Former Finance Minister and Nepali Congress leader Dr Ram Sharan Mahat’s new book, ‘Trials, Tremors and Hopes’, has recently hit the bookstands. In the book, Mahat, who was one of the key players to lead the first generation of reforms in the 1990s, has taken issue with the economic agenda that the country has adopted till now as well as highlighting issues that Nepal should follow in the future. NewBiz Editor Mukul Humagain caught up with Mahat to talk about the new book and the Millennium Challenge Corporation (MCC) Compact Programme controversy. Excerpts:  

You are back with a new book, Trials, Tremors and Hopes. What led you to write this new book and how different is this one from the last one?
I wanted to make use of my free time in some creative way, in the same manner that I did during the time of the royal takeover by the then King Gyanendra Shah. In order to justify his move, the then king was trying to blame the parliamentary period of post 1990 and find faults in the parliamentary practices and parties. Hence, I wrote that book (In Defense of Democracy), making use of my free time, to defend the good work done by the parliamentary period in Nepal’s history. I divided Nepal’s history into five periods and concluded that the most productive period was post 1990s in which Nepal’s economy made good progress. I was liberated from parliamentary responsibilities after the last parliamentary election, which allowed me to use my free time to write a book on Nepal’s political economy, covering various aspects of the several trials and tribulations post 90s period.

The focus is on post-1990s development. To some extent, it is the updated version of my last book but particularly with a focus on political development and the economy. The theme starts with the ideological side, like the present constitution is committed to achieving a socialistic goal. My book starts with the concept of socialism and what it means in the present world. Many people try to interpret socialism in an orthodox manner, I have tried to define socialism in the context of the changing world and how the philosophy is evolving in Nepal. I have also covered the various trials and tribulations in post-90s Nepal such as the Maoist insurgency, the peace process, constitution writing, and some of the development issues concerning the hydropower situation in Nepal and the requirements for the future. Similarly, I have focused one chapter on the 2015 Earthquake and its impact on the country. Other topics include the rise of remittance economy and the various aspects of Nepal’s economy. The last chapter is about the present challenges the country is facing. What are our goals? What are our constraints? What should be the focus of our public policy? I have tried to focus on these areas.

You have always had a critical opinion on federalism. Do you think the past three years of federalism in Nepal has addressed the mandate of the second Jana Andolan i.e. state restructuring against the highly centralised government system?  
I have covered the aspects related to constitutional writing, particularly on federalism and the super structure proposed by the present constitution. What are the challenges? What are the problems related to its management, particularly the fiscal side? Fiscal federalism is a big challenge. Managing the super structure is also a big challenge. I had reservations in the very beginning in the way Nepal was being federalised through disaggregation. Many countries in the world have a federal structure through aggregation – independent and sovereign countries have come under a federal umbrella. In Nepal's case, a unitary country with a unitary government for two to three centuries became a federal country through deconstruction. So, I had my some reservations in the beginning but now that it has been agreed, it is fait accompli. So the challenge now is in managing it and making it workable.

Do you think, after exercising federalism for three years, that we have managed it properly?
No. I have covered this aspect in the book. What the problems, deficiencies and shortcomings have been. The various distortions, excessive corruption, conflict of interest and authority among three layers of governments. There is no demarcation, despite the fact that the constitution has made proper demarcation of authority between various layers of government. But, in practice, there are conflicts, in some cases, federal laws are absent, and in other cases, there is no management capability. The main problem I see is the quality of governance, especially in managing the multi-layered governments.

You have made an interesting observation in the book regarding the rights-related legislations which the new constitution talks about. Are you suggesting having these legislations in place puts a lot of responsibility, especially financial on the part of the government?
This constitution was written by people’s representatives and it reflects the popular aspirations of the people but meeting those aspirations is a very challenging task. The management and financial implications of the 31 fundamental rights enshrined in the constitution are very challenging. When we wrote that constitution, probably there was little consideration about the implications. That's what I have been saying. Proper implementation of the constitution is a big challenge from both the management and fiscal point of view. So, the competence of the government and quality of governance is very important. The capacity creation and institution building at various levels is equally important. There are 761 governments but there is no institution building. The focus now should be on creating capacity instead of raising aspirations. You have to be economically strong and managerially capable to meet popular aspirations.

You've written that the competitive populism will put fiscal stress on macro-economic management. Do you think it has already started?
It has already started. As you know, there is excessive spending in consumption and in raising perks and privileges. There is little investment on the capital side and on the developmental side. The CIAA has reported that most of the development projects are in limbo, resulting in huge cost and time overrun. As per the CIAA report, over 1,800 development projects in which the government has made investment worth Rs 118 billion are in disarray.

There is going to be a fiscal stress because of inefficiency in the management of developmental projects and excessive focus on consumptive expenses and unproductive expenditure. In the past, Nepal had a nearly balanced budget, more or less. In fact, Nepal is one of the countries whose public borrowing to GDP ratio was one of the lowest. When I left the government, the public borrowing in relation to the GDP was around 24 percent. Now it has increased to 31 percent. In one single year, this year, the budget is proposing to raise public borrowing by about 14 percent of the GDP. This shows that there is going to be more and more fiscal stress because of poor management and excessive expenditure of recurrent cost.

Are you suggesting that this government has failed to manage the country’s economy properly in the last two and half years?
Implementing the present constitution is itself is a big challenge. You have to raise your competence and capacity to deliver the results. But what is unfortunate is that the quality of governance has not improved. In fact, it has deteriorated because of excessive politicisation. Meritocracy has taken a beating as professionalism in the civil service as well as various other important sectors of the economy is not being encouraged. Now, political appointments as well as promotions in bureaucracy and constitutional bodies are influenced more by partisan affiliation than merit.

But this communist government has not deviated from the policy of a market economy. It is still encouraging private investments as well as seeking more FDI. And, there seems to be some improvements, of late, in the country’s external sector.

In terms of policy emphasis, they are still committed to a market economy. They want to encourage private investment within the country and FDI as well. But they have not been able to translate the announced policy to action because of the deteriorating quality of governance, poor management.

As far as improvement in foreign trade is concerned, one cannot generalise based on the data of the past four or five months. You have to analyse the reasons behind it. One of the reasons behind the decline in overall imports, as we know, is that the import of industrial raw materials has decreased. Of late, the capacity utilisation of the cement and steel industry has gone down due to poor demand in the domestic market. However, it is too early to make any generalisations.

Given the decline in the import of industrial raw materials, banks’ lending and under-performing stock market, are we heading towards economic slowdown?
It could be. The productive aspect is not rising. The banks’ lending has slowed down, capital market has been below par. At the same time, the private sector complains of excessive corruption and high taxation as well.

The row over endorsing the Millennium Challenge Corporation (MCC) agreement that Nepal and the United States signed in 2017 has rocked the ruling party. The party is divided into two groups, for and against MCC. Don’t you think this issue has been unnecessarily blown out of proportion?
What we are seeing within the ruling NCP over the MCC is wrong. The MCC is a global phenomenon and the US has provided assistance under MCC to various underdeveloped countries throughout the world. It is not an integral part of the Indo-Pacific Strategy (IPS) as claimed by the section of NCP leaders. The IPS was started during current US President Donald Trump’s tenure whereas the MCC was started 15 years ago. It was legislated by the US Congress in 2004. I had attended a meeting in 2002 in Monterrey, New Mexico, USA where the conference of international finance was taking place, where US president George W. Bush announced his intention to create this new body to finance developing countries and poverty alleviation based on various criteria.

Nepal met all those criteria regarding civil liberty, democratic governance, investment-friendly economic policies, and gender equity and was selected for MCC assistance based on competitive selection. So, it has no relation with any military alliance. There is criticism by some leaders here that it is part of a military alliance. They may have the Indo-Pacific strategy, but that is not a military alliance as far as I know. The US may have military alliance with some Indo-Pacific countries such as Japan, Australia, New Zealand and South Korea. So, our relation with US is with regard to an economic component and not a military alliance because we cannot join a such an alliance. But as far as military support is concerned, various countries of the world such as India, China and US have supported our army. But that support was not part of any military alliance.

The unnecessary controversy over MCC will not do any good to Nepal, except eroding our credibility and image globally.

Given the outcry over MCC, Nepal now has to walk a tightrope between global powers. With both the US and China upping their ante in Nepal, don’t you think, Nepal is at the risk of becoming a battleground of two super powers.  
We want to have good relations with both countries. But if one power is against the other, we cannot be a part of that. If there is anything in China’s Belt and Road Initiative (BRI) that goes against USA, India or any of the countries we are friendly with, we are not for it. Similarly, if there is any part in the Indo-Pacific Strategy which is against China or any other friendly country, we are not for it. But as far as our MCC agreement is concerned, look at the clauses and if it is against any country or not. If it is not, why should we hesitate? If it is in the interest of Nepal’s economic development, why should we be against it?