How Nepal should plan to exit lockdown

With the COVID-19 lockdown officially ending 27 April, the government is expected to extend it but announce a partial easing of restrictions with strict guidelines on movement.

Although Nepal was the first South Asian country to clamp a stay-at-home order on 24 March, movement for essential services has been allowed. However, with the number of confirmed cases still relatively low, there is pressure on the government balance saving lives with saving livelihoods.

“A lockdown does not mean the country should be handcuffed, there should be a benchmark to stop the infection from spreading, but allow industrial and construction activity in areas where no infections have been detected,” says economist Biswo Poudel.

Even if the lockdown is lifted, Nepal is headed for a serious economic contraction, with the growth rate estimated to fall to less than 2% from the projected 7% in the coming fiscal year. Most hydropower and infrastructure projects have been indefinitely suspended, there is already a reduction on remittances and revenue collection, tourism has been wiped out, and livelihoods compromised.

Another economist Maniklal Shrestha agrees: “The impact of a prolonged lockdown on the economy will be devastating, the government should immediately start thinking about a restricted re-opening of industries and infrastructure projects maintaining a balance between public health and economic revival.”

He adds that this would result in jobs and production, which in turn will raise market demand for goods and services, and set the stage for an overall economic upturn.

With food production hampered by an inability to access markets and raw materials and with produce lying waste in the fields, economists like former Finance Secretary Rameshwor Khanal have encouraged the government to create an investment-friendly environment by reducing interest rates and promoting capital investment and expenditure.

Khanal believes that the government must pull all stops to ensure that the circular flow of money supply takes its normal course, as the World Bank estimates that the economy may take up to three years to return to pre-lockdown levels.

“It is possible to revive industries by reducing interest rates on the formal sector. Lower interest rates would reduce the cost of finance and allow businesses to restore their balance sheets,” Khanal explains.

Despite the current situation, construction on Melamchi Drinking Water, Upper Tama Kosi and Bhairawa and Pokhara airports have continued under supervised conditions, and food depots have remained functional.

Biswo Paudel urges the government to consider write-offs of loans of less than Rs1 million so as to allow small and medium scale enterprises to reconcile their balance sheets and keep employees on the payroll. He says this would not cost the government a lot, and would help kickstart economic activity.

However, Finance Minister Yubaraj Khatiwada has not been very receptive to the idea of rescuing the private sector. The finance ministry has always been more focussed on the macro-economy, worried about protecting its revenue base, and its ability to leverage foreign loans.

Other analysts see the current crisis as a springboard to remake and reorient Nepal’s economy, fix defects in the government machinery and plug loopholes.

“We must re-assess the country’s political economy over the past 30 years not just the present policies,” says economist Keshav Acharya. “We must be more far-sighted, have a visit for the future. This pandemic has shown us where the problem areas are. It is an opportunity.”

Economists interviewed for this analysis agree that the model should be to encourage a massive investment in infrastructure, even if it means taking loans, in order to immediately create jobs, increase spending and propel the country on a sustainable economic trajectory.

There have been dire warnings about food insecurity if the government does not prioritise agriculture during the lockdown. Farmers must also not be obstructed from taking produce to market. The World Food Programme has warnedthat many district in western Nepal are already suffering food shortages, and Nepal has only enough food stock to last three months.

In such a case, the already import-reliant Nepal has to implement strategies that uplift agriculture, possibly encouraging young men and women who have returned to their home villages from abroad or travelled back from cities to farm. If the government can help with fertiliser, seeds and farming equipment the crisis could be an opportunity to make Nepal self-reliant in food production.

Even before the global pandemic, half of Nepal’s population fell into the lower-middle income category, with 18 percent below the poverty line. This demographic is particularly at risk from food shortages.

A loss of livelihoods in the low-wage workforce and the tourism, construction and trade sectors also pushes more below the poverty line. Despite the government’s announcement of a relief package for vulnerable citizens, the lack of information and data at the local level means identifying who constitutes the ‘vulnerable’ classification is difficult.

“Even if there is a relief package for the poorest, it will be too meagre and short-term if the lockdown continues for much longer,” says Keshav Acharya. “The responsibility to protect and cushion citizens from the impact of the crisis rests on the government. This needs commitment and bold measures from political leadership.”