Trade policy reforms for the twenty-first century : the case of Nepal (Anglais)
Résumé
This report examines how Nepal could move away from a remittance-driven growth model by reforming its trade policies to increase competitiveness. In Nepal, remittances are a key source of income of foreign exchange. They help alleviate financial constraints...
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This report examines how Nepal could move away from a remittance-driven growth model by reforming its trade policies to increase competitiveness. In Nepal, remittances are a key source of income of foreign exchange. They help alleviate financial constraints of households, lifting many out of poverty. However, from a macroeconomic perspective, remittances also contribute to large trade deficits, and to an appreciation of the real exchange rate (World Bank, 2016). Remittances put upward pressure on the prices of non tradable goods, and with a nominal exchange rate that is pegged to the Indian rupee, the result is an appreciation of the real exchange rate. In turn, the appreciation of the real exchange rate favors imports, and biases against exports by making domestic goods uncompetitive. This report proposes several trade policy reforms aimed at increasing competitiveness to break this vicious cycle. The report examines the extent to which Nepal has been tapping into its trade potentials, the underlying obstacles that it faces, and the type of policy reforms that could turn trade and investment into a vehicle for growth. Five key messages emerge from the analysis. First, Nepalese exporters remain small, and struggle with increasing their shipments once they enter a new market, rather than with the fixed cost associated with entering. This is essentially due to severe supply-side constraints that affect their trade and production costs. Second, Nepalese firms under utilize existing trade agreements and granted trade preferences. Third, diversification opportunities lie in fast-growing economies in East Asia and the Pacific. Efforts regarding connectivity, trade facilitation and export intelligence could help firms get to those markets. Fourth, to reduce the anti-export bias of its trade policy infrastructure, Nepal needs to simplify its tariff code, reduce tariffs on crucial intermediates, and embrace deeper integration, starting with more openness to services and investment. Fifth, trade reforms in Nepal are welfare enhancing on average, and pro-poor. The report is structured in two sections. The first one identifies unexploited trade potentials and assesses the extent to which Nepalese firms have been profiting from regional integration initiatives, and from granted trade preferences.The second section examines alternative scenarios for tariff reforms that would substantially improve the import-to-export environment, taking the fiscal restriction very seriously. It analyzes avenues to simplify its tariff code and reduce its anti-export bias and estimates the fiscal revenue cost. Section III considers fully exploiting trade potentials. The first part of the section uses a gravity-founded framework to identify potentials, and identifies whether under performance is explained due to challenges to diversify or challenges to increase shipments in existing destinations. It looks at patterns of trade and trade commentaries by region and trading bloc. Then, it assesses the extent to which Nepal benefits and uses existing trade agreements and trade preferences. Finally, it looks at how Nepal can benefit from moving to deeper integration schemes, particularly by further integrating with respect to investments and services trade. Section IV looks at improving the import-to-export environment. The first part of the section presents international evidence on the importance of trade policy reforms for competitiveness. Then, it carefully estimates the trade and tax impact of five alternative tariff reforms and presents a proposal for medium- and short-term changes, as well as alternatives to recouping potential tariff revenue losses.
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