Economic development: Paradigm shift

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    Aid should be utilized for domestic resource mobilization, which is pivotal in promoting self-reliance. Such projects should be based on a demand-driven model wherein the priority sectors for investment and development cooperation have been already identified

    Nepal has set a long term vision to transform itself into a middle income country by 2030. It is obvious that there is a big capacity gap in resource generation and its mobilization for achieving the set goal. The trend of government spending as percentage of Gross Domestic Product (GDP) is decreasing. This has largely impacted the inflow of Foreign Direct Investment (FDI) and foreign aid for rapid structural change.

    FDI pledges versus actual investments received by the country from FY 2011/12 to FY 2015/16 clearly indicate that Nepal has a long way to go to become a competitive economy. It has been receiving the smallest net FDI inflows in South Asia after Bhutan. Nepal ranks 107th in terms of Doing Business out of 190 countries, second to Bhutan in the South Asia region. In proportion to GDP, Nepal is the highest remittance recipient economy in Asia.

    Likewise, the global priority of the donors has been shifting from development to relief and humanitarian works such as refugee settlement and peace-keeping in the war zones. Traditional theories of foreign aid suggest that donors generally provide conditional aid, which might not promote economic and social development of the recipient country. From past experience, the donors have not been investing adequately in developing huge natural and human resource base which are already gifted to Nepal. A significant proportion of aid from the donors has been targeted at social sectors like education, health, sanitation and water supply, government and civil society, among others. Consequently, economic development in social services and infrastructure in Nepal has not made dramatic progress.

    Foreign aid consists of grant, loan and technical assistance. Such kind of aid or assistance surely improves distress in the shorter term but does little to build the capacity to become a self-reliant economy. When it comes to utilisation of foreign aid or its effectiveness, Nepal still seems to be far behind. There is a need to assess the funds being spent by the different agencies (International/Non-Governmental Organization-I/NGOs) in Nepal. Similarly, I/NGOs operations increased sharply in Nepal mainly after the earthquake in April, 2015.

    Poor and marginalized people, including women, children and people with disability are becoming more vulnerable in rural Nepal due to lack of resilient capacity to tackle recurring natural disasters and acute poverty. An unemployment rate of 42 percent has created a sense of desperateness in these areas. The low skill levels of Nepalese workforce, resource gap and underdeveloped infrastructure are detrimental to economic growth and trade. Collective corruption at all levels of government structure and social disparity in terms of gender, caste and economic class are further concerns. Another big challenge faced by the country in achieving higher economic growth is the frequent changes in political leadership. Although its capital inflows declined, inflation has been on the rise, and remittances from Gulf countries have started to weaken. Nepal could take advantage of the world’s fastest-growing economies, i.e. China and India. Appropriate balance is required by investing in rapid structural transformation for making an enabling environment for production and trade and reaching under-served population simultaneously.

    Integrating and bridging global, national and local economies is required. Competitive and cooperative policies and practice are needed simultaneously for global and local firms amid shifting opportunities and constraints on economic development and industrial upgrading. In order to tap such opportunities, the rule of law and transparency are required, among others.

    The recently changed local government structure (federalization and localized governance) is an opportunity for the local people who are out of the development mainstream to get more incentives via advocacy for better services, freedom to form enabling policies for small and medium enterprises and optimum utilization of local resources.

    The central government should direct aid towards structural transformation that could generate employment and income for the poor and marginalized people. Aid should be utilized for domestic resource mobilization, which is pivotal in promoting self-reliance. Such projects should be based on a demand- driven model wherein the priority sectors for investment and development cooperation have been already identified.

    The priority sectors in Nepal are hydropower development, construction of international airports, roads and railways for better connectivity, development of infrastructure and services for manufacturing and trade.

    It is high time the concerned authorities, donors, development partners, stakeholders and citizens of Nepal to change their thinking level to realize the dream. Execution of policies and programmes should be smart and responsible towards development. It is not the case of building a house, but rather developing the nation.

    So, a high level of commitment from the government leaders should come to make the development efforts fruitful in an effective manner.

    Source: The Himalayan Times