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| Kathmandu, Wednesday December 18, 2002 Paush 03, 2059. |
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Economic cost of political problems
By DR RAGHAB D PANT
The Central Bureau of Statistics has recently indicated that
it has over estimated the gross domestic product of Nepal at constant price for the fiscal
year 2001/2002 by Rs 4.6 billion, or by 1.6 percent. Statistically speaking, it was a near
perfect estimation, but even the marginal changes in the absolute amount of gross domestic
has changed the original estimate of the overall growth rate of the gross domestic product
at constant price from barely positive- 0.8 percent- to negative. It was then a big news
as it was, to the best of my knowledge, the first time after 1982/83 that the growth rate
of the gross domestic product in absolute terms was negative.
The matter looks more serious than the marginal changes in
the growth rate of the economy indicates. A detail study of the press release of the
Central Bureau of Statistics revealed that the marginal growth in the agricultural sector
and the completion of the Kali Gandaki project were the only two positive developments in
the country in the last fiscal year. Otherwise, the economy was going downhill- and it is
still continuing at a more rapid pace- so rapidly that the available information was
sufficient to indicate that the country’s economy was in grave peril. At the sectoral
level, in particular, the income originating in the manufacturing - and in tourism sector
as well - has declined by as much as 10 percent. I have not noticed such a drastic decline
in income at the sectoral level in other countries even at the height of Second World War.
As a result, the contribution of agriculture in the gross domestic has increased steadily
from 37.8 percent in 1999/2000 to 39.1 percent in 2001/2002- a clear sign that the economy
is being more dependent on agriculture, that itself with low productivity, follows the
pattern of monsoon. The four sectors, namely, transport and communications, tourism,
manufacturing and the community and social services that together contributed 60 percent
of gross domestic product of the nonagricultural sector and were the hope for the future
growth to alleviate high and rising poverty are in grave peril too. As a result, the
export of goods and services has declined by as much as 25 percent. The household sector,
that has to accommodate every year almost 300,000 new additions to the labor force, is the
worst sufferer. This was visible in the changed pattern of domestic consumption and
savings. It is difficult to believe but the information released by the Central Bureau of
Statistics shows that the domestic savings in the last fiscal year has declined by as much
as 16 percent with remittances from relatives working abroad financing a significant part
of consumption and household investment in housing.
Things may get even worse in the current fiscal year. The
target of the government as indicated in the budget speech for the current fiscal year to
achieve an annual growth rate of 4.3 percent- 3.4 percent in agriculture and 4.9 percent
in the nonagricultural sector- is impossible to achieve, given the current political
situation and the economic activities of the past five months. The available information
from the Nepal Rastra Bank on the current macro economic situation shows that the
development expenditure has declined at an annual rate of more than 40 percent in the
first quarter of the current fiscal year; and the export trade has continued to decline at
an annual rate of 25 percent, largely due to decline in export to India, with commensurate
effect on country’s balance of payments and international reserve position which has
shown a decline measured in dollar terms. Against this background, Nepal will be lucky if
the growth rate in gross domestic product remained positive, however marginal the amount
may be, in the current fiscal year. The income in per capita terms will definitely
decline, and it will be difficult for the poverty rate to maintain at 1984/ 85 level- 42
percent of the total population.
How long will we allow the current economic situation to
continue? Notwithstanding the state of the economy, not a single word has been uttered by
the politicians, both now enjoying the power and the opposition, on the economy or the
policy measures. It appears that none of the politicians has read the press release of the
Central Bureau of Statistics or has understood the implications of several news and
editorials published in the local papers on the subject. The politicians are still busy in
their own petty political fighting with no consensus in sight. Many businessmen have
changed their hats recently and joined the political game. But the basic question is: How
long can the politicians ignore the economy? If the economic performance in the current
fiscal year would not get worse from the last year level, the gross domestic product would
still be Rs 44 billion lower, which is equivalent to 15 percent of gross domestic product,
from the level that could have attained by the economy had it followed the growth pattern
of the fiscal year 2000/01. This amount (44 billion), or about Rs 2000 in per capita
terms, is the economic cost of the recent political problems. It is composed of the loss
in both agricultural (13.0 billion) and nonagricultural sector (Rs 31 billion). Given the
continuing economic slowdown, the business of calculating the loss at the sectoral level
is more complicated. But the straight forward technique that we have followed shows that
the largest loss is to be borne by three sectors, namely, manufacturing (Rs 8.6 billion),
tourism (Rs 8.2 billion) and Community and Social Services (10.6 billion).
There is news in the media that the Tenth Plan will be
released sometime this week. We do hope that the government has taken into account the
implications of the economic cost of political problems in developing its policy and
programmes.
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