Bleak economic backdrop poses challenges to meet targets

	Analysis--- Next three year plan PRABHAKAR GHIMIRE KATHMANDU, June 27: The government has revised down the economic growth projected target twice this year. In the monetary policy for this year, the overall economic growth target was set at 5.5 percent before it was revised down to 4.2 percent in the Mid-term review of budget and then revised down again to 3.6 percent in the Annual National Account Estimates of Central Bureau of Statistics released in April. Officials have attributed the slowing growth to weak performance in capital expenditure in the absence of timely announcement of a full-fledged budget for the current fiscal year. Over the last three years, average economic growth stood at 4 percent but this year’s estimate is even below that. The agriculture sector, which is mainstay of the economy contributing over one-third of the Gross Domestic Product (GDP), performed badly, posting 3.6 percent growth over the year against a target of 3.9 percent. The non-agriculture sector reported 4.2 percent growth in contrast to a target of 6.4 percent growth. With the results reported below the target in these sectors, people living below the poverty line also could not go below 23.8 percent against the target of 21 percent. The industrial sector, which used to contribute around 15 percent of GDP a decade back, has now been so weakened that its share dropped to below 6 percent. Consequently employment generation has increased only by an average of 2.9 percent over the period as against 3.6 percent growth envisaged by the current 12th Plan. Against the back drop of this unsatisfactory economic performance, the National Planning Commission (NPC), the apex policy making body of the government, has set an ‘ambitious’ target to see Nepal graduate from Least Developed Country to Developing Country status. The proposed concept paper of the upcoming three year plan, which is going to be finalized next week, has set a target of achieving 4.5 percent growth in the agriculture sector, up from this year’s 1.3 percent. Similarly, the plan envisaged increasing growth of the non-agriculture sector to 6.7 percent in next three years from the existing 5 percent. The 13th three-year plan has set a target of achieving 6 percent annual economic growth, though prospects for better performance of the agriculture and non-agriculture sector is bleak as is the business environment of the country. Achieving the targeted growth in agriculture is not easy for the government, given unreliable monsoon rains, frequent shortage of agriculture inputs such as fertilizers, limited areas of irrigation and slow progress in farm commercialization. The industrial sector, which was once a vibrant sector, has been passing through continued slowdown amid continued industrial strikes, perennial scarcity of power and shortage of skilled workers. The next plan has targeted growth of agriculture and fishery by 4.5 percent, industry and mining by 4.7 percent, electricity by 8.2 percent and construction by 5.5 percent. Similarly, the wholesale and retail business has been targeted for 5.6 percent growth, hotel and restaurants by 8.6 percent, and transport, storage and communication by 8.4 percent in the next three years. “In the absence of political government, no one is ready to take ownership of the plan to achieve the targets set by 13th plan. As the country is passing through a slowdown in the industrial sector, lack of massive commercialization in the farm sector and slowing exports, attaining such targets in different crucial sectors is very difficult,” said former Finance Minister Dr Ram Saran Mahat. Though the plan has set a target of bringing down the number of people living below the poverty line to 18 percent from the existing 23.8 percent, the economy is not going in this direction. Industrial slowdown has jacked up imports significantly while export growth is nominal, leading to a skyrocketing trade deficit. According to data compiled by the Trade and Export Promotion Center (TEPC), Nepal had a trade deficit of Rs 434 billion or Rs 1.44 billion per day during the first ten months of the current fiscal year. Out of a total of Rs 557 billion in foreign trade, exports covered only 11.2 percent or Rs 62.71 billion and trade deficit increased by 24.8 percent compared to the figure recorded during the same period last year. In a brief overview of the existing three-year plan ending mid-July this year, the draft concept paper has identified increasing the share of consumption in GDP, almost one-fourth of the population under poverty line, lack of commercialization in agriculture, scarcity of farm output, politicization in industrial sector, frequent strikes, deficit of energy, shortage of skilled workers, disruption in implementation of infrastructures, flourishing the culture of impunity, as the major challenges ahead to achieve the set targets. Sectors prioritized by the draft of concept paper of the next plan -- infrastructure, agriculture, energy, human resource development and effective use of public resources --not immune to these problems. “Given the poor economic performance of the economy, achieving the set targets for the coming plan is not easy. We have to learn from the past to deal with the challenges ahead,” Gopi Mainali, joint-secretary at NPC, said. The government has outlined strategies to achieve the targets set in the next plan. The strategies include achieving inclusive economic growth, increasing the contribution of private, public and cooperative sectors in the development process, development of physical infrastructure, enhancing access of people to quality social services, strengthening good governance in public and other sectors, strengthening economic and social empowerment of targeted groups and minimizing the adverse effects of climate changes. “Though the programs and strategies proposed in the draft are economically significant, achieving the targets in the absence of political government is challenging,” Mahat, who is also a senior leader of Nepali Congress, said. Creation of employment opportunities in the country has become further challenging as the government has failed to regain the confidence of investors on the back of prolonging political instability in the country. “Without commercialization of agriculture through adoption of mechanization we can’t achieve employment target as the agriculture sector hold high potentiality to generate job opportunities within the country. But the existing system of agriculture can’t support the targeted growth in agriculture,” says Dr Chandra Mani Adhikari, economic researcher. Adhikari also said Nepal’s agriculture sector which is highly dependent on monsoon and farmers’ own initiative rather than government effort, can’t be promoted without aggressive programs to support its commercialization. He is also not optimistic about achieving the set target in the industrial sector as manufacturing industries are running at around 54 percent capacity due to power shortage and scarcity of workers, among other reasons. “Even if the private sector increases investment and capital expenditure is significantly improved, overall economic growth will hover at around 5 percent over the next three years. But given the unfavorable climate for investment we are not optimistic for that,” added Adhikari.
Published on 2013-06-28 08:12:50

Govt sets 'ambitious' targets despite industrial slowdown

PRABHAKAR GHIMIRE KATHMANDU, June 12: The government has set an ambitious target of achieving 6 percent economic growth and increasing revenue by 35 percent in the coming fiscal year, despite slowdown in industrial growth due to labor unrest, persisting energy crisis and worsening industrial security, and low-performing agriculture sector. The high growth target has been set, up from projected growth of 3.63 percent for this fiscal year ending mid-July, even though the country is unlikely to see significant improvement in economic activities in the coming fiscal year. Those who are closely watching the country´s macro economic situation do not believe that the government will meet the target without giving a boost to economic activities and reforming tax system. VAT, income tax and customs duty are the major sources of revenue for the government. However, the government has yet to bring many potential sectors inside the tax net. Similarly, it should also discourage and control the tendency of undervaluation in trading at different levels - from customs to retail level - by making tax administration effective. Though the contribution of income tax in total revenue is increasing, the collection is highly dependent on petroleum products, vehicles, liquors and luxurious products. If the government wants to increase import revenue, it have to encourage import of such products. “The target of achieving 35 percent revenue growth is not so big. But what matters most is what the government will do to achieve the target,” Jagadish Agrawal, a revenue expert, said. “Putting more focus on import duty collection will not be beneficial for the economy, as it is collected from the products which are not of much importance to general public.” Agrawal suggested that the government widen the VAT net to make sectors, which are still not contributing to the national coffer, taxable. “The government won´t be able to achieve revenue target by focusing on import duty alone. It should widen VAT net and increase excise duty collection,” said Agrawal. Interestingly, revenue target set by the governments have been achieved over the past few years. The government has revised economic growth rate downward to 3.63 from 5.5 percent set at the beginning of fiscal year due to drop in farm output, political instability and industrial slowdown. Economist Posh Raj Pandey termed the government´s target of increasing revenue by 35 percent and achieving six percent growth an ´ambitious plan´. “We have not seen the possibility of economic activities improving significantly in the next fiscal year. Our agriculture output is always uncertain and the industrial slowdown is poised to continue in the coming year as well,” Pandey, who is also the former member of National Planning Commission (NPC), said, adding “It´s just an ambitious target.” According to Pandey, our economy can´t grow more than 5 percent even if agricultural output increased remarkably. He also termed revenue growth of 35 percent set for the coming fiscal year as ambitious. “It is very difficult to increase tax rates. Also our tax base is very narrow. Given the situation, the government´s revenue target looks unachievable,´ he added. Business community, however, are for increasing revenue target only after creating investment friendly environment in the country. “The government can´t collect more tax from the industrial sector which is in crisis. If the government wants to increase revenue mobilization, it should create favorable situation for investment,” Pashupati Muraraka, vice-president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), said. Though revenue officials are not fully confident of achieving the revenue growth of 35 percent, they see a huge scope in increasing revenue mobilization. “Achieving revenue growth of 35 percent is not beyond our capacity. We can achieve this if we penetrate into sectors that are still outside tax net,” Tanka Mani Sharma, director general of Department of Inland Revenue (IRD), told Republica. Sharma said the revenue target can be achieved by widening tax net, discouraging undervaluation in customs, land revenue offices and at retail level, raising awareness about tax among customers, increasing presence of tax offices across the country, and reforming tax administration. The government has set the target of collecting Rs 81 billion from VAT, Rs 55 billion from income tax and Rs 51 billion from customs duty in the current fiscal year.
Published on 2013-06-13 01:37:44

Govt prioritizes four sectors to achieve developing country status by 2022

PRABHAKAR GHIMIRE KATHMANDU, June 4: The National Planning Commission (NPC), the apex policy making body of the government, has prioritized four sectors, including infrastructure and agriculture, in the upcoming three-year plan with the target of upgrading the country from the status of Least Development Country (LDC) to Developing Country by 2022. The preceding three-year plan had set the target of achieving developing country status by 2030. Officials of the NPC said draft of the concept paper prepared for the next three fiscal years has identified those four sectors as crucial for economic development and for upgrading to the developing country status. Gopi Mainali, joint secretary at the NPC, said the concept paper envisages prioritizing programs focused on development of infrastructure, agriculture and economic sectors; human resource development and effective use of public resources. “We have prioritized those sectors that can play significant role in upgrade Nepal´s status to developing country from LDC by 2022,” Mainali told Republica on Monday. “We have reduced the focus areas to four from seven identified in the earlier three-year plan so that we can concentrate effectively on them.” Under the infrastructure sector, the concept paper, which is under discussion with stakeholders, has emphasized on developing energy, roads, and communications. Similarly, focus under the agriculture and economic sectors will be on farm commercialization, tourism, industries and trade. Likewise under the human resource development program proposed in the draft, the government aims enhance skill and capacity of available manpower to increase competitiveness. At a time when the government agencies have been failing to utilize the allocated budget, the concept paper envisages making officials responsible in implementation of the designed programs. “Though we have not specified the number of jobs that we will generate during the plan period, we have estimated that we should generate at least 150,000 jobs per year,” said Mainali. According to conservative estimate, around 415,000 youths enter the labor markets every year. Of them, around 300,000 leave for greener pastures abroad. “We can´t enhance effective utilization of budget until and unless we set up institutional capacity and effective mechanism to ensure better performance in program implementation side. So, the concept paper has attempted to make concerned official more responsible,” added Mainali. He further added that the four priority sectors will get as much as 80-90 percent of the total budget to be allocated in capital expenditure in the budget for the next fiscal year. In the earlier three-year plan that ends in this fiscal year, the government had identified seven priority areas, including infrastructure, agriculture, education, good governance, environment and national priority projects. Yuba Raj Bhusal, member secretary of NPC, said Nepal has achieved the target in economic indicators and inching closer to achieve the target in social indictors as specified by Millennium Development Goal (MDG) by 2015. “We will start programs of the concept paper from the next budget,” he added. Officials said Nepal needs to make more progress on achieving target of Gross National Product (GNP). The concept paper will be endorsed by the meeting of National Development Council once it is finalized after holding national level discussion.
Published on 2013-06-04 00:00:01

India lifts development tax on goods traded by Nepal

PRABHAKAR GHIMIRE KATHMANDU, June 1: India has stopped slapping development tax on imports and exports of goods that leave or enter Nepal via the Panitanki-Phulbari-Banglabanda route. The latest decision is expected to lower Nepal´s import and export costs via the far eastern route, which sees movement of around three dozen trucks and containers everyday for trade purpose. "India has finally agreed to stop collecting the tax on goods involved in Nepal´s overseas trade after diplomatic efforts of one year. The new development has paved the way for smooth movement of goods through the crucial route," Chandra Ghimire, Nepali Consul General in Kolkata, told Republica on Saturday. Nepali traders had long been complaining about unauthorized collection of the tax by the southern neighbor that infringed on the bilateral transit treaty. But after series of meetings with the state government of West Bengal, customs officials stopped collecting the tax from May 21, according to Ghimire. The Silgudi-Jalpaigudi Development Authority had been collecting the tax to facilitate development of West Bengal. According to Ghimire, the tax amount ranged from IRs 50 and IRs 80 per small and big trucks, respectively. This practice was violating the existing bilateral trade and transit treaties, affecting traders who were using the route to import and exports goods. The Article-4 of Nepal-India Transit Treaty prevents Indian authorities from collecting any form of tax on goods traded between Nepal and third-countries. Currently, India has designated 16 routes in West Bengal, Bihar, Jharkhanda and Uttar Pradesh for Nepal´s overseas trade. "Though the amount collected by West Bengal in the name of development tax was not big, it had set a bad precedent. If other states had followed West Bengal and introduced similar tax then Nepali traders would have ended up paying hundreds of millions of rupees every year," Ghimire said. Ghimire also informed that India has started upgrading the road along Panitanki-Phulbari-Banglabada route, responding to request made by Nepali consulate officials. "It is now building a four-lane track upon our request. This is expected to address problems of traders who always complained about poorly maintained road," he said, informing, the work will complete within next one and half months. Once the construction is complete, the cost of transporting goods is expected to go down significantly. This will also reduce the time of ferrying goods. In another development, West Bengal has also banned unauthorized ´levy´ slapped on goods exported from and imported into Nepal. "This will address problems of those facing hassles from different local groups," Ghimire said, adding, Nepal has also requested the Indian side to simplify quarantine process mainly for agro produces, establish internationally recognized testing lab and open a bank branch at customs point to facilitate traders.
Published on 2013-06-02 01:49:51

Pvt players chipping away at NOC primacy in petroleum trade

PRABHAKAR GHIMIRE KATHMANDU, May 30: The private sector involved in distribution and transportation of petroleum products seems to be chipping away at the primacy so far enjoyed by the state-owned Nepal Oil Corporation (NOC) in oil trade. Over the years, tanker operators, tanker workers, petroleum dealers and Liquefied Petroleum Gas (LPG) bottlers have made the government bow to their impractical demands by bringing petroleum supplies to halt time and again. The most recent of such incidents was the strike called by LPG bottlers who have been demanding a hefty hike in commission. Private players have become so powerful that they rule the roost in the petroleum sector. “Though NOC is a state-owned petroleum monopoly, it is the unscrupulous petroleum traders who call the shots,” says Jyoti Baniya, general secretary of the Consumers´ Rights Protection Forum. “It is a great challenge to the government that the private players have the capacity to bring the supplies of petroleum products to a complete halt whenever they want.” Though the existing laws do not allow strikes that affect distribution of petroleum products, the government has failed to effectively implement them. LPG operators have been receiving Rs 50.02 per cylinder from NOC in commission, but they have demanded a hike of Rs 15.61 in line with increased “overhead” expenses. LPG bottlers are even not willing to make public the details of overhead expenses to avoid public criticism. “There are so many expenses we have included in the overhead costs. But I don´t remember them all,” Shiva Prasad Ghimire, president of Nepal LPG Industries Association. Even NOC is ignorant about the expenses being included in overhead costs. “We have no idea about the costs included under overhead expenses,” said Suresh Agrawal, acting Executive Director of NOC. NOC has been suffering a loss of Rs 439 in the sale of each cooking gas cylinder. NOC which is suffering from over Rs 24 billion worth of accumulated losses and loan liabilities worth Rs 28 billion will have to face additional loss if the commission is increased. “The consumers will be the hardest hit though,” said Baniya. LPG bottlers have already been enjoying a profit of Rs 28 per cylinder. Profit on LPG gas for bottlers will increase to Rs 36.74 per cylinder if their demand is fulfilled. “They resort to protests as a bargaining chip to prevent the government from allowing free competition in transportation of petroleum products,” said Baniya, who has also been involved in the number of negotiations with the private players in the past. However, an official at NOC begged to differ. “LPG operators are powerful because the government is weak. The government has failed to act tough against unscrupulous transporters and dealers,” the official said. The petroleum and gas dealers have also challenged the government´s decision to introduce dual color cylinder system with different prices for industrial and household consumption. Tankers operators had already succeeded in preventing implementation of regulations that would allow private sector players to engage in import, processing and distribution of petroleum products. “They don´t want to see other private players because they have been benefiting from the inefficiency of NOC,” the NOC official said.
Published on 2013-05-30 01:00:00

ndia reimposes countervailing tax on Nepali RMG

PRABHAKAR GHIMIRE KATHMANDU, April 30: India has reimposed countervailing tax on readymade garments (RMGs) from Nepal. The move goes against the understanding between two countries to impose countervailing tax only on products on which excise duty is imposed. India has been levying additional tax on Nepal´s RMG exports for the past two weeks. According to exporters, this will further reduce Nepal´s apparel export to Asia´s third largest economy. “As per the understanding between the two countries, India cannot levy countervailing tax on branded and made-off items which are exempted from excise duty. But India has been making Nepali exporters to cough up additional tax for the past couple of weeks,” Uday Raj Pandey, president of Garment Association Nepal (GAN), told Republica on Monday. According to Pandey, Indian customs office has levied 12 percent countervailing tax on maximum retail price (MRP), making Nepali exports expensive than other products in the Indian markets. India had stopped levying countervailing tax on Nepali products after the issue was raised by then Prime Minister Madhav Kumar Nepal during his India visit in 2010. “Our RMG exports will decline further as our products will now become expensive than our competitors,” said Pandey. Data compiled by Nepal Rastra Bank shows Nepal´s apparel exports dropped by 66 percent during the first eight months of the current fiscal year compared to figures of the same period last year. During the review period, Nepal exported RMGs worth Rs 124.5 million to India. Statistics of Trade and Export Promotion Center (TEPC) shows that overall exports of Nepali apparels tumbled by 22 percent to Rs 2.34 billion during the review period. Nepal´s apparel export has come down massively since 2005 when US ended duty-free access to Nepali RMG. Deepening financial crisis in European nations has also affected RMG exports from Nepal. During the review period, Nepal´s RMG export to overseas market plunged by 36.9 percent to Rs 1.93 billion. Meanwhile, RMG entrepreneurs have requested to the Nepali officials to exert diplomatic pressure on India to remove the unlawful levying of countervailing tax. “Finance Minister Shankar Koirala has assured us that he would take up the issue with Indian officials soon,” Pandey said. Nepali RMG products are already losing competitive edge in India with the flooding of Bangladeshi products. India doesn´t impose countervailing tax on products from Bangladesh. Also, the Bangladesh government has been providing different subsidies to RMG producers.
Published on 2013-04-30 02:30:06

Trade infrastructure development Nepal's top agenda

---------------Upcoming Nepal-China high-level meeting -----------------------

PRABHAKAR GHIMIRE

KATHMANDU, May 12: Amid Nepal´s soaring trade deficit with China, the government is putting forward a host of demands with high-level Chinese officials to boost Nepal´s trade with the northern neighbor.

Nepali official team to be led by Foreign Minister Madhav Prasad Ghimire is scheduled to request to the top Chinese delegation next week for Chinese support in Nepal´s trade infrastructure development including establishment of Special Economic Zone (SEZ) near the northern border and upgrading of Bhaktapur-Tatopani section of the Araniko Highway.

Yang Jiechi, councilor of State Council China, who is also the former foreign minister, is visiting Nepal on May 18-19.

Though China has already granted duty-free access to 7,787 products from the Least Developed Countries including Nepal to its market, Nepal´s trade deficit with China has continued to soar for the last few years.

Weak supply capacity on the back of slow agricultural growth and industrial production and poor infrastructures such as ill-equipped customs, poor road access and lack of well-managed dry ports are the principal hurdles in Nepal´s trade with the Asia´s largest economy. Similarly, insufficient number of functional customs points along the northern borders and existing non-tariff barriers such as stringent quarantine rules and non-cooperation by Chinese customs officials with Nepali traders are also among the major roadblocks in Nepal´s trade with China.

“Although Nepal has the potential to benefit immensely from trade with China, we are lacking in modern trading infrastructures. So, we are requesting the Chinese officials for their support in enhancing such facilities. We will also request for minimizing existing non-tariff barriers,” an official privy to the development told Republica on Sunday.

Agenda items

Upgrading Bhaktapur-Tatopani road
Customs simplification
Upgrading custom points
Establishment of cross border economic zone in Jielong and Rasuwagadhi
Establishment of SEZ near northern border
Discussion on Nepal´s ballooning trade deficit with China

The source said Nepali officials are scheduled to request for establishment of an SEZ in any place near the northern border and upgrading of the Bhakatpur-Tatopani section of the Araniko Highway. Similarly, Nepal will also ask for forming a cross-border economic zone between Chinese town of Jielong in Tibet and Rashuwagadhi of Nepal in a bid to give a boost to economic activities in those areas.

Although there are around a dozen customs points along the Nepal-China border, the one at Tatopani is the most used, so Nepali officials are also requesting for upgrading of other customs points with necessary infrastructures and facilities. Chinese officials have already shown interest to develop a dry port at Rasuwagadhi customs, the second largest customs bordering China. Construction of Larcha dry port in Sindhupalchowk has already begun from December 20 last year under Chinese assistance.

The source also said Chinese imposition of stringent quarantine rules for Nepali goods mainly agro produces and meat products will also be discussed. “As Nepali traders have been complaining of hassles at customs points we are also requesting for simplification of customs procedures,” added the source.

Officials from both the countries are also scheduled to discuss other measures to boost bi-lateral trade and also focus on reducing the ballooning trade deficit with China. Data compiled by Trade and Exports Promotion Center shows that Nepal´s trade deficit with China increased to Rs 51.94 billion during 2011/12, up from Rs 44.89 billion recorded a year before. During the first nine months of the current fiscal year, Nepal´s exports to China was recorded at Rs 1.76 billion against imports worth Rs 51.04 billion.

 

Published on 2013-05-13 00:00:00