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Nepal: Economic Freedom Score

Nepal has experienced little improvement in economic freedom over time. Its 2014 economic freedom score of 50.1 ranks it 149th in the world and 34th among countries in the Asia-Pacific region. Political instability and corruption continue to undermine property rights and deter investment. State involvement in the economy remains high through subsidies and ownership of key industries. Further reforms are needed to improve transparency, reduce red tape, and strengthen the rule of law to boost economic opportunity.

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Mohammad Jibran Changi
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67 views

Nepal: Economic Freedom Score

Nepal has experienced little improvement in economic freedom over time. Its 2014 economic freedom score of 50.1 ranks it 149th in the world and 34th among countries in the Asia-Pacific region. Political instability and corruption continue to undermine property rights and deter investment. State involvement in the economy remains high through subsidies and ownership of key industries. Further reforms are needed to improve transparency, reduce red tape, and strengthen the rule of law to boost economic opportunity.

Uploaded by

Mohammad Jibran Changi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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NEPAL

Economic Freedom Score


25

World Rank:

149

Regional Rank:

34

Least
free 0

epals economic freedom score is 50.1, making its economy


N
the 149th freest in the 2014 Index. Its score has decreased
by 0.3 point since last year, with modest improvements in

50

75
Most

100 free

50.1

Freedom Trend
54

business freedom, monetary freedom, and the control of


government spending outweighed by declines in investment
freedom and freedom from corruption. Nepal is ranked 34th
out of 42 countries in the AsiaPacific region, and its score
remains far below world and regional averages.

Nepal was first graded in the 1996 Index, and its economic
freedom score since then has been largely stagnant, declining
overall by less than half a point. Improvements in four of the
10 economic freedoms, including freedom from corruption,
business freedom, monetary freedom, and trade freedom,
have been more than offset by deterioration in other areas,
particularly a 25-point decrease in investment freedom. Considered a mostly unfree economy throughout its history in
the Index, Nepal achieved its highest score in 2007.
Overall, a statist approach to economic management and
development is a serious drag on business activity. A lack of
transparency, corruption, and a burdensome approval process
impede much-needed private investment and production.
Property rights are undermined by the inefficient judicial
system, which is subject to substantial corruption and political influence.
BACKGROUND: Seven years after the end of a Maoist insurgency and abolition of the monarchy, political instability continues to plague Nepal. In May 2012, interim Prime Minister
Baburam Bhattarai dissolved the Constituent Assembly after
the political parties failed to meet a deadline to form a new
constitution. Elections scheduled for November 2012 were
postponed. The reintegration of former Maoist fighters into
the national army remains a controversial issue. Nepal is
among the worlds poorest and least developed countries and
benefits from very little foreign direct investment. The main
industry is agriculture, which accounts for one-third of GDP.

How Do We Measure Economic Freedom?

See page 471 for an explanation of the methodology


or visit the Index Web site at heritage.org/index.

53
52
51
50
49

2010

2011

2012

2013

2014

Country Comparisons
50.1

Country
World
Average

60.3

Regional
Average

58.5

Free
Economies

84.1
0

20

40

60

80

100

Quick Facts
Population: 31.0 million
GDP (PPP): $40.6 billion
4.6% growth in 2012
5-year compound annual growth 4.8%
$1,308 per capita
Unemployment: n/a
Inflation (CPI): 8.3%
FDI Inflow: $92.0 million
Public Debt: 33.1% of GDP
2012 data unless otherwise noted.
Data compiled as of September 2013.

329

NEPAL (continued)
THE TEN ECONOMIC FREEDOMS
Score

RULE OF
LAW

Country

World Average

Property Rights 30.0


Freedom from Corruption 21.3
0

20

40

60

80

Rank

1Year
Change

93rd
154th

0
0.7

100

Corruption is endemic in politics and government. Many members of the legislature have been
accused or convicted of corruption in the past, but high-level officials are rarely prosecuted.
Graft is particularly prevalent in the judiciary, with frequent payoffs to judges for favorable
rulings, and in the police force, which has been accused of extensive involvement in organized
crime. Protections for property rights are not enforced effectively.
Fiscal Freedom 85.9
GOVERNMENT
Government Spending 89.6
SIZE

47th
15th
0

20

40

60

80

+0.1
+0.4

100

The top individual income and corporate tax rates are 25 percent. Other taxes include a valueadded tax (VAT) and a property tax. The overall tax burden is 12.6 percent of gross domestic
income. Government expenditures are steady at around 19 percent of GDP. Public debt is about
33 percent of the domestic economy. The governments ability to produce a budget has come
into question because of political instability.

REGULATORY
EFFICIENCY

Business Freedom 58.5


Labor Freedom 43.8
Monetary Freedom 76.3

121st
160th
81st
0

20

40

60

80

+1.3
0.5
+1.2

100

Bureaucracy and a lack of transparency often make business formation and operation costly
and burdensome. Business start-up is now more streamlined, but obtaining necessary licenses
continues to be time-consuming. Labor regulations are rigid, and restrictions on work hours
remain stringent. The government provides extensive subsidies to the state-owned electricity
and oil companies.

OPEN
MARKETS

Trade Freedom 61.0


Investment Freedom 5.0
Financial Freedom 30.0

157th
174th
132nd
0

20

40

60

80

+0.2
5.0
0

100

Nepals average tariff rate is 12 percent. Tariffs are a significant source of government revenue. Consumers are not allowed to import used products. Foreign investors face government
screening and a challenging economic environment. The financial sector remains fragmented,
and government ownership and influence in the allocation of credit remain substantial.

Long-Term Score Change (since 1996)


RULE OF LAW
Property Rights
Freedom from
Corruption

330

0
+11.3

GOVERNMENT
SIZE
Fiscal Freedom
Government
Spending

0.5
1.7

REGULATORY
EFFICIENCY
Business Freedom
Labor Freedom
Monetary Freedom

2014 Index of Economic Freedom

OPEN MARKETS
+3.5
3.6
+9.3

Trade Freedom
+7.8
Investment Freedom 25.0
Financial Freedom
0

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