June Analysis: Economy and Development

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Timeline of Major Events in June

DateEvent
June 02Finance Ministry clarified its commitment towards the protection of the Chure region after being criticized in its budget announcement of reducing trade deficit by extracting and exporting river products from it.
June 04Agriculture Ministry decided to sign a five-year government-to-government fertilizer deal with India to ensure uninterrupted supply of vital plant nutrient.
June 07Finance Ministry formed a task force to conduct necessary homework on start-up businesses, work-place trainings and employment programs for the implementation of provisions in the new budget for 2078/79.
June 09Salt Trading Corporation’s six-decade-long monopoly on trade of idolized salt was removed by the government.
June 10All seven provinces presented their annual budget for the next fiscal 2078/79; the combined budgets stood at NPR 262 billion.
June 14Nepal met the criteria to graduate from the current status of least developed country to a developing country with mid-level income.
June 20Foreign aid commitment received by Finance Ministry increased to NPR 202.28 billion, increasing by 10.9 percent as compared to last fiscal.  
June 20Despite the nationwide lockdown, the Inland Revenue Department raised a total of NPR 761 billion in revenue.
June 28The government eased travel restrictions for international arrivals by allowing fully vaccinated people to quarantine at home and by reducing the mandatory 10 days hotel quarantine to 7 days for non-vaccinated people.

Economy During and Post the Second Wave

The month of June saw various sectors of the economy gradually commencing their operations following the easement of restrictive orders. From opening up of hospitality and tourism services, essential educational and learning facilities to small and large-scale businesses, economic sectors looked relieved on being able to function up to their marginal or in some instances optimal capacity. Tourism sector in particular achieved a new feat by becoming the fourth largest industry across the country by employment. According to findings from Central Bureau of Statistics (CBS), tourism industry currently employs around 11.5 percent of the total labour force (roughly around 371,140 individuals) across all industries. This surge in employment was recorded due to high number domestic and international service seekers. Although the sector suffered a major setback owing to closures enforced by the COVID-19 pandemic, the number of service seekers at mobile food services and restaurants, short-term accommodation activities to resorts and hospitality business, airlines and aviation services, and beverages businesses has increased; requiring more labour force and labour participation, ultimately increasing tourism revenue and employment prospects.

Basantapur Durbar Square after the easement of restrictive orders. Photo: RSS

Apart from sectors, ministries and government bodies too ramped up their operations and activities. In line to achieve the provisions and promises made in the new budget for the upcoming fiscal year 2078/79, Ministry of Finance (MoF) approved various proposals and revised regulations such as signing of loans worth USD 150 million with World Bank, approving an investment of USD 10 million by International Finance Corporation (IFC) in Dolma Impact Fund II, alongside revising and easing new regulation related to Foreign Direct Investment in understanding with Nepal Rastra Bank (NRB). The new regulation has eased provisions related to entry of foreign direct investment (FDI) and exit of dividends earned by foreign investors in Nepal in a bid to attract more FDI inflows into the country. Considering the fact that Nepal attracts the lowest amount of FDI among other Asian nations (with FDI averaging at 0.2 percent of the gross domestic product over the last decade), the new regulation has been applauded by both public and private sector. The easement is anticipated not only boost investments in industries and other productive sectors but is also expected to help Nepal become a middle-income country and achieve the Sustainable Development Goals by 2030, provided FDIs reach the targeted areas and sectors of the economy.

Moreover, Nepal also recorded a new export figure. Trade and economic activities gathered a steam in the current fiscal 2020/21 after coming to a complete halt amid the brutal pandemic in the last fiscal. As per the ‘Foreign Trade Statistics’ released by the Department of Customs (DoC), Nepal exported goods worth NPR 121.25 billion in the first 11 months of the current fiscal, which is an increment of 37.78 percent as compared to the figure of the last fiscal. Similarly, the import figure too has increased, with the economy importing goods worth NPR 1,383.36 billion, an increase of 25.67 percent more than the last fiscal. Considering this, export experts and statisticians are hopeful that the increasing imports and exports aligned with a refined trade system can contribute towards reducing the trade deficit. Moreover, with prohibitory restrictions removed, easement in import of raw materials can ensure more operation, production, employment opportunities and economic returns. Specially in the context of Nepal (which is an import-dependent economy), a boom in imports does create a pathway to widen trade deficit, but at the same time a boom in international trade can be a driving force in rejuvenating an economy. For instance, uninterrupted import of food and beverages item can control any unforeseen domestic food insecurity and help control consumer food inflation. Nepal’s retail and manufacturing industry (which contributes around 14 percent to the national GDP) is heavily dependent on imports from India; thus, higher imports translate to higher employment in this sector (due to it being labor-intensive in nature). Similarly, steady imports of FMCG (fast moving consumer goods) ensures stable government revenue through import taxes. Moreover, import of essential raw materials in industries also secures domestic production of essential commodities like medicines, chemical fertilizers, agro products, and other consumable goods.

While the second wave did threaten many economic recoveries made post the first wave, the economy can bounce back considering the modest estimation on economic growth and development. For this, collaboration between the government, industrial sector and the civil society is prudent in building a concrete effort that can prioritize nation-building post the second wave. If they can come together to curate a new development paradigm, focusing on sector-specific needs (monetary and fiscal), the economy can advance on a rebound track. Moreover, commercialization of domestic markets, provision of lower tax rates on domestic businesses, easy credit and loan score, and a stable business and political environment can also help in facilitating and achieving the revival target.

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