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Modern governments have a primary duty and obligation of providing social protection to their citizens.  Governments around the globe make budgetary allocations for this purpose every year. 

There is a huge gap across regions and countries with respect to budgetary allocations and coverage of population. Europe has the highest level of social security expenditure (nearly 25  percent of its GDP), followed by 21 percent in OECD, 16.6 percent in North America, seven percent in the Asia-Pacific and 4.3 percent in Africa. In sub-Saharan Africa and South Asia, social security coverage ranges from five percent to 10 percent of the population. Middle-income countries have social security coverage ranging from 20 percent to 60 percent of their respective populations, whereas in developed countries the coverage is nearly 100 percent. In the Asia-Pacific, social security schemes cover 44.1 percent of the total population of the region. 

Neighboring countries are ahead of Nepal with respect to coverage of people under social security. China has medical insurance coverage for 95 percent of its population whereas India and Bangladesh have 24.4 percent and 28.4 percent of their populations under their social security nets. But Nepal has a paltry 17 percent of its population under different kinds of social security programs. 

It is important to note here that the expenditure on social security exceeds capital expenditure in Nepal because of a low coverage of its population under social security. A trend over the years shows that the government expenditure on social security exceeds capital expenditure. This was evident in the fiscal 2021-22 and 2022-23, for example. Expenditure on social security in 2021-22 was Rs 252bn whereas capital expenditure was Rs 216bn. Fiscal 2022-23 saw a similar trend whereas in the fiscal 2023-24, Rs 253bn and Rs 234bn have already been spent under the topics of social security and capital expenditure, respectively. 

Both expenditure on social security and capital expenditure are important for Nepal’s entry into the club of middle-income countries, which is easier said than done. If Nepal desires to join the grouping of middle-income countries, its capital expenditure should exceed expenditure on social security. 

This is because capital expenditure helps increase production and productivity of the whole population, which are crucial for achieving targeted economic growth and creating employment opportunities for the masses, thereby driving the country toward prosperity and sustainability. 

Capital expenditure in Nepal leaves much to be desired as most of our rural and urban roads, which are muddy and dusty, show. Air pollution is high in the Kathmandu valley not because of the presence of industries but because of unmanaged traffic movement along highly-congested and dusty roads. Blacktopping these roads means spending capital. 

But funds for such works are hard to come by  with an increased focus on social security for targeted sections. 

Capital expenditure helps create employment opportunities for the masses, including the poor, the downtrodden, unskilled, semi-skilled and skilled youths, among others. 

Whereas expenditure on social security helps increase the consumption of targeted people such as the poor and the downtrodden, elderly citizens, malnourished children and single women. Of course, both capital expenditure and expenditure on social protection are primary duties of a modern government. 

While social protection is a must, it cannot be a substitute for capital expenditure. Thus, it is necessary to maintain discipline while spending money. Transfer of funds from one purpose to another is a common practice of the government of Nepal. 

Summing up, a government committed to social welfare and conducting development activities for sustainable economic growth must make rational decisions when it comes to spending its hard-earned capital.

Our economy is not in the best of shapes as relevant indicators suggest. 

According to the macroeconomic report of ADB, the GDP growth rate was 1.9 percent in 2023, which is lower than the average growth rate of the current decade. Agriculture and manufacturing sectors are going from bad to worse, a far cry from the times when both sectors were booming. In 2023, the growth rate of the agriculture and the manufacturing sector was 2.7 percent and 0.6 percent, respectively.

The country is importing food and grains to meet a growing demand, in urban areas as well as in villages. This points at a large scope for growing crops for consumption in villages, mainly in the hills where farmlands have been lying barren for decades. Reviving the farm sector will require structural transformation through the use of modern methods, including enough investment and incentives.

Despite deepening dependencies, a mid-term evaluation of the budget and monetary policy for the fiscal year 2023-24 shows economic indicators on a positive trend. Among others, Nepal has reasonably healthy foreign currency reserves, providing some relief to the government. 

There will surely be differing views vis-a-vis comfortable forex reserves, but I think it will have stronger negative effects than positive ones. In all likelihood, excess forex reserves will raise both liquid and total debt, pull interest rates down, cause a decline in consumption and move labor to tradable sectors from non-tradable ones.

In this context, it will be relevant to put forth some of the findings of the fourth living standard survey. 

Per the survey, the last 12 years have seen a meager reduction in poverty. 

Estimated on the basis of threshold per capita per year income of Rs 19,261, a quarter of the population (25 percent) was under deprivation in 2011. On the contrary, the poverty rate is being calculated on the basis of the threshold per capita income of Rs 72,908 per year in 2023. This level of income was considered as the minimum income required to fulfill basic needs of the people such as food and non-food items. On the basis of this threshold income, the poverty rate has come down to 20 percent, a  paltry 0.16 percent reduction in 12 years. 

Per the survey, Far-Western and Gandaki provinces have the highest (34.16 percent) and lowest (11.88 percent) poverty rates, respectively. Also, poverty runs deeper in rural areas than in urban areas. The poverty rate in rural areas is 24.66 percent against 18.34 percent in urban areas, according to the findings of the survey. These data stress the need for serious efforts to reduce poverty, which is pervasive and deeply-rooted.

Notably, there is a significant change in consumption expenditures between the third and fourth living standard surveys.The average expenditure on consumption of nonfood and food items was 38 percent and 62 percent, respectively in the third survey. It stands at 47 percent for nonfood items and 53 percent for food items in the fourth survey, showing that people have increased consumption expenditure on nonfood items compared to food items over 12 years. The household consumption expenditure as percentage of GDP in 2023 was 88.2 percent while the same was 85 percent  in 2011, an increase of 3.7 percent. It reveals that Nepal has consumed all of its income rather than making long-run investments for achieving sustainable development goals.

In 2011, remittance inflow stood at $4.22bn while in 2023 it swelled to $9.3bn, marking an increase of a whopping 120 percent in 12 years. In 2011, remittance’s contribution to Nepal’s GDP was 19.54 percent, which soared to 22.7 percent (an increase of 16.1 percent) in 2023. During the 12-year reporting period, the poverty rate has come down to 20 percent from 25 percent. 

Apparently, remittance inflow is behind a marginal reduction in poverty and increased forex reserves. 

Without a doubt, a constant inflow of remittances over the past 2-3 decades has been keeping the Nepali economy afloat.

Beginning 1956, Nepal has had 15 periodic plans, or five-year plans. The 16th plan (Fiscal Year 2024/25-2028/29) is set to commence, with the slogan of good governance, social justice and prosperity. It has set a priority of achieving prosperity for the great majority of people.

Nepal has neither had good governance nor social justice for decades. In the absence of good governance, corruption, bribery and smuggling are rife from the center to the local level. Social, political and economic inequality is rising. Prosperity has become a hollow buzzword, a slogan to impress a layman.

The 16th five-year plan has given utmost priority to develop hydropower. Nepal possesses hydropower potential of about 45,000 megawatts, which surpasses the domestic need. In other words, Nepal stands at a good position to export electricity. Export market of electricity is large, viable and positive. Considering the wider scope of export to neighboring countries, the upcoming periodic plan has set a target of producing electricity to the extent of 11,769 megawatts in five years. Half of this will be exported to India, Bangladesh and China. However, there are no ready-made transmission lines for export electricity to China or India or Bangladesh. Nepal aims to conduct a bilateral trade treaty with India, China and Bangladesh to export electricity on a large scale. Subsequently, it also sets a plan to construct and expand in-country and inter-country transmission lines. Currently Nepal has an electricity output of  2,855 megawatts, of which only a tiny part is exported to India seasonally. There is a larger possibility to export electricity to Bangladesh, provided India grants the permission to use its transmission line.

In the previous fiscal year, 98 percent of the total population had access to electricity. The 16th five-year plan aims to cover the rest of the population with electricity. Similarly, the plan has set a target of reducing electricity loss from 13.46 percent to 10.80 percent. Within the plan period the per capita electricity consumption will increase from a mere 380 KWh to 700 KWh. This sector aims to create job opportunities for 0.4m people. Currently it provides employment to less than 0.1m people. 

In order to realize its hydropower ambitions, Nepal requires a huge amount of money. For this, the government plans to mobilize internal and external capital, both from the public and the private sector. Private sector producers can construct hydropower projects in partnership with foreign investors. They can also export electricity to India and elsewhere on their own initiative. Similarly, the government will grant permits for particular projects to develop for foreign investors under the model of build, own, operate and transfer (BOOT) system.

This shows that internal as well as external capital would be poured to develop this sector to meet the target of generating electricity in the plan period of five years. It definitely helps to create jobs for those who are unemployed, and provides opportunity for both unskilled and skilled manpower. Electricity is essential to increase production capacity of other economic and social sectors such as manufacturing, agriculture, tourism, health, education and the rest of the sectors of the Nepali economy. Along with this, investment in equal footing for all of these sectors to develop side by side is essential. However, hydropower is a capital intensive sector. It requires a huge amount of money to develop. This sector would attract more internal and foreign investment to meet the growing demand of electricity in both the domestic and foreign markets. Resources in hand could be diverted for the development of the hydropower sector. But if this approach is continued over a long period of time, there is a risk of the economy losing its balance. Overemphasis given to allocating resources to develop this sector could harm the overall economy. The rest of the sectors of the economy will suffer and paralyze badly in the absence of due attention and adequate investment. Production and productivity will diminish. Supply chain will be broken. Supply of essential goods will depend on the import and in turn import depends on the income generated through electricity export. It would create the gravest effect that the Nepalese economy has never seen. So it is crucial to aim for a uniform growth of all key sectors, rather than pouring all the resources and capital into one sector.

The agriculture sector, the backbone of the Nepali economy for eons, has been receiving less attention than it deserves. The industrial sector has not been flourishing, either. The private sector is mainly involved in risk-free and unproductive ventures such as real estate and auto business sectors whereas the public sector remains mired in corruption, bribery and smuggling scandals. 

Thanks to the lack of stability, the economy has not even taken off with potential economic sectors capable of boosting the economy unexploited. Reeling under unemployment, an increasing number of people have been leaving the country over the years.  

It can be surmised that a majority of the 0.75m people, who left the country in the fiscal 2022-23, did so in search of employment opportunities. Their destinations included countries in the Middle East such as Qatar, Saudi Arabia, the UAE and Israel, and Malaysia, Japan and South Korea in East Asia. 

According to estimates, about 50,000 Nepali people migrate to developed countries annually for permanent residence. In 2023, 1.6m people flew abroad for different purposes, including for permanent settlement in developed countries like the United States, Australia, the United Kingdom and Canada. In 2022, according to the Immigration Department, 71,000 people flew out of the country for permanent residence. 

The migration of Nepalis to the United States started in the 20th century. In the beginning, the outmigration was nominal. For the first time in  1974, Nepali living in the US were categorized under a separate ethnic group with the recognition of 56 people as Nepali Americans, a marked shift from the practice of putting Nepalis under the Other Asians category.

Despite a surge in the number of migrants, not even 100 Nepalis used to migrate to the global superpower and economic powerhouse annually until 1996, the year Diversified visa (DV) program was launched in Nepal. Since then, an increasing number of Nepali people have been migrating annually for permanent settlement in the US.

According to  the Pew Research Center, the population of Nepali Americans in 2019 was 198,000, which reached 206,000 in 2020, marking a 4 percent increase in the Nepali population in the US. 

Among them, 78,000 are living in different metropolitan cities of America. Dallas is home to 15,000 Nepali Americans, followed by New York (12,000), Washington (10,000), San Francisco (7,000), Baltimore (7,000), Boston (6,000), Atlanta (5,000), Pittsburgh (5,000), Acron (5,000) and Chicago (5,000).

Nepalis with modest means dream of leading prosperous lives in America. While some are indeed growing rich, a majority of Nepali Americans remain under deprivation. The annual median income (which divides the people in two equal parts on the basis of income distribution above and below median income) of Nepali Americans is  $55,000, far less than the annual median income of all Asian Americans ($85,800) and the median income of all Americans ($68,000). 

Seventeen percent of Nepali Americans are living under economic deprivation, holding low-paying jobs. The percentage of Nepali Americans living below the poverty line is more  than the percentage of Asian Americans (10 percent) and of all Americans (11 percent) below the line. What’s more, only 33 percent of Nepali Americans have their own occupancy, while others are living in rented accommodations. Only 22 percent of Nepali Americans are college graduates against 30 percent Asian Americans. A majority of Nepali Americans are living in relative poverty, near poverty and absolute poverty.

There was a time when agriculture was the booming sector on which the livelihood of rural people depended. Returns were promising and increasing back then. 

In recent years, however, returns from this sector have been diminishing alarmingly despite encroachment upon forests,  pastures and marginal parcels for cultivation. Unable to make a living by relying solely on the farms, rural people have begun looking for alternatives. 

With youths leaving the villages in droves for abroad, farmlands have fallen fallow, mainly in hilly areas. Instead of agriculture, remittance is fast becoming the source of  livelihood for rural people.

Food imports have gone up in recent years, thanks to an increase in uncultivated land and increased flow of remittance resulting from a growing exodus of village youths. 

This article seeks to examine the factors turning agriculture into an unattractive sector and triggering youth exodus, and prescribes ways to revive the sector. 

The farmer needs a number of things to maximize returns from agriculture in this day and age. A large parcel of land, access to bank credit, irrigation facilities, a reliable supply of fertilizers as well as electricity and an easy access to the market are some of the prerequisites. 

But these things are hard to get in our country. Farmlands are shrinking, thanks to ownership transfer from one heir to another. Even these parcels are located in remote parts where it is quite difficult to apply modern methods of cultivation for improving both production and productivity.

With the aim of helping small farmers improve farm production and productivity, the government as well as banks have launched various microfinance schemes/programs. 

But even this intervention has failed to make meaningful changes in the farmers’ lives. First and foremost, these programs/schemes have failed to bring back the farmer into farming. What’s more, most of the beneficiaries have not been able to pay interest, leave alone the principal. Contrary to Nepal’s experience, Bangladesh has been implementing a similar program/scheme with great success. 

The way out

The need of the hour is to turn farmlands lying fallow into cultivable land and make Nepal a food-sufficient country by thinking albeit differently. 

The government in particular needs to take a number of steps, to begin with. 

First of all, it needs to go for community farming. 

How to bring parcels of land lying fallow under community farming? What should be the basis for cost and benefit sharing? 

Leasing could be one of the options. A group of persons, including entrepreneurs, can lease parcels belonging to a large number of land-holders by paying them a certain amount annually. Such groups can maximize both production and productivity in those swathes by employing modern methods of farming. This will enable food-insecure communities living close by to buy locally-grown foodstuffs at reasonable rates apart from giving sustainable agricultural practices a great boost. Large farms also mean jobs for members of local communities. All in all, such farms can bring great dividends to rural Nepal. 

However, the government has to have political will to opt for community farming. First and foremost, it needs a huge budget to lease parcels of land before leasing it out to large-scale growers. Also, the government needs to invest in the development of necessary infrastructure and provide legal, technical and financial support to the growers. 

At a time when farmlands are shrinking, the government needs to move ahead with a sense of urgency if it is serious about averting a grave food crisis. 

Nepal, predominantly characterized by its hilly terrain, with hills covering 80.7 percent of the land, boasts numerous valleys and lakes, resembling natural view towers.

During my recent visit to Los Angeles, situated at the foothills of California, specifically Norwalk and Riverside, I marveled at the landscapes. Riverside, nestled at the base of hills, offers well-constructed trails that allow people to ascend and enjoy panoramic views of various cities. From atop one of these hills, I beheld the picturesque landscapes of Riverside, Moreno Valley, San Diego, Ontario, Los Angeles, and beyond. These cities, surrounded by hills on one side and the Pacific Ocean on the other, create a captivating spectacle.

Similarly, in Nepal, regions such as Kathmandu Valley, Pokhara, Surkhet, and Dang are embraced by hills, presenting a tremendous opportunity for the tourism industry. Nepal has the potential to develop trails providing access to these hills. By investing in road construction and cable cars, millions of visitors could be enticed to explore these elevated terrains. The breathtaking views of cities and the Himalayas from these natural view towers can be a significant attraction, much like the view towers of southern California. Constructing hiking trails on these hills can be achieved at a minimal cost, exemplified by the natural view towers in Pokhara, offering stunning vistas of the lake city.

However, the challenge lies in the lack of awareness and vision among Nepali rulers and decision-makers regarding how and where to allocate scarce resources. Random decision-making appears to be the norm, with little role for expert input. Political leaders often operate with self-interest, leading to decisions that benefit a select few. The absence of a coherent national agenda for development is evident, and questioning the actions of political parties seems futile.

Nepal can draw inspiration from iconic landmarks like the Hollywood Gate, which serves as a view tower for Los Angeles. Similarly, a hill in San Diego, housing an army camp, functions as a view tower offering stunning perspectives of the city and the Pacific Ocean.

Nepal is in a learning phase, acknowledging imperfections and seeking improvement. While mistakes are inevitable, the ability to learn from them is paramount. The prevailing egoism among rulers takes precedence over self-sacrifice, a fundamental quality for fostering a healthy and prosperous economy. Unfortunately, self-interest permeates Nepalese society, giving rise to nepotism, favoritism, and corruption. Policy decisions often legitimize these practices, hindering positive progress.

In contrast to constructing view towers, Nepal could invest in an eight-foot-wide road along the hills, facilitating trekking to hilltops. Redirecting resources from constructing towers to building footpaths around the hills of Kathmandu Valley could create a network of accessible viewpoints. Numerous spots could serve as small view towers, allowing people to appreciate the scenic beauty of the Kathmandu Valley hills. This strategic approach could offer a more sustainable and immersive experience for both locals and tourists.

After the restoration of multiparty democracy in 1990, Nepal has been taking steps toward hydropower generation. The 1990s saw efforts aimed at developing the Arun III hydropower project for domestic consumption with the World Bank pledging a loan for the same.

However, certain quarters, in favor of developing small hydropower projects over ‘big ones’, stood in opposition, in a pointer that the environment was not conducive for the same. Eventually, the World Bank withdrew its financing program for the project. 

Fast forward 2023. Per reports, India is on the verge of completing the export-oriented Arun III project. Most of the green energy generated from this project will be transmitted to India while Nepal will get a tiny fraction.  

China has also shown interest in hydropower generation in Nepal, but not with much success. 

In the 2010s, construction of the Upper Trishuli hydropower project was set to begin with investment from China’s Exim Bank and in cooperation with Nepal Electricity Authority. The Chinese company, which had completed one-fourth of the project works, abandoned this project altogether after facing obstructions in the name of capacity expansion. The capital invested in developing project components has gone waste. Currently, South Korea is showing interest in developing the project under the build, own, operate and transfer (BOOT) model. If geopolitical interests do not prevail, this project can still materialize. 

In cooperation with the Asian Development Bank, Snowy Mountain Engineering Corporation was to develop a 750-MW West Seti hydropower project. As the project remained stuck for long, the government canceled the license awarded to SMEC and picked China Three Gorges Corporation for project development, but to no avail. Now, an Indian developer has bagged this project without bidding. 

In 2017, the then government granted the China Gejuwa Group Corporation the license for developing the Budhigandaki hydropower project without opting for competitive bidding. But the new government that came to power the same year canceled the license. Now, the Pushpa Kamal Dahal-led government is trying to develop this 1200-MW project by mobilizing internal and external technical and financial resources. 

Despite its failure to bag big hydropower projects, China has two hydropower projects with a combined capacity of 75 MW—Modi and Upper Marsyangdi—in its hands. The BOOT-modeled 50-MW Upper Marsyangdi has materialized, whereas the 25-MW Modi hydel is under construction. A Chinese company has already developed the 456-MW Upper Tamakoshi hydel, while India is developing the 900-MW Arun III hydel.

Recently, India has expressed its ‘commitment’ to importing 10000 MW from Nepal in a period of 10 years while making it clear that it will not import electricity from projects developed with Chinese involvement.

It should be noted that India bagged the lucrative West Seti project after China opted out. West Seti is not an isolated case. The southern neighbor has gotten hold of a number of other attractive hydropower projects like SR-6, Arun IV and Lower Arun. It seems India wants to bag all lucrative hydropower projects by imposing direct or indirect restrictions on Chinese involvement in hydropower generation in Nepal. In this context, it may be worthwhile to recall Chinese ambassador Chen Song’s observations about trade imbalance between Nepal and India.  

Chen,  while commenting on a working paper presented at a program in Kathmandu last month, had noted that Nepal had exported electricity worth Rs 10bn to India in the last fiscal, while importing electricity worth Rs 19bn from India during the same period.

Three decades have passed since the signing of the Mahakali Treaty along with a plan for the development of the Pancheshwar project, with precious little done on the ground. 

This pretty much sums up the status of hydropower development in the country.

The recent economic meltdown in Nepal began after the outbreak of Covid-19. The Russia-Ukraine war has made it worse. Amid questionable claims about the economic recovery, the government has not been doing much to address this crisis even as both imports and exports decline, taking a toll on revenue collection. 

In the name of doing something, the government is taking huge loans to cover up the expenses, causing a surge in debt from both internal and external sources. 

Worryingly, most of this debt services the unproductive sector while the masses remain deprived of daily necessities as if rampant corruption at every level of polity were not enough. 

Due to declining demands, industrial production has suffered as overall negative growth of the business and industries sector shows. While some of the businesses and industries have been operating at a loss, most of them have shut down. The meltdown in the productive sector, which employs a large number of people, means a steep rise in unemployment. 

Loss of jobs reduces people’s incomes and purchasing power goes down with it. Consumers do not even have money to buy the daily necessities, which means a decline in the demand for consumer goods. 

Banks, grappling with a liquidity crisis, are unable to provide loans to business, manufacturing, real estate and auto sectors. Construction works are getting delayed. Government revenue collection is declining and not enough even to meet the regular expenditure.

Meanwhile, the cost of manufacturing goods is going up, possibly due to a rise in the cost of labor and raw materials. When the price of a commodity increases, its demand falls. At the time of falling demands, businesses and industries cannot sell their products by lowering their prices. If they do so, they have to bear huge losses. In a similar manner, a shortage of goods in the market can push their prices up. 

When consumers cut expenses, the revenue of business and manufacturing establishments dips, negatively affecting production and productivity. Such a scenario can cause inflation, which Nepal is facing already. While banks are raising interest rates, business establishments are not taking loans. This means that recession has set in.

The consumer price index (CPI) is rising with prices hitting a new high as latest data from the Nepal Rastra Bank (NRB) show. In the fiscal year 2021/22, , CPI stood at 6.32 percent, while it climbed to 7.74 percent in FY 2022/23. 

Data from the central bank suggest that both export and import have been declining over the years. The imports stood at Rs 19bn and Rs 16bn in FY 2021/22 and 2022/23 respectively, while the export figures in both the fiscals were almost the same. These declining figures also mean that the trade deficit has gone down. In the FY 2021/22, trade deficit was Rs 17bn it came down to Rs 14bn in FY 2022/23, narrowed down by Rs 3bn. 

A deficit balance of payment in FY 2021/22 by Rs 3bn has been turned into surplus by the same amount in FY 2022/23. Evidently, the foreign exchange reserve has increased from Rs 12bn in 2021/22 to Rs 15bn in 2022/23. Export and import are the major sources of government revenues. Plummeting government revenues can affect the government’s capacity to spend, taking a toll on development activities. This means a government has to take loans even to cover daily or monthly expenses.

Nepal is not self-reliant even in food production. It has to import on a large scale to feed its citizens. India has banned the export of paddy in recent days. The government is in a rush to request India to supply rice to Nepal even as millions of hectares of farmlands remain barren both in the hills and the Tarai Madhes, mainly due to the absence of irrigation facilities and a shortfall of human resources, among other factors. With farmlands lying fallow, the share of the farm sector to GDP has been declining over the years. Improvement in the agri sector is a must also for sustainable development.

Industrial activities are melting down. Agriculture activities are also on a downward trend and so are business activities. Clearly, the Nepali economy is unwell. 

 Which sector has been playing an active role even in this grim scenario to keep the economy afloat? 

There is only one sector, which has stood as a source of livelihoods for the Nepali people and that is the foreign employment sector. A large number of Nepali youths are migrating in search of livelihood of late. They are sending increasing amounts of money to their families living in Nepal. In FY 2021/22, Nepal received Rs 10.7bn in remittances, while in the FY 2022/23, it received a whopping Rs 12.2bn, an increase of 21.2 percent. This proves that remittance is a major source of foreign exchange and livelihood for the Nepali people.