Nepali economy, much like the country’s ailing politics, is in absolute mess. The government has revised down the growth forecast for the fiscal 2012/13 to 4.1 percent from the earlier predicted 5.3 percent, citing the absence of a full budget and weak capital spending over the first six months as primary culprits. Making the announcement, Finance Minister Barshaman Pun rued the failure to ramp up capital spending despite sufficient budgetary allocation for crucial projects under such fancy labels as National Pride Projects and Priority One (P1) projects. It had also arranged for matching fund for projects run with foreign assistance, but to no avail.
As things turned out, the government managed to spend only Rs 104.12 billion in the first half of the fiscal, which is a meager 29.59 percent of the total budgetary allocation. Poor capital spending in turn hurt job creation by slowing down economic activities, creating in a huge drag on the national economy.
It is hard to see how things will improve in the second half of the fiscal year. Nepali economy is unlikely to get back on track (if it has ever been on track since the start of the civil war in 1996) without a semblance of political stability, which will only be achieved when the yet to be elected CA gives the country a permanent constitution. That will be long time in coming. The challenge for the Nepali state will be to somehow eke out a decent economic performance even amidst these great political and constitutional uncertainties.
One of the ways this might be possible is if the major parties can come to a common minimum understanding on the country’s economic trajectory until there is a new constitution. This will ensure the continuity of priority projects and policies irrespective of who is in the government, something the country has failed to ensure in its over two decades of democratic practice since the restoration of democracy in 1990. At a minimum, there should be an agreement between major parties to bring out a timely full budget every year.
Without such an understanding, prospects for Nepal’s economic revival are truly bleak. In the last six months, while exports rose by a healthy 9.3 percent to Rs 39.25 billion, imports shot up by a whopping 25.2 percent to Rs 271.30 billion. The country’s overreliance on remittances (which make for 23 percent of GDP) is no less troubling. There are other worrying signs. January saw a 15.9 percent decline in tourist arrivals compared to the same month last year‚ the first time that has happened in last four years.
Even as the main engines of the economy sputter, galloping inflation (10.7 percent in the last six months) threatens to inflict great pain on low- and middle-income families. There is as such no alternative to political understanding on common economic platform until there is a new constitution. No less than the success of the federal democratic republic might rest on setting the country off on that course on sound economic footing