p8fg z}lIfs s]Gb|

lqrGb| sn]h glhs sf7df08f} )!–%(!*)$@  ltns l;+x dx/f ;/

Challenges of Economic Development
Meaning of Economic Development
Economic development is a multifaceted and multidimensional process that brings favorable structural changes in
the economy along with economic growth, improving the socio-economic conditions and the living standards of
common citizens. Economic development includes an improvement in the material well-being of the poorer
population, a decline in agriculture's share of GDP and a corresponding increase in the GDP share of industry and
services, an increase in the education and skills of the labor force, and substantial technical advances originate
within the country. Thus, development is a broad concept and it encompasses not only economic growth but also
social, political, scientific, technical, cultural, and religious overall development.
According to M.P. Todaro, economic development is defined in terms of the reduction of poverty, inequality, and
unemployment within the context of a growing economy.
Amartya Sen defined economic development as the key idea of development is the enhancement of an individual's
abilities to shape their life.
According to Joseph Stiglitz, development is now seen as a transformation of society, a move from the old way of
thinking, and old forms of social and economic organizations to new ones.
Economic Structure of Nepal
The Nepalese economy can be kept under the category of developing economy with a mixed economic system.
Agriculture has been a significant sector, employing a significant portion of the population and contributing to the
country's production. The service sector, including tourism, is another important contributor to the GDP of Nepal.
The industrial and manufacturing sector has not been able to significantly contribute to the economy. Remittances
from migrants, specifically in countries like India, the Gulf countries, and Malaysia, have been playing a crucial
role in Nepal's economy. Thus, the long-term and 16th plans envision for change in the structure of the Nepalese
economy is presented below.
 It is envisaged that the primary sector, which contributed 24.6 percent to the GDP in the base year of the
current 16th Plan, will drop to 21.5 percent by the end of the plan and this share will be limited to 9 percent
by the year 2100.
 Similarly, it is estimated that the contribution of the secondary sector, which was 12.5 percent in the base
year of the 16th plan, will increase to 15.2 percent by the end of the plan and 30 percent by the year 2100.
 It is estimated that the contribution of the tertiary sector will increase from 62.9 percent in the base year of
the 16th Plan to 63.4 percent by the end of the plan and 61 percent by the year 2100.
Thus, in the document of the 16th plan, by 2100 B.S., it is envisioned that the large manpower of the agricultural
sector will be transferred to the industry and service sector and the expansion of the industry and service sector
will lead to extensive structural changes in the economy.
Development Challenges
Challenges of the Nepalese Economy
The key challenges that different sectors of the Nepalese economy have been facing are listed below.
Real Sector Challenges
 Promoting volatile, narrow, and low economic growth through optimum use of labor, capital, technology,
and available resources

उडान शैक्षिक के न्द्र लोक सेवा /क्षशिक सेवा तयारी), घण्टाघर नक्षिक, काठमाण्डौ, फोन नं. ०१२४१८०९५–, ४८६९५४८०९५, ४८६२३७२८०२
p8fg z}lIfs s]Gb|
lqrGb| sn]h glhs sf7df08f} )!–%(!*)$@  ltns l;+x dx/f ;/
 Making traditional agriculture professional, and modern through the availability of quality agriculture
inputs and infrastructures
 Alleviating poverty by ensuring profitable and sustainable jobs within the economy
 Promotion of a sense of entrepreneurship and initiation by linking education with skill and skill with
production in the economy
 Keeping inflation within the set threshold in enlarging internal capacity
 Increasing the supply of quality goods and services by an increase in the use of new technology,
productivity, and strategic infrastructures.
Public Finance Sector-Related Challenges
 Continues to struggle with low revenue collection compared to expenditure needs
 Proper management of increasing budget deficit and increasing debt accumulation
 The accumulation of public debt has been a concern
 Increase in volume and quality of capital expenditure by controlling unproductive expenses
 Inefficiencies in public spending, including misallocation of resources, corruption, and lack of transparency
 Relies heavily on foreign aid and grants to finance a significant portion of the budget
 Inability to strengthen public financial management systems, including budget execution, financial
reporting, and auditing
 Funding constraints and issues with infrastructure project implementation
 The inability to have a more diversified tax system
 The challenge in addressing regional disparities in public finance allocation
Monetary and Financial Sector Challenges
 Developing the financial sector by ensuring a required degree of financial access, financial inclusion,
financial literacy, and developed banking habits
 Increasing the public confidence in banks and the financial system of the nation by controlling unhealthy
competition, urban-oriented operations, and profit-oriented operations.
 Enhancing institutional good governance and professionalism by effectively inspecting and monitoring
banks and financial institutions
 Ensuring productive allocation of credit and financial resources rather than focusing only on volume of
credit
 Achieving balanced development by effectively implementing loans to the private sector, refinance
facilities, sectoral loans to be provided by commercial banks, etc.
 Developing an effective foreign exchange market by controlling illegal foreign exchange transactions.
 Keeping non-monetary and supply-side inflation within desired limits and maintaining stability
 Maintaining a strong balance of payment position by controlling increasing imports
 Maintaining interest rate stability and strengthening governance in the financial sector
 Diversification of sources of foreign exchange earnings and their investment
 Monetizing of rural barter economy and formalizing informal economic activities
 Enabling financial and monetary sectors to cope with external shocks
External Sector-Related Challenges
 Narrowing the trade deficits and expanding the export base of the nation
 Maintaining and increasing the volume of remittance

उडान शैक्षिक के न्द्र लोक सेवा /क्षशिक सेवा तयारी), घण्टाघर नक्षिक, काठमाण्डौ, फोन नं. ०१२४१८०९५–, ४८६९५४८०९५, ४८६२३७२८०२
p8fg z}lIfs s]Gb|
lqrGb| sn]h glhs sf7df08f} )!–%(!*)$@  ltns l;+x dx/f ;/
 Ensuring the continued availability of foreign resources that have been significant for financing the
development budget of the nation
 Diversification of external trade in terms of countries and commodities
 Export diversification and ensuring the export of products other than primary products
 Management of external debt burden and ensuring its sustainability
 Increasing the ability of the nation to manage exchange rate volatility
 Handling the issues associated with geopolitics and ensuring favorable economic implications
 Challenge to build an economy that can cope with vulnerable to global economic shocks
[Readers can write the points of current issues and challenges in the economy of Nepal presented in facets of the
Nepalese economy as challenges of economic development of Nepal also]
Measures to Overcome Existing Challenges
The following measures can be adopted to overcome existing challenges in different sectors of the economy.
 Optimum mobilization of internal resources through control of revenue leakage, formalization of the
informal economy, expansion of the tax base, control of unnecessary and wasteful expenditure, and
digitalization.
 Emphasis on industrial production, increasing productivity through commercialization and modernization
of agriculture, reducing production costs, focusing on quality products, production of comparatively
advantageous products and trade diversification, and reduction in gradually increasing trade deficit through
import substitution and export promotion need to be followed.
 Necessary arrangements should be made to provide energy to industrial and commercial activities at
affordable prices and to give priority to the export of energy by solving the problem of the energy sector
which is the direct concern of the people and the backbone of economic development.
 To maintain a favorable balance of payments, foreign aid must be mobilized in the productive sector, and
foreign direct investment must be increased in areas and areas of national interest.
 Corona's impact should be offset by increased public and private investment in areas such as tourism,
transportation, hotels and restaurants, real estate and business services, education, health, and other social
services.
 Regulation, monitoring, and increasing public confidence in the cooperative sector, which is an important
pillar of the economy, should increase its contribution to the economy.
 Financial access should be increased by bringing stability to the financial sector. The regulation and
monitoring of this sector should be made effective, and the basis should be laid to ensure the security of
depositors' deposits and private sector investment.
 The fluctuations in food and non-food prices should be kept within certain limits. For this, emphasis should
be laid on production, and alternatives to petroleum products should be explored as much as possible.
 The effectiveness of government expenditure should be increased by increasing capital expenditure,
construction of physical infrastructure within the stipulated time and cost, quality of construction, and
linking it with economic activities.
 Public enterprises that are sick, closed, and not necessary for the government to operate should be operated
and managed.
 An investment-friendly environment must be created to encourage the private sector to rise above the small,
narrow family circle and develop into an institutional group that can compete globally.
 Investment and employment opportunities should be created in the country by stopping capital flight and
manpower flights.
उडान शैक्षिक के न्द्र लोक सेवा /क्षशिक सेवा तयारी), घण्टाघर नक्षिक, काठमाण्डौ, फोन नं. ०१२४१८०९५–, ४८६९५४८०९५, ४८६२३७२८०२
p8fg z}lIfs s]Gb|
lqrGb| sn]h glhs sf7df08f} )!–%(!*)$@  ltns l;+x dx/f ;/
 Unhealthy competition and imperfections existing in the market should be removed as quickly as possible
to increase the welfare of all the participants.
 Policies that are formulated for industrial development and expansion of foreign trade such as commercial
policy and industrial policy should be implemented strongly.
 To reduce the growing trade deficit, adjust the balance of payments, and increase the foreign exchange
reserves, goods, and services should be produced within the country on an immediate, medium, and long-
term import substitution basis and available resources should be mobilized accordingly.
 Those who have gone for foreign employment should be facilitated through banks and financial institutions
and the remittance income should be channeled directly through the banking channel by encouraging them
through various schemes.
Differences between Growth and Development
Economic growth and development are related issues but fundamentally both are different from one another.
Economic growth refers to a continuous increase in the real output of the nation and economic development refers
to positive, quantitative, and qualitative growth in the economies of developing nations. Thus, development is a
broader concept than growth.
The key differences between growth and development are presented in the following table.
Basis Economic Growth Economic Development
Meaning Economic growth is the continuous Economic development refers to the
increase in national income or gross continuous increase in GDP plus
domestic product (GDP) structural changes in the economy.
Objective The objective of economic growth is The main objectives of economic
to increase the pace of economic development are to ensure the equitable
prosperity. distribution of income, wealth, resources,
and opportunities and to reduce poverty.
Concern The concept of economic growth is The concept of economic development is
generally concerned with the concerned with the economic progress of
economic progress of developed underdeveloped and developing
countries. companies.
Effect The effect of economic growth can The measurement of the effect of
be easily measured. economic development requires a long
period.
Scope It is a narrow concept since it is It is based on a broad concept since it is
based on the concept of an increase related to every sector of the economy.
in the real output of a particular
sector.
Indicators Per capita income, Gross National Basic need fulfillment, Physical quality
Income, etc. are considered of life index (PQLI), Human
indicators of economic growth. development index (HDI), etc. are major
indicators of economic development.
Measurement Economic growth is measurable It is almost impossible to measure
quantitatively in a unit since it quantitatively since it also includes the
includes economic variables such as social, cultural, and political aspects of
Capital Output Ratio, Balance of the society including economic variables.
Trade, Balance of Payment, etc.

Measurement of Economic Growth and Development

उडान शैक्षिक के न्द्र लोक सेवा /क्षशिक सेवा तयारी), घण्टाघर नक्षिक, काठमाण्डौ, फोन नं. ०१२४१८०९५–, ४८६९५४८०९५, ४८६२३७२८०२
p8fg z}lIfs s]Gb|
lqrGb| sn]h glhs sf7df08f} )!–%(!*)$@  ltns l;+x dx/f ;/
Economic growth can easily be measured as it is a quantitative term and it is simply the rate of change in the value
of real GDP over a particular year. Thus, it can be measured by using the following formula.

Change in Real GDP

Economic Growth = × 100
Initial Real GDP

For example, if the real GDP in the year 2020 was Rs. 4500 and it was increased to Rs. 4600 in 2021 then the
economic growth rate of the year 2021 can be measured below.

Economic growth rate = (Change in Real GDP in 2021/Real GDP of 2020) ×100= (100/4500) ×100= 2.22%

On the other side, economic development is not a quantitative term and there is no particular index or formula to
compute its magnitude. Since it also involves qualitative changes in human life unlike economic growth, it is not
easy to compute. However, economists have used different indicators and indices to compute the level of economic
development. Thus, the measurement of the following indicators shows the level of development of a nation.

 Per Capita Income Index: It is the measure of the per capita income of the nation.
 Basic Human Needs: It is an observation of whether or not the nation has fulfilled its basic needs.
 Human Development Index (HDI): It is the widely used indicator to measure the development of the nation.
It is a composite index measured by considering the health, education, and income dimensions of human
life.
 Observation of market structure: It is the process of testing the market to increase the overall well-being
and welfare of common people.
 Gross happiness index: This is an index related to the measurement of collective happiness of the people.
 Financial development index: It shows the status of development of the financial sector of a country and it
is constructed of several factors associated.

Sources of Economic Growth and Development

Economic growth is the steady increase in the production of goods and services in an economy. Economic growth
can be measured in terms of an increase in real GDP or GNP over time or an increase in real per capita GNI. High
economic growth depends upon the quantity and quality of inputs of production, availability of transportation and
communication facilities, technological advancement, change in attitude and establishment of learning behavior,
proper provision of health and education, the establishment of key industries, the prevalence of political stability,
and so on. Economic growth is the function of several factors including economic as well as non-economic factors.
The major economic, as well as non-economic factors affecting economic growth, are listed below.

Economic Factors

 Availability and Use of Natural Resources

 Capital Accumulation
 Technological Progress
 Labor Force Growth/Human Capital
 Size of Population and Its Growth

Non-Economic Factors

 Political Factors
उडान शैक्षिक के न्द्र लोक सेवा /क्षशिक सेवा तयारी), घण्टाघर नक्षिक, काठमाण्डौ, फोन नं. ०१२४१८०९५–, ४८६९५४८०९५, ४८६२३७२८०२
p8fg z}lIfs s]Gb|
lqrGb| sn]h glhs sf7df08f} )!–%(!*)$@  ltns l;+x dx/f ;/
 Social and Psychological Factors
 Education
 Urbanization
 Religious Factors

Economic growth requires a sustained increase in real output over time but economic development requires
structural changes in the economy along with a continuous increase in real output. Once higher and sustained
economic growth can be achieved the basis of economic development is created. Since economic growth has been
a necessary condition for development, if a country can achieve higher economic growth through the mentioned
sources, the journey of economic development can be initiated.

उडान शैक्षिक के न्द्र लोक सेवा /क्षशिक सेवा तयारी), घण्टाघर नक्षिक, काठमाण्डौ, फोन नं. ०१२४१८०९५–, ४८६९५४८०९५, ४८६२३७२८०२