Economic struggle persists


The world economy hit a recession during the pandemic COVID-19. The lockdown in Nepal had forced many out of business and employment in 2020. According to official estimates and economists, it will take while before Nepal reaches its pre-pandemic economic stage. Shankar Sharma, the former vice-chairperson of the National Planning Commission, added that “the pandemic has derailed the growth target of two fiscal years of 2019-20 and 2020-21”.

The government’s target was to achieve 8.5% economic growth in 2019-2020, but the Central Bureau of Statistics predicted that the growth in 2019-20 must have slipped to 2.7%. On the other hand, the National Commission claimed that the recorded growth could be merely 0.6%. The World Bank’s reports were even more severe, asserting that Nepal’s growth rate was just 0.2%. The authorities are still in the process of determining the exact growth rate.

In mid-December, the Ministry of Finance analysed the country’s economic status and found that the government is improving its spending capacity and revenue collection. The figures from the first five years in the fiscal year 2020 weren’t as high as the figures during the same period in the previous year. But the government is satisfied with the 2020 figures under the current circumstances. During the first five months, the government spent Rs 328.45 billion and collected Rs 301.29 billion in revenues. The ministry said that it collected 96.18% of the estimated customs charges, 87.77% of estimated income tax, and 82.03% of estimated excise duties. Moreover, during the year, the Foreign Direct Investment (FDI) commitment increased by 31%.

Even though the figures are impressive, given the pandemic, the number of new firms registering have dropped by a whopping 45% since the mid of 2020. The officials further added that though COVID-19 was the primary reason behind the drop, political instability significantly contributed to this. The ‘Doing Business’ report for Nepal has frequently reasoned that the investments are limited due to the unfavourable political climate. One hundred three new firms were registered during this period who have collectively committed to employing 6,288 people. The analysts are, however, optimistic about receiving investments in the current year, 2021, since the vaccination drive has begun across the country, which is expected to boost the confidence of the investors. With the ongoing political scenario, the analysts are still observing how the political events unfold, before forecasting any economic element. According to the current statistics, the industries operational are only running at 54% of their capacity due to decreased demands. The chamber of commerce made suggestions to the government to attract investment and demand, but no initiative has been taken yet.

One of the worst hit industries during the COVID-19 was undoubtedly the tourism industry. Even though business and operations in most of Nepal have started, the hospitality industry remains distressed. The overall growth outlook is not very optimistic for 2021 since few industries that contribute heavily to the GDP remain hit. There is no sign of recovery; especially the tourism industry, which contributes approximately 25% to the GDP. Despite the vaccination campaign, Nepal is not expecting inbound tourists this year as well. The salary remains cut for those working in this sector, and the cut is valid till the end of the year 2021. However, this pact will be void if the tourism industry picks up in the upcoming months.

Furthermore, hotels and restaurants in Pokhara and Chitwan have survived the pandemic due to increased domestic tourism, but the same cannot be said for Kathmandu where locals do not prefer dine-ins and stay in the capital city itself.

“The Panel of Tourism Experts of the United Nations World Tourism Organisation has anticipated that the recovery in global tourism will begin in the third quarter of 2021. But roughly one in five panelists believes the recovery won’t start before 2022.”

According to analysts, large-scale travel restrictions worldwide primarily attribute to the delayed recovery for the sector. Other reasons, such as lower confidence amongst the people and the virus’s fear, also affect tourism.

Likewise, the struggle of the aviation industry also continues. The cheap tickets and numerous attraction sights always kept the domestic airlines high in the sky. However, the virus has managed to wipe out more than 50% of the domestic passenger traffic. According to the Tribhuvan International Airport statistics, over Rs 5 billion was lost in passenger revenue this year, compared to the previous year. As the number of passengers plummeted by approximately 54%, the number of flight landing and take-off also reduced by 58%.

In an attempt to attract fliers, the domestic airlines are charging a bare minimum currently. The airline’s authorities claim that this is a ‘survival strategy’ and the cost doesn’t even cover the fuel charges. They only hope that the passengers will soon return. Nevertheless, domestic traffic is much better than the international airlines’ traffic. The festival season followed by the wedding season helped the domestic airlines in filling up their seats. However, with the winter season, the traffic had again dropped due to a high number of flight cancellations.

Overall, even though few industries are picking up now, the tourism industry remains shattered with an unforeseeable future. Furthermore, the domestic and foreign investment is expected to increase this year as the investors’ confidence is likely to boost given the vaccination drive; political instability can still hamper the situation.

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