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.