Nepali Times
Nepal's fiscal cliff in 2013


When the Nepal Investment Year was announced last year this time, the Federation of Nepalese Chambers of Commerce and Industries announced that if Nepal's economy was to grow by 8 per cent a year, up to 40 per cent of the GDP must be invested into businesses. This meant that the country needed to attract foreign direct investment from abroad. One year on, there has hardly been any new FDI, and even the existing investors are on the verge of packing up to leave.

Now, there is another crisis that could shut out all investment for good. Nepal faces the risk of being permanently blacklisted from all international financial transactions and join the ranks of pariah states like North Korea and Iran if it fails to ratify an anti-money laundering and terrorism convention.

In February 2012, Nepal narrowly escaped being blacklisted by the Financial Action Task Force. In June, the FATF again extended its deadline for Nepal after the President approved two crucial bills, the Mutual Legal Assistance Act and the Extradition Treaty Act through ordinances after the government tabled them at the eleventh hour. But the anti-money laundering and terrorism parts of the package were not passed because of opposition from some Madhesi and Maoist members of the coalition government.

When the Nepali team travels to Paris in January for a face to face meeting with the FATF, they will be informed of the commitments they must fulfil so that the FATF plenary that sits in February will not decide to blacklist Nepal for failing to make progress on its commitments.

The FATF wants the country to 'adequately criminalise money laundering and terrorist financing, establish and implement adequate procedures to identify and freeze terrorist assets, and implement adequate procedures for confiscation of funds related to money laundering'.

In other words, Nepal must amend the Anti-Money Laundering Act before the deadline in June 2013. Also, a meeting of the FATF in October concluded that it was concerned about Nepal's dillydallying over the Bill Against Organised Crime. Members of the ruling coalition seem to lack the political will to push through with the bills because they are afraid that their own cross-border dealings will be exposed.

However, the consequences of being blacklisted will be dire for Nepal's economy which is dependent on international remittances and tourism. The few investors who remain would leave, imports would suffer as international banks refuse to honour Nepali letters of credit, exports would become more expensive, and international money transfers would be affected.

"A country like ours cannot afford to disengage from the international economy and go rogue," says Sidhant Raj Pandey, CEO of Ace Development Bank. "It would be a grave move, and the private sector would be the first casualty should we be blacklisted."

It would also mean that international banks could block the accounts of Nepali diplomatic missions, just like Citibank which closed the accounts of Nepali missions in Washington and New York. Foreign donors could impose more stringent conditions for aid and grants, once the country is blacklisted.

Baikuntha Aryal, joint-secretary at the Ministry of Finance told Nepali Times that the ministry was working hard to make sure Nepal fulfills its ogligations before the deadlines pass.

"We have been lobbying the government across all levels to convince them that Nepal has nothing to gain from not abiding to international commitments," said Aryal. "Once we meet the FATF officials in January, we will be clearer about our positiong."

This year, the bills were opposed by some Maoist leaders who claimed it was against Nepal's 'national interest' to ratify such legislation. Later, the opposition joined in the bandwagon, saying the caretaker government had no mandate to table the bills and urged the President not to approve them.

Now, as the parties run circles around each other in search of political consensus to form an electoral government, Nepal's other equally pressing need id likely to be neglected until the last hour.

Read also:
Investing in the future, PUJA TANDON
Nepal needs a definitive economic agenda in the new year, and urgent action not to be an international pariah

See also:
Get on with it, PAAVAN MATHEMA
What could be more 'anti-national' than holding the country's economy hostage?

In our obsession with the constitution, let's not forget the other deadline Nepal has to meet

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(11 JAN 2013 - 17 JAN 2013)