Regulatory reconfiguration: The path for recovering the Nepalese economy dampened by Covid-19

State of economic recession or slowdown expected to occur amid current public health emergency and at the aftermath of series of restriction measures undoubtedly warrant some form of intervention from the government in order to return the economy to its normal course. Meanwhile, there already exists multiple textbook intervention strategies prescribed by different economic principles that the government can subscribe to in order to pursue its responsibility of curtailing the period of economic slump. However, care should be taken to acknowledge the specific political economic context of Nepal in selecting the most appropriate intervention strategies that can be effective in pacifying the economic stress triggered by the ongoing public health emergency.

To begin with, government is likely to come across a range of intervention strategies that prescribe from stimulating the government expenditures in infrastructural sectors to enabling a more conducive environment for the privately run production activity of the economy to function. The former intervention is advocated based on the observation that the government expenditure shall ultimately contribute towards the economy as well as generate enough earnings for the private sector to also contribute towards the economy through the medium of consumption and investment expenditure. On the other hand, the later advocacy is based on the assertion that enabling a conducive environment for the private sector to more efficiently and effectively engage in production, savings, and investment function shall ultimately smoothen the boom-bust economic cycle and achieve sustainable long-term growth for an economy.

While the strategy of conducting an expansive fiscal policy in order to weather from an economic recession maintains a visible success in observing the historical unfolding of dotcom bubble crash 2001 and Global Financial Crisis 2008-09, the feasibility of such intervention in the particular context of Nepal is seriously doubted. On such context, given the past observation exposing the inability of the federal government to expedite budgeted capital expenditure, the effectiveness of any fiscal intervention strategies that bases upon additional government expenditure on capital development is highly unlikely to materialize timely in order to support the economy and the livelihood of the general people when needed. Also, the suitability for Nepal to finance more expenditure-based stimulus package tied up with budget deficit and additional tax raise is questionable on grounds of sustaining a sound macroeconomic configuration. After all, the amount of government tax revenue already equates to higher proportion of national Gross Domestic Production in Nepal in compared to that of other South Asian counterparts. On such ground, it is only advisable for the government to expedite the execution of number of large infrastructure projects already initiated by the government in order to at least have it contribute towards the national economy and employment without jeopardizing the macroeconomic status.

On the other hand, speaking of creating a most conducive ground for the private industries to effectively and efficiently participate in the function of production, savings, and investment, there remains ample areas to reconfigure multiple enterprise and investment related regulations and policies to allow necessary economic functions to occur.

At first and foremost, government can eliminate the provision of not allowing foreign investment of less than NRs 50 million in order to enable small and microenterprise to access petty foreign investments normally assured to them based on their business proposition. This advocacy goes along the statistical observation that find micro and small industries to be lacking enough capital to establish and foster at present. Likewise, government may also ease up registration and tax-compliance based regulatory requirement for starting a business (if not temporarily suspended it) to at least allow the exodus of returning former foreign labors to start a business within the country. After all, the returning spree of the former foreign labor amid global economic hit caused by Covid-19 is likely to further deteriorate the unemployment status of the country if an arrangement is not made for absorbing such human resource into the economy. Finally, a targeted operation to gain statistical access regarding the presence of informally operating businesses and laborers in along with further details is required in order to enable them with any relief packages provided by the government. Through the integrated effort of all levels of governance, such informally and vulnerably operating enterprises and laborers can be brought within the radar of the government in order to instigate a grander strategy to formalize them gradually and incorporate them during policy formulations in future.

Prience Shrestha

Prience Shrestha

Prience works in the research department at Samriddhi Foundation. And, he attempts to specialize in the field of Development Economics