Nepal: Stuck in a Low-Growth Trap While the Ruling Class Fiddles

Nepal finds itself at a crucial crossroads in its economic journey, yet the ruling class seems blind to the challenges that are dragging the nation into a low-growth trap. Despite grand promises of reform, Nepal remains burdened by corruption, mismanagement, and policy paralysis. If these issues are not addressed urgently, the nation’s dream of becoming a vibrant, successful economy will remain just that—a dream.

Population Growth: A Boon or a Burden?

Nepal's population growth rate stands at 1.35% per year, providing the country with a young workforce that could be its biggest asset. But what has the ruling class done with this potential? Instead of creating jobs, improving education, or investing in vocational training, they have allowed this workforce to flee the country in search of foreign employment. As of 2023, over 4 million Nepalese work abroad, sending back remittances that prop up the economy but leave behind a hollowed-out domestic workforce.

The ruling elite needs to focus on creating jobs at home. How long will we rely on foreign economies to absorb our workforce while we fail to capitalize on our own human potential? If no action is taken, Nepal will continue to bleed its talent to other countries, and the local economy will stagnate.

Good Governance: Where Is the Accountability?

Corruption in Nepal is no secret, but what is appalling is the level of indifference from the ruling class. In Transparency International’s 2023 Corruption Perceptions Index, Nepal ranked 110 out of 180 countries, a clear indication of the deep-rooted corruption that infects every level of government.

Political instability continues to be a thorn in Nepal’s side, with frequent changes in leadership leading to inconsistent policies and governance. How can a country expect to grow when its rulers are more interested in power struggles than policy reforms?

If Nepal hopes to grow like first-world nations, it must reform its institutions and make leaders accountable. The need for transparency, rule of law, and political stability is urgent, yet largely ignored.

Debt Management: A Ticking Time Bomb

Nepal’s public debt-to-GDP ratio currently stands at 40%, a figure that is rising steadily. While this is manageable for now, it’s worrying when you consider that much of this debt has not gone into productive investments. Instead, it funds wasteful public spending, leaving little room for future growth.

What is more alarming is that if borrowing continues at this pace without significant economic reforms, Nepal will soon find itself in a debt trap, unable to service its loans without cutting essential public services.

The government must channel borrowed funds into infrastructure, education, and industries that generate growth. Otherwise, the country will spiral into debt, limiting its ability to invest in future development.

Competitiveness: Falling Behind in the Race

Nepal ranks 94th out of 141 countries in the Global Competitiveness Index, lagging far behind its neighbors. Bureaucratic hurdles, poor infrastructure, and an over-regulated market are to blame. The ruling class has done little to improve the ease of doing business, ranking Nepal 94th in the 2023 Doing Business Report. The private sector is stifled by excessive red tape, discouraging both local entrepreneurs and foreign investors.

If Nepal wants to attract investment and grow like developed countries, it must cut the red tape and make the economy more business-friendly. Streamlining processes, improving infrastructure, and fostering entrepreneurship are essential steps.

Trade Deficit: The Elephant in the Room

Nepal’s trade deficit is staggering, with imports far outpacing exports by nearly $12 billion in 2023. The reliance on imports, especially from India and China, is a massive drain on foreign reserves. Meanwhile, the government has done little to promote industries that could boost exports, such as tourism, hydropower, and agriculture.

The ruling class must realize that without a diversified export base, Nepal will continue to depend on external markets, making it vulnerable to economic shocks. Nepal needs to invest in value-added industries, promote export diversification, and reduce import dependency.

Education and Skill Development: The Great Mismatch

While Nepal boasts a rising literacy rate of 67%, the quality of education and its relevance to the job market are questionable. The ruling class has done little to align education with market demands, leaving graduates without employable skills.

If Nepal wants to rise to the ranks of first-world countries, it must overhaul its education system to prioritize STEM fields, vocational training, and entrepreneurship. A well-educated, skilled workforce is essential for driving innovation and economic growth.

Infrastructure Investment: The Backbone of Progress

Nepal’s infrastructure is woefully inadequate, limiting its growth potential. In 2023, the government allocated just over 4% of its GDP to infrastructure development, which is far below what is needed. Frequent power cuts, poor road connectivity, and lack of digital infrastructure are major hindrances to productivity.

Hydropower, one of Nepal’s biggest opportunities, remains largely untapped due to bureaucratic delays and mismanagement. The ruling class must realize that without rapid infrastructure development, the economy will remain in the slow lane.

Moderate Inflation: Another Pressure Point

Nepal's inflation rate hovers around 6-7%, which is above the ideal range of 2-4%. The constant rise in food and fuel prices puts pressure on the poorest households, further deepening inequality. Without effective monetary policies to curb inflation, the cost of living will continue to rise, making it harder for ordinary citizens to survive.

Open Markets: The Illusion of Openness

While Nepal is theoretically open to trade, in practice, the country remains mired in red tape and trade imbalances. Over 60% of Nepal’s trade is with India, making it highly dependent on a single partner. The ruling class needs to diversify trade relationships and negotiate better terms for Nepalese products abroad.

Adaptability: The Key to Survival

Nepal’s slow response to global trends and technological changes is another major flaw. The country remains stuck in outdated industries and models, while the rest of the world moves forward. The inability to adapt to the changing global economy leaves Nepal vulnerable to being left behind.

The Way Forward: What Nepal Needs to Do

Nepal can still turn the tide, but it will require bold reforms from the ruling class. Here’s where Nepal needs to focus:

1. Good Governance: Eliminate corruption and improve political stability. Without accountability, nothing else will work.  

2. Education and Skills: Reform the education system to match market demands and invest in technical training to create a skilled workforce.

3. Infrastructure Investment: Rapidly expand infrastructure, particularly in energy, roads, and digital connectivity. Without this, economic progress will stall.

4. Business Environment: Cut red tape and make the business environment more friendly. Encourage entrepreneurship and foreign investment to drive growth.

5. Trade Diversification: Promote industries like tourism, hydropower, and agriculture to reduce trade dependency and boost exports.

6. Debt Management: Invest borrowed funds in productive sectors rather than wasteful public spending.

Conclusion: The Clock Is Ticking

Nepal has immense potential, but the ruling class must wake up to the challenges at hand. Without serious reforms, the country will remain stuck in a low-growth trap, dependent on remittances and foreign aid. To achieve the status of a first-world nation, Nepal must embrace bold changes in governance, education, infrastructure, and economic policy.

The time for action is now.