Thursday, 25 September 2014

Challenges of Nepalese Economy(Part 1)

Nepal is facing numerous challenges in the path of economic development. Major constraints hurdles and challenges of economic development facing by Nepal are outlined below:
Real Sector

Average economic growth rate of past 10 year is just 4.1% hence upgrading the country from its current state of least development country to developing country status is difficult as attaining double digit growth rate is challenge.

Agriculture has vital role in Nepal’s economic growth. Uncertainty of climatic condition and weak irrigation policy has impacted GDP affecting overall economic growth.

Saving is the source of investment. It is difficult to raise investment where situation of gross domestic saving is about just 9% of GDP.

Investment, both domestic & foreign, could not be expanded as consequences of failure to bring improvement on in investment environment contribution of manufacturing sector that stood 10% to GDP in the past has now been contained at 6%

Persistent higher inflation rate despite steps taken through monetary and fiscal policies to curb it adversely affects the government target of reducing poverty along with achieving higher economic growth.

Unemployment: 400 thousand labor forces enter the labor market every year. Failure of creating domestic job has created a situation where number of labor force is seeking foreign employment.

Challenging task to bring significant improvement in the people’s living standard by reducing income inequality through effective implementation of poverty alleviation program.

Social development like education. Health drinking water and sanitation is still difficult.

Energy crisis is another major challenge to Nepal despite the abundant water resource potential.

Government Sector:

CAPEX: Low capital expenditure is another challenge faced by the country. The average ratio of CAPEX to GDP in the last five years has remained merely at 5%. This shows the government sector’s inability to improvits spending capacity.

Recurrent expenditure: past trend shows it as targeted and steadily growing. On an average the ratio of recurrent expenditure to GDO has remained at 14.3% in the last 5 years. However, it is imperative to the prudent on recurrent expenditure while expanding the capital expenditure so as to attain higher growth rate. Reaching recurrent expenditure at desire limit through prudent spending is growing challenge.

Prioritizing government expenditure is still very tough. Placing most of the projects/programs in P1 category shows as if all projects/programs are of the same priority, which has been creating problems in prioritizing and managing their expenditures aside from having difficulties in achieving their result.

The foreign debt liability increases when Nepalese currency depreciates against the US Dollar. This has been posing foreign exchange risk in relation to foreign debt. Likewise the increase in interest rate of domestic borrowing is matter of concern.  Hence it has remained a challenge to maintain risk level by maintaining optimal level of domestic and foreign debt.

Managing Public enterprise is getting more complex. Huge amount against staff salaries, allowances and other facilities even though a number of PE has remained closed for long. Hence, task to re-operate those PEs, intiate the process of disinvestment or go to their liquidation process, and manage the existing employees in an appropriate manner have remained challenging risk.

Financial situation of NOC is deteriorating. There have been several problems in the task such as curbing the leakage by strengthening NOC management, adjusting POL price in line with international market price, giving due consideration to energy development for reducing dependency on POL products.
Click here Challenges of Nepalese Economy(Part 2)

No comments:

Post a Comment