Forum (Spotlight Weekly)

Turning Economic Challenges Into Opportunities

By Dr BADRI PRASAD SHRESTHA

The World Bank Country Assistance Strategy (CAS) Progress Report is, in essence, the bank's assessment of Nepal's overall performance, problems and prospects in the recent past as well as at present. It is on the basis of the progress report that the bank has upgraded its lending levels to Nepal from "low case" to "base case". We can take advantage of such enhanced level of assistance on the basis of our future performance in overall management of public resources, delivery of public goods and services, maintaining transparency, accountability and anti-corruption measures, besides many other areas.

Over the past few years, the Nepalese economy has passed through a cycle of accelerated growth to rapid deceleration. What has promoted the formulation of the CAS in 1998 to help Nepal in overcoming some major constraints on development continue to remain relevant even today - relevant for the reason that we have yet to overcome these constraints in a more accentuated form and carry through the reform process committed or initiated in the past in several areas. Precisely for this reason, the present government announced three months ago a time-bound comprehensive reform package including Immediate Action Plan, embracing virtually all areas which need our immediate attention and action. For its effective implementation, we have already made necessary institutional arrangements for regular monitoring, evaluation and coordination. As we go along, we shall certainly have regular consultations with the donor community at appropriate levels.

While the reform process is very much on track, the government is committed to maintaining fiscal balance by containing the regular expenditure within the budgeted limit, despite the mounting extra-budgetary demands. Given the present economic situation, the revenue collection at the rate of 6 percent during the first six months of the current fiscal year as against 4.4 percent during the corresponding period of last fiscal year may be considered encouraging. The overall treasury position of the government so far is also better than that of the corresponding period last year. No development activities under priority one should suffer from lack of funding, despite the usual problem of time lag between the implementation schedule of development activities of the government and the disbursement schedule of the donor-community.

It must be admitted, however, that the capacity of the government to finance development activities during this period of time lag is limited largely because of government's commitment to limiting domestic borrowing to estimated level. Precisely for this reason, the government needs budgetary support as well from the donor community.

Our economy remains trapped in a vicious circle of low growth, low savings, and low investment with growing underemployment, unemployment, badly damaged tourism, shrinking trade and unfavorable investment climate.

Reconstruction of the damaged and destroyed infrastructure along with proper delivery of basic needs of the people such as food, medicine, and drinking water are our immediate concerns. The government is, therefore, implementing a modest package as well to provide some immediate relief to the people and address some of their concerns within its limited capacity.

The government would spare no effort to turn all these challenges into opportunities. The economic reforms and development activities have to be speeded up to prevent the economy from further slowdown. If further slowdown can be prevented and macro-economic stability maintained, the economy would surge and start functioning normally once the peace is restored as is happening in Sri Lanka at present after two decades of conflict.

If the present economic and other reform measures could be carried through their logical culmination, they tend to become irreversible. They continue to determine the nature and functioning of the economy, irrespective of changes in government. Reforms have to be carried fully and thoroughly to make them irreversible.

The gravity of the situation and ground realities of the country are such that any viable and sustainable option means essentially a wide-ranging reforms for a better management of public resources and public enterprises, for better delivery of public goods and services, a healthy growth of financial and other economic institutions with necessary accountability and transparency, more resource allocation for the grassroots level to address the problems of exclusion and deprivation and above all, more stringent measures against corruption.

As we look forward, an effective implementation of the Tenth Plan needs well articulated annual programs and budgetary allocation within a more refined Mid-Term Expenditure Framework with sharp focus on four major mutually reinforcing components of poverty reduction strategy, namely, (i) a broad-based economic growth, (ii) accelerated social development, (iii) well targeted programs for the poor, vulnerable, deprived and excluded groups and (iv) good governance. All this needs our clear and correct approach towards the role of state and its effectiveness, the role of private sector and also the role of NGOs, INGOs and CBOs and their participation at the grassroots level through decentralization.

(This article is based on a statement delivered by Finance Minister Dr. Shrestha at a workshop on the World Bank's Country Assistance Strategy Progress Report last week)