Challenges of Economic Development in Nepal

Challenges of Economic Development in Nepal

Nepal is still an underdeveloped country with low growth performance and low per capita income of $1034 only. Despite the achievements in poverty reduction and sociology-economic transformation in the last two decades, there are mounting challenges for the rapid economic development of the country. The major challenges for the economic development of the country can be listed as below:

—1. Poverty and Inequality

In Nepal, still 18.6 percent of the people are still absolute poor. The disparity of poverty between rural and urban area, among different castes and ecological belts is very much high. If we consider the multidimensional aspects of poverty that includes health, education and others, still one third of the population are poor. On the other hand, the inequality in income distribution has not reduced significantly. The Gini coefficient that shows the extent of income inequality is still high for Nepal. Thus, it is challenging to break the vicious circle of poverty and underdevelopment through rapid economic growth along with equitable distribution of the income.

—2. Unemployment

In Nepal, around 5 lakh youth join the labour market each year abut only less than 10 percent of them get employment opportunities in the country. The rest go for foreign employment. Around 1000 workers fly abroad in search for employment. In the agriculture sector of the country, there is disguised unemployment to a huge extent. It is thus challenging to address the problem of unemployment by creating job opportunities for the labour force in the public as well as private sector.

—3. Subsistence Farming Practices

The agriculture sector of the country contributes about one third of the nation's output and provides employment opportunities to around two-thirds of the labour force. However, due to lack of commercialization and modernization of the agricultural sector, agricultural productivity is low and we have to import even the food grains and vegetables from India in large amount. Lack of irrigation facility, traditional farming practices, and shortage of seeds and fertilizers are the main problems. Thus, it is thus a great challenge to transform the agriculture sector through commercialization of the sector, expanding irrigation facilities, road networks, storage, fertilizers and inputs and others.

—4. Geographical Difficulty

Nepal has difficult topographical situation. More than 50 percent of the area of the country is covered by hills and mountains. It has made the development of physical infrastructures in all the areas of the country very much difficult. Connecting and mainstreaming all the parts of the country to the path of growth and development is thus a great challenge ahead.

—5. Lack of Capital and Technology

The domestic saving ratio of the country is low (around 10 percent on the average for the past five years). Thus, we do not have enough resources required for capital formation. Due to political instability in the country, the country has not been benefited from foreign investment. In such a case, it has been a challenge to manage for the resources needed for capital formation and developing new techniques in the country and adopt the foreign technology so as to raise the productivity.

—6. Timely Construction of Earthquake Damaged Buildings

Even after the three years from earthquake of 2015, only about half of the 5,00,000 houses damaged by the earthquake has been reconstructed. The progress of the reconstruction of the government buildings, public schools, hospitals, old palaces, temples, and other historical monuments is not satisfactory. At present, there is a challenge to manage resources for their timely construction.

—7. Meeting the Resources for the new Federal Nepal :

After the formation of governments at the 753 local bodies along with the seven provinces, the need for resources has increased at an alarming rate. The resource need at the central government has also increased in order to address the mounting aspirations of the people. But the tax revenue and other form of revenues is not sufficient for meeting such resource needs. It is challenging to manage for the needed resources in order to sustain the federal structure of the country.

— 8. Expanding the Financial Access

Despite the growth in the number of financial institutions and their branches, still the access to financial services is not satisfactory. The bank branches and their activities have been concentrated in Kathmandu valley and some major cities of Terai only. All the local level bodies still do not have the presence of a commercial bank branch. The UNCDF survey done in 2014 shows that only 40 percent of the Nepalese have access to banks and financial institutions. The study by Nepal Rastra Bank done in 2019 shows that about 61 percent of Nepalese have access to deposit accounts. Thus, it is a challenging to expand the financial access and increase financial literacy to share the benefits from this sector equally.

— 9. Meeting the Sustainable Development Goals by 2030

Nepal has shown a commitment to meet the sustainable development goals by 2030 that includes an end of extreme poverty, improvement in health and education facilities, and rapid growth in income, among others. Attaining such goals demand a lot of resources and a strong commitment. With the present status of the resource mobilization of the country, it is a great challenge to manage resources for meeting the goals.

—10. Reviving the Industrial Sector

The share of the industrial output in the gross valued added has been falling over the years. In 2001, the contribution of the sector in GDP was around 9 percent that decreased gradually over the years and reached 5.6 percent in 2019. It is challenging to revive the industrial sector by increasing the competitive capacity of our products.

—11. Widening Trade Deficit

Due to rapid growth in imports in the recent years, the trade deficit has widened alarmingly. Currently, it has reached about Rs.13.2 billion per year. The trade deficit GDP ratio reached above 38 percent. In such a case, it is challenging to reduce such deficit by promoting our exports and substituting the imports.

नेपाली पुँजीबजारमा रहेका समस्याहरु तथा समाधानका उपायहरु

पुँजीबजारमा रहेका समस्याहरु

1. विविधकरणको अभाव : नेपालको पुँजीबजारमा वित्तीय क्षत्रको वाहुल्यता रहेको छ । नेपाल स्टक एक्सचेन्ज लिमिटेडमा सूचीकृत २१५ कम्पनीहरुमध्ये १५४ वटा बैंक तथा वित्तीय संस्था र बीमा कम्पनी रहेका छन्भने १९ वटा उत्पादन र प्रशोधन उद्योग, ३० वटा जलविद्युत्कम्पनी, ४÷४ वटा होटल तथा व्यापारिक संस्था र ४ वटा अन्य समूहका रहेका छन् । यसका साथै पुँजी बजारमा शेयरको अधिपत्य रहेको अवस्था छ । 
2. संस्थागत लगानीकर्ताको अभाव : संस्थागत लगानीकर्ताको कमीका कारण सीमित व्यक्तिहरुको हचुवा विष्लेषण तथा लगानी निर्णयका आधारमा बजार हिड्ने गरेको छ । 
3. विशिष्टीकृत संसथाको अभाव : नेपालको बजारमा Venture Capital, Equity Fund, Portfolio Manager जस्ता लगानीकर्तालाई प्राविधिक विष्लेषणका आधारमा सुझाव तथा सल्लाह दिने विशिष्टिकृत संस्थाहरुको अभाव छ । 
4. लगानीकर्तामा चेतनाको अभाव : लगानीकर्ताहरुमा कम्पनीको वित्तीय पक्षको विश्लेषण गरी लगानी गर्ने क्षमता तथा पुँजी बजार सम्वन्धी चेतनाको कमी छ जसले गर्दा कतिपय लगानीकर्ताहरुले हल्लाका भरमा लगानी गरीरहेको अवस्था छ । 
5. क्रेडिट रेटिङ संस्थाको कमी : नेपालमा हाल दुई बटा रेटिङ संस्थाहरु कार्यरत रहेतापनि सम्पुर्ण संस्थाहरु तथा ऋणीहरुको प्रभावकारी रुपमा रेटिङ गर्नका लागि ती संस्थाहरु पर्याप्त छैनन् । 
6. उतारचढावको समस्या : पुँजी बजारको अवस्था देखाउने नेप्से परिसूचक तथा बजार पुँजीकरणमा ठुलो उतारचढाव छ । विगतमा ११६७ विन्दुमा पुगेको नेप्से परिसूचक केही समय पछि नै ३०० मा पुगेको लागि तथा बैंक तथा वित्तीय संस्थाहरुको पुँजी वृद्धि गर्ने निर्णय पश्चात १८८१ विन्दुमा पुगी हाल फेरी घटेर १२०० को हाराहारीमा रहेको अवस्था छ । 
7. काठमाडौं केन्द्रित बजार : पुँजी बजार अधिकांस कारोबार काठमाडौंमा हुने गरेको छ । हाल संचालनमा रहेका ९७ बटा ब्रोकरका शाखा मध्ये ५७ बटा शाखा काठमाडौंमा रहेको तथा ती संस्थाहरुबाट दोस्रो बजार कारोबारको करीब ९० प्रतिशत कारोबार हुने गरेको अवस्था छ । 
8. ऋणपत्रको बजार नहुनु : पुँजी बजारमा सरकारी ऋणपत्रको दोस्रो बजार प्रभावकारी रुपमा संचालन हुन सकेको छैन् भने नीजि क्षेत्रमा कम्पनीहरुबाट जारी भएको ऋणपत्र नगन्य छ । 
9. संस्थागत कमजोरी : नेपाल स्टक एक्सचेन्ज तथा धितोपत्र वोर्ड र अन्य नियमनकारी निकायहरुका बीचमा प्रभावकारी समन्वय नहुँदा कतिपय अवस्थामा समस्या सृजना हुने गरेको अवस्था छ ।  

पुँजीबजारमा रहेका समस्या समाधान गर्ने उपायहरु  

• बजारको विविधकरणमा जा्ेड दिने ।
•  पुँजी बजार सम्वन्धी सचेतनामा वृद्धि गर्ने । 
• उपत्यका बाहिरका स्थानहरुमा दोस्रो बजारको पहुँच अभिवृद्धि गर्ने । 
• संस्थागत लगानीकर्तालाई आकर्षित गर्ने । 
• पुँजी बजारका लागि आवश्यक विशिष्टिकृत संस्थाहरुको स्थापनाका लागि उपयुक्त वातावरण बनाउने । 
• विदेशी संस्थागत लगानीकर्ता तथा गैह–आवासीस नेपालीलाई पुजी बजार खुल्ला गर्ने । 
• नियामक निकायको क्षमता अभिवृद्धि गर्ने । 
• वास्तविक क्षेत्रका कम्पनिहरुका लागि नियामकीय निकायहरुको स्थापना गर्ने ।
•  पुँजी बजारका लागि आवश्यक नीतिगत सुधारहरु गर्ने । 
• निजी क्षेत्रबाट नयाँ स्टक मार्केट स्थापना गर्दै नेपाल स्टक एक्सचेन्जको पुनरसंरचना गर्ने । 
• शेयर कारोबारको अनलाईन खरिद विक्री प्रणाली लाई भरपर्दो तथा प्रभावकारी बनाउने । 
• सूचना तथा जानकारीमा सर्वसाधारण लगानीकर्ताको सहज पहुँच हुने व्यवस्था मिलाउने । 

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Stylized Facts About Remittance Flows

     Stylized Facts about Remittance Flows

• Global remittance flows are estimated to be $707 billion in 2019 as per the World Bank. About 78 percent of such remittance flows have been estimated to flow to low and middle income countries.
• Country wise, India is the largest receiver of remittance followed by China and Mexico. Out of the global flows of $707 billion, $82 billion dollar is estimated to flow to India in 2019. 
• Top 10 remittance receivers that include India, Pakistan and Bangladesh occupy 51 percent of the global remittance inflows.(see chart below).
• Top 20 remittance receivers that include Nepal along with 4 other countries from SAARC account for 67 percent of the global remittance inflows. 

• In terms of remittance inflows as percent of GDP,  Nepal is the third largest remittance receiver in the world. According to the World Bank, the estimated remittance inflow of Nepal will be 29.9 percent of GDP in 2019 (Chart 2). 

•  In SAARC region, remittance inflows to India, Pakistan and Bangladesh have increased sharply during the last decade(Chart 3).

Chart 3

•  In terms of remittance outflows,  US tops the lists followed by UAE and Saudi Arabia. About one third of remittance outflows comes from these countries. 
• Top 10 countries in terms of remittance outflows contribute about 59 percent of total remittance outflows. The following table shows the top 20 countries in terms of remittance outflows. 

Country	Remittance Outflows(million USD)	Percent of Total
United States	67,390	14.40
United Arab Emirates	44,367	9.48
Saudi Arabia	36,119	7.72
Switzerland	26,598	5.68
Germany	22,775	4.87
Russian Federation	20,610	4.40
China	16,253	3.47
Kuwait	13,760	2.94
France	13,745	2.94
Korea, Rep.	12,888	2.75
Qatar	12,759	2.73
Luxembourg	12,666	2.71
Netherlands	11,287	2.41
Oman	9,815	2.10
United Kingdom	9,802	2.09
Malaysia	9,394	2.01
Italy	9,262	1.98
India	6,959	1.49
Australia	6,772	1.45
Israel	5,911	1.26
Others	98,760	21.11
Total	467,894	100.00

  

• In terms of remittance outflows as percent of GDP, Luxembourg tops the list followed by Turk Island, Oman, Kuwait and Maldives.
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  Chart 4
•  In Nepal, remittance inflows has increased almost 18-fold during the last 19 years (from Rs. 47 billion in 2001 to Rs. 879 billion in 2019.)
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  Chart 5

• As percent of GDP,  remittance inflow increased from 10.7 percent in 2001 to 29.6 percent in 2016 and then decreased gradually to 25.4 percent in 2019. 
• Growth of remittance inflows has decelerated during the recent years.  Such flows increased by 30.3 percent on average during 2006-10 and by 22.1 percent during 2011-15 where as it decelerated to 9.3 percent during 2016-19. 
• Average growth of remittance inflows during the last 19 years is 18.6 percent.

Source wise Remittance Inflows of Nepal 

•  Nepal receives remittances mostly from Qatar, Saudi Arabia, India, UAE, UK, USA, Kuwait and Malaysia. According to the estimates of the World Bank, Nepal received 28 percent of the remittances from Qatar, 27 percent from Saudi Arabia and 15 percent from India in 2017(Chart 6).

  

  Chart 6

Remittance Outflows from Nepal 

• Almost all of the remittance outflows from Nepal goes to India. As per the estimates of the World Bank, out of the 3.2 billion USD remittance (About Rs. 365 billion) outflows from Nepal in 2017, about 94 percent went to India only (Chart 7). 
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Chart 7

•  Nepal is the eighth largest contributor to the remittance inflows of India from all over the world. Remittance outflows from Nepal to India contributes about 4.4 percent of the total remittance receipts of India.

Uses of Remittances 

• Although NLSS III carried out in 2010/11 shows that 79 percent of the remittances (that includes internal as well as international remittances) is spent on consumption, the share of international remittances spent on consumption is  lower than that.  
• The following table shows that more than 84 percent of the internal remittances is used for consumption while such share for international remittances vary from 55 percent for Qatar to 85 percent for India. 
• The share of remittance flows(internal as well as international) devoted to capital formation is 3.5 percent. In case of international remittances,  such share varies from 2 percent in case of India and 6.2 percent in case of Qatar(see table below).

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