Gloomy Economy Amidst Recovery in Nepal
Prof Hari Bansh Jha

After COVID-19, certain signs of economic recovery are being visualised in Nepal. The rate of economic growth that was merely 1.9 per cent a year ago in 2023 is almost set to rebound to 3.3 per cent in the current fiscal year 2023-24. As per the Nepal Living Standard Survey 2022-23, poverty in Nepal dropped from 25 per cent in 2011 to 3.6 per cent in 2023. With this development, there has been a reduction in the prosperity gap and inequality among different sections of society. On top of this, the country is likely to graduate from the least developing countries (LDCs) category by 2026.

Also, the country had a surplus balance of payments amounting to INR. 147.11 billion during the first four months of the current fiscal year 2023-24. During the same period, the Foreign Direct Investment commitment increased to INR. 13.08 billion. The foreign currency reserve of the country shot up by 10.2 per cent to INR. 1,060.48 billion, which is now enough to cover the imports of the country for 13.6 months. Consumer price inflation has been tamed to about 5 5 per cent, which until a ye ar ago was 7.44 per cent. Over and above, the country has not only achieved self-sufficiency in the production of core items like cement and hydropower, but it has also started exporting them to other countries.

However, of the 171 countries of the world with whom Nepal conducts trade, it manages to have a trade surplus with only 38 countries. The country has a trade deficit with over 133 countries mainly because it has very limited surplus production of goods. With India, which happens to be Nepal’s largest trade partner the trade deficit has exceeded by INR 575.72 billion. On the other side, the country has a trade deficit of INR 137.65 billion with China. The most pathetic scene in the trade sector is that Nepal imported goods worth INR 85.62 billion in the last month, but it exported goods merely to the tune of INR 71.21 billion in the last nine months. Thus, Nepal’s nine months of exports is even less than one month of imports.

Over 70 per cent of the government’s budget is spent merely on managing salary allowances, social security, financial transfers, debt repayment and administrative expenses. The growth of the agricultural sector which is the backbone of the Nepalese economy has receded partly due to the outbreak of lumpy skin disease among livestock and partly due to the decline in paddy production in the country. This is also one of the factors why the price of most essential food items, including rice, sugar, lentils and edible oil have shot up unprecedentedly in the market adding to the miseries of the common people.

During the Nepal Investment Summit held on April 28-29, the government of Nepal tried to woo 148 potential investors to invest in projects worth INR 562.5 billion. Most of these projects, including the 1,216 MW Khimti project were related to the hydro sector. However, the political uncertainty on the one hand and recurrent corruption scams on the other have badly affected the investment environment.

The Birgunj Customs Office which collects substantial revenue for the state has been able to collect only 60 per cent of the revenue as compared to the target during the first nine months of the current fiscal year 2023-24. Reports are that the Nepal Stock Exchange has also fallen below 2,000 points and together with this there has been a perceptible fall in the turnover to INR 1.31 billion.

Fear looms large that Nepal could substantially lose its remittance earnings from the Gulf countries if the war between Israel and Iran escalates further. The remittance inflow in the country amounted to $9.33 billion in 2023-24, which was a record in itself. Almost 1,200 to 1,500 Nepalese make their destinations to the Gulf countries for jobs every day. The Middle East employs almost half of Nepal’s total migrant workers. Qatar alone hosts 133,262 Nepalese workers, which is followed by UAE (116,160), Saudi Arabia (112,777), Kuwait (43,508), Bahrain (7,690), Oman (5,294), and Jordan (1,019). Over and above, Israel also hosts 1,084 workers. Since Nepal largely depends on remittance earnings, tensions in the Middle East ring an alarming bell for Nepal.

What is still more worrisome is the erosion of business confidence in the country. Despite the reduction in the interest rates on the loans, banks and financial institutions have not been able to increase their lending. This has been affecting investment in the private sector which contributes almost 80 per cent of the country’s GDP and generates 86 per cent of employment opportunities.

In several parts of the country, industries are even finding it difficult to survive. Many industries are either closed or are on the verge of getting closed mainly due to the lack of demand for goods in the market. In Banke district, for example, 265 cottage and small industries have been closed in the last nine months of the current fiscal year 2023-24. Addressing the 21st annual general meeting of the Confederation of Nepalese Industries, Rajesh Kumar Agrawal said, “Though the external sector has improved, domestic activities have failed to recover. The banking system has billions of rupees piled up. This shows a lack of investment. Demand has slowed down in the market. Entrepreneurs are worried. The industrial production capacity has shrunk to 40 per cent.”

Despite such favourable conditions as an increase in foreign exchange reserve, higher liquidity in the financial system, and lower interest rates, the overall economic condition of the country is gloomy. Youths are getting frustrated and leaving the country for jobs in different parts of the world. However, no institution seems to be serious in addressing the burning economic challenges the country is facing today. Before the situation goes out of control, the economic system needs to be restructured in a way that business confidence is re-built, legal and regulatory ambiguities are removed, political stability is restored, domestic production of goods and services is increased, and employment opportunities are generated to check the mass exodus of youths from the country.

(The paper is the author’s individual scholastic articulation. The author certifies that the article/paper is original in content, unpublished and it has not been submitted for publication/web upload elsewhere, and that the facts and figures quoted are duly referenced, as needed, and are believed to be correct). (The paper does not necessarily represent the organisational stance... More >>


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