Nepal’s economic downturn, 1 year after lockdown

On the eve of the anniversary of the Nepal’s nationwide Covid-19 lockdown on 23 March 2020, the Ministry of Health issued a fresh call for precautions after a second wave is raging across six Indian states, setting off fears that the economy may not recover.

The ministry’s warning about the next six months being crucial is reminiscent of the warnings last year this time about the need to control the pandemic. One year on, just as Nepalis are going about as if the worst is over, it looks like the virus is back.

On Sunday, Nepal reported three deaths and another 150 new cases, and the number of active patients once more rose past 1,000 after falling to 700 last month. Some epidemiologists are predicting a surge in Nepal in two weeks as Nepali workers returning home bring the virus just as they did last year.

The government has announced stricter measures at the border to check incoming people, but that has never been effective on the open border with India. One silver lining is that the fatality rate in the new Indian Covid-19 wave this time is lower.

Just as businesses were returning to normal, restaurants are bars were doing brisk business and there were crowds in the markets, there is now nervousness and a sense of déjà vu. Businesses that were faltering are once more bracing for more trouble.

The lockdown on 23 March 2020 was initially just for one week, but it kept being extended until it lasted four months till 21 July. But it was reimposed, and lifted again just before the Dasain holidays, leading to the peak in October.

Even after it was officially over, the administration in different districts continued to clamp down restrictions, while Kathmandu Valley was under stringent mobility supervision for a month after it opened.

Under the effect of one of the longest lockdowns in the world, Nepal’s economy has been pushed back years. After a year of confusion and crisis, uncertainty prevails on how the economy will likely salvage itself.

The start of the vaccination drive has given people a fresh ray of hope, but uncertainty about AstraZeneca and availability of booster doses, and the pause in the third phase of the vaccination campaign because of non-delivery of COVAX and Covishield doses from India have added to the fear.

The start of inoculation, however, has given a boost to businesses, lessening the impact of the downturn on the economy to some degree. Some sectors have gone back to operating as they did before the pandemic, but businesses like tourism are still reeling.

According to the Central Bureau of Statistics, Nepal experienced a -1.99% growth rate last fiscal year, reminding economists of a similar economic downturn four decades ago. After the earthquake and the blockade by India in 2015, the economy had been hit hard, but had rebound to 7.4% in subsequent years.

The World Bank has predicted that the ongoing fiscal year would see an annual growth rate of 0.6 %. If the impact of the pandemic lessens, the growth has been predicted to go up to 2%. That prediction is up in the air in light of the expected surge.

The government has been predicting that the annual growth rate in the ongoing fiscal year will be the same as that of the preceding years, at 4%. But Nepal’s economy depends heavily on India and China, so the impact on those countries has had a ripple effect on ours.

Global travel restrictions have affected tourism, which used to bring the country $800million a year. Nepal’s export and import have also gone down by half. Imports slumped to Rs58 billion by March 2020. And although imports went down during the pandemic, it started climbing again after August last year.

Infrastructure development has been badly impacted, stalling hydropower, road, irrigation and airports development. The government’s investment target was limited to less than half at 46.34%.

Upper Tamakosi, Melamchi Drinking Water, Bhairawa and Pokhara airports have been delayed. Other 2,000MW of hydropower projects by the government and private sector have also been delayed by a year, increasing the cost of construction.

The pandemic has also affected foreign employment, leaving thousands jobless. Last year, only 39,803 people left for foreign employment, which was 75% less than the previous year. While there had been speculation that foreign remittance would go down as an impact of the pandemic, it did not, even though many people employed in Nepal faced layoffs.

At least 4 million Nepalis work abroad, and the impact on the global economy has taken a toll on their employment and thereby their income. However, official remittances in the first two months of 2021 were 10% up from the same months last year.

The entertainment sector has also been affected severely, with old theatres like Jai Nepal cinema having to shut down. Trekking and mountaineering as well as the hotels that depended on foreign tourists have been hit badly. However, domestic airlines have picked up business, and some hotels are springing back into action as more Nepalis travel within Nepal.

The decline in tourism has hit about 2 million Nepalis who depended directly and indirectly on the sector. In March 2020, Nepal suspended all expeditions to Everest and other 30 peaks. Annapurna Hotel, one of the oldest five stars in Nepal closed down, as did dozens of other smaller establishments.

If the economic downturn hits a low for two subsequent trimesters, it is called a recession, and that seems to be the case now. Nepal’s capital expenditure last year fell to 46.7%.

According to the Rastra Bank, in December 2020, imports went up to Rs19 billion compared to 10 million in December 2019, indicating revival of economic activity. The loan circulation by commercial institutions to the private sector has also been going up since September 2020, which is an indication that the confidence of the private sector has not been completely eroded by a year of waiting.

While the situation does look bleak with another wave looming, the fact that most economic activities are back on track makes way for hope for economic revival. But a lot will depend on how the virus behaves in the coming weeks.