Government must move with incremental growth targets, presses think tank IIDS

The Institute for Integrated Development Studies (IIDS) on December 27 held a policy conclave themed ‘Nepal Vision 2100’ in Kathmandu.

Second of its edition, the IIDS Policy Conclave steered dialogues with stakeholders on Nepal’s structural challenges and explored “pragmatic” solutions through a revised “critical” response to the National Planning Commission (NPC)-developed 15th periodic plan, said IIDS in a press release.

The response, presented by Dr. Biswash Gauchan, the IIDS Executive Director, countered the government targets for the country’s various socioeconomic and economic indicators as too ambitious to realise by 2100 BS or 2043/44 AD.

According to the press release, the government’s vision seeks to reshape Nepal’s economy by reducing agriculture’s GDP share from 27% to 9%, expanding industry’s share from 15.2% to 30%, and marginally increasing the service sector’s share from 57.8% to 61% by 2100 BS.

The release also highlighted concerns over financial risks, noting that much of private credit, which has surged to 91.2% of the GDP, is mobilised in unproductive sectors..

In the past three years, over two million Nepalis have left the country seeking jobs abroad, and over 300,000 students for higher studies. This poses risks of an aging population before achieving economic wealth.

On the other hand, trade imbalance reflects weak industrial capacity — with imports accounting for an enormous share 91.3% of trade (import to GDP ratio 30%), while exports only 8.7% (export to GDP ratio 3%).

The remittance-to-GDP ratio, on the other hand, is 25% and supports 70% of households, but contributes little to domestic capital formation while relying heavily on unskilled labour for it. Meanwhile, government spending fails to deliver productive outcomes, read the release.

Dr. Gauchan called the government targets for 2100 “utopian fantasy”, further elaborating what China could not achieve in four decades, the Nepal government is aiming so in just two decades. 

He recalled the construction of Pokhara Regional International Airport by China, a strategic blunder, arguing that Pokhara could have been connected with tier 1, tier 2 and tier 3 cities of India since connectivity to Chinese destinations are not as viable because of the Himalayas.

Similarly, he highlighted issues in allocative efficiency citing an example of ‘agri washing’ where funds directed to the agriculture sector are utilised otherwise. The universalised model of senior citizen allowance was criticised on grounds for not following a means-tested approach.

Rameshore Prasad Khanal, Chair of High Level Economic Reform Advisory Commission, said that the market too has also failed in efficient allocation of resources.

He further spoke on the need to introduce remote work policy that determines tax treatment on the income and responsibilities of the employer, particularly international ones.

The first panel in the conclave discussed allocative efficiency in Nepal’s economy.

Former Finance Minister Dr. Prakash Sharan Mahat said that economic policymaking should follow a paradigm shift to “pragmatism” from “populism”, which have led to competition in distributive policies than growth related policies.

He added that Nepal should rethink bilateral and multilateral financing for contract, tenure and interest rates. He also suggested that NPC must be restructured as a think tank and called for a new hiring process.

Dr. Gunakar Bhatta, Executive Director of Economic Research Department at Nepal Rastra Bank (NRB), stressed on the need for international joint venture banks, and restricting the domain of microfinance institutions to provincial boundaries.

Former President of the Federation of Nepalese Chamber of Commerce and Industries (FNCCI), Bhawani Rana, highlighted a lack of investment environment. She urged the banking and financial institutions (BFIs) to consider market feasibility of projects and not only collateral mortgages to provide loans.

Economist Dr. Chandan Sapkota, representing the Asian Development Bank (ADB), said that Nepal lacks monitoring and evaluation systems after awarding contracts for development projects, identifying bottlenecks such as weak project readiness, inadequate resource allocation and political interference. 

He suggested terming it “allocative inefficiency”, stressing the need for robust systems that prioritise and monitor project to enhance efficiency and
accountability. He called for creating a project bank and standardised readiness protocols.

Furthermore, he echoed Dr. Gauchan on the utilisation of forex reserves, most of which are being mobilised to import consumption goods and less capital goods, by creating specialised funds such as sovereign wealth funds. 

The second panel discussed building a knowledge economy in view of digital transformation that will offer Nepal scalable opportunities in the global map.

Prof Dr. Kushum Shakya, former Dean of Faculty of Humanities and
Social Science at Tribhuvan University, highlighted the importance of transitioning Nepal into a knowledge based economy over the next two decades, stressing the need for intergovernmental coordination and collaboration between experts and the government.

She also called for specialised universities that provide specific domain-curated courses to produce profoundly skilled human resources.

Prof Dr. Sanduk Ruit, Managing Director of FRACO and Founder and Executive Director of Tilganga Institute of Ophthalmology (TIO), shared insights into Tilganga’s success — which has installed seven million units of high precision lens — as a model for a “weightless” and “borderless” economy and advocated replicating such models in health-related sectors.

He also highlighted the scope of medical tourism in Nepal, emphasising availability of cheaper dental services in the country and potential of care centres for the ageing population.

Bal Krishna Joshi, Founder of Xuno, underlined Nepal’s potential to transition from labour export to service export, particularly in IT and fintech sectors. He pointed out the need for policy reforms and educational alignment with global standards, saying “Nepal ties up 21st century generations to laws made in 1965.”

CA Prabin Kumar Jha, President, Institute of Chartered Accountants of Nepal (ICAN), said that Nepal’s accounting services adhere to international standards and can become a huge service export. He added that Nepal is currently finding its foot while competing with The Philippines and India, who are tried and tested, in providing such services to US-based companies. 

He suggested revision in ICAN Act, 1997 and structural reforms highlighting an incident where a Nepal-based company moved its office to Bangalore due to bureaucratic hassles.

Prof Dr. Om Prasad Baral, Vice-Chair of Council for Technical Education and Vocational Training (CTEVT), spoke of the institution’s efforts, including market research, in reaching out to unskilled human resources, highlighting that only 2% of Nepali migrant workers are skilled. He further added that CTEVT is curating courses in line with industry and market requirements. For instance, EV electrician.

Moreover, Nepal has gained little benefit from the economic success of the two neighbouring rapidly growing economies, argued Dr. Gauchan. Marking that funds to political parties a major factor behind political instability and anomalies, the conclave put forward a new funding model where the government partially covers the election campaign cost.

The IIDS vision advocates for incremental growth targets, for instance starting with 5.5% and gradually increasing to 7.5% through structural reforms. Given high costs and uncompetitive labour hindering traditional industries and foreign direct investment, Nepal must focus on sectors like IT, education, healthcare, hospitality, and security services.

To achieve this vision, IIDS deduced that investments in human capital, digital literacy, and STEEM education (Science, Technology, Engineering, English, and Mathematics) are essential. 

Furthermore, the conclave emphasised the ‘once a Nepali, always a Nepali’ approach that advocates for continuity of citizenship of Nepali diaspora, opening the door for investment and technology transfer opportunities to Nepal.