– NISCHAL DHUNGEL

The opinion piece originally appeared in The Kathmandu Post on 4 July 2023. Please read the original article here.

A small landlocked country in East Africa, Rwanda has been on a remarkable transformational journey. Despite its chequered history, marked by the devastating genocide against Tutsi minorities in 1994, Rwanda has made significant strides in managing its debt burden, achieving impressive economic growth. The landlocked African republic also has some important lessons for Nepal, which endured a Maoist insurgency and decades-long political instability, on debt management and economic development.

Debt trajectory

One crucial factor contributing to Rwanda’s progress is its focus on reducing its debt burden. The country’s eligibility for the Highly Indebted Poor Countries (HIPC) Initiative in 2001 was a turning point. Rwanda received significant debt relief of $1.2 billion, providing a much-needed breathing space for development. The Multilateral Debt Relief Initiative (MDRI) further eased the burden by providing an additional $1.8 billion in debt relief.

Rwanda has reduced its debt-to-GDP ratio from over 100 percent in 1995 to 64 percent in 2022. The Covid-19 crisis led to a sharp increase in the fiscal deficit in 2020 due to revenue shortfalls and increased spending to address the crisis. Total nominal external debt to GDP stood at 75.7 percent at the end of 2021, of which external public and publicly guaranteed (PPG) debt accounted for 54.5 percent of GDP, resulting in the present value of PPG’s external debt to GDP ratio of 34.9 percent. While the increase in external PPG debt is concerning, debt management is done through loans in concessional terms with relatively low-interest rates and careful prioritisation and selection of capital-intensive projects.

However, the debt-to-GDP ratio is expected to continue rising due to the pressure of financing infrastructure development and social programmes, posing risks related to concessional financing availability, US monetary policy tightening, US dollar appreciation, and trade term shocks. As per the International Monetary Fund (IMF), Rwanda’s debt situation remains sustainable, with a moderate external and overall public debt distress risk.

Nepal’s debt trajectory

Nepal’s debt-to-GDP ratio declined from 64 percent in 2000 to 22.3 percent in 2015. As of mid-April 2023, the country’s overall outstanding debt stood at 38.3 percent of GDP, a significant increase from the debt-to-GDP ratio of 25 percent in 2016-17. The debt-to-GDP ratio has been rising due to the pandemic, the transition to federalism, the 2015 earthquake and the depreciation of the Nepali rupee. The fiscal deficit in the first half of 2023 increased the public debt-to-GDP ratio from an estimated 35.6 percent in 2022 to 38.3 percent in 2023. Total nominal external debt to GDP stood at 25.9 percent at the end of 2021, of which external PPG debt accounted for 21.8 percent, resulting in the present value of PPG’s external debt to GDP ratio of 13.1 percent.

Nepal’s external debt is lower than Rwanda’s but is growing faster. It is also more heavily concentrated on concessional terms. Domestic public debt (from 10.1 percent of GDP in FY 2015-16 to 22.2 percent in FY 2020-21) has increased faster than the external debt (from 14.9 to 21.8 percent of GDP) during the same period. Interest rates on domestic loans have also increased due to the government’s increased borrowing, which has crowded out private borrowers. The joint World Bank and IMF Debt Sustainability Analysis found that the risk of Nepal’s overall debt distress and risk of external debt distress is low, and its debt-carrying capacity is still strong. However, there are risks to Nepal’s debt sustainability, including a slowdown in economic growth, a decline in foreign aid and investment, an increase in interest rates, and a depreciation of the Nepalese rupee. Nepal can learn from Rwanda’s experience managing a high debt-to-GDP ratio while maintaining a rapidly growing economy.

Structural reforms

Rwanda’s implementation of structural reforms and debt relief resulted in remarkable economic growth, with an average annual GDP growth rate of 8 percent between 2000 and 2020. Between 2000 to 2022, Rwanda underwent significant structural changes, leading to a transformative shift in its economic landscape. During this time, there was a decline in the proportion of Rwanda’s GDP contributed by agriculture, forestry and fishing, dropping from 31.2 percent to 24.9 percent. Meanwhile, the industrial sector, which encompasses construction, increased its contribution from 16.8 percent to 21.2 percent. Moreover, there was a significant growth in the percentage of GDP represented by exports of goods and services, rising from 5.4 percent to 22.5 percent.

Rwanda’s key exports, such as coffee and tea, are predominantly sold in major markets such as the United States and Europe for coffee, Middle Eastern countries, and Pakistan for tea. Nepal can draw valuable lessons from Rwanda’s experience, particularly in implementing structural reforms, prioritising sectors for development, and determining essential export products.

Rwanda has made strides in developing e-government services by leveraging its existing technologies. In particular, the country implemented a comprehensive “one-stop” e-government initiative called “Irembo” in April 2014. Operating as a single portal, Irembo integrates 96 basic government services such as birth registration, business registration, tax filing and returns, and school enrollment, enabling around 9 million internet subscribers to access these services conveniently. Rwanda’s e-government systems have been acknowledged by the World Bank as a leading performer on the business reform index, enhancing the country’s appeal to investors. These advancements have streamlined administrative processes and fostered a culture of innovation and digital inclusion within the country.

Nepal can take inspiration from Rwanda’s success in developing e-government services, leveraging existing technologies to streamline administrative processes and enhance digital inclusion, ultimately attracting investors and fostering innovation.

Attracting FDI

Rwanda’s commitment to economic liberalisation and attracting foreign investment has driven its economic growth. Foreign direct investment (FDI) inflows increased from $100 million in 2008 to $398 million in 2022. Much of Rwanda’s foreign direct investment (FDI) is focused on specific sectors. Specifically, the energy sector represents 45 percent of all recorded investments, while manufacturing comprises 30 percent. Special economic zones offering tax breaks and incentives have further encouraged investment.

For instance, in 2000, the installed capacity of power plants in Rwanda was only 44 megawatts. Over the past two decades, the government has attracted significant FDI in the energy sector, which has helped increase the installed capacity to 225 megawatts. This has led to a substantial increase in electricity generation, and the electricity access rate has increased from 4.8 percent of the population in 2005 to 49 percent in 2022. By identifying sectors with growth potential and actively promoting investment in those areas, Rwanda has been able to drive economic expansion and create opportunities for job creation and technological advancements.

Despite both countries being landlocked and import-dependent, Rwanda has shown a way of achieving impressive economic growth while Nepal lags behind. Nepal should leverage the advantage of lower interest rates as envisaged in Nepal’s Medium Term Debt Management Strategy (MTDS) and implement structural reforms to reduce corruption, strengthen public financial management and improve the business climate. Enhancing the business environment, promoting digital platforms and establishing centralised investment-related services can attract foreign investment and boost economic growth. Nepal should address the rising debt burden by increasing tax revenue, reducing spending on non-essential items, and carefully prioritising and selecting projects.

– NISCHAL Dhungel, Non-Resident Fellow

The opinion piece originally appeared in The Kathmandu Post on 4 September 2022. Please read the original article here.

Nepal has faced tremendous hitches in the path of economic development. Keeping natural barriers (landlocked externally and challenging topography internally) aside, the nation has been undergoing a protracted era of political change over the past two decades, graduating from a monarchy to multiparty democracy, marred by armed war, ethnic unrest and frequent changes in power. Frequent changes in government, irrespective of a unitary or federal form of government, has directly hampered Nepal’s development path, compounded by poor policy decisions. Poor policy decisions have led to weak performance of the primary agricultural and industrial sectors, low public investment and capital accumulation, and low productivity growth.

Given this context, it is not surprising that foreign employment has become more pervasive, particularly in the years following Maoist conflict. The Department of Foreign Employment started issuing labour permits in the late 1990s. The number of labour permits issued peaked in 2013-14 at a high of 519,638. In 2020-21, the number of labour permits issued plunged to a 16-year low of 72,081 due to the Covid-19 outbreak and the ensuing restrictions on people’s freedom of movement. At present, formal overseas employment procedures have become cumbersome due to the bureaucracy that requires foreign employment agencies to produce authentic labour demand letters, get the demands attested from the Nepali embassies in target countries, and provide several other documents. Despite the cumbersome out-migration procedures, foreign employment has become a lucrative area to escape Nepal’s job market.

Remittance trap

Remittances in Nepal have surged at an unprecedented pace. Personal remittances received were less than 1 percent of GDP up until the late 1990s, lower than Bangladesh and India. This share dramatically increased during the first half of the 2000s, rising from 2 percent in 2000 to 22 percent in 2010 and 30 percent in 2015. Following the pandemic, it was anticipated that Nepal would experience a sharp fall in remittance inflows, impacting imports, the balance of payments, foreign exchange reserves, consumption, savings, loans and interest rates. However, according to the data released for fiscal 2020-21, Nepal performed better in remittance inflows.

Given the extraordinary increase in remittances, they are probably the main driver of the improvement in living standards seen in Nepal, directly (households receiving remittances) and indirectly (increased labour income of those that remained). Research published by Nepal Rastra Bank showed that compared to households that do not get remittances, households that receive remittances have a 2.3 percent lower chance of falling into poverty. With every 10 percent increase in remittance inflows to households, the likelihood of those households falling into poverty lowers by approximately 1.1 percent.

Large-scale migration is a symptom of underlying, long-standing issues rather than a sign of strength. One of the world’s most extensive and dense anti-poverty initiatives is likely to be found in Nepal. Unfortunately, more resources go into the process of delivering benefits to “the poor” rather than achieving impact (making “the poor” rich). Economists Yurendra Basnett, Chandan Sapkota and Sameer Khatiwada have rightly pointed out that much effort is also put into process innovation and complexity (how to get the goodies to “the poor”) while neglecting the apparent reality that a great job with a high salary would go a long way in reducing poverty in one of the chapters of the book entitled Politics of Change.

Large-scale migration and the resulting remittances have facilitated the expansion of low-productivity services. Still, they have also contributed to the low competitiveness (via appreciation of the real exchange rate). As a result, this cycle intensifies already-existing problems that Nepal has faced for a while, further impeding its competitiveness and limiting its economic potential. Because of all these factors, Nepal, home to some of the most hardworking and adventurous people in the world, may remain in a high migration and remittance trap for years to come.

Domestic employment

The pandemic provided the government with a fantastic opportunity to learn a lesson from the existing policy gap to keep the people who had returned to help with the need for the nation’s development. It is a monumental task to switch from foreign employment to domestic employment. Approximately 500,000 young people enter the workforce each year, and 80 percent of them manage to find work abroad. Due to a lack of investment that may have helped produce output, Nepal is now entirely dependent on imports. Ironically, Nepal imports even agricultural items, even though 66 percent of the country’s population is employed in agriculture. Agriculture, which accounts for two-thirds of the workforce and one-third of GDP, has to undergo reforms to increase productivity, reduce poverty and free up labour for new sources of economic growth.

For Nepal, unleashing massive hydropower investments would be a game changer. It would not only result in considerable increases in productivity and new investments, but it also has the potential to raise wages dramatically, reverse migration and boost competition in downstream industries. According to the National Planning Commission and UNICEF report Demographic Changes of Nepal: Trends and Policy Implications, Nepal will have an ageing population by 2028 and an elderly population by 2054. Therefore, Nepal has a very limited window of opportunity to capitalise on the demographic window. It is necessary to invest in the skills of Nepali youth to fully realise the demographic dividend. For Nepal to continue on a more robust and sustainable growth path, more human capital must be put to productive use.

History also shows us that Nepal has implemented significant reforms in the past and is capable of doing so again. The broad-based reforms that Nepal implemented between 1986 and 1996 positively impacted the economy. The share of commerce in GDP and exports, as well as the share of manufacturing, virtually doubled, increasing the economy’s openness and diversification. The political shift to democratically elected administrations, which also gave the populace a new purpose, served as the foundation for these reforms. Today, they serve as a sobering reminder that Nepal can undergo significant and complex reforms. To escape the out-migration and remittance trap, a clear set of plans and policies to increase domestic employment should be the top priority of the federal, provincial and local governments. Without rethinking our development model, the country cannot prosper or graduate to a middle-income country.

– NISCHAL Dhungel, Non-Resident Fellow

The opinion piece originally appeared in the Naya Patrika Daily on 22 August 2022. Please read the original article here.

विश्वव्यापी अर्थतन्त्र अझै पनि कोभिड–१९ महामारीबाट गुज्रिरहेका वेला, उन्नत अर्थतन्त्रमा रहेका केन्द्रीय बैंकहरूले ब्याजदर बढाइरहेका छन्, जसले विश्वको बाँकी देशहरूमा ठूलो प्रभाव पार्नेछ । अन्तर्राष्ट्रिय मुद्रा कोषको (आइएमएफ)को ‘विश्व आर्थिक परिदृश्य’ प्रतिवेदनले विश्वव्यापी वृद्धि घट्ने अनुमान गरेको छ । विशेष गरी उदीयमान र विकासशील राष्ट्रहरूका लागि बढ्दो सामाजिक र आर्थिक जोखिमहरूको पूर्वानुमान पनि गरेको छ । रुस–युक्रेन द्वन्द्वले नीतिगत ट्रेड अफलाई सन्तुलनमा राख्न चुनौतीपूर्ण बनाएको छ ।

मुद्रास्फीतिसँग लड्न, आर्थिक सुधारको संरक्षण गर्न, अर्को कमजोरहरूलाई मद्दत गर्न र वित्तीय बफरहरू पुनस्र्थापित गर्न चुनौती छ । रुस–युक्रेन द्वन्द्व र आपूर्ति शृंखला अवरोधका कारण खाद्यान्न र इन्धनको मूल्यवृद्धि बढ्दै जाने देखिन्छ । विशेष गरी कम आय भएका देशहरूको कमजोर जनसंख्यालाई हानि पुर्‍याएको छ । हालै संयुक्त राज्य अमेरिकाको फेडरल रिजर्भले उपभोक्ता मूल्य ८.७ प्रतिशत बढेपछि मुद्रास्फीतिविरुद्धको लडाइँलाई तीव्र पारेको छ । १५ जुन २०२२ मा फेडले १९९४ पछिको उच्च ब्याजदर वृद्धिको घोषणा गर्‍यो । फेडले आगामी दिनमा ब्याजदर अझ बढाउने योजना बनाएको छ । अमेरिकामा ब्याजदर बढाएर मुद्रास्फीति घटाउने फेडरल रिजर्भको प्रयासले बाँकी विश्वलाई नोक्सान पुर्‍याउन सक्छ । अमेरिकाको बढ्दो ब्याजदर मध्यम र न्यून आय भएका देशहरूका लागि दुस्प्रभावी हुने थुप्रै कारण छन् । 

पुँजी पलायन
विकसित राष्ट्रहरूमा कम ब्याजदरको लामो युगपछि लगानीकर्ताले उच्च प्रतिफलको खोजीमा विकासशील र उदीयमान बजारहरूमा आफ्नो अधिक पुँजी केन्द्रित गर्न थाले । विकसित देशहरूमा ब्याजदरमा भएको तीव्र वृद्धिले अमेरिकामा ठूलो पुँजी प्रवाह र विकासोन्मुख देशहरूबाट निकासी बढ्नेछ । अमेरिकामा ब्याजदर बढ्दै जाँदा उदीयमान बजारहरूमा लगानी गर्ने लगानीकर्ताले उच्च प्रतिफलको फाइदा लिनका लागि अमेरिकामा पुँजी स्थानान्तरण गर्ने निर्णय गर्न सक्छन्, किनभने उनीहरूका लागि अमेरिकामा लगानी गर्नु बढी फाइदाजनक हुनेछ । 

ऋण संकट र मुद्रा अवमूल्यन
इतिहासले देखाउँछ कि राष्ट्रहरूको तीव्र आर्थिक विस्तारक्रममा ऋण बढ्ने गर्ने गर्दछ । विशेष गरी विकासोन्मुख देशहरूमा ‘ऋण पासो’ (डेब्ट ट्र्याप) तब हुन्छ, जब उत्पादकता र ऋण सन्तुलनमा रहँदैन । अमेरिकामा बढेको ब्याजदरका कारण विश्वव्यापी ब्याजदर बढ्न सक्छ । धनी देशहरूको केही केन्द्रीय बैंकले ब्याजदर बढाइसके । अन्तर्राष्ट्रिय मुद्रा कोष (आइएमएफ)का अनुसार ३८ उदीयमान अर्थतन्त्र खतरामा छन् वा हाल ऋण संकटमा छन् ।

सन् २०१९ र २०२१ को बीचमा महामारीले विकासशील अर्थतन्त्रहरूमा सार्वजनिक ऋणमा (जिडिपीको ५४ प्रतिशतबाट ६५ प्रतिशतसम्म तीव्र वृद्धि ल्यायो । कम्तीमा २५ विकासशील अर्थतन्त्रले आफ्नो सरकारी आयको २० प्रतिशतभन्दा बढी विदेशी सार्वजनिक ऋण सेवामा खर्च गर्छन् । आइएमएफले विकसित अर्थतन्त्रहरूमा ब्याजदर वृद्धिले उदीयमान बजार र विकासोन्मुख देशहरूका लागि बाह्य वित्तीय अवस्थालाई असर पार्न सक्ने उल्लेख गरेको छ ।

विकासोन्मुख देशहरूको मुद्रा अवमूल्यन, जसले क्रय शक्तिलाई कम गर्छ र अमेरिकी डलरजस्ता विदेशी मुद्राहरूमा ऋण तिर्न गाह्रो बनाउँछ । यस कारण बढ्दो ब्याजदर उदीयमान अर्थतन्त्रका लागि अर्को जोखिम हुन सक्छ । सन १९८० को प्रारम्भमा फेड ब्याजदर वृद्धिले संयुक्त राज्यमा दोहोरो अंकको मुद्रास्फीति कम ग¥यो, तर विश्वव्यापी रूपमा धेरै देशमा नराम्रो असर पर्‍यो । विशेष गरी ल्याटिन अमेरिकी देशहरूमा ऋण डिफल्ट भयो । बेरोजगारी र गरिबी बढ्यो र जिडिपीमा ठूलो गिरावट आयो । त्यो समयलाई ‘हराएको दशक’ (लस्ट डिकेड) भन्ने गरिन्छ, जहाँ ल्याटिन अमेरिकी देशहरू क्रमिक र असमान पुनरुत्थानमा गुज्रिरहेका थिए । अफ्रिकाका भारी ऋणी राष्ट्रहरूले ल्याटिन अमेरिकाजस्तै समान समस्या झेल्नुपर्‍यो ।

चीनको उदाहरण : ऋण दिगोपन र ऋण व्यवस्थापन
उच्च र बढ्दो ऋण–जिडिपी अनुपात सामान्यतया गैरजिम्मेवार उधारोपनाको संकेत हो । यस्तो गैरजिम्मेवार उधारो कटौती गर्नुपर्छ । बढ्दो ऋणलाई उच्च सरकारी तलब वा ठूला निवृत्तिभरणका लागि उपभोग गर्ने कि शिक्षा र पूर्वाधारजस्ता उत्पादनशीलता बढाउने सार्वजनिक वस्तुहरूमा लगानी गर्ने भन्ने कुरामा ध्यान दिनुपर्छ । ऋण–जिडिपी अनुपात बढ्दा दीर्घकालीन पूर्वाधारमा लगानी कति भयो र उत्पादनशीलता र प्रतिफल कति बढायो भन्ने कुरा महत्वपूर्ण हुन्छ । यस विषयमा श्रीलंका र अफ्रिकी मुलुकबाट पाठ सिक्न सकिन्छ ।

चीनले १९९७–१९९८ र २००८–२००९ मा वित्तीय संकटबाट बच्न विस्तारित वित्तीय र मौद्रिक नीतिको प्रयोग गरेर पूर्वाधार र सामाजिक खर्चहरूमा सार्वजनिक लगानीलाई प्रोत्साहन गरेको थियो । आफ्नो पुँजी खातालाई पूर्ण रूपमा उदारीकरण नगर्दा पनि चीनले राम्रो आर्थिक नतिजा हासिल गरेको छ । विगत ४७ वर्षमा चीनको आक्रामक वृद्धिलाई प्रभावकारी आर्थिक योजना र कार्यान्वयनलगायत स्थिर नीतिले बल दिएको छ ।

नेपालजस्तो देश विकासको प्रारम्भिक चरणमा छ र छोटो अवधिको राजस्व आर्जनलाई परियोजना छनोटका लागि प्राथमिकता दिनुपर्दछ । चीनजस्ता धेरै देशले विकेन्द्रीकृत वित्तीय प्रणाली अपनाएका छन्, जसले वित्तीय स्थायित्वको विश्लेषणलाई जटिल बनाउँछ । चीनमा धेरैजसो सार्वजनिक सामाजिक खर्च स्थानीय सरकारहरूमा निहित हुन्छ, जबकि राजस्व विनियोजन केन्द्र सरकारले नियन्त्रण गर्छ । स्थानीय सरकारहरूले आफ्नो आवश्यकता पूरा गर्न ऋणपत्र जारी गर्छन् र स्थानीय सरकारले आफ्नो वित्तीय प्रणाली बुझ्न महत्वपूर्ण छ । 

अर्थतन्त्रको आकार र संरचनामा धेरै फरक भए पनि नेपाल र श्रीलंकाजस्ता देशले चीनको विकास अनुभवबाट फाइदा लिन सक्छन् । चीनको विकेन्द्रीकृत आर्थिक विकासले स्थानीय सरकार र वित्तीय संस्थाहरूलाई संघीय सरकारभन्दा बढी महत्व दिन्छ, जसले गर्दा लगानी र वित्तीय निर्णय गर्न मद्दत हुन्छ । दीर्घकालीन विकास लक्ष्य हासिल गर्न स्थानीय विकास रणनीति र नीतिहरू राष्ट्रिय प्राथमिकतासँग मिल्नुपर्छ । तर, स्थानीय आर्थिक कार्यसम्पादनका लागि स्थानीय निकायलाई जवाफदेही बनाउनुपर्छ । 

नेपालको सन्दर्भ 
नेपाल एउटा यस्तो राष्ट्र हो, जसलाई संरचनात्मक परिवर्तनको नितान्त आवश्यकता छ । समस्या मौलिक भएकाले संरचनात्मक सुधार नै छोटो र दीर्घकालीन जवाफ खोज्ने एक मात्र उपाय हो । भुक्तानी सन्तुलन कायम गरी बाह्य क्षेत्रमाथिको दबाब कम गर्न ऋण विस्तार र क्षेत्रगत वितरणको व्यवस्थापन, अत्यधिक आयात घटाउने र औपचारिक माध्यमबाट रेमिट्यान्स आप्रवाहमा सुधार गर्न आवश्यक छ । मौद्रिक नीतिले बैंकिङ र निजी क्षेत्रहरूलाई वर्तमान वातावरणमा ऋण प्रयोग गर्दा बढी सावधानी र जवाफदेहिता अपनाउन निर्देशन दिनुपर्छ । तीन दशकसम्म उच्च कर्जा वृद्धि भए पनि आर्थिक वृद्धिदर ४.४ प्रतिशत मात्रै रह्यो । यसले हाम्रो कर्जा वृद्धि नीतिले आर्थिक वृद्धिमा सकारात्मक प्रभाव पार्न नसकेको देखाउँछ । आगामी दशकमा आर्थिक वृद्धिलाई प्रत्यक्ष रूपमा सहयोग गर्ने क्षेत्रमा ऋण प्रवाह केन्द्रित हुनुपर्छ । कर्जाको वृद्धि पनि निक्षेप वृद्धिसँग मिल्दो हुनुपर्छ ।

आयात प्रतिस्थापनको सन्दर्भमा निजी क्षेत्रले जिम्मेवार र सक्रियताका साथ काम गर्नुपर्छ, आयातको सट्टा स्वदेशी उत्पादन वृद्धि गर्नुपर्छ । निजी र बैंकिङ क्षेत्रले घरेलु उत्पादन बढाउन सहयोगी सरकारका नीतिहरूसँग मिलेर काम गर्नुपर्छ । आयात र व्यापारमुखी अर्थतन्त्रलाई उत्पादक अर्थतन्त्रमा परिणत गर्ने, अर्थतन्त्रलाई विश्वव्यापी मूल्य शृंखलामा जोड्ने, घरेलु कच्चा पदार्थमा आधारित औद्योगीकरणलाई प्रोत्साहन गर्ने, खुला सिमानाका कारण लामो समयदेखि चलिरहेको आर्थिक घाटा कम गर्ने केही दीर्घकालीन उपाय हुन् ।

हालको कोभिड प्रकोपको सामना गर्न र कठिन परिस्थितिमा विकासका आवश्यकता पूरा गर्न केही नीतिगत विकल्प छन् । संयुक्त राष्ट्रसंघको व्यापार र विकास सम्मेलनले सार्वभौम ऋणको पुनर्संरचनाका लागि बहुपक्षीय कानुनी ढाँचाका लागि वकालत गरेको छ, जसले निष्पक्ष र व्यवस्थित ऋण संकट समाधान ल्याउनेछ, जसले सार्वजनिक र निजी ऋणदाता दुवैलाई समावेश गर्दछ । आइएमएफले थप ऋण जारी गर्न सक्छ । आइएमएफ, विश्व बैंक समूह र क्षेत्रीय वित्तीय व्यवस्था (आरएफएएस)लाई थप आपत्कालीन तरलता ऋण जारी र वितरणलाई छिटो गर्न सकिन्छ । पहिले नै सम्पन्न सार्वजनिक सम्पत्ति परियोजनाहरूमा आधारित नवीन वित्त पोषण र पुनर्वित्त योजनाहरू डिजाइन गर्ने अर्को उपाय हुन्छ, जसलाई ‘सम्पत्ति–आधारित पुनर्वित्त’ पनि भनिन्छ । विश्वव्यापी ऋण–राहत संयन्त्र, जसले संघर्षरत राष्ट्रहरूमा वित्तीय संकट रोक्न सक्छ र थप विवेकपूर्ण उधारो र ऋणका लागि दिशानिर्देश आवश्यक हुन्छ ।

अन्त्यमा, उन्नत देशहरूको ब्याजदर वृद्धिले न्यून आय भएका देशहरूलाई प्रत्यक्ष वा अप्रत्यक्ष रूपमा असर गर्छ । कम आय भएका देशलाई संरचनात्मक सुधारको आवश्यकता छ, जुन आफ्नो ऋण व्यवस्थापन गर्न छोटो र दीर्घकालीन समाधान खोज्न एकदम महत्वपूर्ण छ ।

– NISCHAL Dhungel, Non-Resident Fellow

The commentary originally appeared on the East Asia Forum, a forum based at the Crawford School of Public Policy at the Australian National University, on 18 August 2022. Read the original article here.

The International Monetary Fund’s recent World Economic Outlook report paints a bleak economic future. It has downgraded global growth predictions from 6.1 per cent in 2021 to 3.2 per cent in 2022. While the global economy is still recovering from the COVID-19 pandemic, central banks in advanced economies are hiking interest rates — a policy change that will have a significant global impact.

The depressing growth predictions are a consequence of tighter monetary policy and the increasing threat of social and economic risks, particularly for emerging and developing nations. Food and fuel prices have skyrocketed due to the Russia–Ukraine war and supply chain bottlenecks. The Russia–Ukraine conflict has made it challenging to balance fighting inflation, supporting the global economic recovery, helping the vulnerable and restoring fiscal buffers.

The US Federal Reserve (Fed) stepped up its fight against inflation after consumer prices increased 8.6 per cent in the United States. On 15 June 2022, the Fed voted to raise the target range for the federal funds rate to 0.75–1 per cent. It plans to implement additional hikes for the rest of 2022. But efforts to reduce inflation by increasing interest rates in the United States could harm the rest of the world.

As interest rates rise in the United States, those who invest in emerging markets to receive higher rates of return may invest in the more appealing US market. This will result in massive capital inflows to the United States and increased outflows from the developing world. Without proportionally tighter domestic monetary policies, the ensuing rise in borrowing costs will deplete foreign reserves, appreciate the US dollar and result in balance sheet losses for nations with US dollar-denominated net obligations.

Rising US interest rates have the greatest impact on economies with higher macroeconomic vulnerabilities. Between 2019 and 2021, the COVID-19 pandemic caused a sharp rise in public debt in developing economies — on average increasing from 54 per cent to 65 per cent of GDP.

Thirty-eight emerging economies are now in danger of a debt crisis or are currently experiencing one. At least 25 developing economies spend over 20 per cent of government income on servicing foreign public debt. This is why interest rate hikes in advanced economies could tighten external financial conditions for emerging markets and developing countries.

There is a worrying comparability between today’s economy and the economy of the 1970s and early 1980s which was rife with high inflation, slow growth and rising borrowing costs. In the 1970s, oil exporters benefitting from increasing energy prices used their surpluses to increase funding for debt markets in emerging market economies. Fed rate hikes in the early 1980s reduced inflation in the United States but drove up global interest rates, causing many emerging economies to default on their debts.

The debt crisis that followed the Volcker shock was distressing for developing nations. The Fed interest rate hike had a devastating effect on Latin America. The region experienced plummeting GDP and ballooning unemployment and poverty. The subsequent decade was lost to gradual and uneven economic recovery. The consequences of the Latin American debt crisis were similarly experienced in Africa’s heavily indebted nations. The Fed did not pay enough attention to how its choices would affect the rest of the world.

Though today’s economic situation has similar origins to that of the 1970s and 1980s, there are some significant distinctions. Today, oil producers acutely feel the world’s reducing dependence on oil. Real oil price increases are smaller than they have been historically. Policy tightening in response to the economic downturn has also begun sooner than it did in the 1970s and 1980s, especially in certain emerging markets and developing nations. Unlike the 1970s and the 1980s, there has not been as much time for recycled petrodollars to fuel imbalances in developing and emerging market economies.

Despite these encouraging developments, new risks have emerged. Due to increased exposure to sizeable bilateral creditors and the recent COVID-19 pandemic, public debt has risen and stunted the growth potential of many countries.

While international financial institutions are doing their part to provide debt relief and stop punitive measures like surcharges — additional fees imposed on countries that fail to make debt repayments —  there needs to be swift and systematic action on debt resolution. This must involve collaboration with private creditors and large state creditors like China. Major food and fuel businesses must be prevented from profiteering and speculating.

Special drawing rights (SDRs) — a foreign reserve asset issued by the IMF that can be used for foreign exchange stability in addition to gold or US dollars — must be redistributed to those countries that urgently require them. A new release of special drawing rights with an equivalent value of US$650 billion is necessary for immediate relief. The UN Conference on Trade and Development has advocated an alternative way to facilitate fair and orderly debt crisis resolutions. It would involve a multilateral legal framework for restructuring sovereign debt using both public and private creditors.

Interest rate increases in advanced countries will always impact low-income countries. But that does not negate the need to pursue structural reform in low-income countries. Structural reform is the only way to find short and long-term solutions to debt management.