं।

मानौं, १ सय भारु पर्ने बिस्कुट हामी भारतबाट आयात गर्छौं। अिहलेकै विनिमय दरमा त्यो बिस्कुट नेपाली ग्राहकले १ सय ६० रुपैयाँमा किन्ने छन्। हामीले मूल्य घटाएर सय भारु बराबर १ सय ८० नेरु तोक्यौं भने त्यही बिस्कुट नेपाली ग्राहकलाई महँगो पर्नेछ। पहिले १ सय ६० रुपैयाँ तिर्दै आएको बिस्कुट किन्न १ सय ८० तिर्नुपर्नेछ।

हामीले भारतबाट आयात गर्ने अधिकांश सामान नेपाली उद्योगले उत्पादन गर्दैनन्। गरे पनि कच्चापदार्थ आयात गर्ने उतैबाट हो। त्यही कच्चापदार्थमा थोरै मूल्य अभिवृद्धि गरेर त्यही सामान हामी महँगोमा उत्पादन गर्छौं। हाम्रो उत्पादन लागत महँगो छ। लागत प्रतिस्पर्धामा हामी कमजोर छौं।

भारतबाट हुने आयातमा ठूलो हिस्सा ओगट्ने भनेका पेट्रोलियम र ग्यास, सवारी साधन, औद्योगिक औजार र कतिपय कृषिसँग सम्बन्धित सामान र उत्पादन हुन्। देशमा पर्याप्त बिजुली उत्पादन र उपयोग छैन। अझै पनि हामी भारतबाट बिजुली आयात गर्छौं। उद्योगहरु पूर्ण क्षमतामा चल्न सकेका छैनन्। हाम्रो औद्योगिक उत्पादन क्षमताको ५५ प्रतिशत हाराहारी मात्रै छ। उद्योगहरुमा दक्ष कामदार अभाव छ। निर्यात प्रवर्द्धन गर्न बनेका नीतिहरु कागजमै सीमित छन्।

यहाँनिर अर्थशास्त्रको एउटा सिद्धान्तबारे कुरा गरौं।

'जे-कर्भ प्रभाव' भनिने यो सिद्धान्तले भन्छ- मुद्राको भाउ सस्तो बनाइयो भने केही वर्षसम्म व्यापार घाटा बढेर जान्छ। यसले निर्यात बढ्छ, आयात घट्छ। र, कालान्तरमा व्यापार घाटा पनि घट्दै जान्छ।

हामीले भारुको दाँजोमा नेरु सस्तो पार्नेबित्तिकै पहिल्यै अर्डर गरेका तर भुक्तानी नभएका सामानको मात्रा परिवर्तन हुँदैन। आयात मूल्य भने महँगो पर्छ। यसले व्यापार घाटा तत्कालै बढेर जान्छ।

जब आयात महँगो र निर्यात सस्तो पर्छ, उपभोक्ताले महँगा आयातीत वस्तुको विकल्प स्वदेशमै खोज्न थाल्छन्। उद्योगहरुले सस्तोमा धेरै सामान निर्यात गर्न सक्छन्। आन्तरिक उद्योगहरुले आफ्नो क्षमताअनुरुप उत्पादन सुरु गर्छन्। नयाँ उद्योग खुल्ने वातावरण बन्छ। हामीले बनाएका सामान अरु राष्ट्रको भन्दा सस्तो हुन्छ। यसले व्यापार घाटा कम हुँदै अर्थतन्त्रमा सकारात्मक प्रभाव पर्छ।

यसरी हामी मुद्राको भाउ सस्तो बनाएर लाभान्वित त हुन सक्छौं, तर हाम्रो अर्थतन्त्र अहिल्यै त्यो विन्दुमा पुगेको वा पुग्न लागेको अवस्था छैन।

अब भारुको तुलनामा नेरुको मूल्य सस्तो पार्दा बृहत् अर्थतन्त्रमा पर्ने अरु प्रभावबारे चर्चा गरौं।

आयात महँगो पर्नेबित्तिकै बजारमा मूल्य वृद्धि दर बढ्छ। निर्यात सस्तो भएपछि हाम्रो सामानको माग बढ्छ। हामीले माग भएर पनि उत्पादन बढाउन सकेनौं भने कामदारको ज्याला र अरु खर्च वृद्धि हुन्छ। यसले समग्रमा उत्पादन लागत बढ्छ। र, अन्त्यमा बजारमा खुद्रा सामानको पनि मूल्य वृद्धि हुन्छ।

यो क्रम बढ्दै मूल्य वृद्धि धेरै भयो भने सरकारले आफ्नो खर्च घटाउनुपर्ने हुन्छ। राष्ट्र बैंकले ब्याज दर बढाउनुपर्ने हुन्छ। सर्वसाधारणले बैंकबाट लिएको ॠणको व्याज बढ्छ। अहिले बैंकहरुमा ॠणको व्याज २० प्रतिशत हाराहारी छ।

नेपाली रुपैयाँ सस्तो बनाउनुको मनोवैज्ञानिक पक्ष पनि छ।

हाम्रो अर्थतन्त्र तुलनात्मक कमजोर छ। मूल्य वृद्धि दर धेरै छ। राजनीतिक तथा आर्थिक अवस्था अस्थिर भए जनताले बलियो अर्थतन्त्रको बलियो मुद्रा आफूसँग राख्न रुचाउँछन्।

कमजोर अर्थतन्त्र र मूल्य वृद्धि दर धेरै हुँदाहुँदै हामीले भारुको दाँजोमा नेरु सस्तो बनायौं भने जनताले भारुकै माग बढाउन सक्छन्। उनीहरुले नेपालमा भएको पैसा भारत लगेर राख्न वा लगानी गर्न सक्छन्। यसलाई पुँजी पलायन भन्निन्छ। अहिले पनि सीमा क्षेत्रमा भारुको भाउ सरकारले तोकेको विनिमय दरभन्दा बढी छ। अर्थात्, नेपाली रुपैयाँको चलनचल्ती मूल्य वास्तविकभन्दा सस्तै छ।

अझ भारतका बैंकले नेपालका बैंकले भन्दा धेरै व्याज दिने र यहाँको मूल्य वृद्धि भारतमा भन्दा धेरै भए झन् धेरै पुँजी पलायन हुनेछ।

नेपाली रुपैयाँ एकचोटि सस्तो बनाएपछि पनि स्वदेशी उत्पादन र निर्यात वृद्धि भएन, व्यापार घाटा घटेन र आर्थिक वृद्धि भएन भने फेरि पुनरावलोकन गर्नुपर्ने हुन सक्छ। कतिपटक र कहिलेसम्म पुनरावलोकन गर्नुपर्ने हो भन्ने अनुमान गर्न गाह्रो छ। यस्तो अवस्थामा स्वदेशी मुद्राप्रति विश्वास घट्नेछ। र, झन् धेरै पुँजी पलायन हुने सम्भावना बढ्छ।

यो भारुको दाँजोमा नेपाली रुपैयाँ सस्तो पार्दाको कुरा भयो। अब भारु र नेरुको स्थिर विनिमय दर हटाउनेबारे चर्चा गरौं। अर्थात्, डलर वा अन्य विदेशी मुद्राजस्तै भारु र नेरुको विनिमय दर दिनहुँ घटबढ भइरहने अवस्था हेरौं।

भारतसँगको स्थिर विनिमय दरले नेपालको मौद्रिक तथा आर्थिक नीति स्वतन्त्र भएन भन्ने छ। यसले भारतबाट सामानसँगै मूल्य वृद्धि पनि आयात गर्दैछौं भन्ने तर्क गरिन्छ। भारतले पाँच सय र हजार रुपैयाँलाई चलनचल्तीबाट हटाएपछि नेपाललाई पनि असर पर्ने कुरा उठाइँदैछ।

यी जायज तर्क हुन्।

तर, हामीले आफ्नो अर्थतन्त्रको क्षमता बुझेर मात्र यस्तो तर्क गर्नु ठिक हुन्छ।

सन् २०१७ मा नेपालको अर्थतन्त्र करिब २४ अर्ब डलर बराबर पुगेको छ। भारतको २ हजार ५ सय ९७ अर्ब डलर छ। नेपालको प्रतिव्यक्ति आय ८ सय ३५ डलर छ भने भारतको १ हजार ९ सय ४० डलर।

हाम्रो कमजोर अर्थतन्त्रको नजिक भारतको बलियो अर्थतन्त्र छ। हामीबीच स्वतन्त्र आवागमन हुन्छ। खुला व्यापार सन्धि छ। यसले पुँजी पलायन हुने र गम्भीर आर्थिक समस्या पर्दा सहनै नसकिने अवस्था आउन सक्छ।

जस्तै, नेरु सस्तो बनाउन हामीसँग पर्याप्त विदेशी मुद्रा भएर अन्तर्राष्ट्रिय मुद्रा बजारमा हस्तक्षेप गर्ने क्षमता हुनु जरुरी छ। यो रणनीति तब सफल हुन्छ, जब अरु राष्ट्रले आफ्नो मुद्राको भाउ घटाउँदैनन्। हामी प्रतिस्पर्धी तरिकाले निर्यात गर्न सक्ने गरी उत्पादन गर्न थाल्छौं।

अस्थिर विनिमय दर प्रणालीमा मुद्राको मूल्य माग र आपूर्तिले निर्धारण गर्छ। हाललाई राष्ट्र बैंक र अन्तर्राष्ट्रिय मुद्रा कोषले पनि स्थिर विनिमय दर प्रणालीलाई निरन्तरता दिँदा केही हदसम्म आर्थिक अनिश्चितता कम हुने र हामीलाई फाइदा हुने निष्कर्ष निकालेका छन्।

त्यस्तो भए अब के गर्ने?

भारुको दाँजोमा नेरु सस्तो बनाउनुको लक्ष्य स्वदेशी उत्पादन र निर्यात वृद्धि, व्यापार घाटा कम, आर्थिक समृद्धि र रोजगार वृद्धि हो। हाम्रो औद्योगिक उत्पादन र क्षमता कमजोर छ। मूल्य वृद्धि दर स्थिर भइसकेको छैन। यस्तो अवस्थामा हामीले त्यतातिर पनि ध्यान दिनुपर्छ।

स्थिर र प्रतिस्पर्धी विनिमय दर राख्न विश्वसनीय मौद्रिक तथा आर्थिक नीति हुनु जरुरी छ। यसका तीन विशेष पक्ष छन्: बलियो वित्तीय क्षेत्र, सही समष्टिगत आर्थिक नीति र विश्वसनीय संस्थाहरु।

विश्व वित्तीय बजारमा हाम्रो पहुँच नगन्य छ। उत्पादन क्षमता कम छ। उत्पादनको मूल्य कम छ। वित्तीय क्षेत्र अव्यवस्थित छ। मौद्रिक र आर्थिक नीतिमा विश्वसनीयताको कमी छ। मूल्य वृद्धि दर धेरै छ र अस्थिर छ। अर्थतन्त्र रेमिटेन्स आयले धानेको छ। यस्तो अवस्थामा हाम्रो निम्ति अहिलेको स्थिर विनिमय दर नै उचित हुन्छ।

पुनरावलोकन गरी नेपाली रुपैयाँको भाउ सस्तो बनाउने हो भने यसबाट फाइदा गराउने आधारहरु बलियो हुनु जरुरी छ।

हचुवा भरमा हल्ला मच्चाउने र निर्णय गर्ने हो भने सबैलाई घाटा हुन्छ। सन् २०१० मा यस्तै हल्ला हुँदा अर्थमन्त्री, अर्थसचिव र राष्ट्र बैंकले खण्डन गर्नुपरेको थियो।

Monday, August 20, 2018

Kathmandu-Kerung railway to cost US$2.6 billion, mandatory credit rating of loans and more


From The Kathmandu Post: The Department of Railways (DoR) on Sunday said construction of Kathmandu-Kerung railway is estimated to cost Rs257 billion. The construction of the railway running through complicated geological terrain and challenging engineering work is likely to be completed in nine years, the department said. The DoR observations corroborate the report prepared by Chinese team.

The railway would be 72.25 km in Nepal. Around 98.5 percent of the railway would either be bridges or tunnels. The project would cost Rs3.55 billion per kilometer. The project’s longest and most steep grade is up to 95 km long out of 121 km. A report obtained by the Post states, the railway plan that passes through rugged Himalayan mountains involves complex structural engineering.The report says engineering crews would build ramps along the northern and southern slopes leading to Lake Paiku, near Kerung, to connect tracks to the Kathmandu section. The ramps would overcome the huge difference in elevation between the southern and northern toes of the Himalayan mountains.

From The Himalayan Times: Bankers have sought incentives for borrowers to execute the provision of credit rating of borrowers who want to avail loans of Rs 500 million and above, and renewal of loans as provisioned by the Monetary Policy. Borrowers will not be encouraged to opt for credit rating without any incentive, as there are multiple challenges to execute this policy introduced by the Monetary Policy.

The firms that avail loans worth Rs 500 million and above are big companies and they will be reluctant to disclose all the information about their company that a credit rating requires to avail the bank loan because their competitors — businesspeople — might be in the board of the respective banks and financial institutions (BFIs), according to Gyanendra Prasad Dhungana, president of Nepal Bankers’ Association. “On the other hand, BFIs cannot issue loans on the basis of rating without collateral or guarantee. If collateral or guarantee is a must, the borrowers will not be encouraged for credit rating of their companies because it is a costly affair.”

As per the provision of the Monetary Policy, BFIs must float loans on the basis of credit rating for loans of Rs 500 million and above. “In this regard, the cost of rating could also be a liability for the BFIs and if so, the cost must be adjusted in lending rates,” said Dhungana. “BFIs cannot treat borrowers differently based on their ratings if the cost of rating has to be borne by the BFIs.”


Power leakage came down to 20.45pc last fiscal year

From The Himalayan Times: Nepal Electricity Authority (NEA) has said that it was able to reduce electricity leakage by 2.45 percentage points in the last fiscal year 2017-18. As per data released by NEA, it was able to meet its target to reduce the leakage of electricity. NEA had earlier set a target to reduce electricity leakage from 22.90 per cent to 20.45 per cent of the total electricity supply in the last fiscal. According to NEA, the 20.45 per cent electricity leakage figure is the lowest in NEA’s history. At present, NEA loses 5.5 per cent of electricity through leakage in its transmission system and 14.5 per cent through its distribution system.

“In this fiscal, we plan to reduce the electricity leakage by 1.95 percentage points to 18.5 per cent, however if possible we will try to bring it down to around 15 per cent,” said Kul Man Ghising, managing director of NEA. Currently, NEA has started taking strict action against electricity theft and has become more stringent in collecting dues. It has also installed high-capacity transformers, and upgraded the transmission and distribution system and substations to reduce electricity leakage. In the last fiscal 2017-18, NEA was able to earn net profit of Rs one billion (unaudited). NEA has forecast to earn net profit of Rs 1.1 billion in this fiscal. In the last fiscal, NEA earned operating profit worth Rs 7.86 billion.

A cabinet meeting on Sunday decided to form a five-member Public Expenditure Review Commission led by Dr. Dilli Raj Khanal. The commission will review public expenditure, its usefulness, policy reforms, and selection of projects among others. 

Monday, August 13, 2018

Indian EXIM Bank proposes stake in Nepal's infrastructure bank, Nepal Bangladesh energy cooperation and more


From The Kathmandu Post: Exim Bank of India, an undertaking of the government of India, is exploring an investment opportunity in Nepal, potentially setting up its own infrastructure bank or making equity investments in an existing Nepali bank.

Officials of the southern neighbour’s export finance institution had approached the Finance Ministry in June with a proposal, which coincides with the Nepal government’s decision to sign an MoU with China’s Zhongji Richway Holdings Limited that same month, just days before Prime Minister KP Sharma Oli’s visit to China. Finance Ministry officials told the Post they recommended the Exim Bank enter into an equity partnership with Nepal’s Infrastructure Development Bank (IDB), financed by local businessmen in partnership with the government.

Emerging Nepal, which was established under public-private partnership, is expected to come into operation by November 22, after it received a letter of intent (LoI) from the Nepal Rastra Bank in May. Chandra Prasad Dhakal, a board director of Emerging Nepal, confirmed to the Post that they had talks with Exim bank officials. He said they have been exploring the possibility of a joint venture with a number of Indian companies, and the Exim Bank of India is one. “The discussions are still at an early stage, so no concrete decision has been taken yet,” he said. Dhakal said Emerging Nepal could accommodate the Exim Bank as a promoter by altering the existing capital structure of the proposed bank. According to the IDB licensing policy introduced by NRB last year, foreign investors can invest up to 85 percent in such banks; and a paid-up capital of Rs20 billion is required to establish the bank.



From myRepublica: epal and Bangladesh inked a bilateral agreement on cooperation in electricity development, in Kathmandu Friday. This paves the way for opening the market in Bangladesh for Nepal’s hydroelectricity as well as bringing in Bangladeshi investment in this sector. Bangladesh, for its part, will meet its energy needs in the face of depleting natural gas, for sustaining its high rate of economic growth. 

Under the bilateral agreement, both countries will work on electricity generation, energy efficiency, renewable energy and on building grid connectivity, according to a press statement issued by the Ministry of Energy, Water Resources and Irrigation. The agreement was signed by Minister Barshaman Pun and Bangladesh State Minister for Power, Energy and Mineral Resources Nasrul Hamid.

Bangladesh has to produce 40,000 MW of electricity by 2030 and 60,000 MW by 2041 to become a middle-income country, according to statistics of the Bangladesh government. According to a media report, if Bangladesh is to increase its GDP by 1 percent it will have to increase electricity generation by 1.5 percent. Currently, 80 percent of Bangladesh’s 160 million people have access to electricity—up from 47 percent in 2009.

Gandaki Province to integrate all tourism fees into one

From myRepublica: The provincial government of Gandaki Province has announced that it will integrate all tourism fees into one, following criticisms by trekking agencies and tourism professionals for not doing the needful in removing ambiguity about redundant tourism fees collected by different government entities. The tourism entrepreneurs had been demanding with the government to roll back the tourism fee imposed by each municipalities and rural municipalities separately to the trekkers. 

From the beginning of the current fiscal year, the Gandaki Province had imposed US$ 5 in tourism fee for tourists from the SAARC countries and US$ 10 fee for other nationals. Likewise, the local levels have imposed similar taxes on the tourists. Tourists who travel to the Annapurna Conservation Area Project (ACAP) pay tourism fee in the name of Trekkers Information Management System (TIMS), while they are also required to pay additional fee for entering into specified areas in the name of ACAP Permit Fee. 

Thursday, August 9, 2018

India's improving economic outlook

Here are major highlights from IMF’s 2018 IV report on the Indian economy

Following disruptions caused by November 2016 demonetization and July 2017 GST rollout, the economy is stabilizing. Real GDP growth slowed to 6.7% in FY2018 (April 2017-March 2018) but is expected to increase to 7.3% in FY2019 and 7.5% in FY2020 on account of strengthening investment and robust private consumption. 

Headline inflation averaged 3.6%, a 17-year low, due to low food prices thanks to favorable monsoon rainfall, agricultural sector reforms (pulses buffer stock, national agriculture market, crop insurance, irrigation), subdued domestic demand, and currency appreciation. It is expected to increase to 5.2% in FY2019 owing to the recent depreciation of the Indian rupee along with higher oil prices, housing rent allowances and agricultural minimum support prices. 

Current account deficit is expected to increase to 2.6% of GDP due to rising oil prices and strong import demand. Remittances are expected to increase slightly. High forex reserves and strong FDI inflows have helped contain external vulnerabilities. External position remains broadly consistent with fundamentals. 

Fiscal consolidation is expected as FY2019 Union Budget targets fiscal deficit of 3.3% of GDP (but a 3.6% GDP in IMF terms). India’s Fiscal Responsibility and Budget Management Review Committee recommended the government to cap public debt level to 60% of GDP by FY2023. Considering the general elections to be held by May 2019, the government is accelerating implementation of ongoing reforms rather than initiating new ones. 

Monetary policy is expected to remain tight on account of higher inflationary pressures as output gap narrows to -0.3% of potential GDP. India follows an inflation-targeting monetary policy framework (helps lower sticky inflation expectations), which dictates it to maintain CPI inflation between 2% and 6%. More needs to be done to improve NPAs and recapitalized public sector banks. The recent fraud at a public sector bank indicates how vulnerable is the financial sector to poor governance and operations. 

India’s GDP is US$2,602 billion; per capita GDP is US$1,942;  total population is 1.32 billion (with 33.1% residing in urban areas); poverty headcount ratio at $1.90 a day is 21.2; and Gini index is 35.2.

Risks to the economy are on the downside. Key external risks include higher global oil prices and tighter financial conditions. Key internal risks include tax revenue shortfalls and delays in addressing the twin bank-corporate balance sheet problems. The plan to recapitalize PSBs announced in October 2017 will add at least 0.8% of GDP to public debt (financed through recapitalization bonds). 

Structural reforms are needed in labor, land and product markets. 

Here is a collection background issue papers covering GST, fiscal discipline in Indian states, FDI, labor market reforms and agricultural sector reforms.




Wednesday, August 8, 2018

Subnational regulations and competitive populism

It was published in The Kathmandu Post, 07 August 2018.

Competitive populism

An emerging but entirely predictable major headache for federal government is the tendency of subnational governments to engage in a race-to-the-bottom revenue policy. Provincial and local governments have introduced overlapping tax regimes and are openly sparring with the federal government to assert their rights as per their own understating of power mentioned in the constitution. 

The uncertainty over tax regime and the subnational government’s jurisdiction with respect to mobilizing certain type of taxes have unnerved business community and potential investors. A competitive populism instead of cooperative and competitive federalism will have negative consequences on budget execution and investor sentiment. Note that this has happened even when the ruling Nepal Communist Party has two-thirds majority at federal as well as subnational levels. 

Subnational budget

All seven provinces as well a majority of local governments have introduced fiscal year 2018/19 (FY2019) budget, the first under the federal set up. Federal transfers (fiscal equalization, conditional, special and matching grants) and revenue sharing form the basis for their budget. In fact, total federal fiscal transfer and revenue sharing account for over 90% of provincial budget. They plan to cover remaining budget gap by raising revenue (province 2 and Karnali governments plan to borrow one billion rupees internally as well). Provincial and federal budget together tops Rs1552 billion, of which about 28.6% consists of capital budget. Similarly, a majority of the 753 local governments have presented FY2019 budget in line with federal and provincial fiscal transfers and revenue sharing. They plan to raise revenue by imposing local taxes when their expenditure plan is in excess of fiscal transfers and revenue sharing.

The whole process of designing expenditure priorities and revenue policy is supposed to be cooperative and competitive so that all tiers of government have synchronized and coherent plans to boost economic activities (and probably help the government realized its overarching motto “Prosperous Nepal, Happy Nepali”, irrespective of how that is measured or what is means!). This appears not to be the case right now. Several provincial and local governments are at loggerheads with the federal government over their jurisdiction in designing revenue policy. Note that they don’t have much say over expenditure priorities owing to the fact that the constitution is clear on what public services they must provide and how federal transfers are to be utilized for that purpose. 

Fiscal management

The subnational governments are aspirational and want to do more with larger budgets, which require more and bigger sources of revenue. Besides fiscal transfers and revenue sharing, they have limited options: internal loan, raising taxes and widening tax net as well as taxable economic or social activities. Currently there is a lack of clarity on procedures and regulatory framework to raise internal loans. So, most of the subnational governments have resorted to either raising taxes and/or including any economic activities under the tax net. This has pitted the subnational governments against the federal government, leading to a regulatory regime that looks like a race to the bottom and especially damaging to improving investment climate.  

For instance, province one has imposed district export tax on agricultural and forest items against the spirit of the constitution. Upon a challenge by the federal government that intra and inter province movement of goods should be free, province one government renamed it sales tax. All they did was to change the name of tax but keeping its distortive nature intact. Similarly, province two is imposing natural resources tax, province five is charging entry fee to Indian vehicles, province seven is imposing a fee on registration and renewal of industries, province three is imposing export tax, and Karnali province is imposing taxes on inter-district export of mining and quarrying items. Meanwhile, several local governments have drastically increased or introduced taxes on tourism, transport and small business activities— the lifeline of local economies and employment. 

This kind of uncertainty and tax policy disarray kills the spirit of federalism rooted in cooperative and competitive interaction among the three tiers of government. Two course corrections are important going forward. 

First, the federal government should immediately work to resolve this matter as this kind of uncooperative federalism harms local businesses and potential investment. Ministry of Finance, Prime Minister’s Office, National Planning commission and Ministry of Federal Affairs and General Administration need to work together with subnational governments to create not only a coherent and consistent expenditure plan, but also a revenue policy that is unambiguous to business community and one that is geared toward boosting local economic activities. Unfortunately, the federal government itself is weak in fiscal management and governance exercise, evidenced by the dismal capital budget execution record and its singular focus on mobilizing revenue. The subnational governments are thinking that their success lies in raising more revenue to fund more recurrent spending type commitments they made to voters before the elections. Alas, this is fiscally fatal, kills entrepreneurship and harms investment prospects. Confusion is also cropping up due to the delay by the federal government to introduce laws and policies to implement the constitution. 

Second, the federal government should facilitate competitive federalism between provincial and local governments to boost investment and commerce. They should be focusing on attracting investment in their region by rolling out regulations that eases cost of doing business, provides tax and land concessions, and raises productivity by supplying necessary infrastructure. Furthermore, the subnational governments should compete to attract more fiscal transfers by improving budget execution as more meaningful and efficient projects of subnational governments tend to attract more fiscal transfers. 

The subnational governments must compete to attract more investment and to boost growth instead of competing on regulatory regimes that sets them on a path to the bottom.