21 March 2014

21 March 2014

21 March 2014

21 March 2014

Source: ADB NRM. This Macroeconomic Update retains the optimistic growth out oo! as "orecast in August 2013. The a#e$uate monsoon an# impro%e# supp & o" chemica "erti i'ers are e(pecte# to )oost agricu ture pro#uction. Accor#ing to the Ministr& o" Agricu ture De%e opment* agricu ture pro#uction* especia & o" summer crops* is e(pecte# to increase sharp & as a resu t o" the "a%ora) e pre+monsoon an# monsoon rains* an# the a#e$uate supp & o" agricu tura inputs* especia & chemica "erti i'ers. ,urthermore* the time & "u )u#get "or ,-2014 is e(pecte# to )oost capita e(pen#iture in the ast $uarter* especia & construction sector acti%ities* whi e the e(pecte# ro)ust remittance in" ows wi continue to support ser%ice sector growth. Base# on these #e%e opments an# assumptions* .D/ growth 0at )asic prices1 is "orecast at 4.23 in ,-2014. 4%er ha " o" the contri)ution to this growth rate is e(pecte# to come "rom the ser%ices sector* "o owe# )& a)out two+"i"ths "rom agricu ture. 5n %iew o" the ong+term nature o" the structura constraints* the in#ustr& sector is e(pecte# to contri)ute on & margina & to .D/ growth. The go%ernment6s .D/ growth target is 2.23 "or ,-2014. Though the Agricu ture 5nputs 7orporation 8t#. supp ie# on & a)out a $uarter o" the tota "erti i'er #eman#* "armers #i# not "ace a shortage #uring the p anting season. This is pro)a) & #ue to imports "rom 5n#ia )& the pri%ate sector an# in#i%i#ua s through in"orma channe s. 8ess than e(pecte# progress in capita e(pen#iture an# in#ustria sector per"ormance wi most pro)a) & resu t in .D/ growth rate )e ow the go%ernment6s target.

21 March 2014

Source: ADB NRM. Expenditure Despite the time & announcement o" the "u ,-2014 )u#get* o%era e(pen#iture per"ormance #uring the "irst ha " o" ,-2014 was sti ow. 4n & 30.23 o" the tota )u#get was spent 0NRs129.1 )i ion1* s ight & higher than the 2:.93 )u#get uti i'ation in the correspon#ing perio# in ,-2013. Though the uti i'ation o" recurrent an# "inancing )u#gets was higher than ast &ear* capita spen#ing has remaine# ow* with ;ust 13.23 o" tota a ocation spent in the "irst ha " o" ,-2014 0NRs11.2 )i ion1* #own "rom 14.:3 uti i'ation in the correspon#ing perio# in ,-2013. 5" the uti i'ation o" the capita )u#get remains at the same e%e * tota capita spen#ing in ,-2014 wi )e a)out 3.23 o" .D/* ower than the 4.43 o" .D/ pro;ecte# in the )u#get )ut s ight & higher than 3.13 o" .D/ in ,-2013 . The ,-2013 )u#get uti i'ation "igure pertains to two+thir#s )u#get on &. The ,-2013 "u )u#get was intro#uce# in Apri 2013. <ith respect to the "u ,-2013 )u#get* the mi#+&ear )u#get uti i'ation "or tota * recurrent* capita an# "inancing were 22.=3* 31.33* 11.93 an# 193* respecti%e &.

21 March 2014

Revenue The mi#+&ear re%enue mo)i i'ation stoo# at NRs193.4 )i ion* which is 49.13 o" the tota re%enue target "or ,-2014. 5t is a)out 21.23 higher than the re%enue mo)i i'e# in the "irst ha " o" ,-2013. The #epreciation o" the Nepa ese rupee against the #o ar is s owing #own import #eman#* which in turn is a""ecting re%enue mo)i i'ation. 5t cou # potentia & ower tota re%enue mo)i i'ation )e ow the ,-2014 target* as import+)ase# re%enues account "or aroun# 423 o" the tota re%enue. 5t inc u#es custom #uties* >AT* an# e(cise on imports on &.

21 March 2014

Source: ADB NRM. Inflation Despite the e(pecte# impro%ement in agricu ture har%est* the wage pressures* the persistent & high price e%e in 5n#ia* the rise in a#ministere# "ue prices* ower interest rates an# the persistent & wea! Nepa ese rupee* 7/5 in" ation in ,-2014 is "orecast at 10.03* higher than the go%ernment6s target o" ?3 )ut a ha " a percentage point ower than the August 2013 Macroeconomic Update "orecast. The go%ernment increase# ci%i ser%ice sa aries )& 1?3 an# a owances )& NRs 1*000 per month in the ,-2014 )u#get. Meanwhi e* the non+agricu ture sector wor!ers6 minimum wage was re%ise# upwar# )& 2:3. /rices o" petro eum "ue were re%ise# upwar# on 11 August 2013 an# again on 12 Septem)er 2013. <hi e the goo# har%est wi he p ower "oo# price pressures 0which has a 49.?3 weight in the 7/51* the o%era impact might )e ower )ecause the #omestic supp & is insu""icient to meet tota #omestic #eman#* ma!ing Nepa a net "oo# importing countr&. The #ownwar# re%ision to o%era in" ation "rom the August 2013 "orecast is arge & #ue to the ower than e(pecte# non+"oo# an# ser%ices in" ation. Money supply Despite the s ow#own in net #omestic assets* the arge increase in net "oreign assets o" the )an!ing sector increase# mone& supp & 0M21 )& :.03 in the "irst ha " o" ,-2014 0NRs11?.1

21 March 2014

)i ion1* up "rom 4.?3 in the correspon#ing perio# in ,-2013 0NRs24.4 )i ion1. Net "oreign assets grew )& 19.23 0NRs==.2 )i ion1* up "rom a 2.03 growth rate 0NRs=.? )i ion1 in mi#+ @anuar& 2013 0,igure 191. The higher rate o" remittance in" ows an# increase# "oreign assistance )ooste# the growth in net "oreign asset ho #ings. The increase in mone& supp & was re" ecte# in the ?.:3 growth o" narrow mone& 0M11 an# 2.23 growth o" time #eposits. The )a ance sheet o" monetar& authorities is compose# o" assets an# ia)i ities. Assets consist o" net "oreign assets an# net #omestic assets 0net c aims on go%ernment an# c aims on the pri%ate sector1. 8ia)i ities consist o" currenc& issue# an# #eposits. Both net "oreign assets an# net c aims on go%ernment a""ect reser%e mone& an# hence the mone& supp &. A #ec ine in net "oreign assets* #enominate# in oca currenc& in the monetar& sur%e&* an# the )an!ing sector6s net cre#it to go%ernment re#uces the mone& supp &. Net "oreign assets are associate# with the " uctuations in "oreign e(change reser%es 0in the )a ance o" pa&ments account1. 5t is the #i""erence )etween the %a ue o" assets owne# a)roa# an# the %a ue o" #omestic assets owne# )& non+resi#ents Mone& supp & 0M21 is the sum o" net "oreign assets an# net #omestic assets. A so ca e# )roa# mone&* M2 is e$ua to narrow mone& 0M1*1 an# sa%ing an# time #eposits. M1 is e$ua to currenc& in circu ation an# #eman# #eposits. Short-term interest rates Short+term interest rates remaine# ower than the correspon#ing months in ,-2013* re" ecting the e(cess i$ui#it& in the )an!ing sector. The :1+#a& treasur& )i weighte# a%erage interest rate is su)stantia & ower than in the correspon#ing months in the pre%ious &ear. 5t reache# 0.4=3 in mi#+@anuar& 2014* #own "rom 0.=3 in mi#+@anuar& 2013. Starting this &ear* the NRB intro#uce# a mar!et+)ase# mechanism to auction go%ernment )on#s. The B,5s are showing increasing appetite to purchase them at ower interest rates than those that were o""ere# )& NRB when the interest rate on such )on#s was "i(e# a#ministrati%e &. Meanwhi e* inter)an! rates a so remaine# su)stantia & ower than #uring the correspon#ing months in the pre%ious &ears. The weighte# a%erage inter+)an! transaction rate among commercia )an!s was as ow as 0.213 in mi#+@anuar& 2014* much ower than the 0.:3 in mi#+@anuar& 2013. The current high #eman# "or go%ernment )on#s an# ow inter)an! rates are #ri%en )& the e(cess i$ui#it& in the )an!ing sector. This was one o" the recommen#ations* un#er 7omponent 1* o" the ongoing ADB supporte# A7apita Mar!et an# 5n"rastructure 7apacit& Support /ro;ect6.

21 March 2014

Source: ADB NRM. The countr&6s e(terna situation strengthene# on the )ac! o" a arge increase in remittance in" ows* gains in e(ports an# a s ow#own in imports. 5n the "irst ha " o" ,-2014* the )a ance o" pa&ments surp us increase# to B=??.1 mi ion* up "rom B?:.3mi ion in mi#+@anuar& in ,-2013. The merchan#ise tra#e #e"icit wi#ene# to B2.? )i ion* up "rom B2.9 )i ion in mi#+ @anuar& 2013. Cowe%er* the surge in remittance in" ows pushe# the current account surp us to B224.9 mi ion* sharp & up "rom B20.= mi ion in the "irst ha " o" ,-2013. The capita account an# "inancia account registere# signi"icant growth rates as oppose# to the negati%e growth in the "irst ha " o" ,-2013. Actua "oreign #irect in%estment stoo# at B12.: mi ion* much ower than the B42.: mi ion in the "irst ha " o" ,-2013. .ross "oreign e(change reser%es increase# "rom B2.2 )i ion in ,-2013 to B9.3 )i ion in mi#+@anuar& 2014* su""icient to co%er 10.2 months o" import o" goo#s an# non+"actor ser%ices.

21 March 2014

21 March 2014

Source: ADB NRM. Management of migration and remittances: 7oherent po icies to manage migration an# remittances are missing #espite these )eing the i"e ines to the econom&* which is strugg ing to grow )e&on# 23. Near & 1220 wor!ers ega & e"t the countr& each #a& "or wor! o%erseas in ,-2013. Both push an# pu "actors are at wor! here. Despite the high "inancia an# human costs o" migration "or uns!i e# an# ow s!i e# wor!s* there is itt e e%erage 0apart "rom "i(ing minimum wage "or Nepa ese wor!ers in certain countries1 Nepa has in terms o" a##ressing these issues )e&on# its )or#ers. The 7A 55 mem)ers wi ha%e to come up with po icies an# strategies to )etter manage migration o" Nepa ese wor!ers in such a wa& that it resu ts in a win+win situation. These ma& inc u#e: 0i1 wi#er pu) icit& a)out the pros an# cons o" o%erseas migration "or wor!D 0ii1 c arit& on the tota wage an# income #i""erences )etween o%erseas wor! an# compara) e ;o)s #omestica &D 0iii1 s!i s training to migrants in %iew o" the ;o)s or sectors the& wi )e wor!ing o%erseas 0this wi gi%e them )etter c arit& o" the nature o" wor! an# wi a so he p them "etch )etter sa aries1D an# 0i%1 )etter "aci itation in #ocumentation 0to pre%ent them "rom scams an# agents who ta!e a Acut6 "rom their income1 an# at the e(it point 0especia & at the Tri)hu%an 5nternationa Airport1. The o%erseas migrant wor!ers 0some o" them cannot e%en "i out the necessar& "orms1 nee# to )e respecte# an# pro%i#e# appropriate assistance where necessar&. Regar#ing remittance in" ows* which amounte# to an estimate# 22.23 o" .D/ in ,-2013*

21 March 2014

the go%ernment wi ha%e to urgent & e(p ore how to )etter channe remittances to pro#ucti%e usages as a most ?03 o" it is use# "or #ai & consumption )& househo #s. Nepa cannot ri#e against the ti#e an# wi ha%e to earn to i%e with high an# persistent remittance in" ows. The on & option now is to e%erage remittances to pro#ucti%e usages such as: 0i1 in%estment in in"rastructure 0inc u#ing energ&1D 0ii1 high %a ue agricu ture pro#uctionD 0iii1 commercia agricu tura acti%itiesD 0i%1 in#ustria sector in%estmentD an# 0%1 high %a ue ser%ice sector acti%ities* among others. 5n#ia an# 5srae ha%e success"u & raise# )i ions o" #o ars )& se ing )on#s targete# at e(pats an# wor!ers o%erseas. Simi ar &* the /hi ippines an# other countries are #oing goo# wor! in )oth raising awareness among migrants an# channe ing remittances to pro#ucti%e usages. Some o" the po ic& options cou # )e: 0i1 an attracti%e "oreign emp o&ment )on#D 0ii1 in"rastructure )on#s with guarantee# competiti%e &ie #D 0iii1 macroeconomic sta)i it& to re#uce the cost o" #oing )usiness an# the promotion o" SMEsD 0i%1 "inancia iterac&D an# 0%1 inno%ati%e measures such as pro%i#ing oans without co atera to )oth migrants an# remittance+recei%ing migrant househo #s 0)ut a so without much #ownsi#e ris!s to the cre#itor1. An e(amp e "rom the /hi ippines: The centra )an! o" the /hi ippines "ocuse# on increasing remittance in" ows through "orma channe s )& a owing ,i ipino )an!s to open )ranches in ma;or emp o&ment #estinations "or ,i ipinos* re%iewing "ee structure "or transaction* an# promoting "inancia iterac& at home an# a)roa# among ,i ipino migrants. The "inancia iterac& initiati%es "ocuse# on the a%ai a) e in%estment opportunities "or )oth remitting an# recipient househo #s* an# the #etection o" "inancia scams.

21 March 2014

Source: ADB NRM. Fiscal management (timely and full budget): The ac! o" po itica consensus in the 7A 5 se%ere & a""ecte# the )u#get process an# negati%e & a""ecte# pu) ic e(pen#itures* particu ar & capita e(pen#iture 0a mere 3.13 o" .D/ in ,-20131. Cigher $uantum an# $ua it& o" capita e(pen#iture is crucia "or inc usi%e an# sustaina) e economic growth* an# to Acrow#+in6 pri%ate in%estments. The "isca )u#get nee#s to )e intro#uce# we in a#%ance an# in who e. /iecemea )u#gets e$ua to a percentage o" pre%ious &ear6s actua e(pen#iture wi hamper not on & "isca management* )ut a so the potentia "or inc usi%e growth. 4n the same note* Nepa 6s recurrent e(pen#iture is rising so "ast that the impressi%e ta( re%enue mo)i i'ation 012.33 o" .D/ in ,-20131 is near & e$ua to recurrent e(pen#itures 012.23 o" .D/ in ,-20131. Nepa nee#s to rationa i'e e(pen#itures as we so that unpro#ucti%e an# waste"u e(pen#iture items an# su)si#ies are proper & a##resse#. Some o" the measures ma& inc u#e: 0i1 time & an# "u )u#getD 0ii1 higher $uantum o" capita e(pen#iture a ocation an# $ua it& spen#ing as we D 0iii1 rationa i'ation o" recurrent e(pen#iture )& ta!ing out unpro#ucti%e e(pen#iture items "orm the Re# Boo!D 0i%1 "ocuse# e(pen#iture p an to a##ress the )in#ing constraints to inc usi%e growthD 0%1 rationa i'ation o" su)si#ies* particu ar & "ue su)si#iesD 0%i1 trimming the num)er o" pu) ic emp o&ees* especia & re#un#ant sta"" hire# without a speci"ic wor! p an an# #ue to pressure "rom po itica ea#ersD an# 0%ii1 re"orming* inc u#ing pri%ati'ing* the ine""icient state+owne# enterprises. Meantime* the ta( net nee#s to )e )roa#ene# instea# o" increasing cumu ati%e

10

21 March 2014

ta( rate each &ear. The i#ea ta( rate an# s&stem shou # )e a "unction o" the a)i it& o" citi'ens to a""or# ta( pa&ments without much #i""icu ties* one that encourages a##itiona enro ment in ta( s&stem* an# one that entices #omestic an# "oreign in%estments.

10

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Source: ADB NRMD 5,7. oad-shedding reduction! 8oa#+she##ing has )een one o" the most signi"icant #rags on economic acti%ities in Nepa . The ac! o" e ectricit& is i#enti"ie# as the secon# most pro) ematic "actor "or #oing )usiness in Nepa * an# =2.93 o" "irms consi#er it as a ma;or constraint. A)out 20.23 o" "irms own or share a generator an# it supp ies* on a%erage* 343 o" e ectricit& re$uire# )& "irms. The e ectrica outages cost "irms* on a%erage* 1=3 o" annua sa es. The a#e$uate supp & o" e ectricit& wi )e a ma;or stimu ant to economic acti%ities an# wi potentia & )e a signi"icant "actor that he ps push .D/ growth )e&on# 23. Cowe%er* imp ementing re"orms on this sector is a so the har#est #ue to the strong o))& o" interest groups an# some sections in )ureaucrac& an# po itica spheres. Some o" the measures* which ma& )e po itica & unpa ata) e* inc u#e: 0i1 restructuring the Nepa E ectricit& Authorit& 0NEA1 so that it #oes not remain a #&s"unctiona )ehemoth with monopo & an# monopson& powersD 0ii1 passing ma;or re"orms re ate# to //AD 0iii1 enticing pri%ate sector to #e%e op power p ants o" a ranges 0sma * me#ium an# arge1 )& o""ering appropriate incenti%es* inc u#ing so%ereign ris! guarantee an# purchase o" e ectricit& in #o ar terms* i" re$uire#D 0i%1 promoting a ternati%e an# o""+gri# energ& su);ect to )u#get constraintsD 0%1 promoting cross )or#er tra#e o" e ectricit& a ong with a //A with 5n#iaD an# 0%i1 see!ing a constructi%e ro e 0as oppose# to o)structi%e ro e1 o" emp o&ees an# emp o&ees6 unions o" NEA. 5" the NEA cannot )e restructure#* then its generation* #istri)ution* an# transmission "unctions cou # at east )e un)un# e# to )ring a)out transparenc& in operations an# imp ement e""icienc&+enhancing re"orms.

11

21 March 2014

Source: ADB NRM. Meaningful structural transformation: An unusua structura trans"ormation is ta!ing p ace right now* resu ting in a growth trap o" )e ow 23. De+in#ustra i'ation process is ongoing we )e"ore the in#ustria sectorFs strengthening an# the a)sorption o" a)or "rom agricu ture sector. 8a)or mo%ing out o" agricu ture is either going a)roa# "or ;o)s or temporari & engage# in ow %a ue a##e#* ow pro#ucti%e ser%ice sector acti%ities. The shi"t o" wor!ers an# economic acti%ities to ess pro#ucti%e ser%ices sector acti%ities instea# o" the in#ustria sector )eing a "oca point "or their a)sorption is not norma an# #oesnFt contri)ute much to creating a strong "oun#ation "or the econom& to ta!e+o"" on a high an# inc usi%e growth path. The ow %a ue a##e# acti%ities such as rea estate an# housingD who esa e an# retai tra#eD hote s an# restaurantsD transport an# storage* among others constitute a most 343 o" .D/* which is e$ua to that o" the agricu ture sector6s share o" .D/. The manu"acturing sector6s share is on & a)out 9.23 o" .D/. 5n "act* the who esa e an# retai tra#e* which is most & )ase# on importe# goo#s* is arger than mining an# $uarr&ingD manu"acturingD e ectricit&* gas an# waterD an# construction com)ine# 0i.e. the in#ustr& sector1. Nepa 6s in#ustria sector has )een consistent & un#erper"ormingD an# "or its income e%e * though the ser%ices sector6s contri)ution to .D/ is re ati%e & high* its impact on growth an# emp o&ment generation is ow. ,urthermore* the increase in per capita income as countries get richer is initia & associate# with the e(pansion o" in#ustria sector an# then a"ter a certain income e%e * its contri)ution starts to mo#erate. Cowe%er* e%en with one o" the owest per capita incomes in Asia an# the /aci"ic* Nepa 6s in#ustria sector6s contri)ution seems to ha%e tan!e# an# consistent & #ec ining.

12

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The intersection )etween the #ec ine o" agricu ture sector an# the increase o" ser%ices sector occurre# at aroun# GSB21: per capita .D/. 5t was circa 1::?* the time when Nepa )ene"ite# "a%ora) & "or a short time perio# "rom the Nepa +5n#ia tra#e treat& o" 1::9 0no %a ue a##ition re$uirement in manu"acturing goo#s e(porte# to 5n#ia1. Cowe%er* this was a so the time when the Maoist insurgenc& starte# to heat up* "orcing arge num)er o" peop e to migrate out o" rura areas. Meantime* the inc ement in%estment c imate e# to c osure o" man& "irms in the in#ustria sector* resu ting in oss o" ;o)s* high %a ue pro#uction an# pro#ucti%e acti%ities. 7onse$uent &* those who migrate# to ur)an areas an# new entrants to the a)or "orce either opte# to see! emp o&ment o%erseas or engage in ow %a ue a##e#* ow pa&ing ser%ices sector acti%ities #omestica &. The high in" ow o" remittances has "urther "ue e# this process. A meaning"u structura trans"ormation to sustain a high an# sustaina) e growth wou # re$uire a strong in#ustria sector an# high %a ue a##e# agricu ture an# ser%ices sector acti%ities* with an emp o&ment+centric strateg& to a)sor) the surp us a)or. To promote higher pro#ucti%it&* high %a ue+a##e# pro#uction an# high income generation* the agricu ture sector re$uires a#e$uate an# appropriate commercia i'ation* pro%ision o" necessar& in"rastructure an# techno og& to in! with the in#ustria sector* an# promotion o" agri)usiness acti%ities such as agro+processing* storage* an# warehousing* among others. Simi ar &* "or high pro#ucti%it& an# %a ue a##e# ser%ices sector acti%ities* there nee#s to )e strong )ac!war# an# "orwar# in!ages with the in#ustria sector a ong with the narrowing o" s!i s gap re$uire# in the mar!et* increase in RHD in%estment to promote inno%ation* an# in%estment in e#ucation an# hea th sectors to )oost the capacit& o" the econom& to sustain progress an# prosperit&. This wou # part & position an# he p sustain the in#ustria sector as an engine o" inc usi%e growth.

12

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Source: ADB NRM. Export competitiveness: Ca# it not )een "or remittances* Nepa wou # not ha%e )een a) e to a""or# such a high e%e o" imports 0o%er 223 o" .D/ against e(ports o" a)out 23 o" .D/1. E(ports are going #own consistent &. Sophistication o" Nepa 6s e(port )as!et is %er& ow. The e(port items are sti ow+%a ue# goo#s with high price e asticit& o" import #eman#. Nepa is osing competiti%eness in its ma;or e(port* i.e. garments. Nepa nee#s to signi"icant & impro%e its supp &+si#e capacities. This wi re$uire a#e$uate & a##ressing the cripp ing constraintsI ac! o" a#e$uate an# $ua it& in"rastructureD po itica insta)i it& an# stri!esD recurring a)or #isputesD ac! o" s!i e# human resourceD #e"icient research an# #e%e opmentD an# po ic& inconsistencies an# imp ementation para &sisI to in#ustria acti%ities* an# a time & an# e""ecti%e imp ementation o" the po icies an# sectora strategies that are a rea#& in p ace. The countr& a so nee#s to proper & uti i'e the technica assistance o""ere# through %arious "inancing win#ows )& mu ti atera an# regiona tra#ing ) ocs* an# #e%e opment partners. This wi a so he p )oost pri%ate sector acti%ities in e(port+oriente# sectors* which is most & #ominate# )& sma an# me#ium enterprises. 5n the ong term* a ong with impro%ements in the in%estment c imate* the go%ernment wi nee# to su)stantia & increase in%estment in energ&* transport corri#ors* s!i s #e%e opment* techno og& trans"er an# a#option* supporti%e regu ator& an# institutiona "ramewor!s inc u#ing SEJs* an# o%era sta) e macroeconomic en%ironment. These are critica "or pro#uct an# mar!et #i%ersi"ication as

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we as pro#uct sophistication to sta& competiti%e an# to ma!e e(ports an important #ri%er o" inc usi%e growth* which is essentia to a)sor) an estimate# 933*000 new entrants annua & to the ;o) mar!et )& 2020.

13

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Source: ADB NRMD 584. abor "ages and productivity: Repeate# a)or #isputes ha%e )een one o" the most thorniest issues in Nepa ese econom&. Man& mu tinationa s c ose# #own manu"acturing p ants precise & a"ter the intensi"ication o" a)or #isputes. Nepa has too man& a)or unions* which arge & act on )eha " o" the po itica parties. The )ic!ering o%er wages an# repeate# re%ision o" wages ha%e positione# Nepa as the countr& with the highest minimum wage in South Asia. Cowe%er* pro#ucti%it& hasn6t increase# in proportion to the rise in wages. Note that* higher wages are not )a# in itse " i" the& are matche# )& a rise in pro#ucti%it& 0so that "irms remain competiti%e1. Nepa 6s a)or unions nee#s to )e gui#e# more )& the we "are o" the wor!ers* an# ess )& the whims o" the po itica ea#ers. ,urthermore* the& a so nee# to )e aware that with high pro#ucti%it& an# competiti%eness comes higher re%enue* which wou # ena) e emp o&ers to raise wages an# o""er )onuses. 5t shou # )e a win+win+win re ation 0go%ernment+in#ustries+wor!ers1.

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Source: ADB NRM. #aming high inflation: <ith the go%ernment6s "ai ure to c amp #own on in" ation* which is ho%ering a)o%e ?3 since ,-200:* peop e ha%e )ui t up e(pectations that prices wi not come #own in the near "uture 0or sa& em)e##e# e(pectations at a higher )ase1. 5n" ation a)o%e ?3 is )ecoming a Anew in" ationar& norma 6. ,or comparison* in" ation was as ow as 2.43 in ,-2001. Cigh in" ation ero#es peop e6s purchasing power* ren#ers pro#uction uncompetiti%e* an# #iscourages in%estment. 5t a so "orces go%ernment an# "irms to re%ise up wages* irrespecti%e o" the gains in re%enue an# pro#ucti%it&. 5n rea terms* it ma!es peop e poorer in the a)sence o" a proportiona rise in income. Tra#itiona &* high in" ation has its roots on too much mone& chasing too "ew goo#s* i.e. when the #eman# "or goo#s 0)ac!e# )& too much mone& in han#s o" peop e1 outstrips supp & o" goo#s. The %er& "act that Nepa Fs currenc& is pegge# to 5n#ian rupee an# o%er 903 o" tra#e occurs with 5n#ia means that in" ation in 5n#ia wi natura & a""ect prices here. Research shows that a)out one+thir# o" the price %aria)i it& in Nepa is #etermine# )& prices in 5n#ia. 4n the #omestic si#e* persistent structura )ott enec!s an# supp &+si#e constraints ha%e contri)ute# to !eeping prices at a higher e%e . Nota) e supp &+si#e constraints inc u#e the ac! o" a#e$uate supp & o" e ectricit&* transport )ott enec!s* ac! o" raw materia s ea#ing to high import content o" manu"acture# goo#s 0"urther a""ecte# )& #epreciation o" Nepa ese rupee1* ina#e$uate supp & o" !e& inputs to )oost pro#ucti%it&* a#ministere# "ue prices* wage pressures* #istortions )& mi## emen an# stri!es* among others.

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Source: 5,7. $ood governance: .o%ernance is a ne%er+en#ing issue. Transparenc& 5nternationa repeate# & ran!s Nepa as one o" the most corrupt economies. Accor#ing to the Enterprise Sur%e& 2013* a)out 21.33 o" "irms e(pecte# to gi%e gi"ts to secure go%ernment contract. A so* there is har# & an& crosschec! on the $ua it& o" assets create# with go%ernment 0a ternati%e &* ta( pa&ersF1 mone&. A)out 44.=3 o" manu"acturing "irms i#enti"ie# corruption as a ma;or constraint in 2013. Ma;or pu) ic sector re"orms a ong with strengthening o" the anti+corruption )o#& are nee#e#. .oo# go%ernance an# transparenc& o" "inancia transactions ha%e to )e e(emp i"ie# right "rom the po itica parties6 e%e to the owest rungs o" go%ernment )ureaucrac& an# the pri%ate sector.

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