We are putting too much emphasis on our rights and talking our responsibilities lightly.
Published: April 04, 2016 9:27 am On: Business Himalayan
RUPAK D SHARMA
The National Planning Commission, the apex body that frames the country’s development plans and policies, has initiated the process of framing the Vision 2030 document, a blueprint that lays the groundwork for transforming Nepal into a middle-income country. ‘Vision 2030’ will basically lay down strategies and action plans to raise Nepal’s per capita income by more than three folds to $2,500 by 2030, eradicate poverty and give a boost to other major socio-economic indicators. In this regard, the NPC, last week, organised an international seminar on Envisioning Nepal 2030, which was attended by renowned domestic and international economists, policymakers and development experts, including Bibek Debroy, Justin Yifu Lin, Joon-Kyung Kim, Ajay Chibber, Nagesh Kumar, Bindu Nath Lohani, Shankar Sharma and Swarnim Wagle. Rupak D Sharma of The Himalayan Times caught up with NPC Vice Chairman Yubaraj Khatiwada to understand how the government intends to raise per capita income and hurdles along the way.
National Planning Commission (NPC) has just initiated the process of drafting ‘Vision 2030’ document. Initiatives, in this regard, were taken in the past as well, isn’t it?
Series of initiatives were taken by the NPC and other agencies in the past to frame this document. But these steps were taken at a time when the new constitution was being drafted, when there was no clarity on constitutional provisions. Since the new constitution has now been promulgated, we know about fundamental rights of people and responsibilities of the state towards its citizens. The new constitution has basically envisaged creation of a welfare state, which means we will now have to create long-term development vision based on this principle. While we have started framing this vision, we have also initiated the process of implementing (post-2015 global development agenda called) Sustainable Development Goals introduced by the United Nations (UN). We are now thinking of preparing a single framework, which will chalk out a roadmap for the country’s development in the next 15 years. We do not want to prepare separate documents to meet the same goals because we do not want to waste our resources. However, it will take us a few months to come up with the document, as we need to hold discussions with line ministries, donor agencies and other stakeholders. We will then implement the plan from next fiscal year.
Are you saying that achievement of SDGs will automatically transform Nepal into a middle-income country by 2030?
The purpose of SDGs is to help countries move from low- to middle-income category. So, the target set by the country to transform itself into middle-income economy within 2030 is in line with the visions set by SDGs. The SDG aspires to quadruple our per capita income, which is quite ambitious given the current economic growth rate. But once the growth starts to trigger, the economy will start expanding rapidly. Take the case of India. The Indian growth rate, which used to stand at around two per cent, now hovers around seven to eight per cent. So, what we need is a stimulus which precipitates series of reactions. Also, the process of graduating from the group of least developed countries to developing nations, will put us on the threshold of mid-income country. For instance, one of the criteria for graduation (by 2021) is per capita income of more than $1,500. And to become a middle-income country by 2030 we need per capita income of $2,500. So, we have set a very ambitious goal. But we aspire to achieve it and there are instances of other developing countries that have doubled per capita income every three to five years. So, it is not impossible for us to become a middle-income country by 2030.
Nepal has always been good at preparing the finest plans and strategies. But we have always lagged behind in implementation, isn’t it?
Yes, that is an immense challenge. So far, we have been making excuses of political and constitutional transition, lack of elected government, earthquakes and blockades (on Nepal-India border points). These issues should not be used as a pretext to not make deliveries. Also, another key issue is choosing the drivers of growth, and SDGs are a set of goals that understand the triggers of growth in the short-, medium- and long-term. In the short term, we have to look at low hanging fruits which can trigger growth, such as agriculture and tourism sectors, small and medium enterprises, and small energy projects. The structural transformation generally takes place in the economy once we move away from low-yield and less competitive areas to more competitive areas that are driven by technology. Transformation also takes place once we move away from traditional input-based production process to technology- and knowledge-led production process. However, transformation should also take place within the sector. In other words, each and every sector from agriculture, manufacturing to services, should undergo transformation. And this transformation should be driven by technology and knowledge.
But the economy cannot be transformed unless the government focuses on proper implementation of its plans and programmes, isn’t it?
One area where we have to focus to improve implementation is procurement. The government always tries to build many projects on its own. For this, it initiates the procurement process on its own. It then lands in controversy and the files are seized by one state agency or the other. If we want an end to this practice, we should perhaps build projects under engineering, procurement and construction (EPC) model, (under which the developer will have to bear the expenses in the case of cost overrun). I think this will help us overcome capacity constraints and other hurdles that slow down the implementation process. Also, projects could be built under build, own, operate, transfer (BOOT) model, under which the government plays the role of a facilitator and extends (direct capital grant through) viability gap funding, while the private sector takes the lead in building the project. In this regard, the capacity of the private sector should also be strengthened. I have been raising the issue of enhancing capacity of the construction industry for quite some years now so that the private sector could build big projects.
You are basically talking about Public Private Partnership (PPP) model, isn’t it? But in developed and developing Asian countries PPP projects also attract equity from the government — a practice which is frowned upon in Nepal. Considering fund shortage that the private sector here faces, don’t you think the government should also become equity partner in some of the major projects so as to boost their morale?
This is exactly why I did not utter the acronym PPP in my previous remark. We have to consider a few issues here. First, the government cannot run at the pace the private sector wants. It has its own procedures. Second, we don’t have defined process, norms or standard on government’s participation in private sector-led projects. Let’s take examples of hydro projects such as Upper Karnali and Arun-3. The government took free equity in these projects. But when it comes to putting its own money, it is not that easy. Also, we have burnt our fingers by partnering with the private sector in development of the projects. So, the government hesitates to create that partnership. Having said this, I’m not trying to undermine the possibility of the government becoming equity partner in PPP projects. We can do this by taking a different approach. These days it is becoming very difficult for the private sector to acquire land to build various projects. So, the government can provide land and turn it into equity, as in the case of Hyatt Regency Hotel project. So,
instead of allocating funds through budget to acquire shares in PPP projects, the government can follow this strategy. This is because the government needs funds to invest in other sectors, such as education and health, which are lagging behind as well. Yet, I think lots of ambiguities on PPP will be clear once we institutionalise it by framing an Act and other necessary regulations.
But globally government intervention has helped build capacity of the private sector, isn’t it? As said by Justin Yifu Lin, former senior vice president and chief economist of the World Bank, during the Envisioning Nepal 2030 conference, the country cannot tap its latent comparative advantage unless government offers incentives to the private sector. What is your take on the issue?
I heard Justin Lim loud and clear. That’s why we have to find out public investment programmes that can create synergy and promote private investment. Take for instance, initiatives taken by the government to build roads to private project sites where hydroelectric and cement plants were built. These efforts have produced positive outcome. Had we not done that, so many cement plants would not have emerged in the country. So, public investment is critical in creating an enabling environment for the private sector. But again the government also has limited resources. So, the government cannot get engaged in each and every sector.
But lately the government has started showing interest in building almost every infrastructure project on its own. Why can’t it take up few projects and focus on their completion?
This is because most of the sectors are underdeveloped. So, the government does not have the luxury of saying we’ll only build big projects. This will do injustice to the people who want to see development in each and every area. Currently, some big projects have been strategically selected. For instance, we have selected at least five roads, including Kimthanka-Jogbani, Rasuwagadi-Thori, of strategic importance. These roads can link both of our neighbouring countries. Roads are important because they not only create linkage but facilitate economic integration process. However, we have failed to build many projects, including Kathmandu-Tarai Fast Track, because of our growing dependence on development partners. I think we should move away from this practice and implement some of the projects on our own. In this regard, we have already approved five-year roadmap for development of strategic roads. In the energy sector, we have decided to put resources in big hydro projects, like Budhigandaki and Tamor, and facilitate development of West Seti hydroelectric project. We have also put development of electricity transmission lines in the priority list. In the aviation sector, two international regional airports are being built in Bhairahawa and Pokhara. So, we have not spread our resources everywhere. However, we have to create a balance and focus on development of small-, medium, and big-size projects because people want to see development taking place.
But government-led projects take a long time to complete. This is largely because of inefficient public financial management system and problems related to politicisation of issues. Do you perceive them as biggest threats?
The latter point on politicisation is important to note. If we want to see timely implementation of projects, then we have to rise above our vested interests. Also, local cooperation is essential during extraction of construction materials, such as boulders and sand. So, we have to focus on strengthening local governance as well. However, there is anarchy at the local level now because of absence of elected representatives. Because of this reason, Cabinet decisions are not honoured at times. Also, there is lack of monitoring. We have just formulated draft of Monitoring and Evaluation Bill. We hope things will improve once it is signed into law.
Because of lack of proper mechanism on monitoring, civil servants rarely take ownership of the programmes and projects they undertake, isn’t it?
That’s why good performance has to be rewarded and non-performance has to be penalised. The new draft bill has taken reward-punishment approach to monitoring and evaluation of projects. I’m very optimistic about change in attitude of civil servants in the coming days because we have achieved some sort of political stability. Until a few years ago, civil servants were shouting slogans on the street demanding change in regime and establishment of a republican state. These people, who had previously taken side of one political party or the other, have moved up the rungs of the bureaucratic ladder. But things have changed now and people don’t have to fight for political changes. So I think bureaucratic system will gradually become professional and neutral. But this will take some time — at least five years.
What are other challenges on the way of transforming Nepal into mid-income country?
Bureaucracy does not have the capacity to handle big projects, because it still cannot always formulate many bid documents and evaluate them. We must make improvement in this area. Also, the executive body of the state must not take months or years to take decisions. There are also problems in selection of Cabinet ministers. For instance, political parties have their own departments that look into different sectors and some of the party members even look into specialised areas, such as energy. Why can’t these people who are looking into certain sectors be elected as ministers when the party forms or joins the government? This is the same in bureaucratic sector as well. Government secretaries, with engineering background, for example, are running ministries that do not deal with technical issues and vice versa. This is very non-professional approach. Also, extortions are taking place at local level. We should honour rights of local people but they should not create obstructions in development process. We are currently putting too much emphasis on our rights and taking our responsibilities lightly. So, a balance has to be created. We also have to create a norm on extension of compensation to locals of area where physical infrastructure projects are being built. Currently, even people who are not affected by projects ask for compensation.
This means Nepal still has not turned into a modern state because we still have a patrimonial political system that favours families and friends over qualified people, while cases of extortions show tribalism is still prevalent in the society, isn’t it?
That’s exactly what I’m saying. This means economic transformation cannot take place unless there is social transformation. Social and economic transformation should move together. This is because if the society is rigid, economic transformation cannot take place. So, social relations need to be redefined and social behaviours need to change.