The recent update from the Nepal Rastra Bank (NRB) highlights a reduction in imports, a surge in remittance inflow, a decline in demand for loans despite ample funds in financial institutions, and a worrying increase in inflation. The Confederation of Nepalese Industries (CNI) and China Council for Promotion of International Trade (CCPIT) have established the Nepal-China Business Council to promote investment and bilateral cooperation, aiming to streamline commercial activities, research, and networking opportunities for enhancing economic ties and growth between the two nations. The price of sugar has increased tremendously in the recent times.

Timeline of major events

 

Date	Events
15th September	Nepal Oil Corporation (NOC) increased the price of petrol, diesel, and kerosene for third time in a month.
22nd September	World Bank Approves $20 Million Grant to Support Nepal’s Agriculture and Nutrition Sector.
22nd September	ADB supports to Strengthen Fiscal Management and Service Delivery in Nepal.
24th September	CNI, CCPIT reach understanding to form Nepal-China Business Council.

 

Sluggish Economic Growth

The recent update on macroeconomic indicators released by the Nepal Rastra Bank highlight the reduction of imports while a surge in inflow of remittance in the country. However, these factors have overshadowed the other aspects of the economy. Despite the financial institutions possessing substantial funds for investments, the demand for loans isn't as high as expected. The demand for domestic credit decreased by 2.3 percent up until Mid-August 2023 compared to a decrease by 0.9 percent in the corresponding period of the previous year.

Inflation has skyrocketed; imports and revenues are declining with the decline in people's consumption and demand. The plunge in the Nepali rupee to NPR 133.54 against the US dollar is set to trigger inflation as Nepal is an import-dependent country. The maximum impact will be on purchasing petroleum products, which Nepal imports entirely. Moreover, the price hike in petroleum products for the third time this month will further increase inflation exacerbating the economic situation accordingly. Positively, the trade deficit decreased by 0.7 percent as imports and exports decreased by 1.6 and 8.7 percent respectively in the review period. However, in a consumption-driven economy fueled by remittances, the import decline indicates a slowdown in consumer demand. On the other hand, the appreciation of the US dollar can benefit remittance sore in the country; however, the government has to spend more in the domestic currency to repay external debts as the exchange rate works against it.

The graph below illustrates the gradual increase in remittacne inflow in comparison to three consecutive Mid-August period for the FY 2021-22 to 2023-24.





Figure 1. Graph illustrating the outflow of Nepali Migrant vs Inflow of Remittance in Nepal

Additionally, the Asian Development Bank (ADB) has updated its estimates for Nepal's economic growth from what it forecast in April due to low investor confidence, low domestic and global demand, high interest rates, and unfavorable monsoon rainfall that will likely lower agriculture output. The Nepali economy is expected to increase by 4.3 percent in the current fiscal year 2023–2024, down from the 5 percent as predicted in April. 

Nepal China Business Council to be formed

The Confederation of Nepalese Industries (CNI) and China Council for Promotion of International Trade (CCPIT) have reached an agreement to establish the Nepal-China Business Council to promote investment and bilateral cooperation between the two countries.

The Council will conduct activities to streamline commercial activities between the two countries, conduct research and study-related initiatives, create networking opportunities for investment enhancement, and exchange business visits, conferences, and dialogues. This can be attributed as an increased interest of Nepali businessmen towards the Chinese market and the products despite several past initiatives haven’t materialized till date. Furthermore, the creation of Nepal China Business council would jeopardize the objectives and mission of Nepal-China Chamber of Commerce by creating confusion as there is no clear demarcation yet on what Nepal.

During the visit of Nepali Prime Minister Pushpa Kamal Dahal to China, the Protocol of Phytosanitary Requirements for the Export of Plant-derived Medicinal Materials for Chinese Medicine from Nepal to China was also signed. Since the agreement established provisions about phytosanitary criteria for the export of 15 types of medicinal herbs, signing the protocols alone would not be sufficient as China would surely seek information regarding the production, harvesting and the regions where they were cultivated. 

Increase in the price of Sugar

The price of sugar in Nepal has surged by 36 percent recently due to a decrease in cane yields in India, a cap on sugar exports by India, and a rise in grey market activity. Nepal’s annual sugar demand stands at around 300,000 metric tonnes, of which less than 50 per cent is met through domestic production and the remaining is imported.

Furthermore, India is expected to ban mills from exporting sugar in the next season beginning October, halting shipments for the first time in seven years. This will further exacerbate the economy during the festive season affecting the general people.

The government's decision to slash the import duty on sugar is a welcome move in the short term, but it is not a sustainable solution. To truly reduce the burden on consumer prices and ensure a stable supply of sugar, Nepal needs to invest in its domestic sugar production industry. By providing subsidies and incentives to sugarcane farmers, the government can help Nepal become self-sufficient in sugar production.