By Usman Khan

The rainfall in Nepal during the monsoon this year was 10 percent lesser than the yearly average. The government regularly fails to acquire sufficient chemical fertilizer for farmers in time. Insufficient rain is likely to reduce the rice production and adversely impact the cultivation of pulses, oil seeds and vegetables, as winter rains are often unpredictable. The series of drought and floods in the plains the rice bowl and bread basket of the country is bad enough. The impact of climate change has begun to worsen the situation as heat waves during the summer and foggy haze during the winter negatively affect agriculture, animal husbandry and fish farming.

Small landholders and negligible farmers in Nepal need a lot of grit to maintain the tradition which once proclaimed that farming was the best occupation as it helped feed the world.  The sanctity of tilling the land for salvation has lost its social and religious overtones. When livelihood is at stake, economic considerations triumphs over family traditions. It is much more tempting these days to sell the land, get in touch with a manpower agent and fly away to the cities of the Gulf Cooperation Council such as Dubai, Doha or Dammam. It's the money they send home from their meagre earnings as remittances that has kept the Nepali economy afloat during difficult times.

The rhetoric of creating employment opportunities in Nepal through industrial development is all very well, but it flies in the face of ground realities. The supply of energy has stabilized to a certain extent, but the availability of hydroelectricity is highly vulnerable to natural calamities. The per unit cost of transportation in a landlocked country with largely rugged terrain makes the import of raw materials and the export of finished products highly uncompetitive.

In addition to transportation bottlenecks and volatility of energy availability, there are human resource restraints that dismay the productive investment in the industrial sector. Managerial talent is in short supply as opportunities in the development agencies and INGOs are more lucrative. Technical personnel prefer to work abroad due to higher prospects of career advancement in bigger markets. Skilled workers are hard to find and even more difficult to retain.

Perhaps the most frustrating element is the sense of entitlement among government officers, regulatory authorities and even unskilled workers that the jingoistic elites have nurtured over the years. While fly-by-night operators find the commercial environment extremely conducive for making a fast buck in cahoots with manipulative fixers, the condescending attitude of locals makes foreign investors, expatriate technocrats and skilled managers cringe as they feel unwanted and unwelcomed in a high-risk and low-return country.

The glamour of the tourism “industry” in Nepal notwithstanding, its contribution to the GDP was a miserable 6.7 percent recently, and is unlikely to go above 10 percent in the near future. Remittance has remained one of the largest contributors to the national economy for years, and will probably remain so for quite a while. The World Bank estimates that remittances accounted for 22 percent of the GDP this year. Informal inflows are considered to be at least 50 percent higher than official figures. The economic size of remittances is too high not to have a significant impact on the political economy of the country.

There is a growing fear amongst the general public whether Nepal will face a fate similar to that of Sri Lanka, given the escalating rate of inflation and high trade deficit. However, as the economic structure of Sri Lanka and that of Nepal are different, Nepal may escape the same fate. For example, Nepal has far less external debt compared to Sri Lanka. Besides, the contribution of tourism to the Nepalese economy is comparatively low. To be precise, Sri Lanka needs to repay the foreign debt worth US $4 billion this year whereas the debt service of Nepal for this year stands at only US $400 million only.

Likewise, while the contribution of tourism to the GDP of Nepal is around 3 percent, its contribution to the GDP of Sri Lanka is around 12 percent. As such, because of these two reasons, Nepal is less likely to be like that of Sri Lanka given the situation. Besides, the structure of loans Nepal has to service are different from that of Sri Lanka. In the case of Nepal, its debt comprises mainly the soft loan with lower interest rates whereas the foreign debt of Sri Lanka mostly comprises commercial loans.

Nepal’s current economic situation does ring alarm bells that it is time the country initiates appropriate steps towards increasing production and productivity. Poor governance, especially lack of transparency, accountability, effectiveness, and efficiency is of prime concern.  Formulating evidence-based economic policies that encourage transparency and accountability can save Nepal from an economic crisis similar to that of Sri Lanka with the help of highly skilled human resources and by implementing them effectively. Unfortunately, the prevailing political mechanism and bureaucracy appear reluctant to take such initiative. Nepal’s governance is characterized by corruption and nepotism. The country’s economy still hinges on remittance and traditional farming. Thus, Nepal’s economy may suffer a major setback if these issues are not resolved.