Nepal still remains mostly an unfree economy: Heritage Foundation

February 18, 2017 10:38 AM Kuvera Chalise

KATHMANDU, Feb 18: Even though it has improved in ranking, Nepal still remains a mostly unfree economy, according to a report from an American think tank.

From its rank of 152, with a score of 51.2, in the Economic Freedom Index 2016, Nepal has jumped to 125 with a score of 54.1 in the Economic Freedom 2017 report published by The Heritage Foundation on Thursday.

“However, Nepal’s economy lacks the entrepreneurial dynamism needed for stronger economic growth and long-term development,” it said, adding: “Overall, weak reform efforts have failed to stimulate broad-based poverty reduction. The state continues to hinder private-sector development, and political instability further weakens the capacity to implement economic reform or create a stable development environment.”

Overall, the statist approach to economic management and development has been a serious drag on business activity, The Heritage Foundation said in its Index of Economic Freedom report. “Lack of transparency, corruption, and a burdensome approval process impede much-needed expansion of private investment and production. Property rights are undermined by the inefficient judicial system, which is subject to substantial corruption and political influence,” the report says.

It further added that property rights were not protected effectively in Nepal and it can take years to resolve property disputes. The law provides for an independent judiciary, but courts remain vulnerable to political pressure, bribery, and intimidation, it said. “There are numerous reports of corrupt actions by government officials, political parties, and party-affiliated organizations. Corruption and impunity in general are problems within the Nepal Police and Armed Police Force.”

The index measures 10 freedoms -- from property rights to entrepreneurship -- in 186 countries. The report says the top individual income and corporate tax rates in Nepal are 25 percent. “Other taxes include a value-added tax and a property tax. The overall tax burden equals 16.1 percent of total domestic income.” Government spending in Nepal amounted to 18.7 percent of total output (gross domestic product) over the past three years, and budget surpluses averaged 1.5 percent of GDP, it added. “Public debt is equivalent to 28.7 percent of GDP.”

Among South Asian countries, the report ranked Afghanistan (163), the Maldives (157), India (143), Pakistan (141) and Bangladesh (128) below Nepal (125), while Sri Lanka (112) and Bhutan (107) fared better. Hong Kong, Singapore and New Zealand topped the index which categorized 23 countries as repressed economies.

The report also noted that despite some progress in streamlining the process for launching a business, other time-consuming requirements reduced the efficiency of the regulatory system in Nepal.

“Nepal’s labor regulations remain obsolete, and underemployment persists. In the wake of the devastating 2015-earthquakes, Nepal has subsidized the rebuilding of homes, contingent on the use of earthquake-resistant methods and materials,” the report said.

Trade, the report says, is important to Nepal’s economy -- the value of exports and imports taken together equals 53 percent of GDP. “The average applied tariff rate is 10.9 percent. The judicial and regulatory systems impede foreign investment, and state-owned enterprises distort the economy,” it said.

The report also says that Nepal’s fragmented financial system remains vulnerable to government influence, and financial supervision is inadequate to poor.

The Heritage Foundation said in the report that economic freedom was a fundamental right and every human should have the right to control their own labor and property. “In an economically-free society, individuals are free to work, produce, consume, and invest in any way they please,” it said, adding: “In economically free societies, governments allow labor, capital, and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself.”

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