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Analysis of Budget 2071/72 Presented by GoN

The Ministry of Finance has presented a budget of Rs. 618 billion for the fiscal year 2071/72. While the Finance Minister has promised to kick-start second generation of economic reforms by reforming economic policies, bringing down anti-competitive practices like syndicate and cartels, encouraging the private sector and offering various fiscal incentives like tax exemptions and rebates, the budget has, in the mean time, also been a subject of debate in terms of issues like Constituency Development Fund, being pro-rich and many more.

Samriddhi, The Prosperity Foundation hosted its latest round of Econ-ity on “Analysis of Budget 2071/72 Presented by GoN” on the 17th of July, 2014 at Hotel Everest, New Baneshwor, Kathmandu.

The speakers at Econ-ity interacting with the audience

The speakers at Econ-ity interacting with the audience

This edition of econ-ity featured Dr. Chiranjibi Nepal (Chief Economic Advisor to the Prime Minister) and Prof. Dr. Bishwanbher Pyakuryal (Senior Economist) as speakers. The event was moderated by Mr. Rameshore Khanal (Former Secretary, Ministry of Finance) who started by acknowledging that this budget has been presented in the right time for Nepal. He shared that the current government is capable of staying in power throughout its tenure and has potential to deliver results in terms of constitution drafting, delivering economic growth, enhancing production, generating employment, etc. In the meantime, he also acknowledged the fact that this budget has been critically analysed in the parliament itself and opposition parties have raised concerns over its not being regionally balanced.

Here is a snippet of what the speakers said during the forum and what their analysis was regarding the new fiscal budget.

Prof. Dr. Bishwanbher Pyakuryal

Prof. Dr. Pyakurayal commenced his deliberation by acknowledging the good aspects of this budget. He mentioned that the allocations justify the government mission of employment generation, economic growth, social physical infrastructure, long term growth and poverty reduction.

He then went on to warn that this budget will not it yield any result unless the plans and policies and reform measures are implemented. The underlying assumptions that are made during the preparation of the budget do not seem to hold up in reality in Nepalese context. He talked about how theoretical economic policies and ground realities of Nepal do not match.

Nepal has seen wages go up or down, without really affecting labor productivity; despite the much talked about effect of India’s economy, Nepal’s inflation was still double digit when only last year it was contained at zero in India; the monetary policies have failed to deliver desired results in inflation. There does not seem to exist a robust relationship between Nepal’s monetary policy and inflation. He further expressed that we need to understand which among the factors like policies, capital adequacy/inadequacy, governance structure, and institutional set-ups are responsible for these issues.

He highlighted that one of the major problems in Nepal is the inability to make capital expenditures. Despite Local Self Governance Act and guidelines set by the fiscal commission, we have failed to spend on time. This raises concerns over our resource allocations. He said that we have already missed the train if we are to make it to Developing Nation status by 2022. We need to make 13-18 billion dollars worth of capital expenditure to graduate to Developing Nation status, but our current growth rates will not lead us there.

He raised serious concerns over how we never study India’s budget allocations’ impact in Nepalese economy despite its being released few months in prior. With their levels of planning, their currency is going to strengthen against USD. This will lead to lower production costs in India. On the contrary, our production costs are higher than market prices in India. Only 13% of the agricultural produces reach the markets in Nepal. In this case, the priority of the budget should have been making markets available to these entrepreneurs, farmers, businessmen. This has not been addressed by this budget.

While on one hand, the budget talks about reforming policies and Acts, in reality we have been relying on very old policies. We are still guided by Foreign Exchange Regulation Act, 1962, while India has made 3 amendments to the same Act of theirs till date. There are as many as three dozens of proposed policies and Acts lying around in the cabinet; some are stuck in the parliament. These processes need to be expedited.

He also expressed that we need to make structural changes in our tourism sector. 55-65% contribution to tourism sector comes from domestic tourism, but we have failed to recognize the domestic tourists. We need to explore further on possibilities of pilgrimage tourism, adventure tourism, trekking, sights-seeing, and formulate relevant programs for the domestic tourists. He also mentioned that we should look into popular international tourism practices like keeping Tourism Competitive Indices.

He concluded his deliberation by commenting over lack of capital/financial management in Neal and economic viability of possible federal states. There is domestic saving worth Rs. 2 trillion in Nepal itself but we have failed to channel these funds into productive sectors. He further drew attention to the issue of economic viability of federal states. While have been talking about federalism in Nepal, we have been overlooking facts like 60 % of Nepalese districts only somehow manage to collect revenues worth 10% of their total expenditure. Under such a situation, it is obvious that it makes no economic sense to go into federalism.

Dr. Chiranjibi Nepal

Dr. Nepal commenced his deliberation by expressing that we cannot have very high expectations from the budget. His focused majorly on our inability to make time-bound reforms to our existing policies and regulations. He acknowledged that for the first time in history, this budget has addressed Second Generation of Economic Reforms. However, lot needs to be done for the promises sowed by the budget to materialize.

He stressed on the need for industrial policies to adapt and respond to the changing trends and rapidly developing technological innovations coming in the market. Comparing it with India and China, he lamented that Nepal has been very slow in economic reforms and mentioned capital and financial market as an example of how the economy has been hit by lack of timely policies. China has continued to grow since its economic reforms of 1978, achieving as much as double digit annual economic growth and falling to single digit only recently. Industrial policy of China changes every 3 years to allow the industries to adapt to the technological advancements in the world. Similarly, India, that opened up its economy in 1994 has been continually reforming its economic policies and is all set to be one of the biggest economies in the world by 2020. In the meantime, Nepal has failed to internalize the positive changes occurring in the neighboring countries.

Dr. Nepal also shared that the Constituency Development Fund (CDF) will do away with the long bureaucratic procedures delaying the funds from reaching the local level, and expressed his consensus with the policy.
The pre-budget discussion, addressing Public Procurement Act, Financial Accountability, Land Acquisition and quality control are some major highlights of this budget, as expressed by Dr. Nepal.

Interaction with the audience

The participative and interactive audience then further talked about education, ability of the government to spend, youth self employment, foreign employment, sectors of comparative advantage, and other issues pertinent to the topic. Some highlights of the interaction session are as follows:

• Currently in Nepal, inflations has been rising and output is falling. There is therefore a situation of stagflation. Similarly, there does not seem to be a sound link between growth and employment. We have seen unemployment levels remain the same despite economic growth. In order to address situations like these, we need to form coordinated policies.

• Agricultural Development Bank has gone on loss due to its subsidy program. Now, instead of going for technological up-gradation and commercial agriculture, we are giving continuity to the same subsidy program. It appears that necessary homework has not been done in this regard.

Akash Shrestha

About Akash Shrestha

Akash Shrestha is a researcher at Samriddhi Foundation where his focus areas are investment laws, public enterprises and education.

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फेरि सडक खन्यो बा ! Absence of basic planning and accountability jeopardize road expansion projects in Nepal

Image Source: The Himalayan Times

Image Source: The Himalayan Times

No sooner have you been able to enjoy the newly pitched roads, than someone without fail comes and digs them up again. Ever wondered why these freshly built roads are dug up and left open or patched up in sorry attempts, a few months or even weeks after its construction?  Sometimes water pipes, sometimes sewage, sometimes electricity; whatever the reason may be the end result always the same: you are back to square one driving through potholes all day long.  Annoyed, frustrated and just plain curious I decided to dig into this with the pre-conceived idea that there must be some planning and co-ordination errors. What I did not expect to find was ZERO planning/ co-ordination among any of the concerned departments, none whatsoever.

So what happens? Department of Roads (DOR) builds a certain road and in a few weeks or months some other department comes along and digs up that road for one of their activities. DOR now doesn’t have the money or resources to go back and make that road since its job in that area is already done. What we are left with then are uneven roads, traffic problems, reduced lifespan of our vehicles, increased fuel spending, justification for absurd amounts of vehicle taxes and shamelessly wasted resources. DOR, Department of Water Supply and Sewage, Telecommunications Department, Department of Electricity Development all have their individual plans and work accordingly with no concern over what the other departments might be doing. If that means undermining some other departments’ work, causing discomfort to the citizens or wasting taxpayers’ money, so be it.  It saddens me to see how haphazardly all these departments function and what a mess the system has become. What then is the National Planning Commission doing amidst all this chaos? Anything but putting the plan in planning (at least in this case)! The solution is simple: plan well so that works related to drainage or water pipes and telephone or electricity lines are completed in a certain area before the road is constructed. It isn’t rocket science to figure out that one simple common plan, communication flow or any type of co-ordination between these concerned departments would make a huge difference.

I find it difficult to believe that our bureaucrats didn’t see the blatant need for co-ordination. After all, if it were their own houses they were planning to build, would the execution be as sloppy and wasteful? Be it clashing egos, ignorance, rent-seeking opportunities or just plain indifference; turning a blind-eye to this issue has served their personal interests better and so things have carried on the way they have. Conversation with a DOR official revealed that in Nepal’s 50 years of road building history, no ground research has ever been conducted. Delays occurring due to inefficient contractors are overlooked in the fear that the contractor might have political ties and no one wants to rock the boat. There is no system of quality management and if the roads aren’t built to the required standards no one is penalized or held accountable. Although it is an unacceptable excuse; we cannot discredit the fact that there are problems when it comes to the budget. There is a huge time lag between when the budget is announced and when the money actually reaches the departments for development projects. This coupled with the monsoon season gives departments very less time to execute their intra-department plans (which are usually short term and not very well planned either). Additionally, since the performance of the departments depend on whether or not they have worked to finish their allocated budgets on time; there is additional pressure to finish their targets. This method of performance evaluation is very problematic. Firstly, there is no incentive for the officials to be innovative or effective. Secondly, the major end goal of any government department: serving the citizens and making their lives easier, is widely side lined.

It is high time to make good governance a reality in Nepal. Its absence will inevitably wither any noble project that comes along, as is happening with the road expansion project.  Proper quality management and accountability (both largely lacking in our government agencies) are indispensable factors for the development of any entity, be it an institution or the nation as a whole. Time is now for national heroes to emerge, who can put their self-interests aside for just a while and think in terms of the larger good. As wishful as it might be, I would like to hope that we do have at least some leaders who wish to see not only their prosperous selves, but also a prosperous nation!

Sneha Pradhan

About Sneha Pradhan

Sneha Pradhan is a Researcher at Samriddhi Foundation with an interest in good governance. She is a graduate student at Heinz College, Carnegie Mellon University in Pittsburgh, Pennsylvania, pursuing a Master of Science degree in Public Policy and Management. She also has a Bachelor of Arts Degree in Economics and Statistics with a minor in Complex Organizations from Mount Holyoke College, South Hadley, Massachusetts.

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Doing Business in Nepal: A Case Study in Tourism

China and India are set to be among the three largest economies of the world by 2020, accounting for 27% of world GDP in PPP terms. And what’s more? They are travelling. All we have to do is become the coffee-shop between two huge corporate houses, whose staff likes to venture out of the routine jobs every once in a while. But is doing business in Nepal so easy, including the tourism industry? The World Bank’s Doing Business report positions Nepal at 105th in terms of ease of doing business.

Here we will look at a case – the ground realities of the process of acquisition of green number plate licenses that travel and tour operators require.

Ground realities

The number plates are issued after a two-tiered process. First of all the applicant tour operator applies at Tourism Industry Division (TID) under Ministry of Culture, Tourism and Civil Aviation for a permission to apply at Transport Management Office (TMO). Excessive corruption, red-tapism, redundancy, lack of accountability in part of the concerned agencies are commonalities in practice.

Process of acquiring green number plate

Process of acquiring green number plate. CLICK on the image to get a better view.

Lack of Accountability

To begin with, all government agencies are required to host Citizen’s Charters (Nagarik Badapatra) at their premises as a measure of accountability towards the citizens. The charters posted at the TMO premises are a decade old and do not reflect the true processes that are followed at present. Besides, economic ordinances can make annual changes in details like vehicle tax. These issues are not addressed in the citizen’s charters posted at TMO premises. Therefore, if an entrepreneur were to follow the guidelines as mentioned in those charters, he/she would be misled and would be rendered unable to acquire the desired services from TMO.

Redundancy
Most procedures required at TID are repeated again at TMO, only increasing the scope of discretionary powers held by bureaucrats at different sections of TID and TMO. This, complimented by lack of information sharing between these agencies can cause the files to be stuck at one section or the other. For example, while the Travel Section at TID verifies all clauses as included in its 26-point check-list before writing an application to the TMO requesting that a green number-plate license be issued to the applicant tour operator, the road-test procedure conducted by the Technical section at TMO requires the applicant to undergo the similar set of processes to produce the same information all over again.

Too much information (to gather and comprehend)
Interaction with personnel posted at different sections of TMO (who are paid to have that information and share it with the applicant) revealed that they were unsure about the complete procedure for the acquisition of green number plate licenses. A number of personnel shared that they have been transferred to TMO only three or four months back (as of May, 2014) and admit how they themselves do not fully understand the steps that need to be followed yet.

The aforementioned problems lead to one, corruption and two, lawyers taking unfair advantage of the entrepreneurs’ lack of access to information. Some tour operators also expressed how they have been asked to pay a sum exceeding Rs. 100,000 at TMO being told that their vehicles do not meet the technical specifications even after being cleared by the Travel Section at TID.

Possible reform measures
Now we see, the faster the tourism entrepreneurs can acquire licenses – to operate their businesses – the better for the economy. Easy access to information for entrepreneurs and accountability on government agencies’ side is the combo that is the need of the hour. Certain steps can be taken to deal with the aforementioned issues.

A client (tourism entrepreneur) focused manual that includes a list of required documents and processes involved in the process of acquisition of a green number plate license can be developed as a short-term measure. This manual needs to be available online and should be updated as per the change in economic ordinances, for example, the tax codes. This needs to be seconded by an updated citizen’s charter at TMO premises. The concerned agencies (TID and TMO in this case) need to develop a mechanism whereby they share relevant information among themselves such that redundancy and excessive red-tapism can be avoided. Training of personnel at TMO is required at the moment, as evinced by the interaction with the personnel themselves. A medium term focus can be coming up with a one window policy to hasten the process. This will require some homework to be done on the government’s side and will thus take some time. If implemented, however, this will also help cut off the complexities, redundancies and room for corruption.

Akash Shrestha

About Akash Shrestha

Akash Shrestha is a researcher at Samriddhi Foundation where his focus areas are investment laws, public enterprises and education.

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