InterviewThere is a need to improve business practices, regulatory aspects
Plagued by issues ranging from political wrangling, bureaucratic hurdles, rolling blackouts, brain drain and lack of skilled human resources, the already fragile economy of Nepal was dealt a double blow last year — firstly because of the devastating earthquakes and secondly due to the months-long blockade of the southern border points. As Nepal begins to recover from the setbacks and strives to address various issues that have stalled its progress, Prashannaa Chitrakar of The Himalayan Times spoke to World Bank Country Manager for Nepal, Takuya Kamata, about the support being extended by the multilateral agency in tackling various challenges facing the country and the way forward. Excerpts:
How have the priorities of the World Bank been evolving?
Within our country partnership strategy, we have seven areas through which we would like to enhance our support for Nepal. The first is the energy sector and we are going to continue our support to increase hydropower generation capacity but we also realise that policy reforms in the energy sector is very important. Second is in helping Nepal transform from a consumption-based to an investment-based economy. The third area is connectivity, meaning we are eager to help with transportation projects, such as fast track highways or east-west highways — provided we come to an agreement on the approach and that the technical specifications are fully aligned with global best practices. Fourth is about job creation. At present, many young Nepalis leave for overseas for employment but we believe, in the long run, there is a need to create jobs within Nepal. At the same time, we have to make sure that the qualifications of people coming out of schools or training are a good match with the needs of industries or businesses. Another aspect is reconstruction activities. The sixth aspect is about social inclusion, good service delivery in health and educational institutions, and so on to make sure people have a very good safety net and also that people are fully empowered and participating in a productive life. Considering that Nepal is heading towards a federal structure, we would be very happy to provide any technical preparation work to support the transition.
How do you plan to support the development of the energy sector?
Since everybody knows what the challenges are, I don’t think it’s necessary to delve into it. But going forward, I think we have to take a step-by-step approach. For the short-term, maybe reducing the load-shedding is the very immediate target that we have to help Nepal achieve so that businesses can operate and people can have a productive life. In the medium-term, Nepal needs to narrow the gap in generation capacity. What we have now is mostly run-of-the-river seasonal capacity and we need to come up with a more stable hydropower energy supply so that at least the domestic demand can be met. In the long-run, taking advantage of Nepal’s hydropower potential, I think the country can become a huge contributor to South Asia’s energy balance. Talking about the specifics, we have a number of hydropower schemes that we are trying to help with. But more important is policy reforms to ensure that the environment for investment and development are appropriate so that the development actually happens rather than getting stored in numerous territories. For that, there are three areas. One is that the energy sector needs to have very healthy and strong institutions. For example, NEA (Nepal Electricity Authority) has a huge financial difficulty, and also because of its governance structure, it is very difficult for them to make timely decisions on many important issues. Second is the financial health of the sector itself. Right now, the electricity tariff needs to be aligned with the cost structure. At the same time, if we are asking people to pay properly, some standards need to be restored. Final is the regulatory framework for the investment climate. Some of the hydropower projects draw foreign direct investment and we want to ensure investors are comfortable and there is very clear transparent framework to resolve any issues that might arise. We are even ready to provide financial incentives to achieve these targets.
With regards to policy reforms in the energy sector, don’t you think pressing for unbundling of NEA now points towards inconsistency in your policies, considering that it was earlier bundled at the behest of the World Bank and the Asian Development Bank?
There is no uniform right answer to these issues. It basically depends on the time and the situation of a particular country or a sector. Then there is the element of management. The host country and the donors try a few certain things. Sometimes it works very well and sometimes it starts to work well but then it starts getting off the course. Then we have to come up with a correct measure. I think that is the situation we are facing right now in Nepal. Earlier, the generation capacity was very small and it probably made good sense to combine just to achieve the scale of economy. But now the demand side and generation capacity potential is a totally different game. So, if we have a more complex environment, and the performance of the current system is deteriorating, then we have to think of some other solutions. That’s how we see it.
World Bank and ADB have been in discussions regarding setting up a basket fund for the energy sector. Could you please elaborate on this?
It is still at the conceptual stage of discussion. But in general, the way the policy development credit scheme would work is if the government committed to certain policy actions, let’s say increasing the average tariff by 10 per cent by certain date or making sure the Parliament passes the Energy Act by a certain date, we could agree on some key targets and actions that may be beneficial for the country. And once those actions are implemented, multilateral agencies like World Bank or ADB could provide direct budget support to the government to ensure policy changes can be carried out and proper investment can follow. Because many of the issues are quite complicated and also require a lot of work, we do require some time. But we hope this is a very beneficial scheme and that it won’t take too long.
What are your thoughts on the reconstruction works?
As of now, a little over half a million households are eligible for the scheme of rural household reconstruction, over 400,000 households have already signed up for the grant agreement and close to a quarter million households have received the first tranche. Given that the National Reconstruction Authority has been operating for less than a year, I think it is a very credible performance considering Nepal’s topography. Talking about the rural housing scheme, this is just the beginning because it is divided into several phases of disbursement. Each phase of the payment depends on how the reconstruction is being carried out and if the set standards are being met. This is very important because Nepal government and the donors came up with the scheme based on very important principles. Number one, it is an owner-driver scheme. Also, there has to be equity, meaning everybody has to receive equal treatment. Moreover, the houses that are rebuilt have to be safe enough so they can stand against the shocks in case of an earthquake in the future. Finally transparency and accountability are very important because we are talking about public money going to private assets. These principles are very important. Therefore, it is crucial to follow through and stick to those principles and agreed procedures.
Also important are other sectors beyond housing reconstruction, like agriculture production, cultural heritage, rural infrastructure like water supply, sewerage, bridges, roads that were destroyed or damaged by the earthquakes. For now, rebuilding schools is also going well, but other sectors need to catch up.
And how does the World Bank plan to help Nepal transform into an investment-based economy?
In the aspect of the public sector, we are talking about government expenditure. As everybody knows, the capital expenditure is very well budgeted, but the government doesn’t necessarily spend all the funds. Also, employment and the multiplier effect that is supposed to come out from asset creation has not materialised for many years. In that we could help the government in making sure the budget planning, execution, management, and so on get streamlined and progresses a bit faster. And we are ready to put money behind those actions. In the private sector, we are talking about sound investment climate, which is also related to job creation. Right now, if you look at the statistics, the foreign direct investment coming into Nepal is one of the lowest in the world. There is a big need to improve the business practices, regulatory aspects and so on. That requires different coordinated actions. But it really also requires a very strong and determined leadership from the country side.
What could possibly be done to create jobs in Nepal so that the country’s overdependence on foreign employment and remittance declines gradually?
We have been carrying out quite a few analytical works related to remittance, which is related to migration, quality of workers, as well as demand of workers. Having considered many exercises, we are now ready to come up with a project for the future, which means we are ready to put money behind it. This type of project or intervention could have multiple aspects. One is about creation of jobs, which has to do with revitalising the agriculture sector. Second is maybe to look into how we can take best benefit out of public works or public investments. For example, if there are many road development works, there may be an opportunity for construction workers. Also, there can be enormous opportunities for creating jobs in reconstruction activities. So we are trying to come up with some interventions to try to stimulate and support those aspects of job creation. At the same time, we are also looking into supply side of labour, meaning we want to ensure the people coming out of training institutions have good skill set, which employers are willing to take right away. That aspect revolves in continuing enhancement of education system and we will also continue to work with any training schemes that the country has. At the same time, we can also talk about safeguard issues, like pension and insurance schemes. We are trying to come up with a very holistic approach so that we can at least make a bit of a positive contribution to this very important, but also a very difficult issue. While there is no magic bullet to resolve employment issues and this is a very complex issue that requires highly coordinated actions.
Source : The Himalayan Times.
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