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The International Monetary Fund (IMF) projects Nepal’s economy to remain flat, with the expectation of zero growth in 2019/20 and deep recession in ongoing fiscal year 2020/21. This revision has come as the government has been struggling to cover salaries and other day-to-day expenditure. Many people have lost their jobs as economic activities have shrunk due to the massive spread of the novel coronavirus. The government has failed to contain virus spread. As a result, a section of the population is being forced under the poverty line.

Globally, the World Bank has expected around 150 million people to be pushed into extreme poverty—with an income of less than $1.90 a day—by the end of 2021. The pandemic is going to weigh heavy on developing countries like Nepal. Agricultural output is expected to decrease this year as rice production was hampered by the unavailability of chemical fertilizers. A sharp fall in rice production will affect poor farmers the most. Better preparedness could have averted this.

The World Bank Group’s biannual ‘Reversals of Fortune’ report states that poor countries like Cameroon, the Central African Republic, the Republic of Congo, Liberia, and Nepal will require tailored policy approaches. Post-crisis recovery and future poverty reduction in these complex settings will be challenging and time-consuming. Food insecurity, poverty, conflict, flood risks and other phenomena will further erode the prospect of quick recovery. There must be a coordinated approach to identify interactions among these phenomena to design effective responses.   

Further, the report designates Nepal as among the most vulnerable countries. “Nepal is potentially susceptible to all the major challenges: a pandemic, a recession, current or old conflicts (with enduring effects), and climate change (notably through flood risks),” it reads. “In such “hot spot” context, an array of responses commensurate with the scale and scope of these compounding challenges will be needed to advance inclusive growth and sustain poverty reduction.” This warning in turn brings to focus the government goal of making Nepal a mid-income country with its ‘Happy Nepali, Prosperous Nepal’ slogan. Rather than the country embarking on the path of prosperity, there is now a higher risk of poverty, inequality, and social disparities.

The government has decided to rely on foreign aid and debt to sustain state functions as revenue collection has dwindled. In the first quarter of 2020/21, expenditure crossed income from revenue, which is unusual. The government has failed to lower unnecessary expenditure. Moreover, it declared no measures were off limit to collect revenue during these critical times. The Inland Revenue Department (IRD) has announced that it would deregister almost 29,447 firms if they fail to clear their dues on time. These reckless decisions will further hamper the economy.

With the high risk of falling into poverty due to lack of opportunities, most youths would want to flee the country. The government has started directing its focus on running its own businesses rather than pay attention to people’s welfare. State machinery will probably survive at the cost of people’s suffering.

Against this backdrop, our development partners should rethink about funneling money into our state coffers without due diligence of service delivery. Actors like the World Bank, the IMF, and the Asian Development Bank must start holding governments from these vulnerable countries to account. People can’t do so on their own as these governments have captured electoral processes and other means of check and balance. Humanity’s future is in the hands of these multilateral actors. It is time for them to show some leadership.

The market is flooded with excess liquidity. The banks and financial institutions (BFIs) don’t espy many areas of investment at a time the pandemic has made everything come to a standstill. As the BFIs have been unable to lend, the Nepal Rastra Bank (NRB) has mopped up excess liquidity from the market. But this is only a short-term solution while the country’s financial sector suffers from a chronic excess liquidity. Nepal’s banking sector appears to be increasingly biased to holding liquid assets rather than supporting productive investment through lending.

The slump in demand for credit is one reason for excess liquidity in the financial sector. The NRB pulled $600 million through reverse repo auction on a cumulative basis in the first month of fiscal 2020/21, up from $300 million in the corresponding period in fiscal 2019/20. Borrowers are shying away from credit because the BFI lending is conservative and does not encourage new ideas and project concepts. Normally, this is the season that potential borrowers start processing loans, but this tendency has significantly decreased thanks to the pandemic and restricted economic activities.

The NRB statistics show 79 percent of BFI loans in the first month of 2020/21 has been approved against collateral such as land, building, or current assets such as agricultural and non-agricultural products. This shows our financial sector is not project-financing friendly. There is minimal investment from BFIs in new business ideas and projects with no assets to use as collateral.

The NRB should encourage the BFIs to be more supportive of new ideas that they can support with loans, and not to discourage individuals and firms from approaching BFIs when they need additional funds. Alternatively, the NRB also needs new instruments to manage excess liquidity effectively and strategically. Given the nature of our remittances inflow and country’s peg to Indian currency, ad hoc mopping of the liquidity may not be sufficient, nor would it provide the level of predictability needed for effective market functioning. In the current scenario, it would be wise to lend to small and medium enterprises (SMEs) that could generate jobs and utilize resources.

The government claims the economy is still on right track despite months-long lockdown and restrictions on economic activities. We have to be cautious about how these numbers are crunched. Private sector credit has gone down significantly as the pandemic limits economic activities. SMEs consider access to finance a major bottleneck for their growth in Nepal even in normal times. They have been under added pressure from ad hoc lockdowns and restricted economic activities. There is also a huge gap between urban and rural populations in terms of their access to finance. All these issues reinforce the need to expand financial sector and make it more output-oriented. This can be done by lending to SMEs and enterprising individuals.

The NRB has had a deprived sector lending policy since the 1990s but it is not working. The country currently needs investments in services and ideas. The whole idea of deprived sector lending is to help people have funds even if they do not have assets for collateral. But it is not working that way. The BFIs are doing collateral based lending regardless. This is also not serving the supporting sectors that are breaking new frontiers.

Covid-19 has changed the entire outlook of the economy. In these times, extending credit to firms and individuals with solid ideas should be the new normal. It is best to let money circulate through the veins of nation’s economy than let it stagnate in bank vaults.

The appointment of Yubaraj Khatiwada as the special economic advisor of Prime Minister KP Sharma is no surprise at all. More surprising is that the government has taken a decision that directly undermines the role and importance of the Ministry of Finance as an institution. The prime minister would have put in some effort to get the right finance minister if he really cared about developing institutions. Alternatively, if Khatiwada was an indispensable asset, PM Oli should have found a way to retain him as finance minister. The ministry will have to pay for PM Oli’s lack of foresight.

The prime minister could have appointed anyone as his special economic advisor, but that decision could have been taken after the appointment of the new finance minister. PM Oli is also wrong if he is considering keeping the finance ministry portfolio himself, running it with Khatiwada by his side. Khatiwada is being equally irresponsible if he has advised the PM to do so. Both are undermining the ministry’s role just to please their egos. Finance minister is not just another position to be filled. His or her leadership is sought every day within the ministry premises in Singha Durbar. 

The ministry has two secretaries: revenue secretary and finance secretary. These two secretaries provide leadership to the entire workforce linked to MOF, from the federal to local level. On everyday basis, they also process decisions that demand an input from political position, i.e. finance minister. It is impossible to keep running to Baluwatar every time they need guidance. Vital decisions will be delayed due to this arrangement, which in turn will have economic costs. This thus represents a blatant abuse of power.

Like most others, this columnist also had high hopes from Khatiwada when he took the helm as finance minister. Two and half years down the road, he has exited from the ministry to sheer disappointment of all. The first budget he presented was balanced and could have yielded dividends if implemented well. But then he started to undercut the private sector, undermine the role of a functional capital market, and bear down on small and medium enterprises in the name of revenue collection. People lost hope and the economy came to be supported by the rigid public sector alone. Khatiwada could not clear the path for growth by identifying key growth trajectories. In a nutshell, he missed the opportunity to do something substantive.

After serving as a finance minister, he should not have been part of the process to undermine the importance of the ministry he led. Developing an institution is also helping it get right leadership and then granting it the needed autonomy. In the absence of finance minister who can provide day-to-day leadership from the ministry, not much can be achieved on this front. As a special advisor, Khatiwada may provide excellent piece of wisdom to PM Oli but that will not be reflected in the economy as the ministry as an institution will be directionless. Hence, Khatiwada will end up being a liability to the government and to the country.

As Khatiwada is around, one may ask him and PM Oli about the report on public expenditure prepared by the team of Dilli Raj Khanal. Why hasn’t that report been publicized and its recommendations implemented? Why have vital institutions like the National Natural Resources and Fiscal Commission and the National Planning Commission not been strengthened under this government? The answer is lack of interest in developing these economic institutions. The constitution guarantees inclusive political institutions but if we cannot develop inclusive economic institutions to back them up, the political achievements will also come to a naught. Again, having a special economic advisor in Baluwatar when the finance minister’s cabin in Singha Durbar is vacant is a body blow for the ministry’s institutionalization.

The Covid-19 lockdown has broken seamless global supply chains. Producers, distributors, retailers, and consumers are all trying to figure out new ways of delivering essential goods so that people can survive. American consumers alone spent $347.26 billion online with retailers in the second quarter of 2020, which is 30.1 percent up compared to the same period last year. E-commerce in Pakistan started in early 2000 but just three percent of population was buying online, which during the pandemic has increased by 10 percent. Covid-19 has had a significant impact on global e-commerce and sales are expected to reach $6.5 trillion by 2023, from an estimated $3.46 trillion in 2019. Consumers spent $2.93 trillion online in 2018. But in Nepal the government is arresting suppliers and delivery personnel of online businesses.

Africa’s booming e-commerce relies on one of the most digitally connected populations on the planet, with 400 million active internet users. There, consumers from remote areas rely on e-commerce to save time and money while purchasing goods. The ASEAN countries have already marched ahead in e-commerce with an emphasis on data connectivity, logistics to facilitate the free flow of goods and services, connectivity to facilitate cash flows, and seamless links between the physical and cyber space. Online sales account for 15 percent of retail sales in China and 14 percent globally. Nepal is clearly on the wrong track.

E-commerce is the future path. But it is full of regulatory complexities with issues related to data privacy, consumer protection, delivery, cyber security, market access regulation, and digital payment. Any country that wants to walk on this path should do some serious homework to address these challenges. Shutting down entire industry without such homework harms the economy and blocks the path of progress. Moreover, it has direct consequence on people’s lives in this time of pandemic. People have been locked in, with ever-increasing fear of contracting the dreaded virus. This could be the perfect time for an e-commerce boom.

E-commerce is not limited to serving domestic consumers. It is also being considered as a platform to better integrate regional trade. The World Bank, in its flagship report in December 2019, says e-commerce can boost a range of economic indicators across South Asia, from entrepreneurship and job growth, to higher gross domestic product (GDP), to overall productivity. The report’s lead economist and co-author Sanjay Kathuria claims that by unleashing its online trade potential South Asia can better integrate into international value chains, increase market access, and strengthen commercial links among countries across the region. These words echo louder in this pandemic as the brick-and-mortar businesses are being shaken to their core.

In Nepal, there are no laws to govern e-commerce while other countries have moved much further in regulating it. In 1996, a Model Law on E-commerce (MLEC) was adopted by United Nations Commission on International Trade and Law (UNCITRAL). The objective was to bring a uniform e-commerce international law and to increase electronic transactions to bring them on par with paper-based transactions. India, a UNCITRAL signatory, has established a new regulatory regime for e-commerce businesses by endorsing a slew of laws. As per the new Consumer Protection (E-commerce) Rules 2020 of Indian Federal Government, it is compulsory for e-retailers to display critical details of all their goods.

Nepal’s is a unique case as there is neither a roadmap to enhancing e-commerce nor a foundation for it. State bureaucracy and police forces are acting as if e-commerce is a criminal activity. But despite the state bullying, e-commerce businesses in Nepal are mushrooming. Hence there is an urgent need to establish an effective regulatory mechanism to strengthen the e-commerce legal framework. This should be done to save people’s time, money and, most importantly, their lives in these dangerous times.

The covid-19 lockdown has broken the seamless global supply chains. Producers, distributors, retailers, and consumers all have been trying to figure out new ways of delivering essential goods so that people can survive. American consumers alone spent $347.26 billion online with retailers, which is 30.1 percent up compared to the same period last year. E-commerce in Pakistan started in early 2000 but just three percent of population was buying online, which, now with the pandemic, has increased by 10 percent. Covid-19 has had a significant impact in e-commerce and sales are expected to reach $6.5 trillion by 2023, from an estimated $3.46 trillion in 2019. Consumers spent $2.93 trillion online in 2018. But in Nepal the government has arrested suppliers and delivery personnel.

Africa’s booming e-commerce relies on one of the most digitally connected populations on the planet, with 400 million active internet users. Consumers from remote areas also rely on e-commerce to save time and money in goods purchase. The ASEAN countries have already marched ahead in digital connectivity with an emphasis on data connectivity, logistics to facilitate the free flow of goods and services, connectivity to facilitate cash flows, and seamless links between the physical and cyber space. Online sales account for 15 percent of retail sales in China and 14 percent globally. Nepal is clearly on the wrong track.

E-commerce is the future path. But it is full of regulatory complexities with issues related to data privacy, consumer protection, delivery, cyber security, market access regulation, and digital payment. Any country that wants to walk on this path should start homework to address these regulatory challenges. Shutting down entire industry harms the economy and blocks the path of progress. Moreover, it has direct consequence on people’s lives in this time of pandemic. People have been locked in with the fear of the virus spreading. This could be the right time to let e-commerce boom.

E-commerce is not limited to serving domestic consumers. It is also being considered as a platform to better integrate regional trade. World Bank, in its flagship report in December 2019, says e-commerce can boost a range of economic indicators across South Asia, from entrepreneurship and job growth to higher gross domestic product (GDP), to overall productivity. The report’s lead economist and co-author Sanjay Kathuria claims that by unleashing its online trade potential South Asia can better integrate into international value chains, increase market access, and strengthen commercial links between countries across the sub-region. These words echo more in this pandemic as the brick-and-mortar old world is being shaken.

In Nepal, no law governs e-commerce while many other countries have moved much further in regulating it. In 1996, a Model Law on E-commerce (MLEC) was adopted by United Nations Commission on International Trade and Law (UNCITRAL), and later adopted by the assembly. The objective was to bring a uniform e-commerce international law and to bring electronic transactions at par with paper-based transactions. India, a UNCITRAL signatory, has established a new regulatory regime for e-commerce businesses by endorsing a slew of laws. As per the new Consumer Protection (E-commerce) Rules 2020 of Indian Federal Government, e-retailers must compulsorily display critical details of goods.

Nepal’s case is unique as there is neither a roadmap to enhancing e-commerce nor a foundation. State bureaucracy and police forces are acting as if e-commerce is a criminal activity. E-commerce businesses are mushrooming in Nepal up despite the state bullying. Hence, there is an urgent need for an effective regulatory mechanism to strengthen the legal infrastructure on e-commerce so that people’s time, money and most importantly lives of the self-isolating folks can be saved.

The covid-19 lockdown has broken the seamless global supply chains. Producers, distributors, retailers, and consumers all have been trying to figure out new ways of delivering essential goods so that people can survive. American consumers alone spent $347.26 billion online with retailers, which is 30.1 percent up compared to the same period last year. E-commerce in Pakistan started in early 2000 but just three percent of population was buying online, which, now with the pandemic, has increased by 10 percent. Covid-19 has had a significant impact in e-commerce and sales are expected to reach $6.5 trillion by 2023, from an estimated $3.46 trillion in 2019. Consumers spent $2.93 trillion online in 2018. But in Nepal the government has arrested suppliers and delivery personnel.

Africa’s booming e-commerce relies on one of the most digitally connected populations on the planet, with 400 million active internet users. Consumers from remote areas also rely on e-commerce to save time and money in goods purchase. The ASEAN countries have already marched ahead in digital connectivity with an emphasis on data connectivity, logistics to facilitate the free flow of goods and services, connectivity to facilitate cash flows, and seamless links between the physical and cyber space. Online sales account for 15 percent of retail sales in China and 14 percent globally. Nepal is clearly on the wrong track.

E-commerce is the future path. But it is full of regulatory complexities with issues related to data privacy, consumer protection, delivery, cyber security, market access regulation, and digital payment. Any country that wants to walk on this path should start homework to address these regulatory challenges. Shutting down entire industry harms the economy and blocks the path of progress. Moreover, it has direct consequence on people’s lives in this time of pandemic. People have been locked in with the fear of the virus spreading. This could be the right time to let e-commerce boom.

E-commerce is not limited to serving domestic consumers. It is also being considered as a platform to better integrate regional trade. World Bank, in its flagship report in December 2019, says e-commerce can boost a range of economic indicators across South Asia, from entrepreneurship and job growth to higher gross domestic product (GDP), to overall productivity. The report’s lead economist and co-author Sanjay Kathuria claims that by unleashing its online trade potential South Asia can better integrate into international value chains, increase market access, and strengthen commercial links between countries across the sub-region. These words echo more in this pandemic as the brick-and-mortar old world is being shaken.

In Nepal, no law governs e-commerce while many other countries have moved much further in regulating it. In 1996, a Model Law on E-commerce (MLEC) was adopted by United Nations Commission on International Trade and Law (UNCITRAL), and later adopted by the assembly. The objective was to bring a uniform e-commerce international law and to bring electronic transactions at par with paper-based transactions. India, a UNCITRAL signatory, has established a new regulatory regime for e-commerce businesses by endorsing a slew of laws. As per the new Consumer Protection (E-commerce) Rules 2020 of Indian Federal Government, e-retailers must compulsorily display critical details of goods.

Nepal’s case is unique as there is neither a roadmap to enhancing e-commerce nor a foundation. State bureaucracy and police forces are acting as if e-commerce is a criminal activity. E-commerce businesses are mushrooming in Nepal up despite the state bullying. Hence, there is an urgent need for an effective regulatory mechanism to strengthen the legal infrastructure on e-commerce so that people’s time, money and most importantly lives of the self-isolating folks can be saved.

The prime minister need not chair the Investment Board Nepal (IBN) any more. The board was established through a 2011 Act, with the goal of pushing large-scale infrastructures so as to lay a strong foundation for the country’s economic takeoff. Almost a decade down the road, this government entity has turned into yet another waste of taxpayer money and under-utilizer of foreign aid. Having failed to efficiently manage political, technical, economic, and aesthetic aspects of mega projects, it doesn’t have one project completed in the past decade. For one, the PM-chaired board has not given its senior management clear guidance to make maximum use of available resources.

The Rwanda Development Board (RBD), a government institution with a mandate to accelerate Rwanda’s economic development by enabling the private sector, was established just two years before the IBN. Today, the RDB provides trusted market intelligence, practical advice, and business tools to help Rwandan companies expand into global markets. It also attracts foreign investment in 12 different sectors such as manufacturing, agro-processing, real estate, ICT, financial services, mining, infrastructure, energy, tourism, health, and education.

In the case of Nepal, the IBN is slowly turning into no more than a government office with some consultants on donor payroll. The RBD, on the other hand, is chaired by a venture capitalist with cabinet ministers as members, along with other representatives from both public and private sectors. One could argue that Rwanda is an authoritarian state that hands out high-end jobs like CEOs to ruling elites. But this is no different in the case of the IBN. All its three CEOs so far have been appointed based on their loyalty to this or that PM rather than on their core competences.

Notably, the Public-Private Partnership and Investment Act, (PPPIA) 2019 had replaced the Investment Board Act (IBA), 2010 with the support of the Asian Development Bank (ADB). The new Act envisioned two separate units within the IBN—PPP Unit and Investment Unit—for greater efficiency in investment approval and in processing projects built under PPP mechanism. The Act also aims to make PPP more operational (and the IBN secretariat has a bigger role to play in this regard). But more than a year since the Act’s promulgation, not much has been done to honor its letter and spirit.

The expenditure to run the board has become a sunk cost for the economy as it has failed to yield any desirable fruits. It hasn’t been able to develop the capacity of domestic private sector nor to attract foreign investors. The IBN does not even have a basic mechanism of collecting, processing, and analyzing data, which is vital to get a clear picture of domestic and international markets. Most of its work is routine bureaucratic stuff that predictably fails to excite potential investors. The same can be said of the couple of investment summits Nepal has hosted.

Against this backdrop, time has come to reengineer the board to make it professional enough to push private sector to perform better. If a board chaired by the country’s prime minister fails to deliver for so long, it should either be dissolved or restructured. Or it will continue to consume state resources without having anything to show for it. The country will suffer mightily during the Covid-19 crisis if we retain such an expensive institution that delivers almost nothing to the economy. Pre-Covid-19 projections of the need for investment won’t make any sense in the coming days.

Foreign investment is something that nearly all countries are angling for. To be competitive enough to attract international private investment, we must at least have a decent investment institution equipped with basic institutional and human resources.

There are two ways to do this: i) By restructuring the board and recruiting senior management based on core competence, and ii) By strictly implementing PPPIA to make PPP more operational so that the domestic private sector can contribute more on project development.    

The Federation of Nepalese Chambers of Commerce and Industry (FNCCI) will soon elect its new senior vice-president (who is president elect by default) through its 54^th general assembly. The private sector’s apex body has been struggling to establish itself as a professional corporate entity due to a perpetual shortage of capable leadership. The leaders the FNCCI has gotten over the past two decades have been more oriented towards pleasing their political masters than in establishing high standards of corporate governance.

Rather than speaking the industry’s voice, the FNCCI is consumed with fulfilling the interests of its leadership. For instance, the Federation of Indian Chambers of Commerce and Industry (FICCI), India’s private sector’s umbrella agency, has ‘Industry’s voice for policy change’ as its motto. The FNCCI lacks any such guiding principle. 

The federation has seen little growth in the past three decades since the opening up of the economy and reforms in 1990. Since its establishment in 1966, up until 1990, was the time for the organization’s institutional development. Yet, even after 1990, the FNCCI has had little to show for it. Its past presidents like Mahesh Lal Pradhan, Padma Jyoti, and Binod Chaudhari gave the institution some shape. But recent leaders such as Kush Kumar Joshi, Pashupati Murarka, Suraj Vaidya, and Bhawani Rana have done next to nothing to strengthen the capacity of the private sector and empower domestic investors. 

The FNCCI leadership has instead used the organization to curry favors from those in power. Suraj Vaidya became the coordinator of the Visit Nepal 2020 campaign, no sooner than he had completed his tenure as the FNCCI president. Likewise, Kush Kumar Joshi was able to get the ‘Kathmandu-Hetauda Tunnel Highway’ project immediately after the end of his term. In both cases, there was simply no match between the person’s expertise and the projects they later received.  

The FNCCI could have, over the years, pushed political leaders to adopt the right set of policies that favor industrial development in order to achieve higher growth and to create jobs. Yet the focus of the FNCCI, which has a nationwide network through its district-level units, has been on lobbying for higher margins in foreign trading business of its leadership, thereby eroding the private sector’s credibility. “The FNCCI has failed the country by limiting itself to being a lobby group, while the expectation was that it would contribute to industrial development and economic growth,” shares Pushpa Raj Acharya, former president of the Society of Economic Journalist-Nepal. “The golden opportunity for creative transformation of the private sector has been wasted in the past three decades,” he adds.

The 54^th general assembly was scheduled for March 2020, but was postponed due to the Covid-19 pandemic-induced lockdown. It has now been postponed again, due to internal disagreements within the FNCCI. Whenever the general assembly happens, all those contending for new FNCCI leadership positions have already shown enough evidence of groupism and vested interests. In other words, we cannot expect much from whoever leads it next.   

Raghuram Rajan, an economist and former governor of the Reserve Bank of India, points to three pillars of national development: state, market, and community. He argues that if the market colludes with the state then the community fails, causing people to suffer. This is exactly what is happening in Nepal.

Looks like the private sector will have to wait a long time before it gets capable and visionary leaders.