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Kamal Dev Bhattarai and Arun Poudel talk to economist Posh Raj Pandey, who is also the chairman of South Asia Watch on Trade, Economics and Environment (SAWTEE), about the impact of the global novel coronavirus outbreak on Nepal’s economy, with the focus on its impact on remittances.

How do you assess the impact of the coronavirus pandemic on the country’s economy?

Let’s first discuss the structure of our economy. The contribution of service sector in it is very high, which is mainly about people-to-people contact and movement. So, we see a higher impact of coronavirus in this sector. In manufacturing, there is comparably lesser impact but if there is a break in value-chains, it will also be affected. In our economy, the contribution of agriculture is about 27-28 percent, whereas the contribution of social and government service stands at around 4.5 percent. This means a third of the economy is insulated and would not be directly hit by coronavirus. There will be impact only in the remaining two-thirds.

How will the two-thirds of the economy that is vulnerable to coronavirus be affected?

There can be both direct and indirect, as well as positive and negative, impacts. The worrying factor is that the value-chain of the industrial sector is breaking down as we import intermediate and raw materials from other countries. This could result in less production and affect the country’s overall export. Similarly, the high flow of remittances boosts retail and wholesale trades. If remittances die down, health and education sectors could also be affected.

Next, the coronavirus scare is affecting our tourism. Basically, there are two components in tourism: hotels and restaurants, and travel and transport. These sectors are directly affected because movement of people is restricted. Similarly, there will be a direct impact in the construction sector. Big government projects will be hit.

What kind of positive economic impacts could the coronavirus pandemic have?

Due to the coronavirus outbreak, global oil price has come down. Despite some fluctuations, the price is on a downward trend. It would benefit our economy as we import a lot of oil. Similarly, concentration of our raw material resources in China was never a good thing. The world might now think of diversifying on raw materials and intermediate or final products. If the private sector and the government can come up with a calculated strategy, it also gives us an opportunity. On the negative site, as I said earlier, there is going to be a huge impact on remittance sector.

Remittances are considered the backbone of the Nepali economy. Will they be severely reduced?

The infection is spreading fast in Gulf countries and Malaysia, Nepal’s major labor destinations. Some countries have already blocked the entry of Nepali workers. Even India has said it will require Nepali travelers to be tested at the airport. This will restrict the flow of migrant workers as these countries are providing jobs to our unemployed people. Second, the remittances that Nepali workers send home have helped generate income and boost the economy. Remittances constitute one fourth of the country’s GDP, and if there are any ups and downs, our economy will be directly affected. Additionally, if economic activities slow down in those labor destination countries, they will ask for fewer workers. It will not only impact new recruitments, but also displace current workers. Can we generate employment at home for all those people?

Is there a way out of this potential economic crisis?

We are more or less without options. We have long been saying that sending workers abroad is only a transitional measure. And yet the government has been promoting it. We will not be able to manage the workforce if our workers return from those countries. We will be option-less because we cannot generate enough jobs for them at home. But even if we create some jobs, we cannot give the returning workers the wages they expect.

What could be the political and social fallouts of that?

Obviously, there would be big social and political impacts. It could result in political instability. There are also chances of social unrest and increase of crimes. It could also affect our social stability.

Will the national economy collapse if remittances stop coming, as some fear?

We have adopted flawed parameters of economic success. For example, the success of the finance minister is measured on the basis of the revenue and foreign aid he helps generate. It should rather be measured on how the money is spent. The finance minister takes pride in the revenue generated
but nobody cares where the revenue comes from. In the past decade, 47 to 58 percent of the revenue was collected from customs, which is import-based. Remittance money created demand here but we do not have enough supply. So the country had to import more, which in turn raised more revenue. So, more the remittances, more the imports and greater the revenue.

If the finance minister’s success were measured in terms of revenue from excise duty, which means more tax on goods produced at home, it would be better. Right now, the finance minister is complacent. The government thinks it need not work with the private sector. Even the Nepal Rastra Bank governor is happy because foreign reserves are in a healthy state due to remittances. Nobody cares about the huge import-export gap. Earlier, there was equilibrium between the country’s trade balance and inflow of remittances. So in a way the trade imbalance was compensated by remittances. In the past 3-4 years, the situation has worsened. Remittances have failed to make up for the deficit.

Does it mean remittances are decreasing or is the trade imbalance swelling?

The size of trade deficit has increased. Over the years, the gap between trade imbalance and remittances has continued to increase. Even in current circumstances, pressure is gradually building and remittances are not going to sustain the demand for foreign exchange. So, if remittances go down, we have to take foreign aid even to buy medicine, gasoline and food grains. Our economy will be captive to international financial institutions.

Compared to other countries in the region how dependent are we on remittances?

Obviously, India and Bangladesh get far more remittances than us. But in relation to the share of remittance to the country’s economy, we stand in the top three position globally. Except for some central Asian countries that send migrant workers to Russia, Nepal has the highest dependency on remittances. So we are in a very vulnerable situation. Regionally, we are the most vulnerable. When we talk about India, lower remittances will only have a local and limited impact. For example, it could affect the state of Kerela, not Delhi or other states. In our case, the whole economy will be affected. In Bangladesh, remittance contributes to just 5-6 percent to the national economy; in our case it was 25 percent last year.

What happens if we cannot find an alternative to remittance?

If we do not seek options immediately, our economy could crumble anytime. 

A ruling party taskforce has recommended substantial amendment of MCC accord. Is this possible?

Officially, we are yet to get the taskforce document. Based on media reports of the comments made by leaders, what I can say is that the comments are not substantial. You have to understand that the amendment process is long and difficult. Among other things, it has been said that the MCC compact violates Nepal’s constitution, which is not true. A communique to this effect has already been exchanged. We are not sure if the taskforce got that communique. There are other communiques, too, over other points. Some of the MCC points can be clarified if they are unclear. If there is a need for further clarification, an exchange of letters would be the shortest route.

Do you think the opposition to the MCC is ideological? Many ruling party leaders continue to see the US and all projects under it as ‘imperialist’. 

I don’t think so. What I would say is that some people have spoken against it on ideological grounds based on fake news and disinformation about the MCC. There are apparently around 500 websites disseminating fake news about the MCC compact. They say there is the MCC in Iraq and Afghanistan, which is wrong. There is no MCC project in the countries with American troops. The contents of fringe online media and social media show some bias. But mainstream political leaders are mostly in favor of maintaining cordial ties with the US.

How do you tackle the persistent perception that the MCC is part of US military strategy?

There are two issues here. First, as the MCC is time-bound, we do not have time to wait for such perceptions to die down. Once we start building the power transmission lines, towers and sub-stations, people will see our actual work. Seeing is believing. When people see the work, they will know that it is not military. As soon as parliamentary ratification and other conditions are met, we will go for speedy implementation. People will gradually understand what the MCC is all about. Similarly, not everyone can understand the 78-page long MCC compact document that was prepared by lawyers. These are international-standard documents and adhere to international norms. Unfortunately, some people are commenting on it without even reading the document or properly understanding the terms and conditions.

What are the important deadlines related to the MCC compact?

We have to understand that nothing lasts forever. We have fixed 30 June 2020 as the date of the accord’s entry into force. If we fail to meet that deadline, there will be credibility issue. So, June 30 is a critical date. Nepal government has dispatched a letter assuring that the compact will come into force after June 30. Non-compliance means violation of this commitment.

There could be further discussions, but it is beyond my jurisdiction to say what will happen after that date. But at the current rate, we could miss the deadline. The fiscal year of US government ends September-October. If the MCC is not endorsed before that, there will be uncertainty.

Even if the MCC and Nepal government agree on deadline extension, the US Congress can transfer unspent money to other heads. They could also withdraw the unspent budget. So it is a risky path. As it is, we have already lost five months, which in turn has greatly affected the morale of our staff.

Again, given the limited time, is there a chance of substantial changes in the compact?

It would not be difficult to explain some points through letters of clarification. For a substantial change, it should first land at the MCC board that includes the US Secretary of State. It would be difficult to justify the amendment to him because the compact was signed after sufficient discussion between the two sides. So it is better to finalize it through clarification letters.

There are also questions in Nepal about the need for parliamentary ratification of the MCC compact.

The rationale behind parliamentary ratification is to give legal status to the compact. There could be legal obstacles, and problems could arise, for instance while felling trees. Domestic procurement laws could be attracted. But we do not work as per the procurement law of Nepal. We follow MCC procurement guidelines. Therefore, the compact should be given the status of law for smooth project implementation. In case of conflict, the compact is implemented in line with section 7.1 of the agreement. On the interpretation of this provision, legal opinion was sought. Nepal government settled for a parliamentary approval through simple majority after legal consultations.  

Many people including senior NCP leaders are of the view that the US should clarify that the MCC is not a part of the Indo-Pacific Strategy.

It is up to the American government to say whether it is part of the IPS. What I have been repeatedly saying that the IPS is not an alliance. It is rather related to US foreign policy that covers areas from Indian Ocean to Pacific Ocean. It is about democracy, development, and defense. It is a policy document. In some policies we could align with the US and we can be partners. We can object to other policies that are not appropriate for us. We have that right. Nepal follows Panchasheel and America has its own policy. We the have power and capacity to pick and choose. So does it matter if it is a part of the IPS?  If China says tomorrow that everything that comes from China is under BRI, what would be our position? What will we do if the Indians say something similar?

The country should choose which path to pursue. The compact document has not mentioned anything about the IPS, so I do not understand what type of amendment we seek. Let us just follow what is written in the official documents that we have signed. We have to look at our relation with the US in the past 70 years.  We have to take decisions in a rational way.

Sri Lanka recently decided to reject a similar MCC grant. This has also fueled suspicions here.

Nepal and Sri Lanka have distinct political histories. From 2007-2009, Sri Lanka faced an ethnic civil war. Thousands of people were killed. There was international objection over extrajudicial and civilian killings. The UN and western governments took strong positions. They dragged many top Lankan army officials into war crimes. If you have followed recent news out of Sri Lanka, this had a direct bearing on the proposed MCC grant.

The MCC in Sri Lanka is related to road improvement and land management. Land management was aimed at digitalizing data and adopting new methodology. A section of people portrayed it as a data secrecy issue and termed it objectionable. However, the Sri Lankan government has not taken a firm decision that it would not receive the MCC grant. The current government is a transitional one as parliamentary election is due in December. The cases of Sri Lanka and Nepal are entirely different, and the position of Nepali leaders is not akin to those of Sri Lankans.

If there is no parliamentary approval, what could be the implications?

On the part of Nepal, there would be serious damage as the Nepal Electricity Authority has signed several Power Purchase Agreements (PPA) that are contingent on the construction of the Gorakhpur-Butwal transmission line under the MCC compact. The PPAs will be affected if the transmission line is not built. The proposed transmission line under the MCC can carry up to 3,000 MW electricity. The power sector in Nepal will take years to recover if this is not implemented. 

Next, the World Bank, JICA, Asian Development Bank and other international organizations visit our office and consult us about the transmission line. They synchronize their transmission lines accordingly. If the compact is not endorsed, it will affect their projects as well. It will give a message that doing projects in Nepal is difficult. It will be a big setback for the country as well as all foreign companies that are investing in Nepal’s hydropower. It would be difficult for us to even convene investment summits.

Nepal and the US have a 70-year history of cooperation. The US was the first country to support Nepal’s bid for UN membership. The MCC compact entails the biggest grant the US has provided to Nepal. It took more than five years to sign the project. I think no country should reject this. It is already signed, the design is ready, the office is already there, and the staff is working. It is not good to create disputes now.

Q. What one thing annoys you the most?
A. Fake behavior.
Q. Do you have a song that reminds you of a relationship?
A. I used to sing “Chahana sakkiyo, bahana sakkiyo” a lot with my childhood friend Sneha. That song reminds me of how she guided and encouraged me to sing.
Q. Have you ever tried something you knew you were really bad at?
A. I was really bad at singing, but I tried.
Q. What fashion trend do you just not get?
A. I don’t keep up with the fashion trends but pairing a blazer with biker shorts is a big no!
Q. On a scale of 1 to 10 how “cool” are you?
A. I’m very cool. So 10 on 10!
Q. What is your best attribute?
A. I can manipulate people in a good way.
Q. Describe yourself as a teenager in three words.
A. Competitive, funny and bright.
Q. If you could be from any other decade (or era), which would it be?
A. I wouldn’t want to go to any other decade.
Q. New clothes or new phone?
A. New phone!
Q. Name a book you read that positively shaped you.
A. Not a big time reader but I really enjoyed Buddhisagar’s “Karnali Blues” for the friendship portrayed
in it.

Our politicians see the constitu­tion only from a power perspective. All our constitutions from 1948 till date have been misused to make certain politicians powerful. Those constitutions were promulgated to serve certain interests, not the people. For the first time in Nepal’s political history, a participatory approach was adopted when the country promulgated the constitu­tion in 2015 through the Constituent Assembly. But even then, certain people sought to fulfill their own interests, disregarding larger public interest.

Now, the issue of amendment has come up. Opposition parties, mainly Madhes-based ones, and Dalits have grievances with the new constitu­tion. However, we are yet to start a detailed study on what kind of con­stitution amendment is required. This is because our constitution has not completed even a single elec­toral cycle. Laws are yet to be made in line with it. Even the formulated laws are beset with problems.

As the constitution is still new, it is immature to talk about amendment. In an emergency, an amendment could be necessary. But this is not the case now. The talk of consti­tution amendment has surfaced only to make a certain leader prime minister. One can become prime minister only through political backing, not constitution amend­ment. Parties should not choose this wrong path.

There were also attempts to get the consent of the Madhes-based parties to the amendment process with the promise of incorporating their agenda.

Actually, the force which is back­ing this agenda thinks that once the agenda is tabled in the parliament, Prachanda and Bam Dev Gautam will lose their control over it. In this scenario, the force can fulfill its interest. Look at our recent history. The first CA was dissolved without delivering a constitution. The sec­ond CA promulgated a new con­stitution due to a strong position taken by then Prime Minister Sushil Koirala. Otherwise, there was no possibility of the new constitution. The missing constitution was only giving opportunistic elements more space. We certainly have issues of Madhesi, Janajati and Dalit people, but there is a need for a national per­spective on how to address them.

Will it be justified to give Nation­al Assembly power to elect prime minister?

Let’s look back to the time KP Oli became prime minister. Politics was heated then. He somehow got the coveted post, but it was difficult for him to put the house in order. There are two houses in the parliament, and both have similar powers about making laws. But why does only the lower house have the right to form government?

There are certain constitution­al principles behind it. The House of Representatives is larger than the National Assembly. It is more inclusive, and more diverse too. More important, the House of Representatives has powers over money bills and committee systems which are formed under various themes. The leader of the largest party in the lower house stakes the claim for prime minister. I do not think the House of Representatives would agree to tie up its hands and legs by allowing the National Assembly to pick a prime minis­ter. The people who are pushing the amendment have not thought this through.

What do you think was at the heart of the constitution amend­ment demand?

It is an anti-government strategy. It does not address public expecta­tion. Some forces want to disturb the current political stability. Such an amendment proposal cannot be tabled as it could invite unexpected upheaval in national politics. Even if required, there should be adequate discussion among stakeholders. All parties should be involved. The NCP leaders are ready for an amend­ment because someone is mislead­ing them about the outcome. Nepal has a big potential for a consolidated democratic system. There are forc­es that do not like it. They helped initiate the Maoist insurgency. The same forces are trying to scuttle consolidated development in Nepal.

Are you hinting at internal or external forces?

There are both internal and external forces behind it. In certain aspects, the current government is different from the previous ones. India did not support us when we promulgated the constitution. But we had an assertive government which told foreign powers that Nepal will promulgate a new consti­tution, no matter what. KP Sharma Oli received popular votes in 2017 elections due to his strong stand against the Indian blockade. So long as he stays, the same forces will con­tinue to play. The Oli government has also made departure in relation with China. It has given a message to the international community that a second or third power is not needed in Nepal. Some elements do not like this. Obviously, Indian interest always influences things here.

Is such abuse of the constitution common in South Asia?

In weaker countries, it is difficult to explain the constitution on the basis of its worth. Nepal is much better off in this regard. In India, we saw Prime Minister Modi amend the charter and decide Kashmir’s fate without a thought about the Kash­miri people. India is a federal coun­try, but it is concerned more with security than power devolution in Kashmir. There are many constitu­tional issues in Pakistan and Arabian countries. In those countries, consti­tutions have little meaning. We can see similar tendencies in East Asia and South East Asia. Our problem is related more to geopolitics than the constitution. If Nepal is allowed to function independently, we will be better off. We can consolidate constitutionalism.

How do you evaluate the process of constitution implementation in Nepal over the past four years?

First, the constitution was pro­mulgated amid much political ten­sion. But we have made progress and achieved stability. The forces that challenged the constitution have joined mainstream politics now. This is positive. Second, our goal is not only political change but also transformation: we wanted to qualitatively change our political culture in line with the new con­stitution. But we are yet to make laws to implement constitutional provisions.

Another important issue is good governance which is a day-to-day affair. But when we think of long-term, we have to make our vital state institutions vibrant. We have to for­mulate laws and procedures in order to make this constitution strong.

On constitution implementa­tion, we have a mixed experience. On stability, we are in a safe posi­tion. But there are some weak­nesses in formulating laws. One example is the recent media bills. The government has not had a positive outlook on the media. On governance, we have to deal with corruption and build institutions. In general there is no threat to the constitution. But many agendas related to transformation are yet to be addressed. Each provision of the constitution should be imple­mented. Remaining laws should be formulated.

Some say the new Nepali consti­tution too will fail, just like its predecessors. How can you say there is no threat to it?

The biggest threat to the constitu­tion is lack of national unity. Nation­al unity will create an environment for the constitution’s stability. To maintain national unity, we have to ensure justice for all, at least on fundamental issues. There were foreign interests in our past con­stitutions. They failed for the same reason. Nepali people were barred from having their say when big decisions were made. For example, Nepali people were not asked to vote whether they wanted a republican system or a monarchy. We could have gone for federal structure by amending the 1990 constitution, but we took a more risky path.

There are claims that the government is trying to weaken key state institutions.

On the issue of National Human Rights Commission, yes. The NHRC was formed with a view that it should be out of government influ­ence. Now, an amendment bill has been registered which states that the NHRC could recommend the gov­ernment to take action on human rights violation cases. But such rec­ommendation can be implemented only with the consent of the attor­ney general, the prime minister’s legal advisor. This shows the gov­ernment has a dismal outlook on human rights. But there are also reports that the government is think­ing of withdrawing such problematic provisions.

Does the parliament pose any kind of threat to the current gov­ernment?

Till date, the government was under no threat from the par­liament. But now that threat is increasing. This is a challenge not only for the government but also for the stability of Nepal, as well as for the new constitution. While exercising political and con­stitutional powers, PM Oli should accommodate the concerns of all parties. The PM should strictly control wrong activities where gov­ernment ministers are involved, including corruption. This will help not only the government but the entire country. We certainly don’t want a repeat of the vicious circle of political instability we witnessed in the 1990s