September 25, 2010
According to the latest Economic Freedom of the World Report, Nepal limped to the finish line at 121st among 141 countries. Its 17th-from-the-bottom placement was lower than last year’s survey and, except for Myanmar, was the lowest in South Asia.
The Fraser Institute, which pens the annual report, is a fiscally conservative think tank based in Canada that espouses free market principles. Its stated mandate is to advocate for freedom and competitive markets and is not without its detractors. However, the report was made with the cooperation of independent institutes based in 80 different nations and territories and the criteria used seem transparent enough.
Criteria for the Economic Freedom of the World Index
1. Size of Government: Expenditures, Taxes, and Enterprises
A. General government consumption spending as a percentage of total consumption
B. Transfers and subsidies as a percentage of GDP
C. Government enterprises and investment
D. Top marginal tax rate
i. Top marginal income tax rate
ii. Top marginal income and payroll tax rates
2. Legal Structure and Security of Property Rights
A. Judicial independence
B. Impartial courts
C. Protection of property rights
D. Military interference in rule of law and the political process
E. Integrity of the legal system
F. Legal enforcement of contracts
G. Regulatory restrictions on the sale of real property
3. Access to Sound Money
A. Money growth
B. Standard deviation of inflation
C. Inflation: Most recent year
D. Freedom to own foreign currency bank accounts
4. Freedom to Trade Internationally
A. Taxed on international trade
B. Regulatory trade barriers
C. Size of trade sector relative to expected
D. Black-market exchange rates
E. International capital market controls
i. Foreign ownership/investment restrictions
ii. Capital controls
5. Regulation of Credit, Labor, and Business
A. Credit market regulations
i. Ownership of banks
ii. Foreign bank competition
iii. Private sector credit
iv. Interest rage controls/negative real interest rates
B. Labor market regulations
i. Hiring regulations and minimum wage
ii. Hiring and firing regulations
iii. Centralized collective bargaining
iv. Hours regulations
v. Mandated cost of worker dismissal
vi. Conscription
C. Business regulations
i. Price controls
ii. Administrative requirements
iii. Bureaucracy costs
iv. Starting a business
v. Extra payments/bribes
vi. Licensing restrictions
vii. Cost of tax compliance
Other Economic Indicators announced this week
China tops India in joint ventures with Nepal
For the second consecutive year, China has edged out India in creating joint venture (JV) projects in Nepal. Government figures reveal that, during 2009-10, Chinese investors registered 58 JV projects – almost twice the number from the year before.
Maoists targeting hydropower projects by Indian firms and the latest tussle between Dabur Nepal and Kantipur -- Nepal’s biggest media group – are indications that Indian JVs haven't had a smooth run in Nepal in recent years.
Indeed, former Indian ambassador to Nepal KV Rajan recently opined in Hindustani Times that Indian businesses are suffering due to the recent rise in anti-India feelings and that future investments in Nepal will likely be significantly affected by this growing hostility.
The Chinese, on the other hand, are not plagued by Nepali ill will. Last week, the Federation of Nepalese Chambers of Commerce and Industry signed a Memorandum Of Understanding with All China Federation of Industry and Commerce to further boost investments.
US Aid substantially increased
The United States government, through the U.S. Agency for International Development (USAID), recently amended its five-year agreement with the Government of Nepal to increase the total expected amount of the agreement by $111.5 million. This brings the U.S. Government's total five-year (2009-2014) development assistance in Nepal to $316.5 million, the US embassy in Kathmandu announced yesterday.
The funding provided for 2010 is $47.7 million.
The additional funds will be used to implement and achieve the objectives of the three new initiatives announced by President Obama, addressing global hunger and food security, health, and climate change..
Other on-going USAID programs in Nepal: support the peace process; strengthen democratic institutions and processes; improve governance and rule of law; provide training and education for youth employment; support early childhood education; fight trafficking in persons; provide sustainable, accessible, and quality basic health services; and enhance competitiveness in targeted economic sub-sectors and promote inclusive economic growth.
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