Reimagining GDP and measures of economic prosperity

Joe Stiglitz on the usefulness of GDP as a measure of wellbeing:

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[...]After six years of consultation and deliberation, we reinforced and amplified our earlier conclusion: GDP should be dethroned. In its place, each nation should select a “dashboard”—a limited set of metrics that would help steer it toward the future its citizens desired. In addition to GDP itself, as a measure for market activity (and no more) the dashboard would include metrics for health, sustainability and any other values that the people of a nation aspired to, as well as for inequality, insecurity and other harms that they sought to diminish.

These documents have helped crystallize a global movement toward improved measures of social and economic health. The OECD has adopted the approach in its Better Life Initiative, which recommends 11 indicators—and provides citizens with a way to weigh these for their own country, relative to others, to generate an index that measures their performance on the things they care about. The World Bank and the International Monetary Fund (IMF), traditionally strong advocates of GDP thinking, are now also paying attention to environment, inequality and sustainability of the economy.

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OECD's Better Life Initiative lists 11 indicators to gauge the quality of life: housing, income, jobs, community, education, environment, civic engagement, health, life satisfaction, safety, and work-life balance.

Stiglitz argues that the use of prices as a proxy for value- believing that in a competitive market prices measure relative value of goods and services- is problematic. 

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[...]Over time, as economists focused on the intricacies of comparing GDP in different eras and across diverse countries and constructing complex economic models that predicted and explained changes in GDP, they lost sight of the metric's shaky foundations. Students seldom studied the assumptions that went into constructing the measure—and what these assumptions meant for the reliability of any inferences they made. Instead the objective of economic analysis became to explain the movements of this artificial entity. GDP became hegemonic across the globe: good economic policy was taken to be whatever increased GDP the most.

[...]It would have been nice, of course, if we could have come up with a single measure that would summarize how well a society or even an economy is doing—a GDP plus number, say. But as with the GDP itself, too much valuable information is lost when we form an aggregate. Say, you are driving your car. You want to know how fast you are going and glance at the speedometer. It reads 70 miles an hour. And you want to know how far you can go without refilling your tank, which turns out to be 200 miles. Both those numbers are valuable, conveying information that could affect your behavior. But now assume you form a simple aggregate by adding up the two numbers, with or without “weights.” What would a number like 270 tell you? Absolutely nothing. It would not tell you whether you are driving recklessly or how worried you should be about running out of fuel.

That was why we concluded that each nation needs a dashboard—a set of numbers that would convey essential diagnostics of its society and economy and help steer them. Policy makers and civil-society groups should pay attention not only to material wealth but also to health, education, leisure, environment, equality, governance, political voice, social connectedness, physical and economic security, and other indicators of the quality of life. Just as important, societies must ensure that these “goods” are not bought at the expense of the future. To that end, they should focus on maintaining and augmenting, to the extent possible, their stocks of natural, human, social and physical capital. We also laid out a research agenda for exploring links between the different components of well-being and sustainability and developing good ways to measure them.

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Mainstreaming environment for economic growth and poverty reduction in Nepal

This blog post is adapted from Macroeconomic Update, August 2014, Vol.2, No.2. Here are earlier blog posts on real sector, fiscal sector, monetary sector, external sector, and FY2015 growth and inflation outlook.

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Mainstreaming environment for economic growth and poverty reduction in Nepal^[1]

I. Introduction

Nepal is endowed with rich natural resources (abundant water resources, forest and fertile lands, and unique landscape), a strategic geographical setting[2], and physical, biological, and cultural diversities. One of the major challenges for the government is to not only achieve high and inclusive economic growth, but also to ensure that it is environmentally sustainable, crucial for accelerating poverty reduction and sustaining the gains of the last. Economic activities without due consideration for environmental sustainability may start tapering off in the medium-term, undermining prosperity in the long run. Hence, high and sustainable economic growth becomes vital for sustained poverty reduction and creation of productive employment.

Nepal’s gross domestic product (GDP) growth pattern has so far has been minimally damaging to the environment as the industrial sector’s contribution to growth has been relatively low at one-tenth of the overall growth. The services sector's contribution has been the largest, but a majority of the goods are manufactured outside of Nepal and are imported for consumption, which is financed by remittance income. Agricultural sector’s contribution to GDP growth is dependent on the monsoon rains and the timely availability of agricultural inputs, most notably chemical fertilizers.

As investments are ramped up to generate increased electricity, develop infrastructure, and expand manufacturing activities in the short to medium term to achieve higher growth rate and create jobs, a key challenge would be to ensure that these activities are environment-friendly so that the resulting growth is not only high and inclusive, but also sustainable. Else, haphazard construction of infrastructure— including roads, water supply, irrigation, and hydro power plants— without the necessary due diligence for environmental sustainability may result in high socioeconomic costs to the country in the long run. In addition to these economic activities, the country's traditional agricultural practices also need to balance the need to boost land productivity and the optimal use of inputs.

II. State of the Environment: An Overview

As an indication of the overall low level of industrialization, Nepal’s per capita carbon dioxide (CO2) emission has been generally low, registering an average growth of just 7% in the last decade. In fact, Nepal’s per capita CO2 emission (in metric tons) is just 2.7% of China’s and the lowest among the regional economies (Figure 41). This also reflects the fact that Nepal’s GDP growth is largely driven by rain-fed agriculture production and services underpinned by remittance-induced demand for imported goods. Together these two sectors contribute about 90% of the GDP growth[3]. Hence, at this initial stage of development and the still relatively low level of environmental risks, Nepal has an opportunity to pursue industrialization in an environmentally sustainable manner by adopting the latest green industrial technology. However, there is a growing and emerging threat from the rate of loss of forests, particularly for habitat, illegal timber trade, forest fire, overgrazing, and uncontrolled extraction of medicinal plants.

This trend also indicates that the existing pattern of environmental challenges has little to do with the pace of economic growth. It is more affected by factors such as poor engineering and safeguards in unplanned infrastructure development, deforestation, haphazard solid waste management, land degradation, unsustainable and indiscriminate use of pesticides and agrochemicals, and unplanned urbanization. Even though these do not directly and significantly impact economic growth in the short term, they have the potential to indirectly decelerate the pace of growth in the medium to long term. The World Bank estimates that environmental degradation costs between 5% and 10% of GDP in Nepal, India, Bangladesh and Pakistan.[4]

The diversified biological resources, besides maintaining ecosystem equilibrium, provide ecological goods to local people and have great economic value to the rural population. Unfortunately, there is a steady degradation of forests over the last five decades. While the total forest area comprised 43.8% of total land in FY1965, it declined to 37.3% in FY2013 (Figure 42), with significant deforestation happening along the mid-hills and Terai belts. Forest areas have been encroached to expand farmland, settlement, infrastructure development and at times for timber trade. Nepal lost 2.7 million hectares of forest between 1965 and 2013, with an average annual de-vegetation of 56,710 hectares. Altogether 0.96 million hectares of total forest and shrub land is estimated to be lost to farming, urban, and infrastructural development over 1965-2013. The major causes of forest degradation are clearing trees for meeting household fuel wood demand, unstructured semi-processing of agriculture products, illegal in-country or trans-boundary timber sales, overgrazing, uncontrolled extraction of medicinal and aromatic plants (MAPs) and non-timber forest products (NTFPs), and forest fire. Poaching and illegal hunting of wildlife and their declining habitat has adversely affected wildlife population and their biodiversity value.

The rate of loss of forests is alarming, which has affected natural habitat, biodiversity and ecosystem. This has happened despite there being twenty protected areas, comprising of 10 national parks covering 1.08 million hectares, 3 wildlife reserves of 0.1 million hectares, 1 hunting reserve of 0.13 million hectare, and 6 conservation areas of 1.54 million hectares. These collectively cover 19.4% of the total area. Furthermore, approximately 1.23 million hectares of forest is managed by 17,685 community forest user groups. In addition, there are 9 Ramsar sites covering a total area of 34,445 hectares of land.

Land degradation is also an issue in all geographical areas of Nepal, affecting land productivity. Land degradation is primarily caused by water induced erosion, landslide, surface exposure, top soil erosion, riverbank cutting, floods, silt deposition, water logging, deforestation, and wind erosion. About 45.4% (6.7 million hectares) of the country’s total land area is affected by water induced erosion and about 4.0% (0.6 million hectares) by wind erosion. The area affected by flood is estimated to be about 8,987 sq. km and by waterlogging about 7,297 sq. km. The vulnerability to inundation and water logging in Tarai plains bordering India has increased due to the embankment of along the East-West highway dykes and barrages both within and across the border. Overall, about 2.2% of total land area (0.6 million hectares) is uncultivable due to flooding or soil erosion, up from 1.2% of total land in 2001 (0.3 million hectares). The Tarai belt and Far-western development region bear thet burnt of flooding or soil erosion leading to uncultivable land (Figure 43). Of the total uncultivable land, soil erosion, chemical degradation, and physical degradation contributed 65.6%, 3.4% and 31%, respectively in 2011 (Figure 44).

 

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Meanwhile, higher stocking rates, uncontrolled grazing and haphazard lopping of fodder trees have reduced average productivity of grazing area in subtropical and temperate zones. The subalpine grasslands, mainly used for seasonal pasturage, are losing their productivity due to high stocking rates and overgrazing, lack of good management practices, and the invasion of non-herbage shrub and other non-edible species that are gradually replacing palatable grass species.

Nepal is second richest country for water availability in the world, possessing about 2.3% of the world water resources. Nepal possesses 12 BCM of groundwater, of which 5.8 BCM can be extracted annually, both in shallow and deep aquifers, without any adverse effects. Altogether 38 rivers have been dammed till early 2014 with an installed capacity of 700 MW. The Government of Nepal and the private sector installed, until 2012, micro hydropower plants (22 MW installed capacity; potential 100 MW), solar photovoltaic home system (300,000 no. equivalent to 6.78 MW; potential 4.5 kWh/m2/day), biogas plants (280,000; potential 1.9 million), improved cooking stoves (663,000; 2.5 million), improved water mills (7,600; potential 30,000), and wind power plants (10 kW; potential 3,000 MW). There is potential of producing 1.1 million ton biofuel (Jatropha curcas) in the country. The rivers in lower Siwaliks and rivulets in Middle Mountain and High Mountain regions have been partially dammed for surface irrigation with total command area of 0.96 million ha in the wet season.

Despite these potentials, there is acute water shortage in the urban centers because of unplanned urbanization, encroachment of water sources, and degradation of land as well as forests. For instance, static water level (SWL) and pumping water level (PWL) have depleted in Kathmandu Valley as a result of overuse, lack of water conservation practices, and haphazard construction. While SWL and PWL were 48.1 meters and 67.6 meters in 1976, respectively, in Bansbari of Kathmandu, it went up to 80.6 meters and 136.1 meters, respectively, in 1999.[5] This most likely has increased further in the last one-and-a-half decade given the rapid urbanization and increase in settlement areas in Kathmandu Valley.

The unplanned urbanization along with large-scale rural to urban migration has strained resources in major urban centers, resulting in rise in pollution and waste. It is further compounded by the misuse of pesticides and agrochemical, thus endangering the public’s health. For instance, the continued migration to Kathmandu Valley, unplanned urbanization and the resulting noise level has led to average recorded noise level higher than the on recommended by World Health Organization (WHO). In Kathmandu Valley, major centers such as Kupandole, Putalisadak, Thamel, Kalanki, Balaju industrial area, Maitighar, and Suryabinayak have day time noise level above the one prescribed by the WHO (Figure 45).

With just 0.6% of total area, Kathmandu Valley accounted for 9.5% of total population in 2011 and had a population density of 2,800 person per sq.km. In 2001, Kathmandu Valley accounted for 7.1% of total population and had a population density of 1,830 persons per sq.km. The lack of adequate measures to address air and water pollution affects economic growth as it negatively impacts public health, thus reducing productivity and escalating health costs. As a result of the air pollution in Kathmandu Valley, a disproportionate number of patients suffering from respiratory and cardiovascular ailments are admitted to hospitals each day.[6]

The Environmental Performance Index (EPI) 2014 ranks 139 out of 178 countries. Specifically, even when compared to countries with similar per capita income, on air quality[7], Nepal ranks 177 out of 178 countries (Figure 46). Furthermore, air quality in Kathmandu fails to meet WHO guidelines for safe levels. Air quality is represented by annual mean concentration of particulate matter of less than 10 microns of diameter (PM10) [ug/m3] and of less than 2.5 microns (PM2.5) in cities.[8] Mechanical processes such as construction activities, road dust re-suspension and wind produce PM10 and combustion sources (wood and biomass fuels) mostly produce PM2.5. Kathmandu’s annual average air quality levels stood at 50 μg/m3 and 114 μg/m3 for PM2.5 and PM10, respectively. These are far higher than the WHO guidelines of 10 μg/m3 and 20 μg/m3 for PM2.5 and PM10, respectively. While most of the regional cities in South Asia as well as other major cities in Asia fail to meet the WHO guidelines, the levels in Kathmandu is particularly high relative to these cities as well (Figure 47).

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Furthermore, chemical fertilizer use has increased drastically since FY2010. After ending chemical fertilizers subsidy due to high fiscal costs and heavy leakages, the government again introduced such subsidies in FY2008. Over time, this led to the ‘crowding-out’ of private sector even though the government’s subsidy covered just 25% of total fertilizer demand. A large portion of the fertilizer demand is met through informal supply (estimated to be about two-thirds of total use and often sub-standard ones) from bordering Indian cities, where fertilizer is subsidized by the Indian government as well.[9] With no official private sector suppliers, the government supplied 185,000 metric tons of chemical fertilizers (urea, DAP and potash) in FY2013 (Figure 48) and provided partial subsidy equivalent to NRs 6 billion. The chemical fertilizer usage was 57 kg per hectare in FY2013, up from 47 kg per hectare in FY2012.[10]

III. Key Challenges

The key environmental issues faced by the country are: (i) unharmonious, outdated and ineffective environment related policies and guidelines; (ii) seemingly irreversible degradation as a result of the increasing human pressure on land, water and forests; (iii) poorly engineered or totally non-engineered rural roads and infrastructure causing watershed degradation, landslides and soil loss; (iv) increasing desertification in the Trans-Himalayan region due to deforestation; (v) climate change induced drying up of water sources; (vi) lack of national digitized hazard maps for disaster risk management planning; (vii) extensive clearing of forest and uncontrolled extraction of river bed materials from Siwalik; (viii) risk of land subsidence due to over extraction of groundwater, particularly in Kathmandu Valley; (ix) increasing level of air and water pollution, solid waste management, and sanitation and health hazards in rapidly growing urban areas; (x) lack of institutional capacity and technical knowhow within the department of environment; and (xi) weak coordination among disaster management related agencies, low level of preparedness, rudimentary early warning system, and lack of post disaster rehabilitation programs.

The major key challenges directly related to boosting economic activities are as follows:

Environmentally weak infrastructure development: The growth of the rural as well as semi-urban road networks, often either with poor or no engineering at all, has helped in the establishment of new towns, and linked with or opened up new market centers. However, these kinds of road construction have also come at a cost, particularly the non-engineered rural roads in the hills and mountains, which have been noted to have accelerated landslides, gully erosion, and loss of forest resources and natural habitats. Investment in hydropower is growing with both public and private sector investment. Even in hydropower projects, especially the small size ones developed particularly by the private sector, environmental sustainability of the infrastructure in terms of cumulative impacts through strategic and realistic environmental assessment is seldom conducted. Furthermore, large leakages in electricity distribution reduce net supply, forcing households to opt for pollution-intensive sources of energy.

Unplanned urbanization: The improved connectivity and the decade-long conflict caused large-scale migration from rural to urban areas, increasing urban population to about 17.1% in 2011 from 13.9% in 2001. Subsequently, urban and semi-urban towns have emerged rapidly and without much planning. The erratic, unplanned, and haphazard expansion of such town has led to undersupply of urban amenities, putting tremendous pressures on the available resources. Furthermore, the lack of public awareness on the benefits of planned urbanization and poor municipal management has compounded the problem, leading to intensified soil, air and water pollution, degraded land and vegetation, and unsanitary waste disposal. The annual population growth rate in Kathmandu Valley alone was 4.3%, much higher than 1.4% average for the entire country over 2001-2011. In 2011, Kathmandu Valley had a population of 2.5 million (Figure 49) and population density of 2,800 persons per sq.km. Urban amenities and municipal management have not grown proportionally to the growth in urban population and the pressure on the available resources.

Misuse and indiscriminate use of pesticides and agrochemicals: The use of pesticides, insecticides and herbicides, various growth hormones and other agrochemicals has considerably increased in commercial agriculture and animal husbandry. However, their improper application has caused environmental and health hazards such as respiratory and skin diseases, and demise of critically endangered birds and mammals after scavenging dead livestock or insects treated with chemicals. Furthermore, it has also caused environmental problems following the seepage of pesticides to and contamination of water bodies. A total of 1,098 pesticides were registered in Nepal in 2013, up from 651 in 2010. Recently, there have been growing instances of inedible fresh vegetables and food products due to the overuse of pesticides and agrochemicals. A strict market monitoring mechanism and public awareness on the optimal usage of such production as agricultural inputs are required to lower the risks of health hazard. Furthermore, proactive promotion organic farming would also be useful.

Improper solid waste management (SWM): A huge amount of solid water is generated in the municipalities, most notably 457 metric tons per day in FY2012, up from just 29.9 metric tons per day in FY2007, by Kathmandu. Unfortunately, only 6 municipalities dispose of waste in sanitary landfill sites, which also not properly managed. Municipalities spent an average of 10% of their total budget on SWM, of which 60-70% is used for street sweeping, 20-30% for transport, and rest for final disposal. The lack resources and proper planning have been constraining municipalities’ capability to manage the increasing waste. In the absence of proper landfill sites, most of the municipalities directly dump the collected waste in rivers, forest or agriculture fields, increasing not only health hazards but also productivity of land. Furthermore, no separate arrangement exists to manage hazardous and medical wastes. Interventions including policy formulation, adoption of 3R (reduce, reuse and recycle) principle, capacity building of local bodies, public participation and public-private partnership are few interventions that may be helpful in developing an effective SWM program.

IV. Government’s Strategy

The concept of environmental protection and conservation has been embedded in the periodic national development plans since 1962. Till the 6^th periodic plan (1980-85), the government prioritized forest conservation and watershed management, wildlife conservation, water and sanitation, and urban management. Since 1985, major environmental mainstreaming initiatives were undertaken, environment-friendly policies were introduced, and environment management strategies were integrated into the sector plans. Thus far, Nepal is a signatory to 21 environment related international conventions.

Currently, the environmental priorities of the government include: (i) forest conservation and management through community participation; (ii) wildlife and biodiversity conservation through establishing protected areas; (iii) reducing vulnerability to the impacts of climate change; (iv) disaster relief and risk management; (vi) environmental sustainability in development projects; (vii) achieving the Millennium Development Goals; (viii) improving air quality and waste management in urban areas; (ix) use of alternate renewable energy and energy efficient technology in rural areas; (ix) watershed management –ecological restoration in fragile Siwalik range; and (x) improved drinking water and sanitation.

Environment Protection Act (EPA), 1997 and Environment Protection Rule (EPR), 1997 (amended in 2007) are the two major legal provisions aimed at minimizing the adverse environmental impact due to development activities, and integrating environmental sustainability into development projects. These legislations have made either Initial Environment Examination (IEE) or Environment Impact Assessment (EIA) mandatory for government and private sector projects, safeguarding environmental and social issues in all development projects. However, the weak government capacity for effective implementation and monitoring of IEE/EIA recommended mitigation measures has been a long running issue in Nepal. There is also a need for updating the one-and-a-half decade old EPA and EPR in the context of emerging environmental and climate change issues.

Progress on effective environment protection and management is hampered by weak governance, political instability, and slack implementation of environment related Acts and Rules. Deforestation, degradation in Siwalik Range and lower hills, over harvesting of medicinal plants and non-timber forest products, use of explosives and chemicals for fishing in rivers, excessive groundwater abstraction, unwarranted mining in riverbed and on fragile area, environmental degradation in urban areas (air and water pollution, solid wastes), conversion of fertile arable land into built-up areas are the results of weak enforcement of the existing legislation.

V. Recommendations

Some of the major recommendations to stimulate environment-friendly inclusive economic growth are as follows:

• Strengthen the country safeguards system
• Promote environment friendly infrastructure development
• Promote planned and regulated urban growth
• Encourage environment-friendly and climate resilient agriculture
• Stop land degradation and desertification
• Protect terrestrial and aquatic ecosystem and biodiversity
• Mainstream climate change risks
• Scale up renewable energy
• Effective disaster risk management (DRM)

VI. Conclusion

Currently, one of the major challenges faced by the country is to ensure not only a high and inclusive economic growth, but also to make it environment-friendly. Economic activities without due consideration for environmental sustainability may start tapering off in the medium-term, and then possibly retard prosperity in the long term. Thus far, since growth is largely driven by exogenous factors such as monsoon-fed agriculture production and remittances-induced services sector growth, economic activities have been at best minimally damaging to the environment. This is also reflected in the declining share of industrial sector in GDP. However, as a major push for electricity generation, infrastructure development and stimulation of manufacturing activities takes place in the short to medium term to achieve a high growth rate and to create productive employment opportunities, the challenge would be to ensure that these activities are made environment-friendly so that the resulting growth is not only high and inclusive, but also sustainable.

The low per capita carbon dioxide emission compared to other regional economies and the shrinking of industrial sector means that the existing pattern of environmental challenges has little to do with the pace of economic growth. It is affected more by other factors such as poor engineering and safeguards embedded in infrastructural undertakings, deforestation, haphazard solid waste management, land degradation, unsustainable and indiscriminate use of pesticides and agrochemicals, and unplanned urbanization. In effect, these point to the lack of implementation of existing safeguards, obsolete legal frameworks, and institutional slackness as well as weakness. The existing pattern of environmental challenges has to potential to decelerate the pace of growth in the medium to long term.

Overall, Nepal’s forest area is depleting, land degrading, groundwater is drying up, pollution is increasing in major urban areas, and the use of pesticides and agrochemicals is increasing. This poses a number of challenges directly affecting economic activities: (i) environmentally weak infrastructure development; (ii) unplanned urbanization; (iii) misuse and indiscriminate use of pesticides and agrochemicals; and (iv) improper solid waste management. Though the government introduced a number of key legislations, which may need updating to reflect the present context, and embedded environment protection and conservation in its periodic plans, the implementation aspect has been rather disappointing— resulting in delays in the implementation of development projects.

The government could take a number of measures to stimulate environment-friendly inclusive economic growth such as: (i) strengthen the country safeguards system; (ii) promote environment-friendly infrastructure development; (iii) promote planned and regulated urban growth; (iv) encourage environment-friendly and climate resilient agriculture; (v) cease land degradation and desertification; (vi) protect terrestrial and aquatic ecosystem and biodiversity; (vii) mainstream climate change risks; (ix) scale up renewable energy; and (x) prepare effective disaster risk management. 

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[1] This section was written in collaboration with Deepak Bahadur Singh, Senior Environment Officer at NRM. It draws in supporting information from a forthcoming report titled Country Environment Note Nepal 2014.

[2] Although Nepal lies near the northern limit of the tropics, because of rugged topography, there is a wide range of climates experienced from the summer tropical heat and humidity of the lowlands to the colder dry continental and alpine winter through the middle and northern mountainous region. The remarkable differences in climatic conditions are due to the enormous range of altitude within a short north-south distance. Nepal possesses eight ecological zones: lower tropical zone, upper tropical, subtropical, temperate, subalpine, alpine, Trans-Himalayan and Nival (Tundra and Arctic). The tropical and subtropical zones occupy 58%, temperate zone 12%, subalpine 9%, alpine 8%, Trans-Himalayan 8% and Nival 5% of the country’s land area.

[3] ADB. 2013. Macroeconomic Update Nepal August 2013. Vol1. No.2. Kathmandu.

[4]http://www.worldbank.org/en/topic/environment/publication/environment-strategy-toward-clean-green-resilient-world

[5] CBS. 2014. Environment Statistics of Nepal 2013. Kathmandu: Central Bureau of Statistics.

[6] A. Lodge. 21 March 2014. Has Air Pollution Made Kathmandu Unlivable?. The Guardian. http://www.theguardian.com/cities/2014/mar/21/air-pollution-kathmandu-nepal-liveable-smog-paris

[7] It is a composite of three indicators: (i) air pollution- average exposure to PM2.5 (fine particulate matter); (ii) PM2.5 exceedance; and (iii) household air quality – indoor solid fuel usage.

[8] WHO. 2005. Air Quality Guidelines for Particulate Matter, Ozone, Nitrogen dioxide, and Sulfur dioxide - Global Update 2005. Geneva: World Health Organization. http://www.who.int/phe/health_topics/outdoorair/outdoorair_aqg/en/

[9] The Agriculture Sector Performance Review estimates that about two-thirds of total fertilizer demand in Nepal met by supplies through informal sources. Total chemical fertilizer demand is estimated to be about 0.6 metric tons.

[10] MOF.2014. Economic Survey 2012/13. Kathmandu: Ministry of Finance.

Nepal Macroeconomic Update, August 2014

Here is the presentation on Macroeconomic Update Nepal, August 2014 from today’s media briefing.

Macroeconomic Update August 2014_2014-09-07

12 post-2015 development agenda relevant to Asia and the Pacific

Below are the 12 post-2015 development agenda (relevant to Asia and the Pacific) proposed in a new joint study by ESCAP, ADB and UNDP:

1. Zero income poverty – The region should build on its recent achievements in poverty reduction and set an ambitious goal of ‘zero poverty’.

2. Zero hunger and malnutrition – The aim should be universal food security, through among other things, much more attention to agriculture.

3. Gender equality – Gender will need to be assessed comprehensively, with more indicators on empowerment and on violence against women.

4. Decent jobs for everyone of working age – This would require full and productive employment and government commitment as an ‘employer of last resort’ translated into an explicit recognition of employment goals and targets in all policies and programmes.

5. Health for all – Priority should go to maternal, newborn and child health, universal access to sexual and reproductive health, including family planning, and to reducing the prevalence of communicable diseases and controlling the spread of non-communicable diseases.

6. Improved living conditions for all – Everyone should have access to safe and sustainable drinking water and sanitation, as well as basic energy services.

7. Quality education for all – This should start with early childhood care and education, followed by higher quality education at all levels, including adult literacy and lifelong learning, and providing learning and life skills for young people and adults.

8. Liveable cities – The poorest city dwellers should have effective shelter and secure tenure along with essential social infrastructure. They should also have access to affordable, safe and energy-efficient mass transport.

9. Environmental responsibility and management of natural resources – This will mean protecting critical ecosystems while reducing resource intensity and avoiding overexploitation of natural capital. At the same time countries will need to address climate change.

10. Disaster risk reduction – The region has witnessed natural disasters that have wiped out long-term development efforts. Any new development agenda should help mainstream disaster risk reduction in national budgets and development programmes.

11. Accountable and responsive governments – There is a call for more accountable, transparent and effective government at both national and local levels for more capable and efficient management of public resources and service delivery.

12. Strong development partnerships and reformed global governance – Countries in Asia and the Pacific will benefit from global and regional partnerships to manage global public goods, particularly in finance, health, trade, technology transfer, environment, and climate change. The reform of global governance should reflect the Asia-Pacific ascendance in the global economy. The prospect and scope of financial and economic crises and commodity price volatility must be minimized in order to protect development gains.

Green growth and poverty

Abstract of a very interesting paper that attempts to shed more light in the discussion surrounding green growth.

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The developing world is experiencing substantial environmental change, and climate change is likely to accelerate these processes in the coming decades. Due to their initial poverty, and their relatively high dependence on environmental capital for their livelihoods, the poor are likely to suffer most due to their low resources for mitigation and investment in adaptation. Economic growth is essential for any large-scale poverty reduction. Green growth, a growth process that is sensitive to environmental and climate change concerns, is often seen to be particularly helpful in this respect, leading to a win-win in growth and poverty reduction terms, with additional gains for the cause of greening the planet and avoiding further disastrous environmental change. This paper argues that such a view ignores important trade-offs in the nature of "green growth" strategies, stemming from a poor understanding of the sector and spatial processes behind effective poverty reduction. High labor intensity, declining shares of agriculture in gross domestic product and employment, migration, and urbanization are essential features of poverty-reducing growth. The paper contrasts some common and stylized green-sensitive growth ideas related to agriculture, trade, technology, infrastructure, and urban development with the requirements of poverty-sensitive growth. It finds that they may well cause a slow-down in the effectiveness of growth in reducing poverty. The main lesson therefore is that trade-offs are bound to exist; they increase the social costs of green growth and should be explicitly addressed. If not, green growth may not be good for the poor and the poor should not be asked to pay the price for sustaining growth while greening the planet.

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Links of Interest (2012-02-18)

Industrial policy works for smaller firms (If governments must provide investment subsidies to domestic firms, there is a much larger bang for their buck if they target small businesses rather than larger ones.)

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Demand composition and the trade collapse of 2008–09 (The Great Trade Collapse was mainly caused by the crash in global demand.)

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Non-tariff measures and supply chain (NTBs may add many trade costs along the supply chain and, in a world where production is fragmented across countries, they are associated with development traps.)

The figure below shows traded goods prices along the supply chain. Different policies apply to each part of the supply chain. Market distortions in international shipping specifically affect the difference between the free-on-board and cost-insurance-and-freight prices; import customs procedures then affect the landed duty-paid price; and restrictions on the size or hours of retail operations affect the difference between the wholesale and retail price.

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The impact of natural disasters on developing countries' trade flows (Due to natural disasters such as earthquakes, floods, and volcanic eruptions exports of disaster-hit small developing countries decline by 22 percent and the observed impact tends to last for about three years. Exports of larger developing countries, on the other hand, are not significantly affected.)

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What explains high unemployment? The aggregate demand channel (The decline in aggregate demand driven by household balance sheet shocks accounts for almost 4 million of the lost jobs from 2007 to 2009, or 65% of the lost jobs.)

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Preferential trade agreements and the world trade system

• Despite the proliferation of PTAs in recent years, the actual amount of liberalization that has been achieved through PTAs is actually quite limited.
• At least a few studies point to significant trade diversion in the context of particular PTAs and thus serve as a cautionary note against casual dismissals of trade diversion as a merely theoretical concern. Equally, adverse effects on the terms-of-trade of non-member countries have also been found in the literature.
• While the literature has found mixed results on the question of whether tariff preferences help or hurt multilateral liberalization, the picture is different with the more elastic tools of trade policy, such as antidumping duties (ADs); the use of ADs against non-members appears to have dramatically increased while the use of ADs against partner countries within PTAs has fallen.
• Despite the rapid expansion of preferences in trade, intra-PTA trade shares are relatively small for most PTAs; multilateral remain relevant to most member countries of the WTO.

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Conditional versus unconditional cash transfers in Burkina Faso

Compared with control group households, conditional cash transfers significantly increased the number of preventative health care visits during the previous year, while unconditional cash transfers did not have such an impact. For the conditional cash transfers, money given to mothers or fathers showed beneficial impacts of similar magnitude in increasing routine visits.

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China's Growing Role in Africa: Myths and Facts

China’s emergence as a major player in Africa’s trade, investment, and aid has led many to question the nature of its involvement. Critics say that China is only interested in resources, its exports to Africa threaten local industries, and it is displacing Africa’s traditional partners, like the United States. True, China is a large user of commodities and has a vital interest in developing Africa’s natural resources, but it is not just on a resource hunt. Moreover, the adverse impacts on Africa of China’s increased exports, both in internal and external markets, appear to be limited to specific industries such as garments. And despite their differences in priorities and approaches, China and the United States can complement each other in some areas. Africa has much to gain if it uses its leverage wisely.

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Beyond Keynesianism : Global infrastructure investments in times of crisis

As the world recovers only slowly from the 2008 financial crisis and Europe is facing a looming debt crisis, concerns have increased that the "new normal" -- a period of high unemployment, low returns on investment, high risks, and low growth -- may become protracted in advanced economies. If growth remains weak, unemployment rates and debt levels will be slow to recede. Consequently, the global recovery may continue to be fragile for years to come. What the world needs now is a growth-lifting strategy. This strategy could take the form of a global infrastructure initiative. Since debt levels are high, governments in the United States and Europe could increase demand and support growth through investments in bottleneck-releasing infrastructure projects that are self-financing. An infrastructure initiative should, however, go beyond the borders of advanced countries and include developing countries. Economic and social returns to infrastructure investments tend to be high in developing countries, which have become increasingly important drivers of global growth. At the same time, infrastructure investments require capital goods, most of which are produced in high-income countries. Scaling up infrastructure investment in developing countries could therefore help generate a virtuous cycle in support of a global recovery.

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Water and energy consumption in Nepal

The information is derived from from a recent report on green growth in Asia and the Pacific. The domestic water use per capita (471 cubic meters per capita in 2000) in Nepal is below the estimated minimum requirement. Leakage, inadequate water quality, inefficient domestic water use, and underinvestment in providing access to basic services are common features in countries with low water use per capita. No surprise that people in major urban centers can run their taps just for few hours each week. The work to channel water supply from Melamchi is yet to be realized ever after so many years of commencement of its construction.

Domestic material (including energy) consumption is pretty low (fifth lowest—2.64 tons per capita in 2005) compared to other countries in the continent. It signals potential for future growth by exploiting the available materials for consumption and production. Furthermore, per capita energy use is the third lowest (14.36 gigajoules per capita), followed by Myanmar and Bangladesh, in Asia and the Pacific. Note that countries with high energy use per capita tend to have high HDI value.

Recommendations for green growth and resource sustainability:

• Infrastructure investments should be guided by the principles of sustainability, accessibility, and social inclusiveness.
• “Natural infrastructure” provides valuable but undervalued economic inputs. Natural capital investments will help to secure critical ecosystem services (such as water regulation and flood control), achieve cost savings on infrastructure development, improve human and environmental security and can strengthen climate adaptation efforts through ecosystem-based adaptation approaches. Sustainable management of natural capital also enhances the potential for ecosystem services for economic transformation—for example where eco-tourism potential is developed as an economic development strategy. Investments should be targeted at key ecosystem services that hold particular value for their economies and societies.
• Sustainable agriculture is a critical aspect of maintaining and building natural capital.
• Greening of growth requires integrated strategies that support systemic change in integrated, complementary and mutually reinforcing ways. The complexity of challenges faced means that a clear vision, targets and monitoring approach are required. Also needed are targets and indicators that give policy-relevant information on the extent to which the economy is “growing green.”
• To ensure greater resilience, domestic policies should also encourage diversification in key sectors, such as industry, agriculture and energy.
• Approaches that enhance the capacity of communities and economies to resist initial shocks and to self-organize and adapt to changing conditions will be increasingly important.
• A transition to a green economy requires governance that is effective, fair and
  inclusive.

Impact of Climate Change on MDGs

Here is how climate change will potentially affect MDGs. It is sourced from South Asia Climate Change Strategy, 2009, pp.105-106.

Eradicate extreme poverty and hunger (Goal 1)

• Climate change is projected to reduce poor people’s livelihood assets such as health, access to water, homes, and infrastructure.
• Climate change is expected to alter the path and rate of economic growth due to changes in natural systems and resources, infrastructure, and labor productivity. A reduction in economic growth directly impacts poverty through reduced income opportunities.
• Climate change is projected to alter regional food security. In Africa, in particular, food security is expected to worsen.

Health-related goals (Goals 4, 5 and 6)

• Combat major diseases
• Reduce infant mortality
• Improve maternal health
  
• Direct effects of climate change include increases in heat related mortality and illness associated with heat waves (which may be balanced by less winter cold-related deaths in some regions).
• Climate change may increase the prevalence of some vector-borne diseases (for example, malaria and dengue fever), and vulnerability to water-, food- or person-to-person borne diseases such as cholera and dysentery.
• Children and pregnant women are particularly susceptible to vector- and water-borne diseases. Anemia – resulting from malaria – is responsible for a quarter of maternal mortality
• Climate change will likely result in declining quantity and quality of drinking water, which is a prerequisite for good health, and it may also exacerbate malnutrition – an important cause of ill health among children – by reducing natural resource productivity and threatening food security, particularly in Sub-Saharan Africa.

Achieve universal primary education (Goal 2)

• Links to climate change are less direct, but loss of livelihoods assets (social, natural, physical, human and financial capital) may reduce opportunities for full time education in numerous ways. Natural disasters and drought reduce children’s available time (which may be diverted to household tasks), while displacement and migration can reduce access to education opportunities.

Promote gender equality and empower women (Goal 3)

• Climate change is expected to exacerbate current gender inequalities. Depletion of natural resources and decreasing agricultural productivity may place additional burdens on women’s health and reduce time available to participate in decision-making processes and income-generating activities.
• Climate-related disasters have been found to impact more severely on female-headed households, particularly where they have fewer assets to start with.

Ensure environmental sustainability (Goal 7)

• Climate change will alter the quality and productivity of natural resources and ecosystems, some of which may be irreversibly damaged, and these changes may also decrease biological diversity and compound existing environmental degradation.

Global partnerships

• Global climate change is a global issue and response requires global cooperation, especially to help developing countries to adapt to the adverse impacts of climate change.

Impact of Climate Change in South Asia

The impact of climate change in South Asian counties are listed below. It is sourced from WB’s South Asia Climate Change Strategy 2009, pp. 56-59.

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Afghanistan

• Exposure of agriculture (pasture), ecosystems and water resources to drought and desertification
• Flooding from glacial melt and long run vulnerability of depletion of water supplies of glacial-fed rivers
• Water and food insecurity, malnutrition and possible migration
  and conflict

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Bangladesh

• Combined impacts of sea level rise and glacial melt lead to increased incidence of flooding and land loss
• Drought in some areas
• More intense cyclones
• Lower agricultural output through diminished yields and loss of land
• Increased incidence of heat-related illnesses, water-borne diseases, poverty, child and infant mortality; lower access to safe water and sanitation and possible migration
• Loss of biodiversity in coastal ecosystems – Sunderbans at high risk
• Mitigation Issues: Increased coal dependence (risks of early transition to coal)

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Bhutan

• Damages from glacial melt
• Impact of increased temperature on rangelands and agriculture
• Potential loss of forest biodiversity due to vegetation shift and increased incidence of forest fire due to temperature increase

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India

• Exposure of agriculture, water resources, and ecosystems to extreme weather events and more variable precipitation
• Impact of glacial melt on water resources quantity, biodiversity and low-lying agriculture
• Increased heat-related illnesses and water-borne diseases and changes in epidemiological patterns
• Impacts on urban infrastructure including drainage, water and sanitation
• Vegetation shift in forests and biodiversity, regime shifts in rangelands, decreased agricultural yields in tropics and subtropics
• Increased exposure to sea level rise
• Mitigation issues:
  • Increased emissions from energy production and transformation, transport, urban, agriculture, industrial and residential sectors due to economic growth and urbanization
  • Impact of climate change upon carbon sequestration capacity of forest ecosystems, other biomass and soils

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Maldives

• Ecosystem damages and loss of protection afforded by coral reefs
• Inundation of islands due to sea level rise and physical damages from flooding
• Increased salinity of groundwater resources
• Possible migration and large scale relocation

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Nepal

• Decline in agricultural production in some areas
• Glacial lake outburst floods (GLOF) and future desiccation of water resources due to rapid glacial melt and impact on dependent ecosystems and agriculture
• Impact of vegetation shift to forest biodiversity
• Likely outbreak of malaria and similar diseases
• Mitigation issues:
  • Impacts on carbon sequestration of vegetation shifts and forest productivity changes
  • Land-use changes due to future development
  • Slash-burn agricultural practices

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Pakistan

• Increased intensity and frequency of drought and effects on agriculture (pasture), water resources and ecosystems (wetlands)
• Initial flooding and future drying of water resources due to glacial melt and impact on water consumption
• Damages of sea level rise
• Outbreak of heat related and insect-transmitted diseases, malnutrition, food and water insecurity, migration and conflict
• Mitigation issues:
  • Increased emissions from energy, transport and urban sectors
  • Emissions from agriculture and rangeland degradation

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Sri Lanka

• Reduced crop yields due to temperature increase
• Sea level rise - damages upon settlements, industries and livelihoods in coastal areas
• Salt water intrusion in agriculture, freshwater and groundwater
• Ecosystem degradation and biodiversity loss in coastal and marine ecosystems
• Mitigation issues:
  • Release of stored forest carbon due to land-use changes
  • Increase in thermal power

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Is there limits to growth?

To make the argument, Growth isn’t Possible uses a hamster to illustrate what would happen if there were no limits to growth. Hamsters double in size each week until around 6 weeks old. But if it grew at the same rate until its first birthday, we’d be looking at a 9 billion tonne hamster, which would eat more than a year’s worth of world maize production every day. As things are in nature, so sooner or later, they must be in the economy. Growth is pushing the planet ever closer to, and beyond some very real environmental limits. Yet politicians and economists are seemingly convinced that the economy can grow without end in a finite planet, no matter what the costs.

Interesting stuff from The Impossible Hamster Club

Copenhagen and the Economics of Climate Change

This is a guest post by Greg Shinsky from Monash University, Australia . It is based on a paper Greg is working on right now. He talks about the role of public goods, coordination games, free riding and the sufficiency of the current international response under the United Nations Framework Convention on Climate Change. An earlier blog post from Greg can be found here.

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Economists view climate change (CC) as a market failure, derived from under provision of the global public good represented by a stable atmosphere. This in turn is manifested as a negative externality which is neither time nor location specific.

At its source, this market failure stems from the inability of governments to coordinate policies that equalise the marginal private and social costs of greenhouse gas (GHG) usage. This is, however, no easy feat as the diffusive nature of GHGs means that the level of emissions from any one State will ultimately be borne by all other States. Therefore, the amount of the global public good per se that any one State receives is dependent on how many (and how much) GHGs the largest emitter or, in the context of CC, the weakest link emits.

Hence, the coordination game of CC approximates a weakest link type global public good. That is to say, the overall level of GHG concentration is only as good as the worst (or highest) level of emissions in any given State. Accordingly, provision of this global public good represents a sequential game where any attempt to free-ride in the long-run is inefficient and irrational due to the inevitable harm that results if agents receive a ‘payoff’ less than their subjective valuation. Therefore, at least according to economic theory, international policy cooperation will ultimately be invoked in order to avoid a Pareto-inferior outcome.

The recent summit at Copenhagen demonstrates that mere goodwill and benevolent intentions, without market based mechanisms, will not solve the CC problem. Resolution of CC issues demands market-based approaches because there is a profound insufficiency of knowledge on how to deal with a problem of such unprecedented complexity. Ultimate resolution of the CC coordination game thus requires a common price signal which in turn permits the efficient equalisation of the marginal social cost of GHG usage with the marginal abatement cost. Such a mechanism, however, must also satisfy the additional hurdle of actual State participation. Such participation is likely to be forthcoming when an excludable stream of private goods, which necessarily mitigates prospects of free-riding, is associated with involvement.

It is questionable whether the 1992 United Nations Framework Convention on Climate Change (UNFCCC), its associated protocol and accord, are the requisite geopolitical policy solution to avoid a Pareto-inferior outcome. Firstly, although the UNFCCC might demonstrate some incremental progress, both the Kyoto and Copenhagen summits have failed to reach a much needed comprehensive legally binding agreement. Furthermore, seventeen years of discussions have only yielded some unilateral commitments to reduce emissions to levels which current science suggest, even if adopted collectively, are manifestly insufficient. These points are given particular salience due to the possible dire consequences associated with further protracted policy responses.

Whether the weakest link theoretical prediction of a CC resolution holds is uncertain. This stems from the unique characteristic of possible ‘irreversible consequences’ associated with CC – which is not normally associated with the provision of other public goods. With time literally being ‘of the essence’, it is essential that any positive mitigation action is collectively supported by the international community. However, any such policies must continue to adhere to the long held international legal principle recognising the ‘common but differentiated responsibilities’ of developed and developing States.

Links of Interest (11/20/2009)

China will become of the world’s largest economy in 2032 (but not in terms of income per capita!)

Forecasting macroeconomic developments (Also, see top-down versus bottom-up macroeconomics)

An interesting Turkish blog

Gambling on a sinking nation (remember a Cabinet meeting underwater in Maldives)

The effectiveness of fiscal and monetary stimulus in depression (In short, analysis of budgets and central bank policy rates for 27 countries covering the period 1925-39 shows that where fiscal policy was tried, it was effective.)

Chavez slams GDP methodology after his economy contracted in 3Q

The impact of the Doha Round on Kenya (Kenya’s GDP will boost by a 0.2 percent; it will see losses in the manufacturing and mining sectors but gain in agricultural and processed food sectors)

Zedillo Commission Report on reforming the World Bank

WDI now in Google search (try the new stuff; its cool; see a sample below)… also, try WB Data Visualizer (you can do similar stuff in Google Spreadsheet plus copy the code and use it elsewhere!)

Not satisfied playing with data? Try WB Data Finder (a sample below):

GDP growth (annual %) - 2008

Source: World Bank Data - Annual GDP Growth Rate

The lessons on reducing poverty from the BRICs

John Perkins on stopping terrorism (trade fairly!)

How green are human rights?

There was an event held at my college yesterday. It was about the how human rights are connected with environment sustainability. There were three panelist- three professors from Mexico, Britain, and Cameroon.

I found this quote, by Professor Bruce (from UEA), interesting:

It is our human rights to use water. However, our choice/decision to use water affects the usage by others. Imports and waste of water, while exercising human rights in one part of the world, is in a sense exports of water (potential stream) from other part of the world. Hence, the very daily choices arising from exercise of human rights is not independent of how individuals use water for daily purposes.

ABC clouds and climate change in Nepal

This kind of story scares me when it happens in developing countries, which severely lack manpower and firepower to deal with issues like  fires, wildfires and increasing accumulation of clouds above the skies of major cities, leading to rise in temperature.

According to this news piece, two major national parks in Nepal are burning creating Asian Brown Cloud (whatever that means!) over Kathmandu and other cities. This is compounded by increasing smoke emission from motor vehicle, factories, and cooking gas.

According to NASA, wildfires appear to be raging in or very close to some of the national parks and conservation areas, including Langtang National Park and Makalu Barun National Park, located along the northern border of the country. The forest fire raging in Langtang National Park in Rasuwa district for the last seven days is said to be the worst of all.

According to a NASA report today, there was a reduction of solar radiation to the surface by as much as 15 per cent in Kathmandu. Thirty-seven domestic flights were delayed due to poor visibility caused by hazy weather on Sunday.

A weatherman also blamed the dust particles passing through the northern Indian and Pakistani cities coupled with thick wildfire smoke for the ABC. Apart from Kathmandu, Biratnagar, Pokhara, Dhangadhi and Bhairahawa have also been affected by the ABC, which is concentrated three km above the earth’s surface and can travel halfway around the globe in less than a week.

Can the aid agencies and climate change advocates do something about this? Oh well, who cares about the change going on above in the skies over Nepal. I have not heard of any such international effort to tackle such issues happening in real time in Nepal, at least not since the time I became aware of these issues!

Links of Interest (10/07/08)

Zoellick argues for Modernizing Multilateralism and Markets and says the G-7 is not working. He calls for a new Steering Group including Brazil, Russia, India, China, Mexico, Saudi Arabia, South Africa, and the current G-7.

Why Nepal has to be at the heart of South Asian climate discussion initiatives: Regional initiatives, global strategies

Paul Collier on cracking down on Africa’s loot-seeking elites

Paul Romer’s take on the financial crisis: Fundamentalists versus Realists

Stiglitz, Hubbard, and Scholes throw The Dismal Questions at Obama and McCain ahead of the presidential debate!

Taking another look at land reform in Nepal

Perry gives the Good News From Africa (about improvement in governance indicators as shown by the Ibrahim Index)

The Ibrahim Index explained

List of formally educated African leaders

Geographic ignorance: ‘Nepal is Tibet’:The saga of gaffes continues

Pachauri on fighting climate change for the sake of the poor

Sachs argues for harvesting solar power from deserts

In a column published in Project Syndicate, Sachs argues that the most promising technology in the long term is solar power. He says if most of our energy demand can be fulfilled by harvesting solar power, mainly from deserts, which receive the strongest and highest radiation. Not a bad proposal but is it financially feasible? Do we have the technologies to harvest solar power in such a large scale? It would definitely be cleaner than the present power sources. More funding for research and development in this field is definitely needed.

The most promising technology in the long term is solar power. The total solar radiation hitting the planet is about 1,000 times the world’s commercial energy use. This means that even a small part of the earth’s land surface, notably in desert regions, which receive massive solar radiation, can supply large amounts of the electricity for much of the rest of the world. 

For example, solar power plants in America’s Mohave Desert could supply more than half of the country’s electricity needs. Solar power plants in Northern Africa could supply power to Western Europe. And solar power plants in the Sahel of Africa, just south of the vast Sahara, could supply power to much of West, East, and Central Africa. 

For all of these promising technologies, governments should be investing in the science and high costs of early-stage testing. Without at least partial public financing, the uptake of these new technologies will be slow and uneven. Indeed, most major technologies that we now take for granted – airplanes, computers, the Internet, and new medicines, to name but a few – received crucial public financing in the early stages of development and deployment.  

It is shocking, and worrisome, that public financing remains slight, because these technologies’ success could translate into literally trillions of dollars of economic output. For example, according to the most recent data from the International Energy Agency, in 2006 the US government invested a meager $3 billion per year in energy research and development. In inflation-adjusted dollars, this represented a decline of roughly 40% since the early 1980’s, and now equals what the US spends on its military in just 1.5 days.