Surendra Pandey

Nepal's troubled 20-year transition from monarchical rule to a multi-party democracy has involved rebel insurgency, a bloody 10-year civil war and ongoing political turmoil.

Following a 2006 peace accord, under which the country's Maoist rebels were brought into government, the country has spent the past four years attempting to implement its post-conflict peace and constitution-making process. But the impoverished Asian nation remains extremely unstable and in recent months has teetered on the brink of outright political collapse.

Despite the tumult, the country's finance minister, Surendra Pandey, remains remarkably upbeat, insisting that there is "more or less consensus" on Nepal's pressing economic situation. "In Nepal, we are settling our problems and, after this situation is over, Nepal will be completely different: we have one agenda, which is economic development," he says.

Recent months have brought further setbacks, however. Lagging behind its Asian neighbours, Nepal has only lately felt the full impact of the global economic slump. At the end of May, buffeted by a liquidity crunch in the banking sector, a sharp downturn in remittances and falling exports, the country turned to the International Monetary Fund for a modest $42.05m credit facility.

Mr Pandey concedes that the country's economic base, which is dominated by agriculture, is in need of restructuring. The informal sector and rural development - stymied by the civil war - are set to play bigger roles in boosting gross domestic product (GDP), he says.

In February, Mr Pandey announced his intention to include Nepal's growing microfinance activities in the country's GDP calculation - making Nepal one of the first countries to do so; the method of calculation is still being devised. "There are so many microfinance institutions working in the rural areas, providing small amounts of credit to the rural poor. Through that process we are able to generate income among low-income groups," he says.

In a bid to boost microcredit activities further, the government is devising regulation that will allow the microfinance sector to mobilise deposits, he adds.

Improving infrastructure

Building infrastructure is Mr Pandey's top budgetary priority, but he is concerned that Nepal's multi-lateral partners do not share his sense of urgency. The finance minister is critical of the Asian Development Bank (ADB) and other multilateral agencies for focusing too heavily on "awareness building" programmes - such as gender and youth campaigns - rather than the practical necessities of infrastructure. "The ADB is increasing its support to developing countries, but my feeling is that the ADB should give more emphasis to infrastructure projects," he says.

The parlous state of Nepal's roads is of particular concern to the finance minister, who has declared fiscal year 2009/2010 the "year of road construction". Much of the funding is coming from this year's national budget, in which Mr Pandey has allocated $241m for highway construction, upgrading and maintenance, although he is also courting bilateral funding from countries such as India, China, Germany, South Korea, the UK and the US.

Powering up

Power generation is also in need of urgent attention. Nepal has long struggled to produce enough electricity and power outages reached crisis levels during the past year. Mr Pandey hopes to address the problem, and boost the country's industrial base, through the widespread roll-out of hydro-power programmes that will exploit the country's mountainous terrain.

The finance minister has this year allocated $7.8m for micro-hydropower projects to be implemented in 1500 remote villages. "That will help to grow rural industries and... it will help to reduce the energy crisis in the city and lowlands," he says.

But the country is in desperate need of much larger-scale hydro-power projects, and Mr Pandey hopes to attract foreign investors to this sector through a range of investor-friendly tax-breaks. "Due to the political climate, [investors] are still looking carefully, but in the hydro-power sector many people have shown an interest," he says. According to Mr Pandey, Australian and Indian investors have been issued with licences to begin hydropower projects, and the country has had enquiries from Chinese investors too.

Sandwiched between Asia's two powerhouses - India and China - Nepal hopes to catch some of the wealth flowing into its neighbours, says Mr Pandey. "In a conflict situation, investment can work: why not in Nepal?" he asks, equating Nepal's political unrest to the recent protests seen in Thailand and Greece.

Nepal's mountain region is also the country's primary tourist destination, which makes the success of the hydro-power initiatives doubly important in supporting tourist income - another revenue stream Mr Pandey hopes to boost. "We have declared next year 'visit Nepal year'," he says. But it will take more than declarations to heal Nepal's political wounds and establish a path to economic reform.