The two earthquakes that hit Nepal in April and May 2015 were the largest natural calamity in the country in over 80 years. Finance minister Ram Sharan Mahat describes how the country is recovering, and explains why the Nepal that rises from the rubble will be stronger than ever.

Ram Sharan Mahat

When Nepal was hit by two devastating earthquakes in April and May this year, it brought about the worst natural catastrophe the country has suffered in more than 80 years. Nearly 9000 lives were lost, and the country bore an economic cost worth about one-third of its national output. Very few countries that are hit by a force this big can shake off the dust with the grit and determination with which the people of Nepal are doing. In this, we are being helped generously by our immediate neighbours, traditional development partners and a new-age coalition of volunteers, private sector companies, philanthropic entities, non-governmental organisations and the Nepalese diaspora. The agility and versatility of these partnerships gives us hope that Nepal is poised for a recovery. 

When the last comparable earthquake occurred in Nepal in 1934, there were hardly any modern buildings, roads, schools or motorised vehicles. The pace of transformation since then has been dramatic. We evolved from a medieval kingdom to a modern nation-state in the space of just a few decades.

Halted progress 

After years of political instability, Nepal has begun gearing up for a faster pace of economic growth. Over the past year, we made a leap in the energy sector by securing an unprecedented volume of foreign investment in clean energy, putting the country on a course to increase electricity generation ten-fold over the next decade. The country is pursuing the next generation of economic reforms, enacting or revising several dozen of its policies, acts, and regulations. Nepal was also set to achieve many of the Millennium Development Goals by the end of 2015, including the target of halving absolute poverty.

In 2010, Nepal was singled out by the UN Development Programme for being among the top performers in the world in advancing human development over a generation. This year, for the first time in the UN's triennial review, Nepal met the required criteria for graduation from its status as a 'least developed country', possibly by 2022. 

The earthquake halted this momentum. Annual economic growth in the latest fiscal year (ending mid-July) stood at its lowest level for eight years. The impressive progress in the social sector, such as cuts in infant mortality rates and access to improved sources of water and sanitation, might temporarily stall. 

Tourism, real estate and financial institutions have suffered big losses. In agriculture, the disappointing harvest of rice and maize as a result of poor rainfall was followed by the earthquake-triggered destruction of stored grains, seeds and livestock, adversely affecting output for years to come. Millions of children were traumatised and could not go to school for weeks as nearly 26,000 classrooms were destroyed. Industrial activities have been disrupted. According to the Central Bureau of Statistics, in just 83 days between April 25 and July 15, production losses were estimated to exceed $500m.

Keeping money flowing

In the aftermath of the earthquake, Nepalis were particularly anxious about the state of public finances and their ability to sustain critical spending. We fell short on the target for revenue collection until the middle of this year. This forced us to consider resorting to a sizeable sum of internal borrowing, which has its own costs. This was one reason why we looked to our friends and allies to fill a growing fiscal gap for the next three to five years. 

We were overwhelmed by the outpouring of support in cash, kindness and advice from our development partners at the International Conference for Nepal’s Reconstruction held in Kathmandu exactly two months after the first of the earthquakes. A rigorous and credible post-disaster needs assessment conducted jointly by the Nepalese government and development partners pinned the cost for early recovery at an estimated $6.7bn, of which about 60% was to be borne by the government. The financial pledges of more than $4bn covered this. We were delighted by this success, but not totally surprised because we are aware of and deeply grateful for the vast reservoir of goodwill that the world has for Nepal. 

The nature of reconstruction needs and how long this will take vary by sector. The demands placed on the public and the private sectors are also distinct. For instance, the damages and losses in the housing sector are predominantly private, but the government is committed to sharing substantial reconstruction costs. The rebuilding of our heritage sites will also be a serious public undertaking with private and community participation in projects spread over several years. On the other hand, agriculture, commerce, manufacturing and tourism need immediate revival. 

We are absolutely clear, however, that Nepal is not going to graduate out of underdevelopment because of foreign aid alone. At best, this can be a catalyst. The ordinary process of development has to be pursued on the strength of economic reforms initiated and facilitated by the government to mobilise huge amounts of private capital, creativity and entrepreneurship. It needs an enabling climate for private sector investment in world-class infrastructure and production.

A three-pronged recovery 

In the forthcoming phase of recovery and reconstruction, we plan to pursue a three-pronged approach that I expect will help us forge a new understanding on the path ahead. 

First, a joint concern of both the government and our development partners in recent years has been the quality and pattern of public expenditure. We have been underspending on capital investment. To ensure that the same bureaucratic and political hurdles do not slow the urgent task of rebuilding, the government has announced the creation of the National Reconstruction Authority. It is an 'extra-ordinary mechanism' that is informed by international practices and grounded in past Nepali successes. It takes the form of a binding institutional commitment to instill confidence in a system built around efficiency, transparency and accountability. There will be a substantial role for scrutiny and shared responsibility assigned to our domestic civil society and international development partners. 

Second, social and economic sectors that have borne the brunt of income losses in the aftermath of the earthquakes need support. We have addressed aspects of this need in the recently announced budget for 2015-16. The government stands ready to respond to challenges with unconventional policy instruments, from steps to prevent contagion in the financial sector to incentives for business recovery aimed at revitalising enterprises. Nepal also plans to bring forth a policy to manage the country's labour shortage, including a large-scale programme aimed at improving skills. We will keep a close watch on the areas that are vulnerable economically, especially inflation. Overall, we will do nothing irresponsible that strains macro-prudential norms and disciplines. 

Third, the recently secured consensus among major political parties to promulgate a new constitution and hold elections for local government as early as possible is adding optimism to efforts aimed at restoring and increasing the speed of Nepal's economic growth. A reform push will continue so that the investment climate is friendlier. In the aftermath of the quakes, we saw a tremendous outpouring of goodwill towards Nepal. We will tap all emerging assets, including the spirit of volunteerism of our youth at home and abroad, and the creative sources of new-age philanthropy.   

We Nepalis are a resilient people. And this provides one of the strongest grounds for optimism regarding the future fortunes of our country. We are in no doubt about the enormity of the challenge we face. But with the right guidance from our democratically elected government, and continued support from our closest friends and partners, we can and will rise from the rubble. I am convinced that the bond of partnerships between the Nepali state, citizens at home and well-wishers from abroad will offer assurance to the people of Nepal that their best days are still ahead of them.

Ram Sharan Mahat is the finance minister of Nepal.

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