The government has pointed out that the economy is trapped in an unproductive cycle due to policy corruption, transactionalism and crony capitalism in the country. Instead of economic growth through entrepreneurship, competition and innovation, the economy has reached its current state when extortion through licenses, contracts and regulations has become a feature of the state-market relationship, as stated in the economic position paper released by Finance Minister Swarnim Wagle on Monday. 

This has discouraged capable entrepreneurs and new entrants and has oriented the economy towards a structure based on access rather than value creation, Finance Minister Wagle claims. Finance Minister Wagle had decided to prepare an ‘economic position paper’ immediately after assuming office on 13 Chaitra. Accordingly, the economic position paper has now been prepared and made public. 

Finance Minister Wagle had decided to prepare an 'economic position paper' immediately upon assuming office on Chaitra 13. Accordingly, the economic position paper has now been prepared and made public. ‘The root of Nepal’s economic and political crisis lies in the distorted incentive structure. Expensive elections, opaque fundraising, and cumbersome party structures had transformed politics into a means of profession and investment, not a service,' the position paper states. 'Deep ideological confusion persisted about the role of the state and the market. Sometimes there was an illusion of an omnipotent state, sometimes there was overconfidence in the market. Policy instability was seen between these two extremes.' The government has concluded that the approach of considering the market as self-regulating has failed to strengthen the necessary institutional structures such as competition policy, consumer protection, environmental regulation, and social security. 

On the other hand, the position paper states that distrust of the private sector and distribution-oriented extremism have not been able to prioritize production, investment, and productivity growth. 'As a result, neither the market became dynamic, nor could the state structure become responsive. In the absence of a capable, rule-based and predictable environment, the private sector could not find a secure and reliable base, the position paper says, and the state failed to ensure the security of private property, contract enforcement and regulatory stability, investment could not be attracted and the economy was trapped in an unproductive cycle. The government concludes that despite being rich in resources, potential and goodwill, Nepal has not been able to progress due to a crisis in thinking, determination and governance ethics. Nepal has gone through several stages of political revolution. However, the path of transformation, including the overall economic and political structure, remained incomplete, the position paper says. The country could not gain the expected momentum due to social discrimination, weak governance and government instability. As a result, dissatisfaction, anger and resentment among the younger generation turned into an indomitable rebellion at a time when there was abundant potential in terms of demographics. Similarly, the government concludes that the expansion of social security and distribution-oriented programs without a realistic assessment of long-term financial obligations has added challenges to intergenerational equity. ‘Efforts made in the name of ensuring equality without effective implementation have neither reduced inequality nor expanded production capacity. Due to the inability to effectively utilize the demographic dividend, foreign employment, remittance-dependence and limited domestic job creation have become the character of the economy,’ the position paper states. 

Nepal’s main challenge is not only lack of resources, but also conceptual ambiguity, institutional weakness and weak implementation. The government concludes that it is not the lack of private entrepreneurship, but rather the policy and institutional structure that penalizes entrepreneurship that has become an obstacle.

Similarly, the government concludes that the expansion of social security and distribution-oriented programs without a realistic assessment of long-term financial liabilities has added challenges to intergenerational equity.

The government claims that the country's economy has entered a phase of restructuring and upgrading. As Nepal's economic policy is taking a new turn, high priority has been given to policy reforms, quality changes in public service delivery, economic transparency and good governance. The position paper states that a cultured and prosperous society will be built with determination by breaking through structural weaknesses that have been entrenched for decades.  Absolute liberalization is not enough to get out of this situation. For this, it is said that comprehensive structural reforms that promote competition, assimilate innovation and technology, provide opportunities for new entrepreneurs to enter and transform the economy from ‘rent-seeking’ to advanced employment-centered sustainable growth are necessary.

Economist Dilliraj Khanal said that the government's economic position paper was not as expected but was only ad hoc. 'According to the RSVP's pledge and the government's 100-point agenda, the current state of the economy and its reasons were not included in the position paper. It is only a general ad hoc nature,' he said, 'The way the pledge paper raised the issues of the economy in a concrete and in-depth manner. The position paper did not come according to that. The reasons have been raised in a superficial manner rather than in a concrete manner.' 

Khanal said that although he had viewed, studied and spoken about the RSVP's pledge paper very positively, the position paper did not meet his expectations. The government claims that the foundation is ready to achieve an average economic growth of 7 percent from the next fiscal year, bringing the per capita income to at least 3,000 US dollars and the size of the economy to close to 100 trillion (100 billion US dollars) within five to seven years. Along with achieving the commitments and goals mentioned in the position paper, the goal has been set to make Nepal a respectable middle-income country within five to seven years. For this, Finance Minister Wagle has selected four main sectors for economic transformation. 

Khanal said that while he had viewed, studied and spoken about the RSVP's pledge very positively, the position paper did not meet his expectations.

‘Productive employment will be increased through modernizing and commercializing agriculture and strong linkages with industry and tourism,’ the position paper states, ‘Employment and income will be increased through quality infrastructure development in the tourism sector and ease of travel in tourism services and transportation.’ Finance Minister Wagle says that production, productivity, employment and exports will be increased through the use of information and technology including artificial intelligence and the creation of a digital economy.  Finance Minister Wagle claims that the total installed capacity in electricity generation will be increased to 15,000 MW within the next 5 years, the construction of important projects of national pride will be completed within the next two years, and new projects of strategic importance will be developed, attracting private investment through infrastructure development, and economic growth will accelerate. 

The position paper states that the country’s economic growth is relatively low and unstable. The average annual economic growth in the last decade is 4.2 percent. During this period, Nepal’s economy has expanded from a minimum of 2.4 percent contraction to a maximum of 9 percent. ‘While economic activity has been sluggish in recent years, the economy, which expanded by 4.61 percent in the fiscal year 2081/82, is projected to expand by 3.5 percent in the fiscal year 2082/83,’ the position paper states. The position paper states that the country’s economy has expanded from agriculture to the service sector without industrialization. ‘While the contribution of industry and agriculture to the economy is shrinking, the contribution of the service sector is expanding,’ the position paper states.

It is also stated that the condition of the manufacturing industry is weak. In a decade, the contribution of the manufacturing industry to the gross domestic product is only 5.4 percent on average. During this period, while the overall economy expanded by an average of 4.2 percent, the expansion of the manufacturing industry is only 2.9 percent on average. 

The paper also states that the country's industrialization status is weak due to insufficient investment, high dependence on imported raw materials, low adoption of innovation and advanced technology, and high production costs, among other reasons. It is also stated that the current opportunities and challenges will be clearly identified and a strong basis will be provided for drawing the necessary roadmap for policy reform, strengthening good governance, and sustainable economic transformation. 

It is also stated that the current opportunities and challenges will be clearly identified and a strong basis will be provided for drawing the necessary roadmap for policy reform, strengthening good governance, and sustainable economic transformation.

Due to the high number of people going abroad for employment, the remittances they send have provided short-term relief in the external sector balance, poverty alleviation, internal demand and social sectors. However, the economic position paper states that the country has a shortage of skilled and semi-skilled manpower and a decrease in aggregate demand, which has also increased the risk of depletion of human capital in the long term. The government has stated that its dependence on foreign employment is increasing. The lack of decent employment opportunities within the country has increased dependence on foreign employment. The position paper states that the number of Nepali workers seeking work permits for foreign employment has increased by an average of 28.6 percent annually in the last decade. 

Despite many challenges, the position paper states that there are multifaceted opportunities available in the economy. These opportunities are summarized in 11 points. 'The confidence of the private sector can be increased through an investment-friendly policy environment while maintaining good governance on the foundation of a stable government. This has the potential to expand the productive sector and create employment by bringing domestic and foreign capital and technology into the economy,' the position paper says, 'There is an opportunity to create stable foreign income through industrialization, expansion of the service sector and energy exports by utilizing the vast potential of hydropower as cheap and reliable energy. Expansion of regional electricity trade is expected to strengthen Nepal's position in the green energy market.'

Natural and cultural heritage has provided a strong foundation for high-value tourism development. The government claims that employment and income generation can be expanded in rural areas through integrated development of mountainous, cultural and community-based tourism. The position paper states that improving tourism infrastructure, service quality and destination management will help enhance international competitiveness.

The position paper states that improving tourism infrastructure, service quality and destination management will help enhance international competitiveness.

There is a possibility of expanding production, income and exports through modernization of the agricultural sector. Productivity can be increased and import substitution can be achieved through investment in high-value crops, animal husbandry, horticulture and agro-processing industries.  The government claims that the use of geographical diversity can support the development of region-specific production and rural industry. ‘With the use of artificial intelligence and robotics and the expansion of digital technology, opportunities for service exports and knowledge-based economy development are increasing,’ the position paper states, ‘There is a high possibility of connecting youth power and small enterprises to the global market by expanding high-value-added economic activities with low capital through information technology services, business process outsourcing and digital entrepreneurship.’ 

‘There is a possibility of expanding export-oriented production through industrial development and strengthening the supply chain. Competitiveness can be increased by reducing production costs through special economic zones, industrial clusters and trade facilitation measures,’ the position paper states, ‘There is also a possibility of becoming a regional transit trade hub by taking advantage of the geographical situation.’ 

Systematic urbanization and infrastructure development can make a positive contribution to attracting investment and creating jobs. The government claims that the expansion of transport, energy, irrigation and digital infrastructure can increase the productivity of the manufacturing and service sectors and there is also a strong opportunity to implement large projects through public-private partnerships.

Systematic urbanization and infrastructure development can make a positive contribution to attracting investment and creating jobs.

‘Strengthening the financial sector can support investment expansion and economic diversification. "Financial inclusion, digital financial services and the use of long-term investment instruments will help mobilize available savings in productive sectors," the position paper states. "There is an opportunity to increase income, production and employment through the use of minerals, water, land and forests available within the country while maintaining biological and ecological balance." There is a possibility of converting remittances into productive sectors. The government says that if foreign income can be diverted towards entrepreneurship, skill development and investment, a qualitative change can be brought about in the domestic economy. The government has stated that the skills and experience of Nepali expatriates and workers who have returned from foreign employment can be utilized in the domestic manufacturing and service sectors.