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Covid-19 has made the world pause. Nepalis stayed home on the eve of New Year 2077 and started the first morning of the new year with no idea of when they would get back to normal life. New cases of the novel coronavirus continue to appear, adding to the widespread fear. Meanwhile, the government is taking ad hoc measures instead of coming up with a firm strategy to support the poor and sustain the national economy.

The Ministry of Finance, which is supposed to come forward aggressively with plans that can be adjusted each day depending on the scenario, doesn’t seem to have a clue of what’s happening in the economy, let alone be bothered of the impending poverty and privation. Finance Minister Dr. Yubaraj Khatiwada, who seems intent on sidelining private sector and entrepreneurship, doesn’t know what holds the economy together. If he did, the situation today would be much different.

His statements before the World Bank Group Nepal Office representatives exemplified the stupidity, insensitivity, and recklessness of his leadership at this time of crisis. He talked about vague issues that had nothing to do with fighting the broad economic impact of the pandemic.

Likewise, Prime Minister KP Sharma Oli addressed the nation last week. But he too had no message of hope for the panicked public. Rather he spent his time explaining why it’s futile to question the procurement process of health materials from China. Estimates show that globally, around 600 million people will be pushed into poverty and that certainly includes people from Nepal. Those at the bottom of the income and wealth ladder have harder days ahead. But the government is silent on what can be done to help them survive this ‘man-made crisis’.

A recent World Bank update shows South Asia sub-region’s growth falling to between 1.8 and 2.8 percent in 2020, down from 6.3 percent projected just six months ago. Although Nepal’s share in sub-regional GDP is minimal, the country’s economic growth is expected to significant slow down in 2020.

The national economy, including the agriculture sector, has come to a halt. There is no preparation to ensure availability of agriculture inputs as planation time closes in. In the event of the country’s inability to control the crisis in agriculture, the economy will be in a free-fall, driving vast numbers of farmers into absolute poverty. The government doesn’t seem to be paying attention to this critical issue.

There will be severe food insecurity in the country due to supply shock. The World Bank has warned that a rapid spread of the virus could reverse the recent positive trends in poverty and result in high levels of food insecurity and widespread malnutrition among children.

Investment, both domestic and foreign, will fall, leading to lower job creation. A large fiscal deficit will be added to public debt, directly affecting Nepal’s fiscal sustainability. Daily wage earners will be hit the hardest. Remittances will significantly decrease, impacting both forex reserve and the livelihood of those who rely on it. The informal sector, which makes up nearly 70 percent of the national economy according to same estimates, has stopped functioning.

Against this bleak backdrop, the government seems the least concerned and ill prepared to handle the corona fallout. Worryingly, the Ministry of Finance does not seem to have a clue about how to move ahead. It is not having necessary dialogues with development partners, it lacks detailed analysis and insights on what’s happening, and it has failed to undertake a rapid assessment of the economic impact of Covid-19.

Dr. Khatiwada can always argue that even the best of government plans failed in tackling the virus, just as has happened in far more developed countries. But this will be a lame excuse even as the economy teeters on the edge. Let’s hope people won’t have to start dying for the government to come to its senses.

Covid-19 has made the world pause. Nepalis stayed home on the eve of New Year 2077 and started the first morning of the new year with no idea of when they would get back to normal life. New cases of the novel coronavirus continue to appear, adding to the widespread fear. Meanwhile, the government is taking ad hoc measures instead of coming up with a firm strategy to support the poor and sustain the national economy.

The Ministry of Finance, which is supposed to come forward aggressively with plans that can be adjusted each day depending on the scenario, doesn’t seem to have a clue of what’s happening in the economy, let alone be bothered of the impending poverty and privation. Finance Minister Dr. Yubaraj Khatiwada, who seems intent on sidelining private sector and entrepreneurship, doesn’t know what holds the economy together. If he did, the situation today would be much different.

His statements before the World Bank Group Nepal Office representatives exemplified the stupidity, insensitivity, and recklessness of his leadership at this time of crisis. He talked about vague issues that had nothing to do with fighting the broad economic impact of the pandemic.

Likewise, Prime Minister KP Sharma Oli addressed the nation last week. But he too had no message of hope for the panicked public. Rather he spent his time explaining why it’s futile to question the procurement process of health materials from China. Estimates show that globally, around 600 million people will be pushed into poverty and that certainly includes people from Nepal. Those at the bottom of the income and wealth ladder have harder days ahead. But the government is silent on what can be done to help them survive this ‘man-made crisis’.

A recent World Bank update shows South Asia sub-region’s growth falling to between 1.8 and 2.8 percent in 2020, down from 6.3 percent projected just six months ago. Although Nepal’s share in sub-regional GDP is minimal, the country’s economic growth is expected to significant slow down in 2020.

The national economy, including the agriculture sector, has come to a halt. There is no preparation to ensure availability of agriculture inputs as planation time closes in. In the event of the country’s inability to control the crisis in agriculture, the economy will be in a free-fall, driving vast numbers of farmers into absolute poverty. The government doesn’t seem to be paying attention to this critical issue.

There will be severe food insecurity in the country due to supply shock. The World Bank has warned that a rapid spread of the virus could reverse the recent positive trends in poverty and result in high levels of food insecurity and widespread malnutrition among children.

Investment, both domestic and foreign, will fall, leading to lower job creation. A large fiscal deficit will be added to public debt, directly affecting Nepal’s fiscal sustainability. Daily wage earners will be hit the hardest. Remittances will significantly decrease, impacting both forex reserve and the livelihood of those who rely on it. The informal sector, which makes up nearly 70 percent of the national economy according to same estimates, has stopped functioning.

Against this bleak backdrop, the government seems the least concerned and ill prepared to handle the corona fallout. Worryingly, the Ministry of Finance does not seem to have a clue about how to move ahead. It is not having necessary dialogues with development partners, it lacks detailed analysis and insights on what’s happening, and it has failed to undertake a rapid assessment of the economic impact of Covid-19.

Dr. Khatiwada can always argue that even the best of government plans failed in tackling the virus, just as has happened in far more developed countries. But this will be a lame excuse even as the economy teeters on the edge. Let’s hope people won’t have to start dying for the government to come to its senses.

The government of Nepal has announced a relief package to ‘help’ people deal with the economic fallout of Covid-19. But the relief package is not based on any principle, nor is it clear how it will help those in need. Further, the government has no clarity on how these expenses will be covered in the face of a looming fiscal deficit. So far, the economy has been hit by a nationwide lockdown and the fear of greater number of infections. There will be more severe impact on people’s daily lives the longer the lockdown continues

Finance Minister Yubaraj Khatiwada has said the economic growth rate will come down by a percentage point if we come out of this crisis by mid-April. That is hard to believe given that almost all businesses have come to a halt including in manufacturing, tourism, retail, and agriculture sectors. As India has declared an absolute three-week lockdown, the possibility of getting Nepal’s economy back into operation before India’s is low. Against this backdrop, the government should be clear on what people might have to go through in the coming days and months—if not years.

History teaches us that epidemics, forget pandemics of this scale, can lead to the rise and fall of nations and civilizations. Take the smallpox epidemic of 1526 in the then New World, the present-day United States. Atahuallpa was then the absolute monarch of the largest and most advanced state in the New World, and yet he was easily defeated by the Spaniards under the leadership of Pizarro.

The epidemic killed off the Inca emperor Huayna Capac and most of his court and then his designated heir, Ninan Cuyuchi. Those deaths precipitated a contest for the throne between Atahuallpa and his half-brother, Huascar.

The Spaniards exploited these divisions and they colonized the New World. Jared Diamond, the author “Guns, Germs and Steel”, argues that had it not been for the epidemic, the Spaniards would have faced a united empire that would have been much more difficult to defeat.

Fast forward to today, and we might have to face coronavirus challenges that we cannot foresee. But Nepal government has not done anything to prepare us for those trying times.

Compared to the fight against earlier pandemics, the fight against Covid-19 is relatively easier given the level of technological advancement today. Nepal has been able to benefit from these technologies thanks to globalization and technology transfer. But with the fear that the globalization could soon be in a retreat and countries could become more inward looking, Nepal should prepare to fight the multi-faceted challenges to its economy, politics, and society. There are clear signs that poor countries will get poorer as they won’t be able to manage the crisis with right fiscal and monetary tools.

Nepal’s economy is heavily dependent on remittances and foreign aid, along with agriculture. Even if the world emerges from this crisis relatively early, there will be significant disturbances on both remittances and foreign aid to Nepal. In that case we will be heavily dependent on agriculture. But then even agricultural tools have to be imported from India. This is why it is important to take daily stock of our economic situation, which could be a preliminary basis for future planning.

The relief package appears to be a political slogan of a distributive government. It doesn’t specify the ‘who’, ‘when’, ‘how’, ‘why’ and ‘under what terms’ of the package. There is thus a risk of the relief package being politicized and being diverted to party cadres. Nepal might be doomed to face a new kind of colonization if we don’t together fight the government recklessness at the time of this crisis.

Coronavirus is yet to enter Nepal (or so we are told). But the virus is already having a huge impact on the Nepali labor market, hitting those who rely on daily wages for bread and butter the hardest. Seemingly, the Nepali economy is agriculture-driven, as it accounts for 65 percent of our GDP. In reality, the economy’s real backbone is remittance, which has been badly affected by the spread of coronavirus in most destination countries for Nepali migrant workers. This will result in great damage, and not just in the labor market.

Yet the effects on the labor market will be the most disturbing. Many of the affected workers will be from the bottom of the wage spectrum, and a layoff or reduced hours in different industries could even lead to a broader financial crisis. Tourism is estimated to lose Rs 40 billion as 60 percent aviation fleet is grounded as of now. There has been a loss of around Rs 450 million in mountaineering permits. Hotels have 10 percent occupancy, which might eventually hit zero if the virus spreads here. Likewise, there has been 50 percent reduction in road transport and even those travelling are keeping themselves away from consuming goods and services. 

Most striking, 50 percent share of remittance to Nepal could be blocked due to the ban on entering destinations such as Qatar, Kuwait, Bahrain, Saudi Arabia, South Korea and Japan. In other words, around 15 percent of our GDP will take a direct hit. 

The fears from the coronavirus contagion have been growing ever since the WHO declared it a pandemic on March 11. The coronavirus could even be present in at least some quarters in Nepal. With significant disruptions in global supply chains, there has been an increasing tendency to hoard goods in Nepal, especially essential items. This mostly harms those without the capacity to purchase more than they need for a day. The government doesn’t seem keen on ensuring their basic food supply. 
Moreover, as Nepal is also closely integrated with China’s supply chains—just think of all the Chinese goods we use—the disruptions will be greater the longer the coronavirus pandemic persists. 

Against this backdrop, it is critical that Nepal learns from the policy measures China has taken to combat the crisis. It has come up with tax relief for small businesses and individuals; subsidies for those returning to work quickly; rent relief and wage subsidies for slow businesses; and accelerated local bond issuance for infrastructure spending. On the monetary front, China has cut the Reserve Requirement Ratio (RRR) for banks and injected liquidity. It would be wise to think about replicating these policy tools as the Nepali economy is also vulnerable to an outbreak.  

Some forecasts indicate there is a good chance non-performing loans will rise across Asia, and in Nepal. This will be first linked to service industries such as travel, tourism, and hospitality. But much will depend on how the government uses fiscal policy to support them through easier access to credit, delayed interest payments, lower taxes and rent, and wage subsidies to see the businesses through the worst times. 

The fate of our economy hangs in the balance. It is vital that we have a full-proof strategic plan to deal with a likely corona crisis. For a start, the Ministry of Finance should come up with multiple strategies to deal with different economic scenarios and to support those below the 
poverty line. 

The Ministry of Finance has tabled five bills in the parliament for endorsement in the winter session. The Bill to Amend Nepal Rastra Bank (NRB) Act 2001, the Bill to Amend Securities Board of Nepal Act (SEBON) 2006, the Bill to Amend Bank and Financial Institution Act (BAFIA) 2017, the Bill to Amend and Unify Public Debt Management Act 2002, and the Bill to Amend and Unify Insurance Act 1992—are all supposed to be discussed and subsequently approved by the parliament, which may or may not happen in the upcoming session. These bills, once endorsed, will determine the fate of the country’s financial sector. But that’s not the point I want to make here.

The question I am more interested in is: was there sufficient discussion before the bills were submitted to the parliament? And do we have a culture of wider discussion and consultation on proposed legal changes?

One of the proposed amendments on BAFIA will make commercial banks seek Nepal Ratsra Bank (NRB) approval for the appointment of new chief executive officers (CEOs). This is highly problematic as the provision may turn commercial banks into recruitment centers for party cadres who could be appointed as per the discretion of the NRB governor. Put differently, the governor will be a puppet in the regulatory body’s chair to ensure the recruitment of politically loyal people in commercial banks.
This in turn results from the practice of appointing the NRB governor based on political loyalty rather than merit. The rationale behind the new BAFIA provision, as the proposed bill explains, is to ‘get the approval from the NRB’. This doesn’t explain anything.

Now let’s evaluate the broader ecosystem of public discourse and platforms. BFIs are supposed to take the initiative for wide public policy discourse, but such a culture is almost non-existent in Nepal. The reason is a widespread assumption they can easily get their job done by exploiting the unhealthy nexus between politicians and businessmen. Also, the government of Nepal has developed the Financial Sector Development Strategy (FSDS) 2017 with a slew of proposals to improve the country’s financial market. But the results are not in line with the broader goals due to lack of consultations.

This is where sector-wise think tanks should intervene. Unfortunately, our think tanks too have the challenge of competing for donor money. The private sector doesn’t see any value in supporting public policy discussion. After all, powerful politicians and businessmen are the promoters of most BFIs. In the absence of enough funds to conduct research and provide a platform for robust discussions, these bills will continue to appear out of nowhere. At most, they will be drafted by a coterie of bureaucrats sitting in Singhadurbar, who invariably look at these issues with prejudice.

There is no rule of thumb on how much regulation is right to ensure financial sector stability. Globally, there are equally powerful arguments on both the sides—whether regulation should be iron-fisted or if the market should decide everything. Financial crises keep surfacing in countries with either system.

At the country level, we must develop a culture of discussing and generating multiple ideas by investing in research and publications via think tanks. Private funding on think tanks also carries an associated risk of producing biased reports. But it is nonetheless necessary for a vibrant public policy discourse. The legislative complexity rises exponentially when the size of the economy grows, and we must be ready for wider discussion to let the financial sector flourish. It’s the responsibility of the private sector to contribute to the discussion, not just seek short cuts .

The author is an economist. 

 The government attitude to one of the three pillars of the economy, the private sector, has been disappointing. There are efforts to limit the role of the private sector even though there is a need for effec­tive partnership between public and private sectors to achieve our larger economic goals. Even government estimates show that the private sector’s contribution is crucial to the timely achievement of the Sustainable Development Goals (SDGs).

Full liberalization of the econ­omy and enhancement of the capacity of the private sector have failed due to policy inconsisten­cies of the past three decades. The expectation that a stable gov­ernment would result in policy clarity and a consistent approach in dealing with the private sector has not been met. Riding on a capitalistic horse to reach the des­tination of ‘sound communism’ is questionable. The Nepal Commu­nist Party (NCP)-led government clearly doesn’t consider the pri­vate sector a formal partner for economic development.

A Swedish Finance Minister was once asked by Joseph E. Sti­glitz, a Nobel Prize winner econo­mist, why his country’s economy was doing so well. The answer: “Because we have high taxes.” What he meant, as Stiglitz inter­prets, is that Swedes know that in a prosperous country there is a high level of public expendi­ture on infrastructure, education, technology and social protection, and that the government needs revenues to sustainably finance these expenditures.

Many of these public expen­ditures complement private expenditures. Advances in gov­ernment-financed technology can help support private investment. Investors rely ever more on edu­cated labor force and good infra­structure. Central to rapid growth is an increase in knowledge, and the government has to support the underlying basic research. But no such effort is seen in Nepal although the tax rate here is much higher compared to other coun­tries in the region. A huge amount of revenue collected goes in recur­rent expenditure and there is a dearth of quality investment in education let alone in research and development.

I cite this example as it comes from an economist who recom­mends increasing the size of the public sector with higher taxes. But even such scholars agree on the basic premise that the mon­ey collected by the government should be spent to advance key aspects of the economy. Finance Minister Yubaraj Khatiwada, con­sidered a champion of the wel­fare economic model, issued a White Paper at the start of his tenure to show the pathetic state of the economy back then, and promised that he would attempt course-correction. Many trust­ed him, including this scribe. But two years down the line, the economy has not found its way and the private sector has lost its confidence.

Forty years ago, when China began its transition to a market economy, no one could have imagined that the impoverished county would have a GDP com­parable to that of the US in under half a century. The Communist Party of China (CPC) didn’t just sit by idly deregulating the market. It also devised well-crafted policies to incentivize the private sec­tor to grow and compete against their counterparts from other developed countries.

In the context of Nepal, the NCP government should be mindful that the referees them­selves do not end up playing the economic game. Nor should the game’s rule surprise the players. A formal private sector always looks for policy reforms to gen­erate growth and job opportu­nities. It is the government’s job to facilitate a public-private dia­logue and draft policies to boost private sector enthusiasm in nation-building

Province 5 is gearing up for an Investment Summit in next few months to attract domestic and foreign investment into provincial level infrastructures and to finance other development works. But the federal government’s laws on for­eign direct investment (FDI) give the Department of Industry (DoI) full authority to decide whether to let provincial governments process any foreign investment. The fed­eral government alone needs $15 billion a year in investment to meet infrastructure gaps, and struggles to keep up with the demands of the provincial and local governments. Yet despite the dire financial need of local and federal governments, there is no conducive environment for investors. Unfavorable regulatory envi­ronment, lack of infrastructure and absence of credit facility are major hindrances for the country’s small and medium enterprises. Large infrastructure projects face even more complex challenges such as in availability of land and long-term financing mechanism. Although the World Bank’s new Doing Business Index has por­trayed Nepal as a better destina­tion for investment compared to some earlier years, actual invest­ment is minimal. The FDI inflow in 2018/19 was around $130 million, or 25.7 percent less than previous year. Overall non-farm enterprise growth in the country is bleak. Yet Nepal has still been ranked 94th in 2020, almost 16 positions up from last year’s position among 190 countries ranked.

Government efforts to attract FDI and engage private sector to develop infrastructures seem mostly ritual­istic. The Ministry of Finance, and especially finance minister Yubaraj Khatiwada, made possible the For­eign Investment and Technology Transfer Act (FITTA) 2019 and the Public-Private Partnership and Investment Act (PPPIA) 2019. These bills were major ‘showpieces’ during the March 2019 investment summit. But the summit organized to present Nepal as a favorable global invest­ment destination has yielded almost no fruit. Nepal’s competition is with countries such as Bangladesh, Kenya and Philippines, which have made significant strides in terms of attract­ing FDI.

Implementation is always a criti­cal hurdle in Nepal. The PPPIA aims to make Investment Board of Nepal (IBN) more functional by dividing it into investment and PPP units, in order to more efficiently manage pure investments and PPP activi­ties. But the government has shown no interest in this pragmatic mea­sure. Only endorsing bills won’t be enough to get more FDI if the acts cannot be implemented.

Engagement of domestic private sector in infrastructures and invest­ment in services is also limited as the government perception of property rights is negative. Finance Minister Khatiwada’s remarks on imposition of property tax while transferring inherited property has played a role in keeping the private sector away from economic activities. Overall performance of the economy might seem healthy as our growth figures are above the average of the past one decade. But the non-farm enter­prises growth is declining and con­tribution of manufacturing sector in GDP is decreasing.

It is a challenge to attract invest­ment given the long list of indus­tries and businesses restricted for foreign investment. Moreover, lack of institutional coordination and communication among institutions such as the Department of Indus­try (DoI), the Nepal Rastra Bank (NRB) and the IBN creates further hindrances for foreign investors. Similarly, undermining the merito­cratic process in appointment of top leaderships of such institutions has direct impact in undermining insti­tutional good governance. In the absence of institutional good gover­nance within key organizations, the process of attracting foreign invest­ment and engaging private sector remains hamstrung. Having a team of weak negotiators on the other side of the table is a waste of time for genuine investors.

In the federal context, provin­cial and local governments should be allowed to attract investment without any intervention from the center, and these provincial and local governments should also be empowered to manage small to medium size foreign investment. Similarly, the government decision to increase minimum FDI threshold from $50,000 to $500,000 has sig­nificant implications on FDI inflow. This policy hurts small and medium enterprises (SMEs), which have been a major driver of Nepal’s service sector. In fact, the contribution of service sector, almost 57 percent of the economy, has been increasing in the past one decade. Against this backdrop, the government should revisit its new FDI cap O

The author is an economist