Populism and ad-hocism in policymaking: How it will aggravate Nepal’s economic troubles

The concern right now is what will happen if international fuel and food prices and dollar appreciation do not abate? Is there a proper plan with the government to tackle such a grim prospect?

Back in 2020, when the economy was ravaged by the Covid-19 pandemic, the Tourism Ministry proposed a two-day public holiday as a measure to stimulate the then decimated tourism sector.

While the government did not implement that measure then, it has recently come into implementation but this time to achieve a directly opposite effect—to reduce the burgeoning import of fuel that is threatening Nepal’s external sector stability. So, does the two-day public holiday reduce consumption or increase it? This kind of ad-hocism in Nepal’s policymaking has been its persistent feature. If Nepal is serious about achieving its ambitious growth and development goals, significant reforms are needed to remedy the inconsistent, incoherent, and ambiguous policies, a result of poor policymaking practices.

Absurd logic

We don’t deny that reducing the working days may have significant benefits, especially to employees’ productivity and well-being, as evidenced by several studies which show that more working days do not always equate to higher productivity. However, the rationale that it will reduce fuel consumption sounds absurd. 

Furthermore, the government had no evidence that this was going to reduce fuel consumption. They have not even come up with any estimates of reduced fuel consumption due to this measure. Moreover, the bureaucrats and their army of advisors certainly are aware that the current crisis (if it could be called so) emanates from excessive consumption (both public and private) that has fueled imports and Nepal not having enough foreign currency to pay for those imports. Providing one extra day off would mean more time for leisure, which would mean households will go out and eat out and spend more money and fuel and so on. This policy could have worked to boost the economy if the problem was squeezed demand but the problem at present is the excessive demand that has made the nation’s import bill unsustainably high.

There is no doubt that fuel prices have become unsustainable and measures need to be introduced to address the prices. During a recent event, the minister for the Ministry of Industry, Commerce and Supplies was quoted as saying that the federal government is undertaking necessary preparation to open up petroleum products import and distribution for the private sector. The deregulation, he claimed, would provide relief to Nepali consumers who are facing an unprecedented surge in the cost of living. However, that is yet another absurd proposition if one goes into the details. Sure, increased competition is desirable and can lead to more efficient outcomes if anti-competitive practices can be curtailed (which, however, is doubtful in Nepal, but this is beside the point we want to make in this article). 

Nepal will have to look into ways to reduce imports or increase export. The policymakers have no concrete plan for that. 

But, it is not the lack of competition that is the reason for current spikes in fuel prices. The current surge in fuel prices has its roots in geo-political tensions (particularly the Russia-Ukraine war) and the supply chain crunch caused by the pandemic. Depreciating Indian Currency (with which Nepali Rupee is pegged) against the US dollars has further compounded the sky-rocketing fuel prices. Moreover, high taxes levied on the import of petroleum products contribute significantly to higher domestic prices. In such a situation, how will the entry of private importers bring down the price of petroleum products? And will that not risk instituting private monopoly in place of state monopoly? 

These are just a couple in the series of misaligned policy prescriptions that the government is adopting as a solution to the current economic woes of Nepal. These kinds of ad-hoc policy decisions that are populist in nature but may fail to substantially tackle the cause of the economic troubles are more likely to do harm than good.

Not learning from Sri Lanka