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Economy heading towards disaster!

By PR Pradhan
At a time when the government is preparing for organizing the second investment summit in Kathmandu, Ncell, the country’s largest foreign direct investment (FDI) has been targeted by Nepal Communist Party (Biplav). A bomb was exploded at the Ncell headquarters in Nakkhu, Lalitpur following expulsion of the Ncell towers in different 26 districts in the country by the group challenging the government’s security mechanism. In the Nakkhu bomb blast, one person was died whereas two persons have been seriously injured.
Earlier, the Supreme Court gave the verdict that Ncell’s present management is responsible to pay all the tax on transaction of its shares in the past on the basis of profit. TeliaSonera, a Swedish telephone company which had transferred its share to the present management in the Ncell, after receiving clearance from the senior government officials, has already left the country and the Company is not only denying to pay the revenue on share transaction to the government, it has also blamed the country as a corrupt nation.
Will such developments help the government to bring FDI, it is a serious question.
Local industrialists are complaining that there is no investment environment in the industrial sector due to many hurdles, including hurdle on taxation. Land price is so high that it is beyond the capacity of the investors.
High bank interest rate, rampant corruption practices in the government offices are other discouraging factors, say local industrialists.
In such a circumstance, one can hardly believe that foreigners will be attracted to invest in Nepal.
The fact is that the government’s foreign currency reserve is continuously declining. Reports state that from the present foreign currency reserve, the government can hardly manage expenditure for seven months, which is alarming. Foreign investors want to be secured on taking back the profit in foreign currency. In the country where foreign currency reserve is declining, foreign investors cannot be ensured in taking back the profit.
There is no sign of immediate improvement on the country’s foreign trade as the government has not given consideration on substituting imports and also there is no sign of immediately increase in our exports. The petro-product consumption rate is increasing every month due to the import of petro-product consuming vehicles and the government is not in a position to stop import of vehicles as it is earning upto 200 to 300 percent of revenue from one vehicle. If the government will stop imports of luxury goods, it will not be able to meet the revenue target. As the country’s revenue is based on tax on imports rather than excise duty on products and exports, the economy has already fallen into the import trap.
Other sources of earning foreign currency are foreign aid, increase in tourist arrival and remittance. There is no encouraging sign of immediate improvement in these areas. Until now, the country’s economy is based on the remittance revenue, which is not considered as a positive economic indicator. The reality is that the remittance revenue is also going to be declined in the days to come as due to economic recession in the Middle East countries the number of Nepali labourers going for job in these countries has declined.
The only hope left for the government is that if Nepal will be able to attract FDI, the upcoming crisis of foreign currency reserve could be solved. Otherwise, there left no other options except from lending money from the IMF to manage the foreign currency reserve.
According to the Nepal Rastra Bank, the foreign currency reserve is only 9 billion, 400 million US dollars. It can hardly meet the foreign currency demand for eight months to import goods from abroad.
Besides trade deficit, the country is also facing negative balance of payment and compared to the past fiscal year, the deficit has increased by 63 billion 680 million within six months of the current fiscal year. In the same period of the previous fiscal year, it was recorded 6 billion 660 million deficit on balance of payment.
In this very column, this scribe, time and again, had warned the government to control imports of luxury goods and encouraging import substituting local industries. Instead of introducing policies to uplift economy, the government itself imported luxury vehicles, including helicopters for the use of VVIPs, VIPs and government officials. Instead of controlling unnecessary expenditure, the government has planned to construct luxury buildings, gardens, guest houses etc. in the President’s office as well as in the PM’s office.
Soon, Nepal is becoming self reliant on hydropower. Therefore, the government would have encouraged use of e-vehicles but the fact is that the Transportation Management Department is discouraging e-vehicles’ operation. As the government is taking wrong course, it is sure that it may face a serious economic crisis in the near future.

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