The ten-year Maoist insurgency and the prolonged state of transition since have hit the country’s economy hard. The resulting climate of fear and intimidation, constant political flux and concomitant economic uncertainties made Nepali youths look for employment opportunities in lucrative labor destinations abroad. This steady exodus, while it certainly deprived a poor country of vital human resources, also helped prop up a ravaged economy, over the course of last decade, through a double-digit annual growth in remittance. As a result—and as highlighted in the Economic Survey 2011-2012 released by Finance Minister Barsha Man Pun on Saturday—the current remittances/GDP ratio is a respectable 21.2 percent. The same survey shows that year-on-year per capita income has increased by US $26 (to US $742), again, largely owing to money pouring in from outside.
But the survey doesn’t paint a completely rosy picture. For instance, this year’s income growth is the smallest in three years. More importantly, the government has failed to meet its target GDP growth of five percent, despite a bumper cereal production. Nonetheless, we believe a 4.6 percent growth, under the current political uncertainties, should still be considered healthy. Likewise, the government missed the targeted inflation mark (seven percent) by a percent, all but wiping out the benefits of modest increase in per capita income. Economists reckon the biggest drag on the economy in past one year has been a declining industrial sector and slowing growth in remittance inflow. This seems to suggest Nepal needs to invest more in productive sector and infrastructure development and decrease its overreliance on remittances.
It is easier said than done. Take infrastructure. In the past one year, just 245 km of roads (and a paltry 15 km of black-topped roads) were added. The outlook for the industrial sector isn’t looking good either with the energy-strapped country adding a meager 7.8 megawatt of electricity to the national grid. Factor in the poor security situation, recurring strikes and bandas and growing militant unionism and the measure of the obstacle to shipshape the country’s economy becomes apparent.
The 2011-2012 Economic Survey thus makes a robust case for increased investment in infrastructure, particularly in vital areas for development like road and power. Moreover, in the years ahead, modest achievements in health in last one year (three new hospitals and 477 new health posts) and education (3,723 new schools) will need to be further consolidated. The slowdown in remittances is perhaps an indication that remittances might be peaking, which further buttresses the case for increasing revenue generation through internal sources.
But make no mistake: overcoming the huge obstacles towards creating a peaceful and stable political climate will undoubtedly be the country’s biggest challenge in the next few years. As things stand—the country is sans a legislature and a legitimate executive—unless there is progress on the political front, getting the country’s economy back on track looks like a tall order