Political commitment is key to economic growth, according to a senior economist.
Credible commitment from the political parties will help economy to grow, said chief economist at the Department for International Development (DfID) Stefan Dercon, addressing an interaction ‘Can Nepal Join Asian Growth Success?’ organised jointly by DfID and Society of Economic Journalists-Nepal here today.
The political elite should take the risk, he said, adding that the economic growth is possible, if the parties are interested in economy with shared commitment for confidence building. “Likewise, the private sector is crucial for the growth but state must also act willingly.”
Nepal is not a landlocked country – which is mostly blamed for low economic growth – rather a huge advantage as it can tap the widely populated bordering markets that could give a lift to the gross domestic product (GDP), he added.
Reminding that there is a massive market of 450 million people – Uttar Pradesh, Uttarakhand, Bihar, West Bengal and Bangladesh – right at the doorstep of Nepal, Dercon said that these markets are one of the densely populated in Asia and can become growth engine for Nepal.
Nepal can be a next growth story following the Asian growth, if it is willing to take advantage from the northern and southern neighbours.
He also suggested focusing on development of manufacturing sector and services, though the services sector alone cannot help propel growth. “Structural changes in Nepali economy has witnessed growth in service sector but growth of manufacturing sector could only propel the economic growth,” he added.
He further added that structural transformation in Nepali economy can be achieved by changing its status from low productivity to high productivity. “It will automatically stimulate economic growth and generate employment,” he added.
However, contribution of manufacturing sector to the GDP has been continuously declining lately, making the country a net importer, while growing contribution of non-tradable services – including banking and telecom – is not considered enough for long-term growth.
Traders usually start setting up their own manufacturing units to produce goods they have been importing, Darcon said, asking the government to encourage traders to become entrepreneurs. “The government must create an environment for investment.”
He was also of the view that migration of youth for overseas employment is subsequently bringing about structural transformation in Nepali economy through skill, capital and willpower.
Market opportunities, and technological and managerial capabilities are vital for economic success in the present world, he noted, adding that migrant returnees are equipped with such capabilities.
Dercon also reminded that the problem in Nepal is not the lack of financial resources but the lack of opportunity to invest. “The government is failing to spend capital budget in Nepal,” he said suggesting the government to increasing capital spending in infrastructure which creates more space for setting up private business.
He also suggested Power Trade Agreement (PTA) with India that is vital for hydropower development of Nepal.
Commenting on Dercon’s paper, former Nepali ambassador to the United States Dr Shankar Sharma said that lack of political commitment and willpower were the major reasons behind Nepal’s underdeveloped status.