Why Institutional Reforms Count

Lok Nath Bhusal

Being a resource scarce economy, Nepal's future course of development critically hinges on the realisation of the commitments made in the Millennium Development Goals by the development partners. Drawn from the Millennium Declaration of September 2000, the MDGs are a groundbreaking international development agenda for the 21st century. With the aim of bringing peace, security and development to all people, especially people from the developing countries, the MDGs, having eight goals and 48 indicators, outline major development priorities to be achieved by 2015 by the UN member states.

Achievements and shortcomingsIndeed, on the part of developing economies like Nepal, achievement of the first seven goals - eradicating extreme poverty and hunger, achieving universal primary education, promoting gender equality and empowering women, reducing child mortality, improving maternal health, combatting HIV/AIDS, malaria and other diseases, and ensuring environmental sustainability - largely depend on the accomplishment of the eighth goal: developing a Global Partnership for Development. This is because in most of the developing economies, there is a wide gap between revenue and expenditure. Nepal's MDGs Progress Report 2005 states that external assistance totalling US$ 7.6 billion is necessary to meet the first seven goals. Obviously, increased focus on debt relief and development cooperation through more effective aid is crucial to financing development. Having said that, the present article outlines major achievements and shortcomings in the area of institutional reforms in Nepal essential to attract foreign aid. Nepal initiated the reform process in the early 90s in order to integrate its economy with the rest of the world. As a precondition for increased foreign assistance, Nepal's commitment to an open economy, good governance and poverty reduction are some of the major achievements. This is apparent from the objectives and strategies of the three successive plans following the 1990 political change. These plans have clearly allowed market-based economic growth, set poverty reduction as the single goal and unveiled a systematic arrangement to institute good governance.

Reduction, restructuring and rationalisation of import duties, elimination of most of the quantitative restrictions and import licensing requirements, interest rates deregulation, and introduction of full convertibility for current account transactions have been major reforms on the trade and financial fronts. Consequently, the unweighted average rate of protection has declined from 111 per cent in 1989 to 22 per cent in 1993, and to 14 per cent in 2002, clearly indicating a liberal economy. Furthermore, in terms of trade to GDP ratio, for 1984/85 it was 31.9 per cent whereas it was 50 per cent in 2003/04, suggesting Nepal to be the most open and trade dependant economy in South Asia. Likewise, a number of innovative approaches have been initiated to make the civil service responsive, efficient, accountable and inclusive to ensure good governance. Elimination of 7,334 vacant positions and putting a cap on recruiting class III and class IV non-gazetted staff have been carried out to right-sizing the bureaucracy.Likewise, institutional reforms in the central personnel agency, the Public Service Commission, Commission for the Investigation into Abuse of Authority (CIAA) and the National Vigilance Centre are underway to make the bureaucracy more efficient, accountable and corruption-free. Indeed, with the enactment of the Local Self-Governance Act 1999, Nepal has taken major strides towards decentralization and, thus, poverty reduction. As a result, the local bodies have improved their performance owing to their better preparedness with the periodic plans, technical capacity, operating systems and operational processes.

In order to upgrade the judicial capacity and resources for enhancing justice delivery, the judiciary has prepared a strategic plan to link it with the national planning process. The plan envisions a system of justice that is independent, competent, speedy, inexpensive, accessible, ethical and worthy of public trust. All these reforms are intended towards improving governance and, thus, making it more pro-poor. Eventually, these reform initiatives meet the basic conditions for global partnership for development.However, still a number of shortcomings in the realm of governance and economic and trade reforms still persist in creating a conducive environment for attracting more foreign aid. First, the sluggish progress in the piloted performance-based management system, owing to inadequate fulltime staff, poor management, funding and facilities in the change management units in the public institutions, has been a major setback to the reform process. Also, transfers, promotions and the distribution of other career development opportunities within the civil service have yet to be institutionalised. Second, in the past, the conflict has forced many VDC secretaries to abandon their posts, curtailing development activities, taking a toll of the decentralisation process. Also, despite the peace agreement, the local bodies have not been able to spend their development budget due to local level conflicts and lack of consensus.

Again, although theoretically politicians and bureaucrats seem to agree on greater decentralisation, in practice, the centre has always been reluctant to do away with its powers to carry out any meaningful decentralisation. Third, the lowly paid public servants and deteriorating ethics and integrity are major challenges to fighting rampant corruption.Essentially, judicial reforms and FDI inflow have a positive relationship. Additionally, on the economic fronts too, deregulation of state monopolies, privatisation and financial sector reforms have been disastrously slow. Again, our efforts at realising the notion that aid should promote trade have not materialised to the desired extent. Obviously, these shortcomings contain our potential for attracting more foreign resources.

Increased assistanceTo conclude, in an era of economic diplomacy, increased foreign assistance is extremely crucial for undertaking development activities in Nepal. Despite some achievements made in the economic and governance reforms for meeting the preconditions for such assistance, further deep-rooted reforms are required to benefit from foreign aid. Indeed, as part of a global development strategy, Nepal will be in a position to attract more aid and stride towards accelerated socio-economic development in the future. Broadly, such aid money should be spent on reconstruction, rehabilitation and infrastructure development, peace and meeting people's basic human rights, gender and social inclusion and better service delivery. Indeed, Nepal must work hard for better alignment of assistance strategies, increased budget support and harmonisation of assistance and procedures, and ultimately it must focus on better results.

Source: The Rising Nepal, July 4, 2007