Reviewing a high-level report
Chairperson of the High-Level Economic Reforms Commission, Rameshwor Khanal, recently submitted the commission’s report to the Deputy Prime Minister and Finance Minister, suggesting a number of measures to boost the economy.
The measures include suggestions like making the economy borderless to benefit from the global economy, a radical suggestion in a country like ours where the government does not admit that anything is wrong and the central bank paints a rosy picture even when there’s a 3-4 percent economic growth.
In our case, most economic forecasts are as reliable as weather forecasts, if not more.
What steps does a weak economy need to achieve a healthy growth? Before jumping into the report, let’s take some lessons:
Investing in human capital
First, smaller countries like ours should identify what they have. If a country is small, it would be appropriate to increase human capital just like what Singapore did.
Having a good leader makes a great difference. Singapore is a shining example. The former prime minister of Singapore, Lee Kuan Yew, transformed a poor country into the world’s second richest in terms of GDP per capita in six decades by prioritizing education, infrastructure, services and industry.
Rwanda is another example. It spends 22 percent of its entire GDP on education, while Singapore spends up to 24 percent of its entire GDP.
Increased infra investment
Take the example of China, whose public transport infrastructure is one of the best. Japan cannot match China's numbers but the quality of its public transportation, roads and high-speed rail makes it the best in the whole world!
Rails and roads should be a priority for poor countries too. The Covid-19 pandemic not only challenged human health, but also dealt the global economy a serious blow.
Emphasis on policy reforms
The above-mentioned report has presented a roadmap for economic reforms by suggesting steps for the creation of a private sector-friendly environment.
Economic policies should be formulated to create economic opportunities and build an economy where all sectors can compete equally, the report goes. In terms of monetary policy, the report recommends reducing the band of the interest rate corridor, reducing interest rate fluctuations by making liquidity management more active, confining inflation to a single digit by keeping it in a range of 4-6 percent. It has called for discussions, research and preparations on alternatives to a fixed exchange regime with the Indian currency.
The report suggests radical changes aimed at institutional reforms. In particular, it suggests that every ministry, department and central-level body should formulate and implement a periodic improvement strategy by determining indicators to promote business-friendly and investment-friendly nature of its work and to provide services to citizens.
In the light of these suggestions, is it possible to not transfer secretaries deputed at federal ministries for at least two years in an unstable political situation?
Is it also possible to not transfer employees deputed at ministries for five years and let teams undertaking development projects work for five years?
Citing increased expenditure on social security, training and pensions, the report has recommended increasing the age for mandatory retirement of government employees to 60 from 58 years. This suggestion makes sense, given that the current average life expectancy is 73 years.
Against old and regressive acts
What’s more, the report recommends repealing 15 old and regressive acts, a demand that the private sector, especially the Confederation of Nepalese Industries (CNI), has been raising for a long time. They include Income Stamp Duty Act (2019), Black Market and Certain Other Social Offenses and Punishment Act ( 2032), Private Forest Nationalization Act ( 2013), Administrative Procedure (Regulation) Act (2013), Revenue Leakage (Investigation and Control) Act (2052), Foreign Investment Prohibition Act (2021), Nepal Agency Act (2014), Provincial Development Plans (Implementation) Act (2013), Import and Export (Control) Act (2013) and Social Behaviour Reform Act.
The report is against increasing social security allowances for the next five years, recommending that the allowances should be reviewed every two years after that, on the basis of price inflation. The government is currently providing senior citizens a monthly old-age allowance of Rs 4,000, among others. Although this is a good suggestion in terms of treasury, it is difficult to implement before the elections.
On BFIs, derivatives market
The report recommends amending Banks and Financial Institutions Act to allow the operation of peer-to-peer lending institutions, allowing crowdfunding through the Securities Act and putting in place a licensing policy and regulatory arrangement for the same. It has suggested that the Securities and Exchange Board of Nepal (SEBON) should create necessary infrastructure for the development of the derivatives market. Legal and regulatory arrangements should be made for angel financing and arrangements made for registering potential angel investors, the report suggests: Since such investors invest in start-ups and bear the risk, only 10 percent income tax should be levied on the income received from such investments, it states.
Furthermore, the report has suggested reducing transaction fees for large-scale share transactions while standing against the opening of a new stock exchange. It has recommended restructuring Nepal Stock Exchange and increasing its capital with the participation of the private sector.
The commission has expressed belief that the suggestions proposed in the report will be helpful in creating economic opportunities and expanding entrepreneurs’ access to available economic opportunities, expanding employment within the country, and achieving high and sustainable economic growth.
To what extent will the government be able to implement the suggestions given through the report? Let’s wait and watch.
