World Bank’s double standard in Nepal

Hartwig Schafer, the World Bank’s vice-president for the South Asia Region, was in Kathmandu to participate in the Nepal Investment Summit that was held on March 29-30. Schafer, in his speech, stressed “good governance” and “agriculture sector development” along with long list of prescriptions for achieving rapid economic growth in one of the world’s poorest countries, where more than two-thirds of the population relies on subsistence agriculture, and where that sector contributes one-third to the country’s gross domestic product. One of the reasons the country remains poor is that so much of its population relies on agriculture and that the production has to be distributed a large number of people.

The notion of “accountability” is one of the key Worldwide Good Governance Indicators in the World Bank’s literature. However, the Bank itself has been showing double standards in the case of Nepal. It has not been accountable for its operations despite the commitment made by the Bank’s leadership in various forums such as the Paris Declaration on aid effectiveness and the Busan Partnership Agreement for Effective Development Cooperation; on the contrary, it has always tried to hold Nepal accountable for Nepal’s promises.

In the aftermath of the balance-of-payments crisis in 1985, Nepal initiated a structural adjustment program prescribed by the World Bank and the International Monetary Fund as a condition of getting a Special Drawing Rights (SDR) loan to mitigate the crisis. After the restoration of democracy in 1990, the program continued in the name of economic liberalization, and after the 10th periodic plan (2002-2007) it was named a poverty reduction strategy paper (PRSP).

The WB and the IMF suggested that the services and industry sectors of Nepal, basically export-based industries, were leading sectors in terms of growth. The agricultural sector was denigrated as one not generating economic growth. Therefore, the WB and the IMF suggested that Nepal remove all types of agricultural subsidies. The government fulfilled such conditions and implemented the suggestion. As a result, Nepal’s agriculture productivity sharply declined on the one hand while on the other hand, the development of export-based industries stalled.

Further, the situation was aggravated when the competitive capacity of the Nepalese agriculture sector sharply declined as neighboring India and China continued subsidizing their agriculture sectors. As a result, their productivity, competitive positions and economies of scale also accelerated.

Before the removal of subsidies, Nepal was an exporter of agricultural commodities. Frederick H Gaige, in his 1975 book Regionalism and National Unity in Nepal, pointed out that Nepal was the third-largest rice-exporting country in the world in the 1960s. However, in the last fiscal year, Nepal imported more than 150 billion rupees’ (US$1.35 billion) worth of agricultural commodities, which was almost 16% of total imports, the central bank’s most recent report on the current macroeconomic situation suggests. The reason is that a large section of the Nepalese population abandoned agriculture as their main occupation. It was a ripple effect from high input prices and heavy competition, resulting in the need for higher investments, while the agricultural output remained low.

Agricultural products from India and China were available at much lower prices than those produced in Nepal. When agriculture-related input prices in Nepal are the highest in South Asia, how can Nepali farmers raise productivity in the absence of subsidies?

The story does not end there, as exports did not grow as the World Bank and IMF suggested but rather declined, and in every 100 rupees of foreign trade, 92 rupees is shared by import, and only 8 rupees is shared by export in the 2018 fiscal year, as determined by the Nepalese Finance Ministry’s Economic Survey.

The agriculture sector is the backbone of Nepal’s economy – something every college student in Nepal is aware of. After 26 years of failing to do so, the government again began marginally subsidizing the sector in 2010 after the World Bank, in its World Development Report of 2008, suggested that agriculture held the key to Nepal’s economic development and recommended the subsidy program.

But nearly three decades of trial and error clearly indicates that Nepal’s agriculture sector has been a policy football of the World Bank and the IMF. These institutions kicked the football from one goal to another, but they never scored a goal in either end. Instead, the football field itself got so severely damaged that it seems almost impossible to play such policy football any further.

If the World Bank is finally convinced that agriculture is the backbone of economic development in Nepal, then several questions arise. Are the World Bank’s and IMF’s policies not responsible for the decline of the agriculture sector in Nepal? Are these institutions not accountable for this? Should they not take responsibility and accountability for their past actions? Surely they need to compensate the country and repair the damage because accountability and integrity of institutions are interrelated everywhere. Unfortunately, the World Bank has neither compensated Nepal nor shown at least moral responsibility for its policy prescription failure. It has not fulfilled the commitments of mutual accountability made by its leaders in the international forum.

Accountability is an obligation or willingness to accept responsibility or to account for one’s actions, as the standard definition of the word suggests. In public affairs, it is an obligation to conduct public affairs responsibly and transparently.

The terms “transparency,” “accountability” and “responsibility” are strong words in development literature, concepts deemed necessary to get loans and grants from multilateral and bilateral donors and required to be practiced by the poor and developing countries only. But such terms have become little more than jargon that has lost a permanent shape, and only ambivalences of these terms remain in practice. Again, these words have become a fulfillment criterion imposed only on the debtor countries but not on the donor and creditor countries and institutions.

Additionally, accountability is an international intellectual division of labor. Its theories, concepts, and constructs are manufactured in the Western universities, and these are put in motion on a hit-or-miss trial basis. Nepalis supply information as primary data generators on accountability theories. And the very discourse produces opposite results.

The very term “accountability” is problematic: It is exploitative because it aims at maintaining the role of the donors in policymaking that badly hurts poor and vulnerable countries like Nepal and bolsters international creditors to sustain the exploitation and oppression of the poor countries. Therefore, it is time to write the obituary of “accountability” in Nepal – and elsewhere, too.