The High-Level Economic Reform Advisory Commission has identified a declining consumption growth rate and a reduction in investment as the primary reasons for the sluggish economic growth rate. The commission, formed under the leadership of former Finance Secretary Rameshore Khanal, has suggested that immediate policy interventions are necessary to improve the demand side. To achieve high economic growth, it has recommended structural reforms on the supply side to create an investment-friendly environment and reduce production costs to enhance competitiveness of Nepali goods.
According to the commission’s report, reduced credit growth, declining real estate transactions, millions of rupees trapped in cooperatives, delays in government payments, issues in recovering commercial credit, and a crisis in the construction sector have led to reduced consumption and investment. “Delays in balancing certain monetary tools used for relief during the pandemic, insufficient activation of fiscal policy, and import control policies caused the economy to face successive problems. As a result, the economy has experienced further stagnation over the past two fiscal years,” the commission said in its report.
It has recommended reducing barriers and expanding opportunities in sectors critical for economic growth, such as agriculture, forestry, land, mining, water resources, tourism and information technology. To create opportunities in these sectors, the commission has emphasized the need for policy interventions in physical infrastructure development, urban development, energy security, education and skill development, health and research and development.
The commission has urged the government to implement the suggestions provided by the High-Level Public Expenditure Review Commission and the High-Level Tax Reform Committee regarding public expenditure, revenue policy and administration. To create an industrial and business-friendly environment, the commission has proposed establishing a single registration entity where all types of businesses can register, and taking the entire registration process online. It has also suggested making all business registrations free and eliminating the need for renewals.
Likewise, the commission has proposed allowing up to 50 percent foreign investment based on the evaluation of investment proposals. It has suggested that Nepali firms or companies permitted to invest abroad should pursue double taxation avoidance agreements and bilateral investment agreements with approved countries. It has also called on the government to abolish the Department of Revenue Investigation Department and the Revenue Leakage Act, transferring investigations related to foreign exchange misuse to the Department of Money Laundering Investigation.
To make farm subsidies effective, it has urged the government to distribute subsidies to farmers through a single-window system through the local government. Likewise, it has suggested creating a Farmers’ Welfare Fund in collaboration with provincial and local governments to provide subsidized loans.
The commission also said in its report that businesses should not be restricted by setting a maximum profit ceiling. Likewise, it has urged the government to make bank interest rates stable, at least for productive sectors. “Since Nepal’s exchange rate is fixed with the Indian currency, it causes fluctuations in the external sector to impact domestic banking liquidity and lead to volatility in interest rates,” the commission said in its report.
Stating that the lack of collateral is preventing many, especially startups, from accessing bank loans, the commission has suggested that introduction of a personal credit scoring system would facilitate loan disbursements for small businesses.
