The economy, at a snapshot

In Nepal, politics has always taken the front seat while issues of economic development have been dealt with as an afterthought. It has been four months since caretaker Prime Minister Madhav Kumar Nepal resigned, but the new government is yet to take shape. This political stalemate has daunting effects on all sectors of the economy, but the foremost concern is the delay in the presentation of the budget. The special budget of Rs 110 billion will soon run out; unless a full-fledged budget is announced immediately, the government will not even be able to pay salaries to civil servants, let alone finance development activities. This pressing concern is strongly underlined in the third issue of nefport, a quarterly overview of the economy produced by Nepal Economic Forum. The report also highlights significant developments across the main economic sectors of the country.

According to the report, the World Economic Forum's latest Global Competitiveness Report lists 15 problematic factors to consider while doing business in Nepal. Government instability/coup ranks as the most problematic, and Nepal slipped five positions in the Global Competitive Index for 2009/10. Despite this, we have made significant progress in meeting the Millennium Development Goals and are on track to achieve targets by 2015. GDP may not grow at the targeted 5.5 per cent but can be expected to grow at 3.5 per cent.

On the international business front, Nepal's trade deficit was recorded at over Rs 216 billion as imports shot up by 33.2 per cent, with a 9.7 per cent fall in exports. The surprising fact is that petroleum, vehicles and gold constitute the biggest imports in a developing country like ours.

However, according to an ADB report, Nepal ranks second in Southasia in terms of product upgrading and diversifying exports. This means that Nepal has significant opportunity to reverse its negative export growth; we have a comparative advantage in over 100 products. nefport recognises that investments have to be made to set up industries for these products. What is worrying is the lack of political stability and a conducive environment to encourage investors. The deficit could also improve if the government cut back on imports of goods that are already produced in Nepal.

Meanwhile, Nepal's balance of payments has been kept afloat by remittances and foreign aid. The global economic crisis had limited impact on earnings from remittances, with Nepali workers sending back Rs 231.7 million. The growth rate of remittances may have decreased, relative to the increase in labour migration, but countries like Malaysia and Korea still favour Nepali workers. During the first eight months of FY 2009/10 Nepal experienced a 60 per cent increase in aid commitments amounting to Rs 76.7 billion. The task is to tap into this for development activities.

Agriculture continues to be one of the most important sectors for the country with 73.9 per cent of the population engaged in it, contributing 33.03 per cent to the national GDP. But this sector has seen little growth due to the late, erratic monsoon and the lack of fertilisers. Things look good so far for Nepal Tourism Year 2011, with total visitors already up by 19 per cent compared to last year.

Another important sector for Nepal is the banking sector. The liquidity crunch has eased and lending has opened up. NRB's regulations for the real estate market have been helpful in monitoring the risk of investments in the sector. The real estate sector, unsurprisingly, witnessed a 25 per cent decline in transactions. nefport also looks into the strides made in the fields of education, health, media, energy and infrastructure.

While the report is an encouraging step towards analysis of the country's economic status, it would be more valuable if the significance of the numbers cited were explained in more depth. Considering that nefport claims to cater to private sector perspectives, one would hope for more linkages between macro-economic issues and the private sector, as well as coverage of public-private partnerships. Nevertheless, it constitutes an essential update on the country's economy.

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