November 2022 Analysis: Economy & Development
Timeline of Major Events
Date | Event |
November 2022 | Nepal stands among the top 11 countries in the world whose remittance in proportion to GDP is high. |
November 2022 | Candidates have spent a considerable amount of money on advertisements on different social media platforms. |
30 November 2022 | In the first three months of FY 2022/23 NEA earned a profit of 8.5 billion. |
Nepal's Present Electricity Status
NEA earned a profit of Rs. 8.5 billion in the first three months of this fiscal year, 2022/23. Its income from electricity trade to India in the same period was Rs. 6.17 billion. With the increasing power consumption within the nation, managing the power leakages and export of electricity to India is converting NEA into a profitable organization.
Since Nepal was dealing with a protracted load-shedding until a few years back, generating significant amounts of foreign currency by exporting electricity was then a distant dream. However, in recent times, electricity has been one of the major exports from Nepal to India. Not just with India, but Nepal and Bangladesh have also reached an understanding to carry out power trade via India. This is reflective of rise in demand of Nepal’s electricity in the Indian subcontinent. If the agreement materializes, and Nepal becomes able to trade electricity via India to Bangladesh and other nations in the region, Nepal could earn a huge amount of foreign currency which in turn would help Nepal to reduce its massive trade deficit.
Import ban on Nepal
The government of Nepal banned the import of 10 "luxury goods" since early May after experiencing a severe depletion in foreign reserves and a widening trade deficit. Though this step has improved the economy's external sector, its spill-over effects have surfaced in other arenas of the economy. The trade deficit has been reduced, and foreign exchange reserves have increased. In the first three months of this fiscal year (2022–23), the gross foreign exchange reserves of the NRB increased by 2.5 percent to Rs. 1246.22 billion from Rs. 1215.80 billion in mid–July 2022. The overall trade deficit was reduced by 13.1% to Rs. 359.18 billion during the review period after rising by 58.3% during the same period the year before.Although the government has tightened the import of goods, including spices, chocolate, alcohol, and clothes, these goods have entered Nepal without proper documentation or through illegal channels. Most of the goods restricted from importing can be seen in the Nepali market, inferring the entry of goods through illegal routes. The automobile sector has been hit severely as various vehicle showrooms have been shut down across the country due to the restrictions on the import.
It is high time for Nepal to review its import restrictions. International Monetary Fund (IMF) has delayed the loan installment to Nepal questioning government’s move to lengthen import restrictions – and had suggested to employ other monetary measures in dealing with the foreign exchange reserve issues.
Election 2022 Expenditure
Nepal held its second federal and provincial election on November 20, 2022. Elections these days have become a costly affair. While in 2017, the government spent Rs 8 billion for federal and provincial polls, this time round, expenditure for the same reached Rs. 10 billion.Not only the administrative cost of the elections raised significantly, but the candidates also spent massive amounts. The Election Commission (EC) has set a spending cap for candidates to reduce odds of electoral results being influenced by monetary factor.
Despite this provision at place, candidates are found to be spending more than the ceiling set by the EC. The Asia Foundation's study shows that in the 2017 polls, candidates spent up to 136 percent more than the imposed ceiling. These expenses are hidden or ambiguous, and candidates more often than not manipulate their spending information.
With the ban on the use, sale, and distribution of symbolic materials with logos on caps, t-shirts, etc., in election campaigns, candidates have spent quite a lot of money on advertisements on different social media platforms. Table 1 below shows different candidates' expenditures on Facebook ads for the recent polls. Although the election code of conduct doesn't allow candidates to promote themselves during the "silence period," these sponsored ads were seen till the end of November.
Table 1
Name of the Candidate |
Total Ad Expenditure on Meta |
Shree Gurung |
$4.9K |
Kiran Poudel |
$2.3K |
Rabindra Mishra |
$1.6K |
Pradip Paudel |
$1.6K |
Pampha Bhusal |
$501 |
Pampha Bhusal Supporters |
$104 |
Source: Meta Ad Library Report
Note: Nov2, 2022- Dec1, 2022
To reduce the decreasing foreign reserves, the Nepal government has imposed import restrictions on "luxury goods". The majority parties and the candidates in their manifesto have promised to increase the plummeting foreign reserves, but they have been paying dollars for ads to lure voters. A Nepali resident can spend 500 dollars per year with a dollar card. However, candidates have spent openly disregarding the dollar limit – suggesting the use of the informal sector to pay the amount in dollars.
Remittance: Backbone of Nepalese Economy
According to the World Bank’s Migration and Brief 37 statistics, Nepal stands among the top 11 countries in the world that receive the most remittances in proportion to the Gross Domestic Product (GDP) with a staggering 21.8 percent of GDP. According to NRB’s Current Macro Economic and Financial Situation in the first three months of the FY 2022/23, remittance in flows increased by 7.9 percent to USD 2.19 billion against a decrease of 7.1 percent in the same period of the previous year.
This increase in remittance inflow provided a cushion to the depleting foreign exchange reserves and subsequently reduced its spill-over effects on other economic sectors. Remittance has worked as a salve for the troubled economy. Nepal, which has a GDP of 48 billion NPR, imports more than 19 billion NPR worth of goods, out of which 10 billion NPR foreign currency resources are contributed by remittances. Remittance facilitates growth by stabilizing household consumptions in the recipient nation and could create a favorable condition for short-term economic growth. However, there is a need for Nepal to decrease its over-reliance on remittance to aim for long-term growth.
CESIF Nepal