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The blind push for government-led capital expenditures without adequate concern over the quality of those investments is limiting Nepal’s growth and could derail the economy. Development partners, who in effect finance the capital expenditures, must demonstrate greater honesty in the due diligence of their investments.

Despite the projected decline in economic growth, Nepal’s broader economic indicators remain robust. Foreign exchange reserves are now bordering on the excess, having surged to be sufficient for 12 months of imports. Budget deficits, external current account, inflation, and other key markers remain stable.

A recent analysis by the International Monetary Fund (IMF) concluded that Nepal has strong borrowing capacity. The current public debt to GDP ratio, at approximately 30 percent, is less than half of what IMF estimated as the benchmark debt carrying capacity. There is similar space in debt servicing capacity. These ratios are projected to remain comfortably below the benchmarks in the future.

There are growing calls for Nepal to accelerate public capital expenditures. The Asian Development Bank (ADB), for example, believes Nepal must significantly increase infrastructure investments. It calls for tripling the public capital spending to GDP ratio from current 3.5 percent to between 8-12 percent.

This is the simple narrative in Nepal: investments are needed for growth, and there is ample room to borrow. So, hurry up government!

This, however, fails to examine the quality of public capital expenditures—how the projects were chosen, their broader economic returns, and who really benefits from these investments.

Public capital expenditures failing

While Nepal does have adequate space for borrowing to finance capital investments, it also has an almost infinite need for infrastructure. From that perspective, public capital investments are zero sum. An investment on a project erodes the equivalent debt space. Government-led capital investments, therefore, must be viewed through the lens of budgetary constraints.

In Nepal, every capital investment—whether a simple community tap or a magnificent new airport—is needed. But in the context of budgetary constraints and the many competing projects, how are public capital expenditure projects prioritized and rationalized?

Government-led capital expenditure projects are overwhelmingly selected by patronage and corruption, and based on who will execute them, rather than on their broader economic returns. This is the reason public capital expenditure programs disproportionately favor projects with frequent procurements.

The failure of government-led capital expenditures in Nepal is already visible. These projects are not providing economic returns fast enough: their impact on broader economic growth is negligible, and they have failed to improve domestic capacity or enhance investor confidence.

Consumption based taxes (value-added, customs, and excise duty) currently account for approximately 60 percent government revenues. When public capital expenditures fail to produce growth, government revenue base will remain limited. Consumption-based taxes will need to continue to finance these expenditures. This means higher taxes on consumption products.    

Government capital expenditures aren’t enhancing the confidence of international investors. In project selection, design, and execution, investors see a messy network of intertwined short-term interests. These projects are also not increasing the technical, financial, or managerial capacity of domestic firms at the rate public capital expenditures suggests they should.

Absence of institutional filters

Nepal lacks the institutional filters to screen government prioritization and rationalizing of public capital expenditures. The National Planning Commission (NPC), and the civil service in the ministries, should be playing that role. Unfortunately, they have folded into the patronage economy.

Business associations are too vested in the patronage economy to serve as meaningful filters. Civil society lacks the organization and resources.

This where Nepal’s donors could do more to plug the gap for an honest filter of government prioritization and rationalization of public capital expenditures. Donors must employ more comprehensive due diligence on their proposed investments—listen carefully to stakeholders, and critically examine the process for rationalizing and prioritizing projects. They must partner with, and help empower, independent civil society organizations in this process.

Financing a poor public capital expenditure project does more to relegate Nepalis to a future of poverty and debt servitude, than not financing it at all.   

An alternative narrative

The continued emphasis on accelerating public capital expenditures for growth is overshadowing the underutilized productive capacity and pent-up growth potential bottled within the economy. Unlocking this potential requires interventions not with public capital expenditures but painful reforms.

For the patronage economy, that’s simply not profitable enough.

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The news of reappointment of Kul Man Ghising, the engineer who ended load-shedding, as the MD of the Nepal Electricity Authority (NEA) for another tenure, spread like wildfire on social media, bringing a sigh of relief, if not some happiness, among the Kathmanduites. (The news, it turned out, was premature.)

I think this is the right time to tell you a story that begins with a suicide in Syangja district. You can probably classify it as a sociopolitical action thriller at local level, in Nepal.

Some months back, the head of the health department in Galyang municipality was found dead, hanging by a tree. The police concluded it was a suicide.

A news story appeared in an online newspaper, directly blaming the mayor for the suicide. The mayor is of the Nepal Communist Party and the reporter who wrote the report was, obviously, associated with the Nepali Congress.

All hell broke loose in Syangja then.

The gangs of reporters and supporters, from the two parties, declared war on each other.

Soon, the financial disclosure of a fundraising Mahayagya to build a temple, that had taken place ten years ago, was splashed all over the papers. The team that organized it was from the Congress party.

Then, a case of rape was registered against the one of the municipal NCP party chairs, and widely covered in media. It was later discovered that the FIR was registered by a relative, and the woman who was said to be raped wasn't available.

In the next incident, the mayor of the same municipality, who belongs to the Congress party, was in a garage at night, accompanied by some boys, getting his vehicle repaired. Someone appeared there and a brawl ensued. The newcomer was drunk and had attacked the mayor’s boys first.

And then the midnight breaking story appeared in many online papers, that the mayor had beaten a boy, the drunk newcomer, black and blue, which, of course, wasn’t true.

And the action thriller continues. This, I believe, isn’t limited to Syangja. Local politics all over Nepal is being done like this. There is no rule of law, and no independent journalism. Politics has criminalized everything in the society, and it’s now taken over completely by the criminals.

Federalism, what was presented as a promising panacea for most ills that ailed Nepal as a nation, has ended up being a joke. The local governments are clueless at best and being run as gang dens at worst, openly collaborating with criminals in plundering the natural resources and terrorizing people.

The provincial governments haven’t been able to even establish their own presence, forget making an impact. They have become an agency for recruitment of the political cadres at different levels.

And, what is worse, nowhere do we see anything meaningful being done to achieve the prosperity that this government at the center promised. Too busy to secure the government's own survival and manage the power struggle within the ruling party, the government with close to two-thirds majority has wasted a historic opportunity.

How did we end up here? Why is this unprecedented opportunity slipping away, teasing us point blank, and we are unable to respond? Why is this criminalization of politics, at every level, accepted as the new normal?

The answers probably lie deep in our society and recent history. But the socio-psychological analysis aside, we can safely lay the blame on the present day politicians.

The only way out of this dark phase is a citizen’s revolt.

If the government decides against retaining the ‘Cool Man’ who broke the criminal load-shedding business nexus at the NEA, Kathmanduites will probably awaken from the slumber and revolt.

In any case, there is no ‘Cool Man’ to break the politico-criminal nexus led cronyism that is pulling the country into a downward spiral.

Nepal has a unique political set up. The critical youth mass, which can drive change, is mostly away or concentrated in Kathmandu. And what we have left in the countryside is not enough to resist any mainstream decadence.

The Munshi Khana, the precursor of the Ministry of Foreign Affairs, had a narrow remit during the Ranarchy. It handled a few correspondences with British India, Tibet and China. But its primary duty was to closely watch the activities of the British resident in Kathmandu, and to keep him in good humor. Rana rulers knew their days were numbered without British support. 

The Munshi Khana morphed into the Ministry of Foreign Affairs in 1951, a year after the advent of democracy. Hemmed in between a rampaging communist China and a newly independent and insecure India, Nepal suddenly felt the need to widen its diplomatic outreach beyond its two immediate neighbors. The new rulers of Nepal realized that a rapid expansion of foreign relations was perhaps the only sure way to preserve the country’s long sovereign existence: The Nepali mission in London was upgraded to an embassy, and diplomatic relations established with the US (1947) and France (1949) in quick succession. This outreach gained further momentum in the 1950s.   

The country now seems headed in the opposite direction. The government of KP Sharma Oli is acting like it needs no other foreign friend besides China. Paradoxically, its stated foreign policy mantra is diversification. Now we hear the government is reviewing the country’s foreign policy. 

This is nothing new. Sher Bahadur Deuba, Oli’s immediate predecessor as prime minister, had formed a task force under Shreedhar Khatri for the same purpose. The task force submitted its report after nine grueling months of study. No one knows what happened to the report. This suggests such revisions are no more than PR exercises. 

As things stand, the best of policies will be worthless if Nepal cannot change the growing perception that it is turning into a Chinese client state. A central question of our new foreign policy, if we are serious about its revision, must be: how do we import China’s growth model without also importing its ideology? And how do we assure an insecure India that is increasingly paranoid about Chinese designs in South Asia of Nepal’s good faith? 

The same calculations factored into Nepal’s outreach to the western world in the late 1940s and 1950s. Yet the Oli regime seems to have completely missed history’s lesson. Nepal sought closer ties with the US, not because it was enamored with American capitalist worldview. It did so to keep our two neighbors honest. But the ruling Nepal Communist Party wants to minimize Nepal’s engagement with the US—while it continues to strengthen ties with China’s CCP.   

The Americans aren’t going away. The more they feel constrained in Nepal, the more they will rely on India to pursue their interests here, be it under the rubric of IPS or Quad. Surely, it’s in Nepal’s interest to deal with the US directly than through India. (Remember the 2015-16 blockade and the helpless Nepali pleas to the Americans to stop seeing us through Indian lens?)

If Nepal does not want to be dragged into a military or strategic alliance, as the Oli government keeps telling us—and with regional organizations like SAARC and BIMSTEC barely functioning—there is no alternative to enhancing Nepal’s bilateral ties. This means fostering closer relations not just with the US, but also with other big- and medium-size powers around the globe.  

Any rational discourse around vaccines is impossible because the Americans have decided—and put an enormous amount of media attention—on creating the anti-vaxxer. This individual is always irrational, motivated not by science but by propaganda, and hysterical in their response to vaccines. They reject all vaccines not on the basis of rational evidence, but an intrinsic notion that vaccines are malefic.

Americans of course love to reject the grasp of the authoritarian state and any restrictions on personal freedom and choice, which is why they’re averse to both masks and vaccines, in equal measure.

This creates an added problem when individuals outside America try to debate the merits and demerits of vaccines. Americans assume everyone is a default American and we all think the same way. This, however, is not true, although it might not be apparent to the average liberal American who reads the New York Times and rants against anti-vaxxers.

I come from Nepal where everyone gets vaccinated and wears masks. But I still have questions about vaccines.

Let’s take the Covid-19 vaccine, rapidly being developed by Russia, China, UK, US, India, and myriad other countries. There’s a race to be the first country to create it, in the same way nations raced to get to space.

Because of Bill Gates and GAVI, the idea that a vaccine will cure this pandemic is seen to be the only answer. Gates cunningly managed to get $9 billion, from rich and poor nations, for his vaccine solution. The last interview of Mr. Gates, adoringly presented by some big media houses, showed him talking about how at least one among the six or seven vaccines being developed should work. It was unclear whether he thought people should take them simultaneously, or one after the other.   

Will the vaccine cure the pandemic? In Italy, large number of elderly people died in February and March 2020. One factor that stands out is the quadrivalent flu vaccine the Italian government provided for free to all citizens. “Quadrivalent” refers to the vaccine’s ability to suppress four types of flu virus strains. Elders over 65 were encouraged to get themselves vaccinated. The new vaccine was thought to be cost effective at 6 euros for a shot, cutting down the cost of hospitalization for pneumonia and bronchitis.

Yet despite the vaccinations, according to an article “Investigating the impact of influenza on excess mortality in all ages in Italy during recent seasons (2013/14–2016/17 seasons)” published in the International Journal of Infectious Diseases, Italy had a higher prevalence of influenza deaths than other European countries.

“Italy showed a higher influenza attributable excess mortality compared to other European countries, especially in the elderly.”

Quadrivalent vaccines are cell-based. They are grown inside mammalian cells, instead of inside chicken eggs. So already we have an added complication here in which we have to trust the vaccine makers not to make a mistake with microscopic cells. These are not the simple vaccines of the past. This is a whole new and unknown biological apparatus in which multiple factors could go wrong.

Italy’s hundreds of coronavirus deaths among the elderly (9 percent mortality rate) may have been triggered by the quadrivalent vaccine, which suppressed their immune response to coronavirus. A small cold boosts immunity by building up the immune response. When people are shielded and show no response to the viruses of everyday, any new viral infection can bring down the house.

Are vaccines always safe? Italy suspended two batches of a Fluad flu vaccine made by Swiss firm Novartis after four people died shortly after receiving the drug, according to BBC. TIME magazine reports 11 deaths. Vaccine safety is never guaranteed. 

As science has become more complicated and opaque, so has disease. The Covid-19, for instance, seems to have a link with a bat virus which scientists in China were collecting from bats in caves. For some inexplicable reason, scientists then spliced these viruses into human cells to see if they would spread respiratory diseases. The fact a pandemic followed soon after is vociferously rejected by Chinese scientists as having any link with their research. But rationally we can assume there might be a connection between bats, artificial insertion of virus into human cells, and subsequent pandemic. This research was conducted with US government funds going to the Wuhan Institute of Virology, via American NGO EcoHealth Alliance.

So why is this pumped up version of genetically modified science, which glorifies the minute workings of the microscopic cell, the in-thing right now? Why is it getting all the funding? Why is there no ethical review of its potential harmful impacts? Is it because it gives an added measure of power to scientists by working with phenomena that ordinary people can’t see and understand?

Is the vaccine, created in troubling, opaque ways, and which in the past has shown to cause large number of deaths in Italy’s elderly, still the answer? Or are we pursuing this in the mistaken belief that science is supreme and we must follow its logic above all else?

The coronavius is a multi-headed hydra that requires careful, rational response from governments, policymakers, anthropologists, nutritionists, and traditional healers, among others. We can’t leave this at the hands of one man whose main qualification is selling the world a lot of clunky, soon-to-be-obsolete software.