Wednesday, July 31, 2019

Unemployment rate in Nepal is about 11.4 percent

Central Bureau of Statistics (CBS) published third edition of labor force survey few months ago. Unlike NLFS I and NLFS II, definition of employment is now narrower— the new definition of employment includes only work performed for others for pay or profit. So, production for own final use is not considered as employment. This is consistent with the 19th International Conference of Labor Statisticians in 2013. 

The changes in definition of employment mean that some of the employment and unemployment related indicators cannot be compared to the previous surveys. The survey covers general household information, current activities, current working hour, usual working hour, unemployment, past employment, and absentees. 

Here are the major highlights:

1. Population: About 38.7% of the population was below 20 years of age. About 63% reside in urban areas (note that the definition of rural and urban areas changed after the new local units were formed).The share of male in age cohorts between 20 and 49 is lower than that of female, indicating the male-dominated large-scale outmigration for work. The total population in 2018 was 29 million. 

2. Working-age population means individuals aged 15 years and older who are employed, unemployed, and not in the labor force. There were 20.7 million people of working age (15 years and older), and 40% of them were aged between 15-34 years. The share of individuals aged 15-24 is the largest among the unemployed people. Also, the share of the same age group is the highest among those who are not in the labor force. Labor force consists of individuals who are employed and those that are considered unemployed. The male to female ratio in the working age population is 100:125. But, among the employed, it is 100:59.

3. Labor force consists of individuals who are employed and those that are considered unemployed. Among the 20.7 million people of working age, 12.7 million were not in the labor force (61.3%). About 8 million people were in the labor force (7.1 million employed and 0.9 million unemployed). 

The share of working-age population not in the labor force is above 50% in all the provinces— the highest 72.7% is in Sudurpaschim and lowest 52.9% in province 3. About 79.1% of the labor force did not have secondary education. 

4. Employed: Anyone of working age is considered employed, in any activity to produce goods or provide services for pay or profit,  if he or she had a job for at least one hour (“at work”) in the reference week, or is not at work due to temporary absence from a job or due to working-time arrangements (flexitime, leave, shift work, etc). Paid trainee is regarded as employed.

There were 7.1 million employed people. As a share of total working age population, it is about 34.2% (or employment-to-population ratio). Province 3 had the highest EPR (48.3%) and Sudurpsashim province the lowest (24.1%). The male EPR was 53.8% and female EPR 26.3%.

5. Unemployed: An individual is unemployed if he or she is completely without work but is currently available to work and is taking active steps to find work.  The reference period is unemployed in the last week but actively engaged in seeking job in the last 30 days and is available to start working in the next 15 days. 

The unemployment rate was 11.4% (about 908,000 people of working age)Unemployment rate measures that proportion of the labor force that is trying to find work The highest unemployment rate was among 15-34 years. About 21.4% of 15-24 years age group were unemployed and for 25-34 years age group it was 12.7%.

The highest unemployment rate was in province 2 (20.1%) and the lowest in province 3 (7%). Unemployment rate among working age male was 10.3% and among female it was 13.1%.

There is a wide gap between labor force (employed and unemployed) and  working age population. It indicates that a large section of the working age population in fact did not work in the reference week, either because they did not look for work or try to start a business in the four weeks preceding the survey, or were not available to start work or a business in the reference week. One of the reasons is that most households are self-employed in agricultural sectors and production is mostly used to sustain household consumption, i.e. not intended to be sold in the market to earn profit. Earlier editions of NLFS considered these individuals to be employed too (and hence the low unemployment rate). In a way, with EPR of 34.2% (that is the share of employed population to working age population), those not employed (unemployed and not in labor force) comes to be about 65.8% (ignoring the definition of unemployed for a bit).

6. Labor underutilization: Labor underutilization is a wider measure of unemployment that takes into account the potential labor force as well. Usually, labor force constitutes employed and unemployed working-age population. However, extended labor force includes labor force plus potential labor force (which basically are those unemployed individuals who express an interest in working but are limited by existing conditions to actively search for job or make themselves available). For instance, during an economic downturn unemployment rate increases sharply even though people are willing to work more and some people might just engage in self-employment. 

Of the 12.7 million people outside the labor force, 2.6 million should be considered as potential labor force as they were either seeking work or they wanted to work and are available— showing some form of attachment to the labor market. 46 thousand individuals were actively seeking work but were not available to work (unavailable job-seeker) and a further 2.5 million individuals wanted to work and were available to start working (available potential job-seeker). If we add these individuals to the usual definition of labor force, then we get an extended labor force (10.6 million). Therefore, extended labor force makes up about 51% of total working-age population

The labor underutilization rate based on extended labor force was 33.1%. If we further include the time related underemployed (those who wanted to work more hours) to the extended labor force, then labor underutilization rate comes to be around 39.3%.
  • Unemployment rate= [unemployed/labor force]*100 
  • LU2= [(time-related underemployed + unemployed)/labor force]*100
  • LU3= [(unemployed + potential labor force)/extended labor force]*100
  • LU4= [(time-related underemployed + unemployed + potential labor force)/extended labor force]*100
7. Sectoral employment: A majority of the 7.1 million employed individuals are in the services sector. About 30.8% are in industrial sector and the rest 21.5% in agricultural sector. The share of employed female in agricultural sector is higher than the share of employed male. It is the opposite in the industrial sector, but around the same in the services sector. 

As a share of GDP too, services sector accounts for about 50%. Within services sector, wholesale and retail trade related activities have 17.5% of the total employed population. The next big employer is manufacturing (15.1%), followed by construction (13.8%), and education (7.9%).

8. Formal and informal sector: About 62.2% of the 7.1 million employed individuals are working in the informal sector (agriculture, non-agriculture, and private households). Only 37.8% are employed in formal sector (agriculture and non-agriculture). 

Non-agricultural formal sector comprises of incorporated companies or establishments that are registered with relevant authorities, government or state-owned enterprises, and international organizations/foreign embassies. Meanwhile, non-agricultural informal sector comprises of enterprises that are neither incorporated nor registered with authorities. Employment in private households is also informal.

9. Informal employment: There is a need to make a distinction between formal and informal sector, and formal and informal employment. Even if an individual is working in formal sector, he or she may not have access to basic benefits. Informal employment includes employers, own-account workers and contributing family workers who are employed in formal sector establishments, as well as employees and paid apprentices/interns who do not have paid annual leave or sick leave benefits and whose employers do not contribute to their social security. 

Considering this definition of informal employment, about 84.6% of those in employment were informally employed. Specifically, 59.2% of formal sector employment was informal and 100% of informal sector employment was informal. Informal employment is widespread in all occupations except managers – professionals, technicians, associate professionals, clerical support workers, service and sales workers, skilled agriculture, craft and related trade works, plant and machine operators, and elementary occupations among others.  

10. Monthly earnings: There were 3.8 million employees and paid apprentices/interns who were paid in cash the last time they were paid in their main job. About 51.1% received payment monthly. Just 0.3 million of those who were paid in cash (or 14.7%) earned Rs25,000 or higher monthly. About 41.3% earned between Rs15,000 and Rs25,000 monthly.

The average monthly earnings was Rs17,809 and median monthly earnings was Rs15,208 (median is not sensitive to extreme values). More skilled jobs fetched more earnings. In all occupations, male earned more than female.

Some technical background: 
  • Like in NLFS I and NLFS III, the survey covers the entire country.  The sample size is 18,000 households (10,500 households from urban areas and 7,500 from rural areas). The sample design involved a two-sage probability proportional to size selection process— administrative wards were selected with PPS and then 20 households were selected by systematic random sampling method. The survey was carried out between 16 July 2017 and 15 June 2018 in three cycles (dry, rainy and winter). 
  • The administrative wards are the PSUs and there are 900 of them in NLFS III (375 from urban areas and 535 from rural areas). Municipalities are considered as urban areas. The reference period is a week before the survey for employment. For unemployed, the reference period is unemployed in the last week but actively engaged in seeking job in the last 30 days and is available to start working in the next 15 days. Unemployment rate measures that proportion of the labor force that is trying to find work.
  • Labor force participation rate measures the proportion of working-age population that engages actively in the labor market (either by working or looking for one). LFPR was 38.5%. Male LFPR was 53.8% but female LFPR was 48.3%.
  • Employment-to-population ratio, which measures the proportion of the working-age population that is employed, was 34.2%. About 48.2% of male of working age were employed compared to 22.9% of female of working age.

Saturday, July 27, 2019

Investment climate assessment and more flights between Nepal and China

In its latest assessment of investment climate in Nepal, the US Department of State argues that widespread corruption, cumbersome bureaucracy, and weak implementation of laws and regulations have generally kept investors at bay. The recently enacted investment laws and regulations— including FITTA, IEA, SEZA, PPP and Investment Act, revised Labor Act and IPR policy, among others  – have maintained institutional and procedural impediments to smooth business practices, dissuading all but the most risk-tolerant investors. 

The assessment notes that Nepal has considerable investment potential in hydroelectric power, agriculture, tourism, IT and infrastructure sectors. However, the country is attractive only to investors who are willing to accept inherent risks and the unpredictability of business operations. Significant investment barriers include:
  • Corruption
  • Limitation on operation of foreign banks, repatriation of profits, currency exchange facilities
  • Government’s monopoly in electricity (transmission) and petroleum distribution
  • Overseas migration and poorly trained workforce
  • Proliferation of politicized trade unions and syndicates masked as associations
  • Cumbersome and obstructive immigration laws and visa policies for foreign investors
  • Political uncertainty due to the continued disregard to addressing the political demands and discontents of political parties representing the Terai region
  • Security risk from insurgent groups that have persistently and pervasively using intimidation, extortion and violence
  • Poor connectivity due to mountainous terrain and poor infrastructure
  • Restrictions on the media and NGOs
The most troublesome barriers are corruption, bureaucracy, lack of implementation of existing procedures and requirements, and a weak regulatory environment. It states that “many of the corruption- or petty bureaucracy-based hindrances impeding the smooth conduct of business, however, remain unaddressed in the absence of pay-offs or personal interventions with cabinet-level officials”. 

Furthermore, “many foreign investors note that Nepal’s regulatory system is based largely on personal relationships with government officials, rather than systematic and routine processes.  Legal, regulatory, and accounting systems are not transparent and are not consistent with international norms”.

Nepal and China agree to increase weekly flights to 98
From The Kathmandu Post: Nepal and China signed a revised bilateral air services agreement on Friday, which will allow 98 weekly flights between the two countries on a reciprocal basis, an increase from the existing 70 flights per week. Of the increased 28 flights, Chinese carriers will have to operate 21 flights in and out of the two upcoming international airports—Gautam Buddha International Airport in Bhairahawa and Pokhara International Airport, according to Tourism Ministry officials who signed the agreement in Beijing.
The existing pact between the two countries allows flights to seven destinations in China: Beijing, Shanghai, Lhasa, Guangzhou, Kunming, Chengdu and Xi’an. In the revised pact, the Chinese side has agreed to designate eight new destinations for Nepali carriers, according to Pramod Nepal, an under-secretary at the Tourism Ministry. “Nepali carriers will be allowed to operate flights to any new destinations within China at the Nepali airlines’ discretion,” he said. 
Currently, five Chinese carriers—Air China, China Southern, China Eastern, Sichuan Airlines and Tibet Airlines—operate flights to Nepal. However, no Nepali carriers currently fly to China. The national flag carrier used to operate a service to the Japanese city of Osaka, via Shanghai, until 2008 under fifth freedom rights. In 2015, Nepal Airlines applied for landing permission at Guangzhou Baiyun International Airport, but its application is still pending.

Tuesday, July 9, 2019

Macro-criticality of social spending

Social spending plays a vital role in people’s lives, especially those of vulnerable, marginalized, and elderly. It an important part of inclusive economic growth and poverty alleviation strategy. It promotes financial security (to smooth consumption over lifetime) and social cohesion. 

According to the IMF, social spending covers (the first two are traditionally thought of as social protection):
  • Social insurance: financed by contributions or payroll taxes (such as public pension, health, unemployment, sickness and maternity leave 
  • Social assistance: financed from general government revenue (such as universal and targeted transfers, child benefits, active labor market policies
  • Public spending on health and education 
Social spending matters now more than ever because countries face a declining workforce but an increasing number of retirees (mostly in developed countries), negative effect of technology on work and wages for some workers with particular skills set, rising inequality (both income and opportunity), barriers to women’s labor force participation, and climate change, among others. 
  • Advanced economies need to strengthen their health and pension systems to enhance spending efficiency and to expand coverage.
  • Growing youth population and low women LFPR mean that emerging markets and developing countries have to absorb more women and youth into employment. Social benefit systems (and their financing) need to support, rather than disincentivize, their employability. For this education and training systems are critical.
  • Technological change is transforming labor markets as mobility of labor across sectors increases and flexible work arrangements (part-time and temporary work, self-employment) become popular. These bring in more volatility to careers and income streams. AI and robotics could render a range of skills redundant and disrupt labor market. Adaptable education and training are crucial for continuously upgrading skills, and these should be complemented by policies to facilitate labor market matching.
  • Climate change means increased risk from extreme weather events and natural disasters, severely affecting low-income and small island states and pushing many households into poverty. It will require enhancing capacity of their social safety nets. 
Therefore, social spending should be an integral part of macroeconomic policy. So how do we design the most effective social spending given fiscal space constraints? 

A recent IMF paper sheds light into this aspect.  Fiscal space is required to increase spending in education (free primary and secondary school education), healthcare (free basic healthcare), unemployment and elderly allowance, public pension, guaranteed minimum wage, etc.  These are also a part of SDGs and could be thought of as investment. These investments should be
  • Adequate (spending adequacy): Higher social spending is required to fill the gap in education, healthcare and social protection coverage— especially important to achieve the SDGs. It is crucial to successfully transition to more normal career/life choices or outcomes.  
  • Efficient (spending efficiency): High spending alone may not translate into high social outcomes. For instance, high education and health expenditure alone may not translate into higher graduation or enrollment and health outcome index. Such programs should not also create significant work disincentives, which could result in high unemployment and spending. Avoiding duplication of social spending programs is important to avoid high and inefficient administrative costs.
  • Financed sustainably (fiscal sustainability): Sustainable financing requires an appropriate balance between financing, revenue mobilization, and spending in social protection transfers and investment in education, health and physical infrastructure.
The IMF considers social spending to be “macro-critical” through these three key channels. Also, choosing either universal or targeted transfers should be country-specific (social and political preferences) but consistent with fiscal and administrative constraints. The IMF will design programs and conditionality by considering social spending needs too. It will help countries strengthen tax capacity, improve the quality of social spending, and address data and information gaps. 

Financing strategy could include effective strategies to improve tax compliance; progressive personal income taxes for higher income groups; effective taxation of corporate income; a broad-based consumption tax; efficient taxation of goods with negative consumption externalities such as fossil fuels, tobacco and alcohol; and plugging in tax evasion and avoidance. 

Here is link to the background papers for IMF's engagement on social spending. Case studies here.

Tuesday, July 2, 2019

Lack of testing labs, expenditure rush, no bailout for NAC and more

From The Kathmandu Post: The Ministry of Agriculture and Livestock Development has sought Rs250 million from the government to upgrade the existing plant quarantine facilities and chemical testing labs in a bid to make life easier for vegetable and fruit importers. The government has made it mandatory for imported farm products to be tested for chemical contamination, but none of the border points is appropriately equipped to conduct such checks. So samples of imported farm products have to be sent to one of the seven facilities in the country which have the proper equipment and personnel. For this reason, hundreds of trucks loaded with imported vegetables and fruits are stranded at the border as they wait for the test results to come back.

According to the Agriculture Ministry, plant quarantine facilities are available at 15 customs points--11 on the Nepal-India border (Kakarbhitta, Biratnagar, Bhantabari, Jaleshwor, Malangwa, Birgunj, Bhairahawa, Krishna Nagar, Rupaidiya, Gaddachauki and one more); three on the Nepal-China border (Tatopani, Lo Manthang and Kerung) and one at Tribhuvan International Airport.

Currently, the labs can only test imported farm products for disease. They lack the equipment and technical manpower to test for chemical residues in imported edibles. Tej Bahadur Subedi, spokesperson for the Agriculture Ministry, said they plan to train manpower for the quarantine labs besides installing the necessary equipment.There are Rapid Bioassay for Pesticide Residue Laboratories at seven locations--Kalimati, Birtamod, Malangwa, Nepalgunj, Attariya, Butwal and Pokhara. These labs can test for the presence of chemicals in vegetables and fruits, but they can test for chemicals only under two variants--organophosphate and carbamate.

From Kantipur Daily: ऐन र संसदीय समितिको निर्देशनविपरीत सरकारले बजेटको अत्यधिक रकम असारमा खर्च गरिरहेको छ । असारका १५ दिनको तथ्यांक हेर्दा दिनहुँ औसतमा साढे ४ अर्ब रुपैयाँका दरले बजेट खर्च भइरहेको छ । आर्थिक वर्षको सुरुका महिनामा खर्च नगर्ने र असार लागेपछि अत्यधिक खर्चिने प्रवृत्ति रोक्न यसै वर्ष संसद्को अर्थसमितिले अन्तिम महिनामा कुल बजेटको १० प्रतिशतभन्दा बढी खर्च गर्न नपाइने व्यवस्था गरेको छ । तर १५ दिनमै बजेटको ५.२१ प्रतिशत खर्च भइसकेकाले संसदीय समितिको निर्देशन र अन्य कानुनी व्यवस्था सरकारले उल्लंघन गर्ने निश्चित जस्तै छ ।

आर्थिक वर्षको मध्य अवधिका महिनामा मुस्किलले दैनिक डेढ अर्ब रुपैयाँ खर्च गरेको सरकारले असारका १५ दिनमै ६८ अर्ब ४६ करोड ९५ लाख रुपैयाँ सकेको छ । महालेखा नियन्त्रकको कार्यालयको तथ्यांकमा उल्लेख भएअनुसार १५ दिनमा खर्चिएको रकम साउन एक महिनामा खर्च गरिएको बजेटभन्दा ३८ प्रतिशत बढी हो । साउनमा २५ अर्ब ९० करोड रुपैयाँ खर्च भएको थियो ।असारे खर्चको विकृति विकास बजेटमा झनै बढी छ । साउनमा दैनिक केही करोड र त्यसपछिका महिनामा १ अर्ब पनि खर्च नगरेको सरकारले अहिले दैनिक औसतमा १ अर्ब १६ करोड रुपैयाँका दरले विकास बजेट सकिरहेको छ । यस वर्ष सरकारले ३ खर्ब १३ अर्ब ९९ करोड रुपैयाँ विकास निर्माणका लागि विनियोजन गरेको छ । यसको साढे ५ प्रतिशत अर्थात् १७ अर्ब ५१ करोड ७५ लाख रुपैयाँ असारका १५ दिनमा खर्च गरेको छ ।

खर्चमा सुधार हुन नसकेको वर्षौंदेखिको समस्या समाधान गर्न नयाँ संविधानमा जेठ १५ मै बजेट पेस गर्ने मिति तोकियो । नयाँ आर्थिक वर्ष लाग्नुपूर्व असार मसान्तमै बजेट पास भई साउन १ देखि नै अख्तियारी जान थालेको दुई वर्ष भइसकेको छ । संविधान र कानुनमा खर्च र असारे विकास रोक्ने व्यवस्थासँगै संसदकै विषयगत समितिदेखि सरोकारवाला निकायहरूले बजेट कार्यान्वयनका लागि दर्जनौं निर्देशन हरेक वर्ष दिन्छन् । यो विकृति रोक्न यस पटक प्रधानमन्त्री केपी शर्मा ओली आफैं अग्रसर भएका पनि थिए । उनले हरेक मन्त्रालयहरूको खर्च तथा अन्य प्रगति विवरण हेर्न एक सफ्टवेयर निर्माण गर्ने, त्यसका आधारमा मन्त्रालयहरूको मूल्यांकन गर्ने र सुधारका उपाय तथा निर्देशन दिने काम पनि गरे ।आर्थिक वर्षको सुरुमा हरेक महिनाजस्तै प्रधानमन्त्री ओलीले समीक्षा पनि गरे । समीक्षामा उनले प्रगतिमाथि असन्तुष्टि जनाउँदै ‘र, तर भन्न पाइन्न’ भन्दै प्रगति देखाउन निर्देशन दिएका थिए । तर अहिले उनको समीक्षाको काम नै रोकिएको छ । वर्षौंदेखिको यो प्रवृत्ति कम गर्न व्यवस्थापिका संसद् र सरकारका विभिन्न निकायले मापदण्ड, निर्देशन र कानुनमार्फत अंकुश लगाउने गरेका छन् । तर हरेक वर्ष उक्त नीति, निर्देशन तथा कानुनको उल्लंघन हुँदै आएको छ ।

From myRepublica: Prime Minister KP Oli has said the government will not inject funds in the crisis-ridden Nepal Airlines Corporation (NAC) under the existing circumstances. Speaking at the 61st-anniversary function of the national flag carrier in the capital, Prime Minister Oli said that the government was not going to make any more investment in the crisis-ridden airline company until it improves its performance. “In the current situation, the government cannot inject any money. Without good management and operation, I don't think the situation will improve only by doling out funds,” he said, putting reform of the NAC as a precondition for providing any more funds to the airline company. The statement by prime minister comes following recent requests by the NAC to the government to provide a bailout of Rs 20 billion.

The airline company currently has two wide-body and two narrow-body aircraft in operation. They fly to seven countries including India, Malaysia and Qatar. Although the NAC purchased two wide-body Airbus A330 jets last year, it has not been able to find new destinations. Against the expectations that the new flights will help in the turnaround of the loss-making company, it is struggling to increase flights and destinations. It even postponed its earlier plan to fly to Osaka of Japan from the first week of July, citing poor ticket bookings.
>>More from Kantipur here

From myRepublica: The result shows that there are 923,356 establishments out of which 462,605 (50.1%) are registered, 460,422 (49.9%) are not registered and 329 (0.04%) registration is unknown. The number of person engaged in these establishments are 3,228,457 persons where 2,012,237 (62.3%) are male and 1,216,220 (37.7%) are female. The final results are based on the new administrative area as of April 14, 2018 when the field enumeration was conducted, reads a press release issued by JICA Nepal.

More from Kantipur: नेपालमा सञ्चालनमा रहेका एक करिब आधा व्यवसायहरू आफू बसोबास गर्ने घरबाट सञ्चालन हुने गरेको सरकारी अध्ययनले देखाएको छ । सञ्चालनमा रहेका करिब ९ लाख २३ हजार व्यवसायमध्ये करिब ४२ प्रतिशत व्यवसाय यसरी सञ्चालन भइरहेका छन् । केन्द्रीय तथ्यांक विभागले सोमबार सार्वजनिक गरेको राष्ट्रिय आर्थिक गणनाको नतिजाअनुसार नेपालका ३ लाख ८६ हजार ३ सय २३ प्रतिष्ठानहरू आफू बसोबास गरेको घरबाट नै सञ्चालन भइरहेको छ । आफ्नो बासस्थानभन्दा फरक स्थानमा सञ्चालित प्रतिष्ठानको संख्या ३ लाख २३ हजार छन् । कुल व्यवसायमध्ये आफ्नो बासस्थानभन्दा फरक स्थानमा सञ्चालित प्रतिष्ठानको प्रतिशत ३५ छ । करिब ४ प्रतिशत व्यवसाय भने बाटो र सडकमा सञ्चालित रहेको अध्ययनले देखाएको छ । आधुनिक व्यापार मलमा २ प्रतिशत व्यवसाय मात्रै सञ्चालित छन् । अध्ययनको नतिजाअनुसार नेपालका अधिकांश व्यवसाय निकै सानो स्थानमा सञ्चालित छन् । ७६ प्रतिशतभन्दा बढी व्यवसाय ५ सय वर्गफिटभन्दा कम क्षेत्रफलमा सञ्चालित रहेको सर्वेक्षणको निष्कर्ष छ ।