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

Labour Accord

Nepal and the United Arab Emirates (UAE) have signed a deal to arrange and regulate exchange of workers with a view to ensuring that Nepalese labourers working in the UAE are protected and conferred with the rights that are universally granted to the workers employed outside their own countries. This is the first bilateral agreement of its kind which has been agreed upon and initialled between Nepal and the countries of the Gulf. Although a similar accord was said to have been signed with Qatar at the time of the Royal regime some one-and-a-half years ago, it is, according to the Minister of State for Labour and Transport Ramesh Datta Lekhak, the first accord that entrusts legal status to the Nepalese workers employed in any country outside Nepal. The bilateral agreement comes into effect soon, and the salient features of the deal makes the government of Nepal and the UAE accountable for safeguarding the rights of the Nepali labourers and maintaining salary standards and contracting compulsory health insurance for them. Moreover, the accord provides the Nepali workers rights and the legal status to fight against attempts to encroach upon their entitlements.

The most important part of the agreement has been that it seeks to prevent improper practices and deceptive tricks by the private manpower agencies that tend to exploit the workers by demanding exaggerated fees, while providing false information about their working conditions in the host country. According to Minister for Labour of the UAE, Dr. Ali Bin Abdulla Al Kabbi, the deal confirms the importance of the supply and recruitment of the Nepali labour force on a firm foundation in accordance with the laws and regulations in force in both the countries. The positive aspect of the agreement has been that it defines manpower as temporary workers intended to be employed for a specified period of time as per the work contracts and indicates the rights and obligations of the employees and employers. As has been mentioned by the authorities of both the countries, the accord constitutes a milestone in protecting the rights and entitlements of the Nepali workers. Since the trend of the Nepalese people going outside and working there has been consistently on the rise, Nepal should seek to agree upon and sign similar accords with other countries including Saudi Arabia, Malaysia and so on. What matters significantly is not so much the signing of the accords as their implementation in the real sense of the terms.

Source: The Rising Nepal, July 5, 2007

Priorities For The Upcoming Budget

Amrit P. Shrestha

The budget communicates information about the priorities of the government. Each act in the budgetary process is important, not only for taking a specific decision (so much for this, less for that), but for the information conveyed to others who will alter their activities accordingly. The closest analogy to budgeting in the political arena is pricing in the market place. Price is the major signal to which people adapt in choosing what to buy and sell, produce and consume, undertake or abandon. These signals communicate more about what is valued than any other economic decision. While concentrating on the budget, we should not be thought of as abandoning the awe-inspiring multi-year plan, rather as seizing one opportunity to focus on an area of significant potential advance over current practices. The budget has to focus on those segments that need to be brought on track, like infrastructure development, agriculture and the social sector

Strategies:Our economy has been pushed into a downward spiral. Neither are the government agencies in the process of activating the development programmes nor are the politicians concerned. The overall scenario is disappointing, whether we talk about physical infrastructure or social activities. Our journey has just started, and compared to our neighbours, it is in the preliminary stage of development. The upcoming budget must address all of the multi dimensional parameters of the economy which are causing concern - highway networks, rural connectivity by roads/communication, power, drinking water, agriculture, irrigation, watershed development, provision of quality seeds, access to health/education and poverty alleviation. Every finance minister plans ahead to avoid any problems in the future by anticipating them. He tries to obtain a more desirable future by working towards it at the moment. Attention must be diverted to the United Nations Millennium Development Goals, which could be a guideline for achieving our own goals.When there is growth, there will be more tax revenue. Growth-oriented budget benefits a section of the population, and growth is also a part of investment. When investment is taking place, there is nothing to suggest that growth will not take place. Policies that serve to distribute income more equitably must, therefore, become as important as those designed to accelerate growth. The road to economic prosperity, self-sustaining growth and national well being, in other words, has been impeded by lack of capital and industry than by the whole configuration of social factors responsible for it.

With every announcement that reduces our taxes, we are happy while we fall sullen when taxes go up. However, the finance minister must try to reduce inflation, keeping it at a moderate rate of 4-5 per cent. Taming inflation without dampening growth, more effective delivery of social services and putting fresh impetus in the economy are other priorities. And policies have to be designed in a manner to enhance investment to lay a robust foundation for growth, and make investment avenues more attractive.Customs and excise duty cuts are disinflationary. The reduction in customs duty on key inputs would reduce the manufacturing cost and facilitate exports. Cutting import duties on industrial intermediates and raw materials will be incentives for the manufacturing sectors. And it would be a strong support for increasing the tax to GDP ratio. Unfortunately, Nepal has not been able to push with VAT. The tax has not played a significant role in enhancing economic process. The overall strategies have not helped achieve those targets as envisaged in November 1997.The tax rate has been increased time and again for nothing, and this does not get reflected in real revenue mobilisation. So the finance minister has to pay serious heed to increasing the tax base rather than increasing the tax rate. International experience tells us that the gradual lowering of the tax rate is an effective tool in achieving the desired goals rather than increasing it. Meanwhile, WTO norms have to be kept in mind while granting direct subsidies on agriculture and farm products.

This is also the right time to rewrite tax laws aimed at: improving the capacity to mobilise more revenue; combatting tax evasion; making the tax administration more professional/strong /job-oriented, and improving compliance and economic activity. Tax evasion provisions should be more stringent with tougher penalties. Budget allocation for infrastructure development and expansion of the IT sector, promotion of the concept of an International Financial Centre, and adoption of the private-public partnership (PPP) model should be a part of the basic development process.ChangeOne must accept that the budget is not the main vehicle for bringing about changes. One also knows by experience that financial assistance through internal and external source is a strong instrument for initiating such changes. All must, therefore, think from a long-term perspective rather than weighing the immediate pros and cons.

Source: The Rising Nepal, July 5, 2007

Unspoken Voices

Narayan Prasad Wagle

The silent majority does not come to the streets, does not chant slogans or take up arms to have their demands fulfilled. They just remain silent though they are in the majority. Political groups, hooligans and warlords claim to represent them, but the silent majority is usually unheard of, exploited and misrepresented. This is what is happening in the ever-complicated political scene of Nepal. There is a visible difference between what the people actually want and what the various political groups are demanding and the strategies they are applying to get their demands met.

FederalismAlmost all the political parties have projected federalism as the chief demand of the people, and this was the agenda that fuelled the aggressive protests in the terai. But if we look at the other side of the coin, the reality is completely different. A study carried out by the Asia Foundation some months ago demonstrated that only a small portion of the population had any knowledge about what the constituent assembly stood for. From this, we can infer that an even smaller portion of the population understands what federalism stands for. Then how are we to believe that the people have blindly supported the demand for federalism without understanding it? Even if they did, is it meaningful? Similarly, republicanism or the retention of monarchy has been projected as the major issue of the people in the CA polls and is placed atop all other agenda. However, the silent majority has little interest on the hackneyed issue since they see no direct link between the issue of retaining or abolishing the monarchy and the serious concerns of their daily lives. Their inability to see a link between the issue of monarchy and the their daily lives is sometimes described by clever political leaders as lack of political consciousness and ignorance and, hence, they emphasise the need for an awareness campaign. But the silent majority does not accept this notion that underestimates them. Though they do not know much about republicanism, they do understand that republicanism per se will not ensure that they will not have to die for lack of food, housing or health care facilities. Also that it will not ensure an education that is free for their sons and daughters.

They also understand that republicanism per se will not put a stop to the exodus of cheap Nepalese labour into the global market. For them, the right to life, education and basic health care facilities is more important than republicanism, federalism and the like. Probably, the silent majority will be happier with the inclusion of the right to life, right to education, right to attainable standards of health and right to work. Both armed groups and agitators are using strategies and tactics that go against the will of the silent majority while claiming that they represent the people. As we have seen in the past, general strikes and shutdowns of schools and transportation have been common weapons of both the agitators and terrorists. It is as clear as broad daylight that the public is spiteful about the general strikes and shutdowns of schools and transportation. In fact, these coercive methods in the name of pressing the government to fulfil their demands are attacks against the lives and liberties of the people. Then, why do they cling to such methods like a leech and shamelessly speak a sheer lie that their cause enjoys great public support? The motive is clear: their interest contradicts with that of the general public, and they want to fulfil it by taking undue advantage of the silent nature of the general public. Nobody has the right to misrepresent the silent majority, frequently referred to as the people. Only in a peaceful process of democracy can the silent majority have their say in national politics, especially through the exercise of their franchise. It is by the votes of this section of the population that unexpected outcomes beyond the arithmetic of renowned analysts are brought about. Otherwise, whether it is in so-called fake democracy of the elite or armed politics, the needs and demands of the silent majority will be ignored, and, as a result, the whole society becomes unstable.

Understanding the peopleAs it is the silent majority that strongly adheres to the norms and values of the society, disregard for this common lot results in lawlessness, and justice of the jungle. But will our political leaders, who turn a deaf ear to the loudest cries, listen and understand the minds of the silent majority? The date for the Constituent Assembly polls has just been set. It is time they went to the hinterlands to interact with the people rather than be bogged down by the demands of the elite.

Source: The Rising Nepal, July 5, 2007

Action, action

Successive governments have formed too many commissions and committees to look into the long-ailing public corporations (PEs) and suggest measures for turning them into cost-effective or profitable ventures. But not much concrete action has been taken to that end. If all those reports were put together, they would fill many shelves. The latest report, an interim one, has come from the five-month-old Corporation Reform Suggestions Committee headed by former industry secretary Dr Bhola Chalise. Unsurprisingly, it has concluded that most of the PEs are in an unenviable state. It has categorised them as bad and very bad, and added that both the privatisation and reform process for the PEs have stalled. Therefore, it has recommended the formation of a corporation reform commission to adopt policy for reform. Though the existing privatisation committee has representation from the political parties and the private sector, little has come of it.

The justification for this commission and for reform, according to the report, comes from the belief that in the present fluid political atmosphere, full-scale privatisation cannot move forward. As the interim government represents eight parties with different views on how to pull the PEs out of red, a consensus on the PEs’ outright privatisation may indeed be difficult to achieve at this juncture. However, even the Maoists may not be averse to the idea of starting the process of selling the shares to the general public. The symptoms of the disease are more or less common to all PEs, and the disease was diagnosed long ago. What is really needed now is not more committees or commissions, but concrete remedial action to bring the ailing PEs back to health. In this context, the great majority of the corporations have no option but to privatise. The government and bureaucrats, who cannot run the ministries and departments properly, cannot be expected to run commercial, industrial or financial enterprises professionally.

In the past, many reform measures were announced to revitalise the PEs but none worked. It is therefore hard to believe that any new reform measure without changing their ownership structure will now be effective at turning the PEs around. One or two governments also sought to put vigour into the PEs by hiring their chief executives on performance contracts, but that came to almost nothing. Poor performance of the PEs has a lot to do with the failure to exact accountability. For instance, government bureaucrats who occupy important positions as chairmen or members of the boards of the PEs or members of recruitment committees are not held accountable for their performance there. There has not been a consensus among the political parties either on exactly what to do with the PEs. Any government that came to power lacked clear vision and willpower to introduce far-reaching reforms. It treated the PEs as employment mills. The interim government can no longer afford to waste time on commissions or reports. The need of the hour is action.

Source: The Himalayan Times, July 5, 2007