Dr. Shankar Sharma (File Photo)

Former vice-chairman of National Planning Commission (NPC), Dr. Shankar Sharma, worked as senior economic advisor at the Finance Ministry before joining the National Planning Commission. A technocrat who served under the multi-party governments as well as under the direct rule of the King, Dr. Sharma resigned after recent political changes. He spoke to Nepalnews on challenges facing the country’s economy. Excerpts:

How was the health of country’s economy when you left the post? What does the new government need to do to revive the ailing economy?

It has been estimated that the economy will grow at less than two percent this year. The inflation rate is likely to hover around eight percent. The revenue mobilization had been affected due to the weeks-long-strikes last month and our reform programmes have also lagged behind due to political instability.

The government should work hard. Due to the low collection of revenue, the ministries should review and reduce their expenses. The NPC had sent an estimated ceiling of expenditure, which may be further reviewed. In the meantime, the bi-lateral donors have expressed commitment to increase their level of assistance. The commitment has two aspects: first, to give continuity for the ongoing projects or the projects which were suspended earlier, it will have positive impact on the budget. Second, they are asking the government to suggest them areas where they could invest in. The government should identify the projects and prepare an interim report and present it to the international donors. We have to identify the projects in which we can seek assistance. NPC had done a lot of homework in this regard. Business plan for six sectors are almost in the final stage. If we could present interim report within a month, it will increase foreign investment. At the same time, the government should work hard to increase revenue. We have to focus on revenue collection and reduce expenditure in the next fiscal year.

Reports say the government called for an assistance worth Rs 80 billion to implement reconstruction and rehabilitation programmes. How realistic is the proposal?

I don’t know on what basis the estimate was made. I think the estimation was done without sufficient homework. We have to go with the vision of making new Nepal and start working in that regard. I don’t think it needs a lot of money for the reconstruction and rehabilitation works. Of course, bringing the Maoist rebels into the mainstream need some works to be done. The reconstruction and rehabilitation works are going on gradually over the last two or three years. So, we have to move ahead with the mission of constructing motorable roads in the far western region and mid-western region and move ahead with the mission of making new Nepal.

How has the conflict affected the national economy and what needs to be done to increase economic growth rate?

According to an estimate, the conflict of the country has caused 2.5 percent loss in the total Gross Domestic Product (GDP). It has caused annual loss of more than 20 billion rupees, which is a great loss to the national economy. On the other hand it increased security expenses and created obstacles in development spending. We were not able to allocate sufficient fund for development activities and the allocated fund could not be spent. Nearly two- third budget allocated for the village development committees could not be spent due to the conflict. Recent political changes will certainly have positive impact in this regard. As far as the issue of enhancing economic growth is concerned, the government has to create conducive environment for private sector investment. Our neighboring countries are growing rapidly. They all have over six percent growth rate except Sri Lanka. So, we have to think about it and work to increase investment in infrastructure sector including road, drinking water and other sectors.

How do you see the role of private sector in the days ahead to boost the country’s economy?

We did not have a conducive environment for new investments. Now, we should work to exploit fully our existing capacities. For example, while talking about the tourism sector, nearly 300,000 tourists are visiting Nepal every year, but we have enough hotel rooms to host 1.5 million tourists. If we are able to use our full potential, our economic growth rate will jump and we will be able to achieve high growth rate. Of course, the government must create conducive environment for it. If we are able to do so, I think we can achieve the growth rate of 6, 7 or even 8 percent within next two to four 4 years. If we develop infrastructure, it will also contribute in alleviating poverty. We are also getting remittance, which will have good impact on the national economy and will help in boosting our economy.

How could Nepal attain such a high growth rate from just 1.8 percent growth rate right now?

Of course, we can attain such a high growth rate over the next few years. If we could invest enough money in the infrastructure, we can achieve the target of six percent growth rate in the first year and in the second and third year we can achieve the target of seven and eight percent growth rates. The spectacular growth of our neighbour will also have positive impact on our economy and we must try to use our full potential. nepalnews.com by/pb May 23 06

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