Development Issues and Practices

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Session Coverage 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 constitutionsDisaster: Recovery, rehabilitation and reconstruction PDNAselected opportunities

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Development Development

What is development? Changing meaning of development Emergence of new problem calls for new definition

pre 1930s emphasis on growthpost world war - structuralisms, dependency, etcemergence of environmental issue MDGs sustainable dev climate change

Now emphasis on social development, inclusion, human rights, good governance, etc

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IndicatorsIndicators

Indicatorsvariables 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

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Growth rate of GDP 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)

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Cont…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 %

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Income and Poverty 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 timePoverty level in Nepal is high one quarter of the

population

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Income and Poverty 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

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Cont…Cont…The World Bank has estimated that 7.5 million labour

force is added in Nepal, annually.

But Nepalese estimate is 5-6 millionIn 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.

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Dependent EconomyDependent 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

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Crux of the issue Crux of the issue

Political instability is the crux of the development issueCollusion 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 reasonnot right leadership – basic objective is to grab power

and collect resources – corruption – one of the most corrupted country in the Asian regionno 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

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Trade and BPTrade and BPInternational Trade is one of important aspect of

development However the performance of the sector is quite poorThe export earning can support the import of only one

item that is petrolIn 2003/04 import/export ratio was 39.0 and it is

gradually declined and by 2014/15 it is 10.7The 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. 12Krishna Khadka

Trade cont….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.

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Cont…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%

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Cont….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 highThe economy is experiencing high inflation

Considering these complexities World Bank characterized Nepalese developoment as Paradoxical Development Complex situation

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Examp of govt Development effort – budget

Weak program project implementation Lack of targeted programInstitutional 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

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Education and DevelopmentEducation 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

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Role of Private sector, NRN, CBO & INGO/NGORole 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

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Role of Private sector, NRN, CBO & INGO/NGORole 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

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Other Improtant Issues Formulation of ConstitutionLand 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.

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Recovery, rehabilitation and reconstructionRecovery, rehabilitation and reconstructionIt 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

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Nepal has not been able to promote its niche products

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Selected Opportunities 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

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STATIATICS STATIATICS

Remittance to GDP 27.7% (2014/15)Tourism income to GDP 2.2

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