RAKESH WADHHWA

What Lies Between Nepal and Economic Growth?

Nepal is among the poorest nations in the world. It ranks 157 out of 187 countries on the Human Development Index, with approximately 25% of its population living below the poverty line. According a World Bank report, the country’s per capita income is about $750. Nepal is also among the least developed nations, as 75% of its population is dependent on agriculture. Despite agriculture providing employment to many, it contributes only about 30% of the country’s GDP.

What’s the Problem?

So, what impedes Nepal’s progress? The country is completely landlocked and is prone to natural disasters. At the same time, Nepal does have the potential to emerge from the chains of poverty. The nation has among the world’s largest untapped hydropower, estimated at 83,000 MW, according to a World Bank report. And its neighbours, India and China, being among the world’s fastest-growing economies, can prove to be huge markets for Nepal’s potential hydropower. Moreover, the tourism industry can do wonders for the country. So the greatest factor hampering the economy is not one unleashed by nature. It is political instability. This backdrop dissuades foreign investments, which could have propelled the economy.

According to International Financial Corporation’s Doing Business rank, Nepal’s status has improved from 110 in 2011 to 107 in 2012. However, this is still very a very low rank for how conducive the Nepalese environment is for doing business. The country has been plagued by political instability for over two decades. During the course of this time, Nepal has witnessed the rise and fall of 20 governments. One step in the positive direction was the declaration of a federal republic. This has experienced a setback, however, with the failure of the Constituent Assembly to concretize the new constitution. With political instability being an inherent feature of Nepal’s economy since 1990, it is not progress but progressive erosion that the nation has been facing.

Where is it Headed?

Nepal’s economy is expected to grow at 4.6% in 2012, with the growth rate likely to be around 5.2% over the forthcoming three years, according to Nepal Economic Outlook 2012, published by the Institute for Integrated Development Studies (IIDS) in June.

For Nepal to accelerate its growth, it needs to focus on the right things. The recent turmoil in the casino industry is an example. It is now illegal to allow Nepal’s citizens to enter the eight casinos in the capital city of Kathmandu. Authorities are cracking down on casinos permitting locals to gamble. Rather than investing so much muscle power into curbing the industry, the government should be seriously considering how to revive it and garner some of the momentum being witnessed in the gambling industry in Macau and Singapore.

If Nepal continues being prudent with fiscal management and focuses on investments into infrastructure and creating a political environment that is supportive for businesses, the country can achieve significant growth in the upcoming years.