Delivered by Hon. Dr. Biswo Nath Poudel
Vice-Chairman, National Planning Commission of Nepal
Third Ministerial Conference on Regional Economic Cooperation and Integration in Asia and the Pacific
28–30 September 2022
Bangkok and Online
Ladies and gentlemen!
- It is a great honor to be here as a speaker. I would like to extend my sincere gratitude to UN-ESCAP and Asian Development Bank (ADB) for organizing this important event and providing me with this opportunity.
- In the last few years, stunning reversal of monetary policy and oil price in all major economies have been observed. They have been accompanied by swift changes in interest rates, market liquidity, inflation rates, as well as export and import volumes. These changes occurred as Covid-19, Ukraine crisis and climate change related urgency were lying in the background.
- Covid-19 related upheavals were momentous socio-economically as well. Millions of workers left urban areas for their homes in rural areas, temporarily arresting both uninterrupted depopulation and feminization of rural areas as well as unremitting growth of urban centers spurred by agglomeration economies. Economies rebounded quickly, especially in Asia Pacific countries where merchandise trade, high FDI in digital industries, reliable logistic infrastructure and strong regional value chain played supportive role. However, recoveries may have exacerbated inequalities that were gradually decreasing before the pandemic. Women are still slower to return to urban areas than men. Economies lopsidedly reliant on remittance or tourism are also slower to recover.
- The impact of pandemic on different sectors of economies is also varied. As long as marginal product of labor remained nonnegative, the influx of workers from urban to rural areas should not have affected aggregate agricultural sector output. But some least developed countries, such as Nepal, have poor agricultural infrastructure and are more reliant on weather than others. Adverse weather of 2020 affected Nepal’s agricultural output negatively. Many countries in Asia Pacific region also rely on imported fertilizers and increase in supply chain disruptions during the pandemic negatively affected availability of critical factor inputs in agricultural sector.
- Manufacturing sector is also affected by labor movement, income shock induced demand adjustments and supply chain disruptions. Though manufacturing sector rebounded quickly in Asia Pacific region after the initial fall, conditions vary across member countries.
- Likewise, impact on service sector is also heterogeneous across countries. Tourism sector is yet to recover. However, countries with good logistic infrastructure and digital preparedness performed better as e-commerce sector grew significantly there.
- Resiliency during the pandemic has therefore been determined by the ability of economies to reduce shocks in production sector, ensure access to market for produced goods and provide social security assistances to people who are in need.
- Aftershocks of Covid-19 related lockdowns and monetary policy instruments such as quantitative easing used during the lockdowns are still being felt. America, for example, experienced high inflation after the money supply in the market was increased during the early stage of the pandemic. This was followed by rising interest rate in the US, capital flight to US from other countries, and depreciation of currencies against US dollar. As currencies depreciated, inflation rate increased and subsequently interest rates also increased in the respective countries. Policy rate, central bank’s favorite instrument to address inflation in almost all economies, has increased worldwide and costs of borrowing for the governments have increased.
- As a result, fiscal spaces for almost all governments have been squeezed lately. Public debt to GDP ratio for Asia Pacific region has increased by two third between 2019 and 2021. This has negatively affected the ability of many governments to spend on SDG related budgetary line items and run targeted pro-poor programs. This can further vitiate public confidence in governments. When food and fuel price hike due to Ukraine crisis is added in it, collectively, people at the margin are likely experience further squeeze. ESCAP estimates that 2.7 million additional people in Asia Pacific (AP) region will be pushed to extreme poverty due to rising inflation and economic uncertainty. This may lead to political unrests, exacerbating the likelihood of economic recovery. Political unrests tend to be correlated across borders and one or two country in turmoil may eventually destabilize the entire region.
- In this context, building resiliency of our economies has become very important. The variance in the trajectories of recovery of different economies indicates that economies that are undergirded by strong social protection programs, quality infrastructure ensuring reliable access to factor inputs and consumers, policy stability, inclusive and large number of exporters, diversified product portfolio, adequate safeguards against extreme climate events and high economic productivity have more resilience than others.
- Though AP region has already been a big spender in digital technologies, there is a variance across countries. For economies that are beginning to struggle now, this is a right time to invest in the digitalization of governance and reduction in any other administrative costs. I believe implementation of initiatives such as Asia Pacific Information Superhighway Initiative (2022-2026) and Ministerial Declaration on Building a More Resilient Future with Inclusive Civil Registration and Vital Statistics will be useful in ensuring cost of recovery from the crisis will be low in the long run.
- Resiliency in manufacturing sector can be improved by investing in building seamless connectivity in transportation, energy and ICT sectors. Resiliency against the challenges posed by extreme climate events can be built by adopting greener alternatives in all aspects of our life and investing in infrastructures that provide protection against extreme climate weather. However, multiple sequentially arriving shocks have also constrained the capacity of governments in AP region to pay attention to long term crisis such as climate change optimally. Many governments in the region, for example, have reduced tax on carbon based fuels to appease angry voters, while imposing constrains in the import of electrical vehicles to save foreign exchange reserve. Regional initiatives are now needed so that inconsistencies such as this can be avoided.
- Increased Investments need to be made in transportation infrastructure and renewable energies to decarbonize the transportation sectors. Coincidentally, several land-locked developing countries in AP region, such as Nepal, Bhutan, and Laos, have a good potential to produce clean renewable energies. ESCAP should continue to push initiatives such as Regional Road Map on Power System Connectivity: Promoting Cross-Border Electricity Connectivity for Sustainable Development in the future.
- Integration of sustainable development goals through regional cooperation in several priority areas is very important to support and complement national efforts and mechanisms. For economies whose growth has been led by service sector, recent shocks and subsequent fiscal squeeze have fueled the fear that this recovery will increase the divide between rich and poor since service sector industries, such as banking and IT, tend to hire college graduates. College education, on the other hand, is costly and people with rich parents are more likely to have access to it than people with poor parents.
- The role of production and distribution of agricultural goods is also important in building resiliency. Research has shown that a one percent growth in agriculture sector is four times as likely to alleviate poverty as similar growth in manufacturing sector. Regional initiatives to increase aggregate agricultural production and enable seamless trade of agricultural goods especially in times of emergency are now urgently required. Provision of what should not be done during the time of crisis should explicitly be made part of binding international trade treaties so that economies do not have incentive to return to autarky precisely when coordination is required.
- COVID-19 pandemic heavily impacted the well-being of people and likely aggravated the existing inequalities in Nepal. We took necessary measure to cope with the pandemic from the lockdown to recovery phase. The Government of Nepal adopted numerous initiatives such as tax rebates and concessional financing for the corporate sector. Digital education had been promoted during this period. Moreover, health spending has been increased to develop the health infrastructure and cover the cost of free health care to those that have tested positive for COVID-19. Various social protection schemes were initiated. Now, 95.7 percent of peoples aged more than twelve years are fully vaccinated in Nepal.
- Nepal’s trade and investment policies, priorities, and aid for trade strategies are directed toward building inclusive and resilient economies. Over the years, the Government of Nepal has taken a series of initiatives like custom automation, custom reform, transport facilitation agreement, trade facilitation programme, and economic and industrial corridor development to promote exports and achieve sustainable and inclusive economic growth. Nepal is focusing on trade and investment programs that will contribute to value chain development, quality enhancement, and improved trade facilitation measures for its sustainable and inclusive economic growth.
- Nepal has recently revised Foreign Direct Investment and Technology Transfer Act (FITTA), Public Private Partnership and Investment Act, Labour Act, and Companies Act. Moreover, the Government of Nepal has formulated the Nepal Trade Integration Strategy which seeks to address competitiveness challenges confronted by the country’s export sector.
- The government has developed Digital Nepal Framework in 2019 with the objective of contributing to economic growth and identifying opportunities for Nepal to participate in the global economy. Nepal has made significant progress on improving internet connectivity, promoting digital skills of marginalized communities, developing digital identification programs, improving regulatory environment for digital finance and encouraging e-commerce in the last few years. We are also committed to monitor market structure in this sector closely to preclude the rise of a monopolistic firm with disproportionate market power.
- Currently, Nepal is mainstreaming the SDGs at all levels in budgeting and planning process within the spirit of leaving no one behind. Since Nepal is going to graduate by 2026 from LDC status and thus lose some of the preferential treatment it has received regarding access to some markets, Nepal is preparing an LDC Graduation Strategy along with country specific trade integration policies as well. In this respect, we need more supportive measures from our development partners in terms of ODA, FDI, trade facilitation, and technology transfer.
- Regional connectivity and integration in the area of trade, telecommunication, SMEs and technical cooperation is vital to address the inter-connected issues of today’s world. It is also equally important to come together in the area of climate action. The Asia Pacific Green Deal for Business and Coalition of Finance Ministers for Climate Action can be mobilized effectively for the benefit of the region.
- The regional cooperation should now be focused on finding innovative debt relief solution, enhancing cross boarder investment and promoting regional value chain mechanism. The Regional Comprehensive Economic Partnership Agreement and the Framework Agreement on Facilitation of Cross-border Paperless Trade in Asia and the Pacific need to be utilized for a robust partnership among countries.
- Since intraregional investment as a share of total investment in this region can be expected to grow in the future, we must push for uniformity in investment related regulatory regimes across the member countries and find innovative ways to develop affirmative action to help countries that have fallen behind. Countries in special situation should be encouraged to form their own sub-block so that their foreign direct investment regulations are standardized and they can learn from each other in improving competitiveness in attracting foreign investment by developing appropriate value propositions. Asia Pacific FDI Network can be encouraged to work in this direction by collaborating with investment boards and ministries of industries from these countries.
- Finally, I strongly believe that AP region can improve its collective resiliency by working together and collaborating in trade and investment issues. We have already made remarkable progress in the last few decades. We have the potential to achieve more.
I thank you all.