Raise competitiveness to cope with alarming trade-deficit
KATHMANDU, June 13:
Nepal’s trade deficit in the first ten month of the current fiscal year stood at Rs 487.04 billion, according to data unveiled by Nepal Rastra Bank on Thursday.
The burgeoning trade deficit, an indicator of severe troubles for the country´s economy, has not responded to initiatives taken by both the government and private sector to cope with the alarming rate of rise.
For least developed countries like Nepal, huge trade deficits clearly show underlying problems inside the economy -- declining competitive capacity on the production side, slow investment, and low employment generation.
RAISE INVESTMENT AND COMPETITIVENESS
Nepal imports more than seven-fold its total export earnings.
Experts say remittance has been backing the imports and also increasing consumerism in the country by increasing people’s purchasing power. Remittance inflow stood at Rs 444.47 billion during the first ten month of Fiscal Year 2013/14.
In the absence of a government policy to channel remittance to the productive sector, large chunks of remittance have been spent on the unproductive sector. “Productive utilization of remittance will be the catalyst for attracting foreign investment as well,” said Chandra Prasad Dhakal, the executive chairman of International Money Express (IME), adding “Nepal needs more investment to boost production, which will at least substitute imports in certain sectors. This will be a big relief for the country´s economy.”
If the country fails to enhance its competitive capacity, it will be hard to expand export trade. “It is hard to adopt protective policy on goods and services imported from foreign country on the present context of the global trade regime,” Purusottam Ojha, a former secretary at the Ministry of Commerce, said. “We can focus on intra-industry trade to benefit from emerging economies in our neighborhood -- China and India,”
Ojha said the country should enable the doing business environment to attract investment and the government should manage the environment for the domestic investors first to attract foreign investment as well. Trade deficit has gone up by 19 percent compared to the corresponding period of Fiscal Year 2012/13. It will surpass the figure of the country´s budget of Rs 596 billion which is proposed for Fiscal Year 2014/15.
SHORTCOMINGS OF NEPAL´S EXPORT POLICY
Nepal has opened its market to the world since 2004, when it joined the World Trade Organization, but it had failed to promote local goods and services. The Nepal Trade Integration Strategy (NTIS), which the government introduced in 2010, is stuck with developing products and services that having nominal value. If we raise the export of tea, cardamom, lentils, silver jewelry and handicraft by ten fold, there will not be a much substantive growth in the export earnings.
NTIS has incorporated hydropower, IT and BPO, health and education which can have a larger impact on the economy, but the government and private sector both have been failing to develop those sectors. “Nepal can emerge as a destination for medical tourism like Bangkok and Singapore,” Hari Bhakta Sharma, the vice-chairman of the Confederation of Nepalese Industries said.
The government has set a target of raising exports to Rs 100 billion in the current fiscal year, which is unlikely.
Experts say the government´s export incentive policy is flawed. It provides two percent export subsidy for exporters, who are demanding an increase.
Exporters say the government should setup a mechanism for providing incentive to producers rather than the final exporters.
“The government has to encourage producers by awarding them incentives,” Posh Raj Pandey, the executive chairman of SWATEE, says. “The policy of awarding the middleman is wrong.”
Source: Republica
