The National Economy is in a difficult situation, but this is also an opportunity for bringing structural changes in the economy: Former Finance Secretary Subedi

Former Finance Secretary Dr. Shant Raj Subedi spent almost 25 years in the civil service in different capacities like Finance Secretary, Joint Secretary, Deputy Director General, Department of Inland Revenues, Chief Tax Administrator, Chief District Officer and Director General of Department of Information; among others. He is among a very few passionate civil service professionals who is always committed towards bringing positive changes in the civil service and providing better services to the public. He has been recognized as a highly committed, compassionate and capable administrator in public administration. He never compromised in his professional delivery of services and always kept busy in study and research, which made him different as compared to other civil servants. Dr. Subedi was awarded from “Excellence Civil Service Award” 2016 by the Government of Nepal appreciating his sound performance. He has completed PHD in Economics. He greatly contributed to the country during his tenure in the civil service and still has potential for contributing to the society based on his long experience and expertise; yet people like him are not the first priority of the leaders as such professionals would not act as ‘yes men’ and deviate from their professional ethics. As the Covid-19 pandemic has been affecting every sphere of life, Nepalekhabar is privileged to interact with him on various aspects of the national economy and how the current situation could be turned into an opportunity for bringing structural changes in the national economy. Here are the excerpts:

How do you analyze the current economic situation of the country?

The situation of world economy is quiet challenging and passing through transition as all countries including developed countries, developing countries and countries like Nepal have been affected due to Covid-19 pandemic. According to latest statistics of the IMF, the Global economic growth will shrink by around 4.9 percent in 2020, and the growth of emerging and developing Asia is also projected to be negative by 0.8 percent. China tactfully dealt the pandemic but their economy will increase by one percent and the growth of Indian economy will be around minus 4.5 percent. The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast.

In this context, our economy will definitely get affected as our economy is a trade led economy and it is not based in production. Of the total size of the Gross Domestic Product (GDP), which is approx. 30.8 billion USD, our foreign trade is approx. 12.5 billion USD, which is approx. 40%. Of the total revenue, we are collecting around 45 percent from custom point. Our economy is import based. If we look at the different sectors, there is huge impact of the pandemic in agriculture, dairy and livestock. Farmers and human resources involved in the agriculture sector got badly affected due to the lock down and other effects. For example, they could not harvest their crop properly and also could not sell on time, which has affected them negatively. Some could not pay back the loans taken. Then, there is problem of seed and fertilizer.

There is a huge impact in the industrial sector. One of the major industrial sectors, the construction sector – as most of the big projects which have contribution in overall national economy like employment generation, capital expenditure and overall development of the country – has been stalled. If you look at the other industrial sectors like the small and medium industries, they have also been adversely affected. If we look at the big industries, they are also operating in a very limited capacity like 40% of their full capacity. A recent survey conducted by Nepal Rastra Bank has shown that nearly 60% industries were closed down.

Similarly, the service sectors like hotel, restaurant and aviation are also adversely affected. Although this sector does not have huge contribution in the GDP, it is contributing to other sectors like employment generation, foreign currency collection and also giving opportunities to local businesses through tourism. Similarly, another badly hit sector is the transportation sector, which also has important contribution to the GDP. The central bureau of statistics has projected 2.27 percent growth rate for last fiscal year based on the analysis (actual of 8 months and projection of four months) considering that the impact of Covid-19 will not be so huge, but I feel the growth will be at the replacement level like zero or negative, but let’s hope it will be positive.

Similarly, many people are losing jobs in different sectors as there is a report which mentions that 73% youths lost their jobs due to the pandemic. This will have social, economic and mental effects. This may also increase poverty level. 45% population of the country who are just above the poverty line, may slide below the line, so there is a fear that many people will be pushed back to below poverty line due to the pandemic. While looking at the different aspects of national economy, Covid-19 has been affecting various sectors but we are not sure how long the situation will remain as such.

Many countries have started economic activities despite the pandemic, so how should we move ahead?

If the situation continues for a long time, we need to look at it as a serious problem and take forward other activities as the economy cannot sustain the lock down and prohibitory orders. If we look at the international context, the US never imposed a full lock-down and many European countries relaxed lock-down adopting safety measures. If we look at India, the number is very high but they are gradually lifting the lock down. Therefore, if the Covid-19 problem still continues for a while, we should not continue the lock down and find alternative ways, take proper health measures and also give momentum to the national economy. We need to take necessary measures for treating the infected people, increase the number of PCR tests and implement the various steps to stop the virus from community spread; but at the same time we need to find ways to continue various economic activities.

Our target is high economic growth, employment generation and increase in investment, but the economy is at a standstill. The government has announced various programs for giving life to the economy in the budget like increasing the employment opportunities by creating 0.8 million jobs in present fiscal year. Nepal Rastra Bank also brought different programs and the government also set up approx. USD 416 million special fund for providing low interest credit facility to the Covid-19 affected people, so we need to expedite the process of economic activities. The liquidity is quiet high in the banks but we should not take the interest rate very low as it may contribute to capital flight, so we need to encourage savings and work to expand the investment. We need to increase investment in the priority areas like the agriculture and service sector.

In this challenging context, what should be the focus of our economy?

Employment generation related programmers should be promoted. There should be focus on implementing big projects. The big projects should continue despite the Covid-19 as quarantine measures can be implemented. Similarly, there is no problem for giving continuity to the agriculture sector as the situation is not very negative in the rural areas. Currently the situation has developed ownership towards rural areas and many people are involved in agriculture, which is a positive thing and it may contribute for self-sustaining economy. It is said that almost a million people have returned to the rural areas from city areas especially from Kathmandu Valley. If we provide employment opportunities and retain at least 50 percent of them in the villages, it will have positive impact in the economy. The Federal Government should provide necessary support and provincial and local government should facilitate to engage them in small enterprises like cash crops and small and micro enterprises to retain them in the villages. Mechanization of agriculture and providing seeds and fertilizer could help to engage them in agriculture and other related enterprises. Another sector which could be looked at is urban employment generation. There are half million foreigners involved in brick kilns and another half million involved in the construction sector who could be replaced by our work force. We should focus to engage local human resources by promoting that work is work and it is not big or small.

The main focus of the country should be economic transformation and this could be done through industrial revolution. After mechanization of agriculture we need to take surplus workforce into the service sector. We need to take underemployed workforce of agriculture sector to the industrial sector; and for that we need to promote production related industries. Nearly 60 percent people are dependent in agriculture but they are underemployed and those who have shifted from agriculture have mostly shifted to the service sector, but we need to shift them to the industrial sector not to other sectors.

The contribution of manufacturing industries to GDP was only 5.0 percent in fiscal year 2076/77, while the contribution of industrial sector was 13.7 percent. The contribution of manufacturing industries is decreasing every year, which is unfortunate, so, we need to increase it. The 15th Plan has also not prioritized it as it put the contribution of manufacturing industries around 6 percent, which is also minimum, so we need to rethink and reprioritize it. The government should move to bring structural change in the economy. We need to prioritize manufacturing industries like the construction sector, we need to focus on big infrastructure including electricity, road, irrigation among others. We also need to focus on gas and water resources. We also need to prioritize tourism and transportation sector, which will contribute to the national economy. The industrial sector should be the driving factor of our economy in the days to come.

Our focus should be the marginalized people and uplifting their situation. We need to contribute in the education and health sectors based on the human development indicator. We need to focus on the areas where the human development index is low as the government has envisioned the concept of welfare state.

The budget of current fiscal year is a bit ambitious, and with Covid-19 having a huge impact, we need to rethink it and reprioritize the priorities of the 15th plan. The Covid-19 affected communities have been demanding some relief packages as the situation has further prolonged, so the budget should look on it. The government does not have capacity to issue huge financial relief packages and it may not be feasible to give relief in taxes, but we can defer the payment schedule for providing relief to the entrepreneurs. The government should focus on employment generation.

What measures need to be taken for ensuring the issues mentioned above?

We should take it with priority as governance is important issue for giving life to the economy and to show the presence of the government. The farmers are not getting fair prices of their products; to resolve the issue of agriculture sector, we need to ensure minimum rates of the produce and also guarantee access to the market. The agricultural products are cheap in neighboring countries as it is heavily subsidized, but for promoting national products, we can impose anti-dumping and countervailing tax, so that farmers get fair price.

The government should ensure law and order and security situation of the country so that people feel secure and also take up the enterprises in a safe environment. The government should take strict action against those involved in violating laws regardless of the political affiliation. Similarly, strict actions should be taken against the people involved in corruption. The government has been saying that it is adopting zero tolerance against corruption, so, it should be turned into reality. The government should properly investigate all the incidents of corruption and take strict action against people involved in it and give the assurance of rule of law in the country. If we are able to enforce law and order, people will trust the government and it will ultimately contribute for social and economic changes in the society.

What could be the role of civil society, academia and private sectors at this juncture?

They should act as a watch-dog to make the government responsible for the well-being of the people by providing sound, appropriate and implementable suggestions. Regular monitoring of the performance and services delivered by the governmental and other public entities should be their priority.

The general administration should be accountable and responsible and it should listen to the grievances of all sectors and try to resolve it. It should listen to the recommendations of civil society, private sector, experts group and other sectors. The government should take youth into confidence as youths have been really interested for the development of the country and moving forward with various innovative visions. Transparency and enforcing the vision of youths are two fundamental principles for the development of the country. We need to identify which are immediate, medium term and long-term issues and develop a practical timeline for enforcing it. While enforcing it, the government should listen to the voices of civil society, experts, youths and other stakeholders. If there are challenges due to laws, we need to amend such laws and create conducive environment for it.

How do you rate the role of immediate past Finance Minister in dealing with the current situation?

When we talk about the tenure of immediate past Finance Minister we need to look from different parameters. Immediately after he assumed office, he portrayed the real situation of the economy by issuing the white paper, so we have to analyze what he has achieved on what he had presented before. He had full confidence of the president and prime minister and he was powerful minister of a stable government, so the expectation was that he could have done much better. There was high hopes as he is an expert on the subject matter and has long experience in the sector, so people were expecting that he would take some bold actions for the structural transformation of the economy, but it seems he could not deliver as per expectation. The first budget he brought was in the line of such transformation (such as economic discipline, revenue mobilization, commitment of revenue leakage control discouraging import of goods and narrowing the gap of trade deficit and removal of VAT rebate / refund among others) but he could not continue the same pace in his second and third budget. There were issues like the independence of mechanisms like Nepal Rastra Bank and National Planning Commission being compromised during his tenure and there was criticism that he could not do much for increasing absorption capacity of the budget, budget virement and fiscal discipline. There are issues of limiting information disclosure and tax relief on unnecessary product but taxing to electric vehicles among others. However, he has contributed well on increasing the budgetary support through negotiation with the donors. The target of revenue collection could not be met during both the years. He could have removed the parliamentary support program (local infrastructure development program) but he was not be able to do so. There may be various factors. I know well that only a Finance Minister can’t perform much more but he can do so. But people had high expectation with him. We missed the opportunity of bringing structural change in national economy during his tenure as well.

What is expected from the new Finance Minister as the country is in a challenging situation?

We need someone who is capable of leading the economic transformation as this is a good opportunity for us to go for it. Similarly, there is a need of maintaining fiscal discipline, employment generation, maintaining inter-agency coordination and work for uplifting the poor and marginalized communities. For this, we need someone quiet bold and an expert in the subject matter as the economy is in crisis. This is the right moment to bring structural changes in the economy, so, we need someone bold, an expert and who can gain confidence of the private sector, donor agencies, political parties and other sectors as well.

What could be done for strengthening Federalism in terms of delivering the economic stability?

As the constitution has already decided to move the country into federal state and divided the role and responsibilities among three tiers of government, we need to think how we can strengthen the role of three tiers of the government and provide opportunities to the poor and marginalized communities. The Federal government can play the role of guardian and facilitate the support to the provincial and local governments while these two governments can execute the activities for economic transformation being accountable to the public and as they have knowledge and informations about the grass-root level. The Federal Government provides support for formulating policies and laws and allocation of adequate resources based on expenditure needs and revenue potentiality while the provincial and local governments, which have knowledge and expertise about the context, take the lead role for economic transformation with the objective of employment generation and serving the poor and marginalized people.

Do you have any final words to share with our readers?

The Covid-19 situation has not only affected the national economy, it has also provided opportunity for economic transformation; therefore, we should take pro-active actions to tap it. We need to take into confidence private sector and listen to the issues raised by civil society and youths and act accordingly. If we are able to act in this direction, this could be the beginning for economic transformation, so, we should look at this perspective and move accordingly.

(Editor’s Note: How do you find this interview, please send your comments at As we are promoting positive discussion in the society, please feel free to write to us if you want someone to be interviewed for disseminating their positive thoughts.)

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