Key highlights from Nepal’s long term economic vision (FY2020 – FY2044) and Nepal’s 15th five-year plan (FY2020 -FY2024)

National Planning Commission recently published the 15th five-year plan (FY2020-FY2024) taking also into account the effect of the COVID-19 pandemic on the government’s priorities and the economy. This plan is considered as the first phase of a 25-year long-term economic vision that aims to position Nepal as a high-income country with a per capita income of USD 12,100 by FY2044.  Its theme is ‘generating prosperity and happiness’ and aims to create the foundation of prosperity and happiness through economic, social, and physical infrastructures to accelerate economic growth.

According to a press note by National Planning Commission, the government is aiming to graduate Nepal from the LDC category (to a developing country status) by FY2022 with a per capita income of USD 1,400 and a middle-income country by FY2030 (according to WB classification, Nepal is now in the lower-middle-income country category). In FY2019, which is considered as the base year for the long-term vision, per capita income was USD 1,047.  The plan emphasizes boosting investment in the sectors or thematic issues that are considered as drivers of economic transformation. These include transport, ICT, energy, education and healthcare, tourism, commercialization of agriculture and forest products, urbanization, social protection, subnational economy, and good governance, among others.

Furthermore, by FY2044, the national goal is to achieve a high-income country category with a per capita income of USD 12,100. To be fair, these are actually adapted from the long-term development vision published by the government in 2018. They are also in the recently published 15th Five Year Plan (FY2020-FY2024). By FY2024, the government wants to achieve a double-digit growth rate, increase per capita income of USD 1,595, reduce population under the absolute poverty line to 9.5%, and increase the share of formal sector employment to 50%.

Three phases of long-term economic development vision (Prosperous Nepal, Happy Nepali) are:

• Generating prosperity and happiness (15th five-year plan, FY2020-FY2024), which aims to create the foundation of prosperity and happiness through economic, social, and physical infrastructures to accelerate economic growth.
• Accelerating prosperity and happiness, and achieving SDGs (16th and 17th five-year plan), which aim to rapidly achieve the indicators of prosperity and happiness. By the end of the 17th five-year plan (FY2034) Nepal will have graduated to a middle-income country with a goal of high-income status.
• Sustaining prosperity and happiness (18th and 19th five-year plan), which aims to achieve sustainability by maintaining a balance between prosperity and happiness. Social justice and double-digit economic growth on average are to be achieved during this period. By the end of this phase (FY2044), the economy will be self-reliant, independent, and prosperous.

Nepal’s long term economic vision (FY2020 – FY 2044) outlines 10 national goals and 76 indicators for long-term economic development vision.

It also identifies 8 strategic national strategies, 9 drivers of economic transformation, and 8 enablers.

The ten long-term national goals are:

1. Accessible and modern infrastructure and connectivity
2. Development and full utilization of human capital potential
3. High and sustainable production and productivity
4. High and equitable national income
5. Well-being and decent standard of living
6. Safe, civilized and just society
7. Healthy and balanced ecology
8. Good governance
9. Comprehensive democracy
10. National unity, security and dignity

The eight long-term national strategies are:

1. Achieve rapid, sustainable and employment-oriented economic growth
2. Ensure affordable and quality health care and education
3. Develop internal and international interconnectivity and sustainable cities/settlements
4. Increase production and productivity
5. Provide a comprehensive, sustainable and productive social security and protection
6. Build a just society characterized by poverty alleviation and socio-economic equality
7. Conserve and utilize natural resources and improve resilience
8. Strengthen public services, enhance balanced provincial development, and promote national unity

The nine drivers of economic transformation are:

1. High-quality and integrated transport system, information technology and communication infrastructure, and massive networking
2. Quality human capital and entrepreneurial work culture and full utilization of potential
3. Hydroelectricity production and promotion of green economy
4. Increase in production, productivity, and competitiveness
5. Development and expansion of quality tourism services
6. Modern, sustainable and systematic urbanization, housing and settlement development
7. Development and strengthening of the provincial and local economy and expansion of the formal sector
8. Guaranteed social protection and social security
9. Governance reform and good governance

The eight enablers that will provide support for the realization of drivers of economic transformation are:

1. Political commitment to the constitution, democracy, and development
2. Demographic dividends and civic awareness
3. Geographic location as well as natural diversity and abundance of natural resources
4. Socio-cultural diversity and unique identity
5. Social capital and Nepali diaspora spread around the world
6. Clean and renewable energy
7. Goodwill of friendly nations and the international community
8. Federal governance and fiscal federalism

The overall structural strategy over the next 25 years is to reduce share of agriculture sector in GDP to 9%, but increase share of agriculture and services sectors to 30% and 61%, respectively. The annual average GDP growth target of 10.5% is set for the period. A summary of the targets (which may be reviewed in subsequent plans) to be achieved by FY2044 are as follows:

• Average annual GDP growth: 10.5%
• Per capita income: USD 12,100
• Population under absolute poverty line: 0 (or below 1%)
• Population in MPI: 3%
• Gini coefficient based on property: 0.25
• Ratio of richest 10% and poorest 10% population (Palma ratio): 1.1
• LFPR (15+ years): 72%
• Share of formal sector employment: 70%
• Electricity generation (installed capacity): 40,000 MW
• Households with access to electricity: 100%
• Per capita electricity consumption: 3,500 kilowatt-hours
• Households with access to motor transport within 30 minutes of travel: 99%
• National and provincial highways (black topped up to two lanes): 33,000 kms
• National highways (>two lanes and fast tracks): 3,000 kms
• Railroads: 2,200 kms
• Population with access to internet: 100%
• Life expectancy at birth: 80 years
• Maternal mortality (per 100,000 live births): 20
• Child mortality rate (per 1000  live births): 8
• Underweight children: 2%
• Literacy rate (15+ years): 99%
• Net enrolment rate at secondary level (9-12): 95%
• Gross enrolment rate at higher education: 40%
• Population with access to improved drinking water: 96%
• Population covered by basic social security: 100%
• Gender development index: 0.99
• Human development index: 0.760

Meanwhile, some of the major national targets set by the 15th five-year plan (FY2020-FY2024) are as follows:

• Average GDP growth (at basic prices): 9.6%
• Average GDP growth (at producers’ prices): 10.1%
• Per capita income: USD 1,595
• Export of goods and services: 15.7%
• Share of essential goods (agri, livestock, food items) in total imports: 5%
• Population under the absolute poverty line: 9.5%
• Population with multidimensional poverty: 11.5%
• Share of formal sector employment: 50%
• Unregistered (formal) establishment: 10% of total establishment
• Literacy rate (15+ years): 95%
• Road density: 0.74 km of road per sq km of land
• Households with access to electricity: 95%
• Population with access to internet: 80%
• Electricity generation (installed capacity): 5,820 MW
• Renewable energy: 12% of total energy consumption
• Per capita electricity consumption: 700 kwh
• Agricultural productivity (major crops): 4 MT per hectare
• Irrigable land with year-round access to irrigation: 50%
• Per capita tourist spending: USD 100 per day
• Human development index: 0.624
• Gender development index: 0.963
• Population covered by basic social security: 60%
• Social security expenditure: 13.7% of budget
• Global competitiveness index: 60
• Ease of doing business index: 68
• Travel and tourism competitiveness index: 3.8
• Corruption perception index: 98
• Nepali citizens with national ID card: 100%
• Population affected by disaster incidents: 9.8%

The National Planning Commission estimated average growth in agriculture, industry, and services sectors to be 5.4%, 14.6%, and 9.9%, respectively. By the end of the 15th plan, the government is targeting to increase the share of industry and services sectors to 18.8% and 58.9%, respectively, while the share of agriculture sector is to decrease to 22.3%. To achieve the stated average growth rate, the NPC estimated that NRs 9.229 trillion (at FY2019 constant prices and based on ICOR of 4.9:1; FYI, a lower ICOR indicates efficient production process) investment will be required over the plan period. Public, private and cooperative sectors are expected to contribute 39%, 55.6%, and 5.4%, respectively of this required investment.

As a share of GDP by FY2024, the expected impact on macroeconomic indicators are as follows:

National accounts (focused on increasing investment through savings mobilization)

• Average GDP growth (at producers’ prices): 10.1%
• Per capita income: USD 1,595
• Export of goods and services: 15%
• Gross domestic savings: 22%
• Gross national savings: 47.5%
• Gross fixed capital formation: 41.6%

Fiscal sector (focused on allocation and implementation efficiency, and fiscal discipline for expenditure management; maximize revenue mobilization and taxpayer-friendly tax administration)

• Total budget: 43.3%
• Recurrent expenditure: 17.9%
• Capital expenditure: 18.6%
• Financial management: 6.8%
• Revenue: 30%
• Income tax: 10%
• Foreign debt: 5.7%
• Domestic borrowing: 4.3%

Monetary and external sector (focused on controlling inflation, balance of payments stability, and financial stability)

• Average annual Inflation: 6%
• Export of goods and services: 15%
• Import of goods and services: 49%
• Remittances: 22.1%
• Foreign investment: 3%

Meanwhile, the average financing gap to achieve the SDGs is estimated to be NRs 585 billion per year for the entire period of 2016 to 2030 (SDG period). It is on average 8.8% of GDP for 2016-19, 12.3% of GDP for 2020-22, 13% of GDP for 2023-25, and 16.4% of GDP for 2026-30. The overall annual financing gap is estimated at 12.8% of GDP throughout the period of 2016 to 2030.

[The government is considering FY2019 as a base year for the long-term economic vision. So, the data is presented in FY2019 constant prices. However, this is not much helpful in doing comparative analysis including that of long-term plans and targets. National account estimates, public finance, and periodic surveys – based on which the numbers are estimated eventually- are either presented with different years as the base years (FY2011 for NEA for now) or are in current prices (fiscal, monetary, external sectors, and household surveys.]

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Disclaimer: These articles were first published in Chandan Sapkota’s blog