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JUN 09 -
Nepal’s economy has been wearing a bleak look in recent years. Macroeconomic indicators show a gloomy picture which may continue for a couple of years more. One of the major factors that has contributed to the worsening economic situation is trade imbalance. With exports declining, the trade deficit has been ballooning. According to Nepal Rastra Bank, the country’s balance of payments deficit soared to a record Rs. 22 billion during the first nine months of the current fiscal year. Due to the increased trade deficit, Nepal suffered a balance of payments deficit for the first time in 26 years.
As the scope of exportable products has shrunk, the trade deficit has been rising from one record to another. During the period under review, about 92 percent of the Gross Domestic Product (Rs. 1,000 billion) was spent on consumption. Consumption of foreign products has been increasing by the day as we are not able to produce these goods in our country. As of the ninth month of the current fiscal year, the trade deficit amounted to Rs. 238 billion, which is Rs. 21 billion higher than the deficit of the whole of the last fiscal year. According to the central bank, the export of goods and services declined by 10.4 percent to Rs. 45.67 billion during the first nine months of this fiscal year compared to a rise of 20.3 percent previously.
Exports to India also dropped 6.6 percent during the review period against an increment of 10.5 percent last year. A downturn in the export of readymade garments, zinc sheets, GI pipes, pulses and plastic utensils resulted in a decline in exports to India. Likewise, third country exports plunged 16.5 percent during the review period against an upsurge of 40.7 percent last year. Falling exports of woolen carpets, pulses, readymade garments, ornaments and medicinal herbs resulted in the dismal performance.
Political instability, load-shedding, labour unrest, insecurity and strikes have been responsible for the drop in exports and the bleak picture of the economy. No government has paid attention to promoting economic development. The economic sector was never given priority by the government and the political parties. Though all the political parties have stated that they would give first priority to the economy in their election manifestos, they have done nothing.
In many countries, the economy guides politics. In Nepal, unfortunately, politics has always overshadowed the economy, and the business sector has been politicised due to various interests. Low labour productivity, probably the lowest in South Asia, is another problem. Despite an increase in pay, there has been no significant improvement in labour productivity. This has been mainly caused by politically motivated trade unionism. Lack of a capable and skilled labour force has also contributed to low productivity as many skilled laborers have migrated to foreign countries for better opportunities.
Security of industrialists and business persons is another area of concern. Frequent cases of forced donations and kidnapping for ransom has scared away potential investors. Factories have shut down after continuous harassment by labour and criminal elements. The government has been talking about forming an industrial security force, but it has not happened yet.
Providing incentive packages is another way to boost exports. Various countries have special trade promotion programmes in place to promote exports. However, Nepal has not been able to introduce any incentives to encourage exports. Even though the Ministry of Commerce and Supplies has developed some plans and programmes including a 17-point action plan to stimulate exports, they have not been implemented for lack of resources.
Such incentives have been re-emphasised in the budget proposal made by the Commerce Ministry. They include exemption of export duty and taxes for all exportable items, income tax deduction for manufacturers exporting more than 60 percent of their production, export loans at minimal interest and simplified loan processing. The ministry has also proposed programmes like collective trademark registration and promotion of pashmina, control on mixing cadmium in gold, silver and other ornaments, treatment programme of methyl bromide fumigation, registration and promotion of tea and coffee trademarks and others. However, most of these proposed programmes haven’t received a positive response from the Ministry of Finance.
The Commerce Policy 2008 has identified 19 items as exportable goods. They include cardamom, handmade paper, medicinal herb, wooden craft, readymade garment, honey, coffee, vegetable, vegetable seed, tea, cotton and carpet. The Nepal Trade Integrated Strategy has suggested a few other export products like noodles, iron, steel, milk products, cement, transformer and sugar.
As Nepal’s exports are mainly based on agriculture products, the state should focus on commercialisation of farming and value added goods. However, sufficient government efforts have not been made in this direction. Effective coordination between the Agriculture Ministry, the Finance Ministry and the Commerce Ministry is required to promote export oriented agriculture production. Farmers need to be provided subsidies and other incentives to bring down their cost of production. Development of infrastructure such as irrigation and roads is another high priority.
mainadhital@gmail.com
Posted on: 2010-06-10 08:24
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