Despite the private sector’s concerns about the lack of an investment-friendly environment, the plan aims at securing over Rs 7,500 billion in investment from the private sector.

 NewBiz Report

In fiscal year 2019/20, four years after the promulgation of the new constitution, the government implemented the 15th Five-Year Plan, displaying high ambitions for the country's economic development. Five years later, the plan's performance has fallen short of targets significantly, much like those of previous periodic plans formulated by the National Planning Commission (NPC).

Goals set for economic growth, poverty reduction and revenue collection have not been met. The mismatch between the government’s aspirations and the outcomes in the 15th Plan has put a big question on the usefulness of the five-year periodic plans that the government has been implementing since 1951. Experts attribute the failure of the 15th Five-Year Plan to multiple factors stemming from the mishandling of economic matters during the Covid-19 pandemic and the ongoing economic recession. They say the sharp decline in the confidence of the private sector has also contributed in this regard. 

Against this backdrop, on May 14, the NPC rolled out the 16th five-year plan. Economists say that the targets in the new periodic plan are as ambitious as those in the 15th Plan. The 16th five-year plan goes into implementation from 2024/25 and will conclude in 2029/30.

The government expects more than two-thirds of the investments from the private sector to achieve the goals and targets set in the plan. Despite the private sector’s concerns about the lack of an investment-friendly environment, the plan aims at securing over Rs 7,500 billion in investment from the private sector. The government aims to invest Rs 11,184.23 billion throughout the plan period, with 67.2%, or Rs 7,515.80 billion, expected to come from the private sector. Compared to the 15th Plan, the new plan anticipates a significantly higher investment from the private sector. In the 15th Plan, the government aimed to source 55.6% of the investment from the private sector, with the remaining 39% and 5.5% coming from the government and cooperative sectors, respectively. The contributions from both the government and the cooperative sectors have been reduced in the new plan. The government estimates that 30.2% of the total investment will come from the public sector (Rs 3,377.74 billion) and 2.6% from the cooperative sector (Rs 290.79 billion).

However, many argue that putting significant emphasis on private investment in the 16th Plan might be overly optimistic given the current state of low confidence in the Nepali private sector. While the private sector has been urging the government to foster an environment conducive to private sector activities, the protracted political and policy instability has pushed the confidence of investors and businesspersons to a historic low. 

The Federation of Nepalese Chambers of Commerce and Industry (FNCCI), the apex private sector body, has advocated for declaring the upcoming decade as an investment promotion decade prior to the new federal budget. Additionally, the FNCCI has urged the government to streamline the investment process for both domestic and foreign investors and to enact bilateral investment agreements. The private sector attributes hindrances in growth primarily to frequent changes in government, including key ministerial positions, and policies perceived as unfriendly toward private enterprise.

The plan seeks to reduce the proportion of absolute poverty (population below the poverty line) to 12% by 2029/30, down from the current 20.3%.

Since the 2022 general elections, the government led by Pushpa Kamal Dahal has seen a high turnover rate of foreign ministers, with Barsha Man Pun being the current foreign minister, preceded by Dr Prakash Sharan Mahat and Bishnu Prasad Paudel. Likewise, the finance ministry has seen four changes in secretaries during this period.

Economist Dilli Raj Khanal said that the frequent changes in the finance ministry undermine efficiency. "It takes a lot of time to develop ambitions, plans and targets. When a new chief assumes office, the process starts anew, often with entirely different plans. This creates challenges. There is limited opportunity to address private sector issues or discuss the hurdles they face," Khanal, who is also a former member of the NPC, said.

Commenting on the low confidence in the private sector, NPC Member Shiv Raj Adhikari said that the government has been addressing their concerns proactively. “The concerned ministries are currently engaged in consultations with the private sector to resolve their issues,” he added.

Experts argue that channelling private-sector investment will be challenging without comprehensive improvements to the investment environment. Economist Khanal believes that significant progress is possible with concerted government efforts. "There is immense potential for the government to harness the resources of the private sector, but it requires building trust," Khanal said. "Many developed countries rely heavily on the private sector. Therefore, the government must prioritise addressing the concerns of the private sector."

FNCCI President Chandra Prasad Dhakal stated that private sector investment in the economy significantly surpasses that of the government. "Therefore, prioritising policies conducive to the private sector and addressing practical challenges is paramount for realising the government's objectives," Dhakal said. "If the private sector fails to thrive, the economy will falter." He believes that building trust in the private sector is essential for the government to attract the necessary investment for the country's economic advancement.

Another concern is the declining share of investment within the country compared to the size of the economy. According to the Economic Survey 2022/23, investment accounted for 28.5% of the gross domestic product in the fiscal year 2021/22. However, in the fiscal year 2022/23, it fell to 25.2%, indicating that investable funds are shrinking.

Ambitious targets

The 16th Plan aims to elevate Nepal's economic growth rate to 7.3% by 2029/30, targeting an annual average growth of 7.1%. Additionally, the plan seeks to reduce the proportion of absolute poverty (population below the poverty line) to 12% by 2029/30, down from the current 20.3%. 

Over the next five years, Nepal's economy is projected to exceed Rs 10,307 billion in size. Furthermore, throughout the implementation phase of the 16th periodic plan, per capita income is anticipated to climb from the current $1,456 to $2,351. Likewise, the government aims to create 1.2 million jobs annually, raise the minimum wage of workers to Rs 25,000 per month and increase the number of social security beneficiaries to 2 million during the five-year period.

However, experts view these targets as ambitious, especially considering that a million youths seek opportunities abroad due to a lack of immediate government plans to address this issue. While economists perceive the targets outlined in the 16th Plan as ambitious, NPC members say they are achievable. 

Over the next five years, Nepal's economy is projected to exceed Rs 10,307 billion in size, per capita income is anticipated to climb $2,351.

Shiva Raj Adhikari, an NPC member, said the targets are not overly ambitious but rather meticulously formulated objectives supported by comprehensive research. Regarding plans to mobilise resources from the private sector, Adhikari underscored the significance of government-private collaboration, aiming to synchronise efforts to enhance production and productivity. "For instance, as the government invests in infrastructure to connect to Rara Lake, the private sector can develop hotels and resorts nearby which will boost tourism. This exemplifies the practicality of the targets. Across sectors such as tourism, energy and agriculture, the government and private sector will collaborate closely," he elaborated.

The growth target for the plan period stands at 7.1%, encompassing investments from the government, private sector, and cooperatives. "The government has opted for a slightly lower growth rate compared to the previous period," noted Adhikari. "In Nepal, rapid growth can strain the economy by escalating loans and burdening state finances. Hence, prioritising sustainable and organic growth is imperative."

However, economist Khanal says the goals of the 16th Plan are more ambitious than realistic. According to Khanal, the plan shows no caution to avoid repeating the failures of the past, and the private sector contribution has been determined in an arbitrary manner. 

Dr Govinda Raj Pokharel, a former NPC vice chairperson, said it is necessary to set ambitious targets to drive progress. However, he also emphasised the government's role in revitalising the economy to ensure its long-term vitality and sustainability. "The government must prepare strategies to realise the people's aspirations and achieve the designated objectives," Pokharel said. "With the private sector's confidence at a historic low, it is crucial for the government to prioritise addressing their apprehensions and proposing viable plans. Failure to do so risks rendering the targets of the 16th Plan unattainable, akin to the challenges faced during the implementation of the 15th Plan."

Khanal pointed out that the periodic plan was being simply rolled out every five years out of obligation. "It has become a routine exercise lacking in innovation. Rather than offering solutions, it merely outlines the economy's challenges," he lamented. "Identifying problems is easy, but where are the solutions?" he questioned. "It's high time for a significant overhaul of the NPC's approach." 

Dr Govinda Raj Pokharel
Former Vice Chairperson
NPC

It is necessary to set ambitious targets to drive progress. The government must prepare strategies to realise the people's aspirations and achieve the designated objectives. With the private sector's confidence at a historic low, it is crucial for the government to prioritise addressing their apprehensions and proposing viable plans.

Dr Dilli Raj Khanal
Former Member
NPC

There is immense potential for the government to harness the resources of the private sector, but it requires building trust. Many developed countries rely heavily on the private sector. Therefore, the government must prioritise addressing the concerns of the private sector.