Development Issues and Practices

1. Development Issues and Practices Krishna Khadka

2. Session Coverage Development? Development indicators • GDP growth rate – issue very low growth rate and consequences • Poverty related issues – contribution of remittance at the HH level – 1/3 of GDP • Investment – government share and private share, FDI and role of development partners • Lack of proper identification of sectors for dev • Trade and BP - paradoxical development • Productivity – labour, land and capital (ROI) • Macro indicators largely OK – FM but reality is different – critical role of middle man (bichaulia) • Emergence of urban cities – provisions for facilities • Governance and institution building • Crux of the issue – leadership - drivers of the nation – manufacturers of constitutions Disaster: Recovery, rehabilitation and reconstruction PDNA selected opportunities

3. Development What is development? Changing meaning of development Emergence of new problem calls for new definition pre 1930s emphasis on growth post world war - structuralisms, dependency, etc emergence of environmental issue MDGs sustainable dev climate change Now emphasis on social development, inclusion, human rights, good governance, etc Krishna Khadka

4. Indicators Indicators variables that measure the changes or marker of change. basic features of indicators are: • Objective • Relevant • Sensitive • Specific • Independent • precise • Cost effective • Simple • Easy understand and timely Krishna Khadka

5. Growth rate of GDP The GDP growth rate of Nepal is very low. Over years it varies between 2.34 to 6 per cent of GDP. Between 2005 to 2014 it was 4%. Last year it was 4.6% and this year it is 3.4% (4.3%). Population growth of Nepal is relatively high. To create visible impact on the living of the people Nepal must have 6 to 7% of growth rate. Nepal expected to graduate by 2022 and inter group of middle income country by 2030. Requires at least 7 to 8% growth rate of GDP. Doubling present level of GDP (How to double the present level of GDP?) Big challenge (growth of developed coun1.8 in 2014 and 2.4 in 2015) Krishna Khadka

6. Cont… The composition GDP shows that Nepal is a traditional rural economy. As mentioned above the agriculture is the main producing sector in Nepal. However the growth rate of Agriculture sector is very very low – 1.9 % in 2014/15 While the growth rate of non-agriculture sector is only 3.6% per annum. • Industry sector 2.6% • Service sector 3.9 % Krishna Khadka

7. Income and Poverty Although the statistical achievement in poverty reduction is remarkable the reality may be different Reduced from 42 to 21% (23.8) (MDGs ) But 50% are just above the poverty line – vulnerable and a small event can push the population below the poverty line at any time Recent earthquack has pushed 3.5% of the total population below the absolute poverty line. 75 lakhs out of 3 cror is under absolute poverty line Within the last 4 – 5 years the remittance has reduced poverty by 11% But this is not solid basis of reduction vulnerable The poverty level can increased at any time Poverty level in Nepal is high one quarter of the population Krishna Khadka

8. Income and Poverty Population growth rate as compared to other countries is high 1.2% /annum (WB) Per capita income is also low as compared to other Asian Countries Per capita GDP in 2014/15 is US $ 762 The absolute poverty line of Nepal is Rs 18000?? (US $ 1.25) Degree of inequality of income is also high Poorest 20% of the population hold 8.3% of consumption/ income in 2013 (WB) Similarly the Gini Coefficient is 4.3 Recent earthquake, flood and land slide could have further deteriorated the situation The inequality must have increased Krishna Khadka

9. Cont… The World Bank has estimated that 7.5 million labour force is added in Nepal, annually. But Nepalese estimate is 5-6 million In the recent years no major industry has been implemented in Nepal Hence, virtually there has been no significant number of job is added in the Nepalese economy. Krishna Khadka

10. Dependent Economy Recently the remittance is Rs 2billion per day 30 % of GDP (1/3 of GDP) is contributed by the remittance Unfortunately a greater proportion - almost all used for consumption One study shows that 90% or the remittance is used for consumption Construction of houses in urban areas and expenditure on consumption specially conspicuous consumption It is not used for productive purpose – no investment on manufacturing sector or capital formation Krishna Khadka

11. Crux of the issue Political instability is the crux of the development issue Collusion government is the reason for the disturbances negative consequences in all sectors of the economy every Nepali can make a long list of problems related to the present government. not committed leadership another important reason not right leadership – basic objective is to grab power and collect resources – corruption – one of the most corrupted country in the Asian region no good governance state role on its regulatory and facilitatory is very week or virtually non existence of government government staffs are not neutral not committed the national building Krishna Khadka

12. Trade and BP International Trade is one of important aspect of development However the performance of the sector is quite poor The export earning can support the import of only one item that is petrol In 2003/04 import/export ratio was 39.0 and it is gradually declined and by 2014/15 it is 10.7 The volume of import is increasing – the demand for construction material is increasing as a result of the natural disaster and increasing demand for housing services in Nepal. Further the increasing volume of remittance increased the demand for construction materials Similarly the demand for petroleum products is increasing as a result of the increasing opening of the transportation services in different parts of the country. Krishna Khadka

13. Trade cont…. However the balance payment position of Nepal is very strong. Despite of continuous trade deficit Nepal has huge surplus foreign reserve/exchange Nepal has not been able to spend all the aid money. Donors pointed out the poor absorptive capacity of Nepalese economy. In many cases, Nepal has not been able to spend more than 50% of the donors allocated resources Again the productivity of the major sector such as the agriculture is very low It has been estimated that the Labour productivity of of Nepalese labour is the lowest in the Asia Pacific region. Similarly the ROI of the capital is very low. Krishna Khadka

14. Cont… In fact since the last of few decaded there has been no significant industry established in Nepal (only few consumer goods industries: cookies, confectionaries, noodles This implies the lack of capital investment, that is, investment in the fixed capital is virtually nil. Serious consequences – no production in the future With such low productivity the agriculture sector contributes 60% of labour force but in GDP it contributes around 33% Krishna Khadka

15. Cont…. The officially recorded inflation on the other hand is low - 7.5 % per annum • food inflation 9.5% • non-food is 4.5% However the ground reality is different. As mentioned above the country has not been able to produce more. Market is full of foreign goods especially Chinese products. If the cost of Nepalese product is Rs 2000 the same Chinese product costs Rs 1000 Process of rising price in reality is very high The economy is experiencing high inflation Considering these complexities World Bank characterized Nepalese developoment as Paradoxical Development Complex situation Krishna Khadka

16. Examp of govt Development effort – budget Weak program project implementation Lack of targeted program Institutional development silent Management of critical socio-economic challenges ignored: employment, trade promotion, energy, productivity, food security, social security and welfare Ambitious program that could be inflationary The economy will be overheated Krishna Khadka

17. Education and Development Education is main basis for development However the sector involves several problems • Education is not responsive to the market demand: unproductive education • Large number of students migrating for education • Loss of resources • The proportionate allocation of resources on science and technology is much lower than in many developing countries • This leads to the production of educated unemployed mass Krishna Khadka

18. Role of Private sector, NRN, CBO & INGO/NGO Private sector is suffering from number of problems (as mentioned in the previous slide). Despites of these private sector (including HH) contributes almost 70% of the GDP but it is not included in the national income account. Our GDP is underestimated • Budgetary provisions for promotion of private sector - no new tax, - VAT threshold increased from 2 to 5 million - job training for 50,000 workers - tax relief for earthquake affected areas and business - incentives for export oriented products - high priority for infrastructure - involving private sector in electricity transmission lines construction Krishna Khadka

19. Role of Private sector, NRN, CBO & INGO/NGO However the participation of the private sector is very poor Commitments of NRN has not been materialized The efficiency of CBO and NGOs is questionable. INGOs are promoting their interest rather than serving people Krishna Khadka

20. Other Improtant Issues Formulation of Constitution Land locked is another Low capacity utilization rate of industries High cost economic - cost of production is high low level of demand for domestic products carteling in transportation and other services – corrupted government unable to control. Labour Stricks, band and hadtal disturbed the production units Loadseding all this increased cost of prioduction Strong trade union put pressure on project to increase wage and other facilities The productivity in the rural areas declined because of the outmigration and loss of active labour force. Krishna Khadka

21. Recovery, rehabilitation and reconstruction It has been estimated that the recent disaster – earthquake, landslide annd flood caused a total loos of $ 7065 million (about one third of total GDP) Social sectors: $ 4086m (58 %) housing (3505m), health ($75m), education ($ n313m), cultural heritage ($ 19.2M) Production sectors: $ 1781 (25%) Ag ($ 283m), Commerce ($ 169m), Industry ($ 192m) and Tourism ($ 812m) Infrastructure $ 668 (10%) Electricity ($ 210M), Communication ($ 87m), transport ($ 221m) water and sanitation ($ 114m) Other cross cutting: $ 529m (7%) governance (187m) and environment and forestry ($ 340m) Resource need for reconstruction $ 6695m How to manage big challenge Krishna Khadka

22. Nepal has not been able to promote its niche products Krishna Khadka

23. Selected Opportunities Abundant resources • Hydro, Ag, tourism and human resources • Neighborhood of large and growing economies • Can provid tourism services to the emerging middle income • Comparative advantages (trade and industrial policies) • 19 products identified as niche products Krishna Khadka

24. STATIATICS Remittance to GDP 27.7% (2014/15) Tourism income to GDP 2.2 Krishna Khadka

25. Thank you Krishna Khadka