Kathmandu : Speech by Mr. Mahesh Acharya, Minister for Finance of Nepal, at the Nepal Development Forum Meetings at Paris on April 18,2000
I have great pleasure in participating in this long-awaited Nepal Development Forum. I am happy to have this occasion of meeting you all in this beautiful city of Paris. The hectic preparations on the part of the government as well as that of the donors has finally led us to assemble here to conduct discussions on important themes underlying Nepal’s development. At the outset, I, on behalf of His Majesty’s Government of Nepal, my delegation and on my own, take the pleasure to extend a warm welcome to you all in these meetings.
On behalf of His Majesty’s Government, I would like to express sincere appreciation to the World Bank for organising these important meetings and to other donors for their participation in the spirit of further strengthening the partnership and collaboration for Nepal’s development endeavor. As you all are quite aware, in preparing for these meetings, a series of interactive sessions were organised in Kathmandu among the government representatives, development partners, civil society organisations experts, opinion-builders, and professionals aimed at boiling down to the key issues and action agenda. I believe that this process, by ensuring consultations with the people at large in the critical issues of reform engineering, has certainly widened the constituency of reform proposals. Since the government believes in greater involvement of the people in the speedy implementation of the reform process, their participation in the early stages should ensure their ownership and leadership to make the reforms sustainable, meaningful and effective in the long-run.
I would also like to take this opportunity to thank the donors for their enthusiasm and support in making the subsequent Nepal Development Forum preparatory meetings between the government and donor community representatives based in Kathmandu successful. I also feel that the candid discussions on the reform policy agenda and actions two days over here would be a milestone in further crystallizing the policy framework of Nepal’s priority reform actions. Indeed, your support and assistance will be immensely valuable in accomplishing our development agenda for poverty reduction.
During the dinner yesterday with heads of delegations, I took the chance to touch upon a couple of issues related to external resource mobilization and its effectiveness and outcomes in realizing the development goals of Nepal. I am greatly encouraged by your enthusiastic response and I am impressed to see how eager you are to sincerely help mobilize aid resources for the cause of Nepal’s progress.
The present government, as you are aware, is formed less than a month ago; many things are still in the process of making, designing and initiating. The commitment to reform, however, is real and sincere. The present leadership is credited with initiating the process of liberalizing the economy in the early nineties, especially toward making the government roles more focussed and removing the impediments to private sector participation, thus unleashing the forces of growth and development. As Finance Minister, I had had the privilege of sharing the major features of the then reform initiatives at the Nepal Aid Group meetings in 1992. I am happy to note that, once again, the same leadership has assumed responsibilities, which is committed to consolidating the gains of the earlier reforms and push through the reforms to a second phase.
Beginning with the task of good housekeeping in the state affairs, particularly maintaining law and order, promoting good governance and combating corruption in public life are, among others, the government’s immediate promises to be delivered to the people. Without addressing these areas as a matter of urgency, we cannot see how the state can be governed effectively. Nor can we see private investment and foreign aid flows promoting economic activities without having a stable and reliable environment.
Let me also briefly explain how the government intends to go about addressing these challenges. The law and order situation in some parts of the country, as you all know, has been affected mainly due to organized terrorist activities. The government will pursue a three-pronged strategy to restore normalcy in the affected areas. Firstly, we will employ effective administrative instruments to meet our mandate of upholding the law of the land and attempt simultaneously to engage them in a dialogue to end the violence. Secondly, the government will intensify its relief and development outreach to the affected people. And, thirdly, we will embark on an awareness-building and mass opinion campaign designed to instill a better understanding of democratic norms, principles and values in order to help people understand that violent transgressions have no place in a democratic polity. In our strategy to contain the terrorists, we will also remain extra vigilant to human rights considerations. This aspect will benefit from the appointment of a Human Rights Commission, which will be formalised shortly.
The policy pronouncements of the government have opened new vistas for reforms in the statecraft. It is believed that the agenda of the improvement of the state apparatus, enhancement of good governance and the process of devolution would create a sound environment for policy implementation, whereas macroeconomic and financial reforms would contribute to sustained growth.
The government strongly feels that the reform process should focus on materializing the scope of a sound state for sustained growth and tangible progress in poverty reduction. The policy matrix presented here attempts to encompass all these crucial elements of development. I believe that these are essential elements to carry out the core state functions effectively, including creating a reliable and stable environment to expand economic activities by attracting private investments, mobilising foreign aid, and removing many anomalies surrounding the economy. In recognition of this, the present government, within a period of four weeks in the office, has already taken important decisions in the priority areas.
I have a feeling that the ineffectiveness of the development efforts of the past was mainly the result of excluding the ordinary people from the development mainstream. Due to such exclusion, people did not feel that they are an essential ingredient of the development process. Our main effort, therefore, is to rejuvenate the process to make people the centerpiece of development endeavors. For this, we have no choices other than to implement policy reforms with greater focus, priority and commitment. We cannot afford to ignore this reality any longer or retreat from the process.
Perhaps, to many of us, given the enormity of the existing structural and institutional dificiencies, the management of policy change in Nepal looks like an impossible task. This phenomenon of expectations and pessimism has always been a natural trend in young democracies worldwide. There are strong reasons to be optimistic about making Nepal’s reform management up to the expectations of people. To cope with the challenges of the day, the government is fully committed to implement reform measures. The government’s eagerness to make introspection of the past and move ahead with the reform process is testimony to the fact that there is a strong determination at the highest levels to pursue policy and institutional reforms.
It is well-recognized that good governance is the collateral for both domestic and foreign investors as is good economic performance and stability. Without them, it would be difficult to attract investments to the economy. As part of the civil service reform to enhance good governance, the government has already decided to reduce the number of ministries. The government has also decided to follow specified guidelines in making political appointments to the top positions of public enterprises. A cabinet committee has been set up to review the size, structure, functions and work environment of the government offices and suggest appropriate measures. The purpose of the civil service reform is to establish a clean, efficient, result-oriented and rightsized civil service. The government will take necessary measures to depoliticize civil service. A well-structured reward and punishment system will be made an integral part of the civil service code.
The recent devolution of economic, administrative and judicial powers to local entities has created new spaces to launch and steer development activities. A fresh approach to providing leadership and support from the top and obtaining full commitment from the bottom will be adopted to translate the spirit of decentralization into practice. Capacity building at the local level is an urgent agenda of the government.
Of course, the dimension of good governance is quite wide ranging. From providing development vision and leadership to the nation and to improving service delivery and ensuring fair justice, good governance holds the key to Nepal’s progress. As such, the government is initiating works in every aspect of governance. This will include reviewing the development plan to reflect need, interest, concern and aspiration of the Nepalese people, particularly the poor. This would also be essential to establish linkages among social, structural, human, environmental, economic and financial factors. In the planning process, economically feasible and socially sound projects and programs have to be identified within limitations that we have been facing. We cannot continue to blame externalities always, our landlocked situation, uncertain monsoon, poor resource base, and difficult geographical terrain for the poor economic performance. The Ninth Plan has accorded priority to five areas of development, viz., agriculture and forestry; water resources; human resource and social development; industrialization; tourism development; export promotion and physical infrastructure building. In view of the need for efficient and effective use of resources to expedite growth, reduce poverty and ensure sustainability of development, it is necessary to identify the key areas of investment in each priority sector and sequence them properly. The key area must posses the feature of spawning development of providing vital support to other activities. A clear distinction of public, private or joint areas of involvement in the priority sectors would become necessary for the optimal use of resources to expedite development.
In our effort to eliminate corruption, we are making appropriate alignment of existing organizations to effectively control irregularities, conduct surveillance and prosecute the culprits. The independence of judiciary will be safeguarded. Strong commitment is already there to eliminate corruption. Let me reaffirm, on behalf of the government, that no excuse will be granted if there is corruption at any level and place in the government. The government will act immediately on public grievances and complaints. The grievance and complaint handling authority has been delegated to district administration offices. The cumbersome administrative procedures will be further simplified. Amendments to the laws, regulations and procedures are being made to reduce monopoly and discretionary authority of decision-makers. An exercise is underway to prepare the action plan and necessary legal changes as per the recommendations made by various committees. A bill that requires transparency in the activities of public offices and political parties is being presented in the Parliament. The Commission for Investigation of Abuse of Authority will be adequately empowered and strengthened. An effective monitoring as well as evaluation system will be put into operation to ensure compliance with prescribed standards, guidelines, rules and laws. Th code of conduct of civil servants will be strictly observed and further improvement will be carried out to make it ideal. A comprehensive guideline for the prevention of corruption will be prepared and implemented. Provisions will be made to establish surveillance unit in all public offices and for regular reporting. Accountability and authority of each officer will be clearly defined and observed.
Let me now turn briefly to state some indicators of the current economic situation along with the highlights of the policies and actions of the government in important areas of the socio-economic development.
The growth rate of GDP during 1998-2000 averaged 4 per cent against the target of 6 per cent per annum set forth by the Ninth Plan. The agricultural sector did not perform as expected mainly due to the adverse climate. The growth of the non-agricultural sector also remained modest. The gross domestic saving and investment levels in relation to GDP are still very low. The fiscal performance also lagged behind expectations as a result of less than expected outcome in revenue growth, and surge in regular expenditure mainly due to the increased expenditures for debt servicing and maintaining the law and order situation. The balance of payments situation, however, has improved. The foreign exchange reserve at present stands at US$ 1.28 billion. The rate of inflation has been brought down and contained at a rate below 5 per cent. In a country with an average per capita income of US$ 210 and social indicators like the rate of literacy, life expectancy, infant and child mortality and access to safe drinking water are not at satisfactory levels.
The reforms undertaken during the early 1990s had created, to some extent, an enabling environment for private sector development. In fact, encouraging results in economic growth and macroeconomic management had then begun to surface. The momentum, however, could not be sustained due to the instability in government that infused differing development priorities, during the previous parliaments tenure. The government is now preparing a new package of second generation of reform measures in order to revitalize the earlier efforts and introduce further policy steps deemed necessary to achieve development goals. The spirit of government to increasingly discharge its role as catalyst and facilitator for the promotion of economic activities in the private sector will be the guiding pillar for new policy steps. In doing so, we, however, should keep in mind that the role of the public sector in implementing projects that are instrumental to foster economic development is still very important. Alternatives to carry out these tasks from within the country are either small or at infant stage.
The government is attempting to build consensus on major issues of development and national importance. To this end, a cabinet committee is negotiating with opposition political parties. Measures to address the development problems are also being discussed with major political parties.
The implementation of liberal policies alone was not sufficient to bring desired changes in the economy. It was increasingly felt that the lack of leadership and ownership in development activities by the government and people of Nepal, lack of focus on use of resources, and less attention to the important aspects like governance, corruption and institutional capacity were the other reasons for the poor economic performance in the past. The budget formulation process, which is the single most important instrument of translating government’s priorities and policies into reality, needs to be overhauled. In addition, the absorptive of the public sector has always been weak as reflected by the level of resource use each year.
In order to address these issues and improve the effectiveness and efficiency in the use of resources, the government will announce Foreign Aid Policy shortly. The policy while addressing the issues relating to the utilization of foreign aid will also help enhance the returns on public investment.
The overall objective of the policy will be to gradually attain self-reliance in resource mobilization by means of sustained, accelerated growth and poverty alleviation through the efficient and effective utilization of foreign aid. The mobilization of foreign aid will be based on the principle of neutrality and guided by the national interest. The policy will entail elements such as creating an enabling environment, developing effective partnership, launching broad-based sustainable development, balancing development in public and private domain and across geographical regions, harmonizing development partners in tackling national priorities and cross-cutting issues.
The basic consideration of the policy is to link resources with development priorities, maximize aid benefits, enhance national leadership, ownership and governance in aid management, include stakeholders, eliminate corruption, ensure transparency and accountability, build public private partnership and national capacity, secure sustainability, strengthen project implementation and aid coordination, make judicious use of loans and optimal use of technical assistance, and intensify policy dialogue with donors. The policy once implemented by the government, I hope, will enhance the effectiveness of resource use in the country. I would also like to express my sincere hope that development partners will assume more responsible role in assisting our development efforts.
The problem of poverty is massive that still traps 42 per cent of our population in a miserable economic condition. It has also entailed undesirable political and social ramifications. The high rate of population growth, high illiteracy, weak economic status of women, social and cultural rigidities and the dependency of agriculture on monsoon tend to further aggravate the situation of poverty. In addition, people’s development expectations are enormously rising, particularly after the restoration of democracy. Notwithstanding the enormity of the task ahead, we ought to come forward with all means and the sense of urgency to address this problem.
Taking stock of the lessons of the past and building on previous efforts, His Majesty’s Government is in its way to redesign and implement a comprehensive, yet coherent strategy for poverty reduction.
This strategy will aim to spell out program and policies to raise the income of the poor, enable the poor to take advantage of opportunities created in the economy and provide targeted programs for the very poor and the vulnerable groups. The strategy will seek to address other roadblocks that have hindered the achievement of poverty reduction targets. In the documentation prepared for this meeting, you will find what we have called a “pathway” for this redesigned strategy. In order to integrate all poverty-related programs and to create synergy by creating linkages, a Poverty Allevation Fund has already been created. Your assistance to make this sizable is solicited with a quick disbursing funds and flexible conditinalities. We look forward to discussing this with you over the next two days.
Many activities ranging from special area development programs, credits for women and ultra poor, scholarships for girls and children, health and nultrition, provision of infrastructure and service facilities, inclusion of the poor in decision-making as well as program formulation and implementation are in operation. The 20-year Agriculture Perspective Plann is also primarily focused on the poor. Yet, the impact on the poors’ lives is not visible. Obviously, the main answer may lie on the low growth performance of the economy. The low level of economic achievement in the past was not sufficient to addess the issues of poverty against the backdrop of high population growth. The weightage for economic growth in reducing poverty has proved very strong. In this context, there is a reason to be worried that we have so far been substantially lagging behind the growth target of the Ninth Five-Year Plan. Despite this scenario at hand, I strongly feel that Nepal has to aim for much higher rate of growth than envisaged in the current plan if we are to bring vivid change in this lives of our people. Achieving the rate of growth of even above 8 per cent and sustain it for a considerble period of time may not be impossible for Nepal where tremendous development opportunities exist. The most important thing in this respect, I believe, would be the determination of the governemnt to strive for such aim and strategic utilization of the power of persuasion to mobilize the potential contribution of stakeholders for national development.
As indicated above, the government is implementing a comprehensive policy in order to promote the lead role of the private sector in economic development. Works to provide the legal framework for the private sector governance and simplify tax structure and administration are being initiated. Privatization rules as stipulated in the Privatization Act will be formulated and implemented. The functions and responsibilities of institutions dealing with the private sector will be made more simple and transparent. Privatization of public enterprises will continue. For the enterprises that remain in the public sector, transitory measures to improve their governance and management effectiveness will be immediately implemented. Such measures will help control further deterioration in their standing and make them attractive for private sector takeover.
The government will increasingly channel resources to build supporting facilities for the private sector development. Private sector investment will be attracted to the areas of comparative advantage like hydropower, tourism, agro-industry, and so on. Administrative procedures will be simplified to remove administrative barriers to enter into the market.
The role of the financial sector in expanding development activities in the private sector has been crucial. However, the quality of financial services has not been very satisfactory due to the poor corporate governance in the banking and financial sector. Many financial institutions are not in sound condition. To address these issues, the government is formulating legislation on merger and acquisition, debt recovery, bankruptcy and business closure. The Foreign Exchange Act is also being amended. Likewise, the Company Act will be amended to improve the governance of joint-stock companies.