NATIONAL 5 (Spotlight Weekly)]

Counselling With Caution

The annual publication of ADB suggests prudent macro economic policies for open market. Is Nepal ready for the openness then?

By A CORRESPONDENT

At a time when concerns are rife on the tottering economy of the country, a projection by the Asian Development Bank may come as a relief -- at least in statistics, if not practically.

In its annual publication Asian Development Outlook 2000, the multilateral agency has viewed that Nepal should achieve an economic growth between five and six per cent in 2000. Instrumental in bringing the growth will be, what the bank claims, recovery of the agriculture sector and the continued strong performance in other sectors, including the carpet and the garment industries.

The outlook also has good news for the general public: Inflation, it says, is expected to fall to five per cent despite increase in prices of kerosene, diesel and electricity in the second quarter of the fiscal year. Last year, inflation had risen to 13 per cent due to the rise in food prices.

"Price performance in 2000 will benefit from bumper harvests throughout the region. As a result inflation will fall."

Also optimistic projection is the domestic revenue estimates in the current budget -- with the estimated growth rate of 14 percent. "But the actual revenue performance will depend on the effective implementation of the Value Added Tax," said Richard Vokes, Kathmandu Resident Representatives of the ADB while launching the Outlook last week.

In yet another encouraging piece of information, the annual publication of the bank has projected exports to grow in 2000 but "will slow without the grain exports of the previous year."

Singling out Nepal as one of the poorest countries in the world, the Outlook has prescribed broad based reforms agenda including reforms in financial sector civil service to combat poverty. "While the Ninth Five-Year Plan focuses on poverty reduction, the breadth of the plan in terms of its targets means the impact on poverty often is lost when the programs are implemented."

Besides in Nepal, poverty has been the main social challenge in Asia, the Outlook has stated. Around 70 per cent of the worlds poor live in Asia. "Poverty is Asia's main social challenge today and the ADB has adopted poverty reduction as its overarching development objective. The nature of this social challenge is the subject of the other special theme in this year's Outlook," said Vokes. "Fundamentally, the ADB believes that promoting economic growth remains the best path to poverty reduction."

Having cited poverty as the prime hitch for economic development, the ADB has emphasized a number of policy priorities -- openness and market orientation, human resources and physical infrastructure, improving governance, strengthening social protection, increase in the flow of foreign assistance, and providing international public goods.

The prescribed policies, however, do not mean that any country should follow it blindly. The policy of openness and market orientation is a case in point. This strategy, the Outlook has warned, should be supported by prudent macroeconomic policies like maintaining stable and manageable levels of debt, inflation, and exchange rates which are crucial for creating an environment conducive to inclusive growth.

That said, consider the figures of Nepalese economy. Inflation reached almost 13 per cent last year. The level of debt continues to grow (each new child born is burdened with the debt of 10,000 Rupees in the country). The case with exchange rates -- that have always kept the Nepalese currency in the receiving end -- have no good news either.

Under such circumstances, should the Nepalese economy be opened in haste or not? Or should the macro economic policies, as suggested by the Outlook, be checked and corrected appropriately first? A homework for planners and policy-makers.