Nepal 2023: Battle for Challenging Economy!

May 22, 2023 by 1 Comment

Nepal is a small landlocked nation between two economic giants of Asia, India, and China. Nepal is an independent nation and its economy heavily depends on remittance.

At the beginning of the current fiscal year 2022/23, the government of Nepal had set an ambitious aim of 8% economic growth. However, this ambition was not reachable when Nepal’s economy confronted hurdles and difficulties. During the mid-year budget review, it became clear that the initial growth prediction was unduly optimistic, and revisions were required. Likewise, the revised growth forecast has been cut in half, resulting in a more moderate 4% growth outlook.

Likewise, the National Statistics Office (NSO) issued the National Accounts Statistics on May 2, 2023. A detailed evaluated Nepal’s economic situation. As a result, the results were disappointing indicating that Nepal’s economy is in a bleak state. Similarly, at current prices, the predicted Gross Domestic Product (GDP) growth rate for the fiscal year 2022/23 was 1.87%. This rate was the lowest since the fiscal year 2015/16 when the economy grew at 0.43% following the terrible earthquake. Furthermore, it also fell short of the -2.37% negative growth reported in the fiscal year 2019/20 because of the negative impact of the COVID-19 pandemic.

First Recession of Nepal in Six Decades

Recently Nepal has undergone its first recession in six decades. Many specialists, believes that this result is a mix of inflation and unstable politics in Nepal. This recession has dropped in economic production. Experts further warn by saying that the country faces substantial obstacles in rebounding from the depression. With deep-rooted concerns like political instability, corruption, and sensitivity to market and climatic conditions.

Nepali migrant standing in queue to receive No Objection Letter .
Nepali migrant standing in queue to receive No Objection Letter. (The Kathmandu Post)

Likewise, as per the National Statistics Office, the adjusted growth for the second quarter is likely to fall by 0.73 percent. This recession has been mainly triggered by slowing commerce, the slowing down of building and mining industries, and others. While the economy increased by 1.7 percent year on year in the first quarter of the fiscal year. It contracted when compared to the preceding quarter. Growth was likewise negative in the fourth quarter of the preceding fiscal year. Because of the last two consecutive quarters went on a negative economic growth recession was declared.

As per the government, the Nepalese economy was previously anticipated to grow at an annual rate of 8 percent. However, various factors led to the fall of growth which was estimated by the statistics office, and foreign organizations such as the World Bank, the International Monetary Fund, and the Asian Development Bank.

This negative growth has particularly hampered the mining and quarrying, wholesale and retail trade, transportation, and food service industries.

Causes for Economic Downturn

Consumer spending is a key indicator of a healthy economy slowing down due to rising inflation. This signals a deteriorating economy and reduced market euphoria. Due to inflation price hike has been seen on edible goods such as rice, lentils, edible oil, and dairy products. Also, there has been an exceptional hike in the price of fuel. Recently on March 2023, inflation on consumer price reached 7.44 percent, non-food services reached 8.7 percent, and food and beverages remained at 5.64 percent. Despite this problem has been acknowledged the economy is still in the puddle. The ripple effect of this problem has been seen in a sinking stock market, growing unemployment, and many more.

Consumer spending less on the market
Consumer spending less on the market (The Kathmandu Post)

Likewise, talking about the banking sector of Nepal, the central bank’s monetary policy causes a liquidity crisis. This caused interest rates to rise, making it difficult for businesses to repay debts or get financing for development. Similarly, banks were also prohibited from lending to unproductive industries such as real estate and the secondary stock market. Furthermore, unsatisfactory governance and delayed tax collection by the government resulted in little capital spending, limiting market liquidity.

Likewise, foreign direct investment also largely supports Nepal’s economy. So, in the first eight months of FY 2022/23, FDI fell to a record low of NPR 1.17 billion. Earlier in the same period of the previous fiscal year FDI was NPR 16.30 billion. Because of these various reasons, it caused several industries to slow down. This has forced Nepal to finance costs through external borrowing with restrictions. Furthermore, this will possibly lock the country in a vicious cycle of borrowing to repay current foreign debt.

Improvement in the Economy

Following a brief recession, Nepal’s economy is showing signs of revival. As mentioned the country’s statistics bureau estimated a 2.16 percent growth rate for the country. Inflation and political unrest were the primary causes of the recession. Likewise, the newest figures from the Nepal Government’s National Accounts Statistics Division show modest progress. With a predicted rise of 2.16 percent in the third and fourth quarters based on the basic price. However, this increase is lower than the previous fiscal year’s revised predicted growth of 5.26 percent and the year before’s final estimate of 4.49 percent.

Similarly, according to the National Statistics Office’s study, the latter two quarters of the fiscal year showed negative growth compared to the previous year’s quarters. Basically, this meets the requirements for a recession under international standards. However, forecasts for the next three months anticipate a return to routine with no more surprises.

Likewise, in terms of sectors, manufacturing, construction, and trade all had negative growth in the current fiscal year. However, the hotel business and energy sector have seen some positive development. Likewise, education, health, agriculture, mining, real estate, and information technology have all shown modest growth.

Furthermore, the primary sector which is agricultural, forest, fishery, and mining provided 24.6 percent of GDP in the current fiscal year. While the secondary sector which includes industry, power, construction, and water supply contributed 12.9 percent. Lastly, the tertiary sector which includes housing, real estate, wholesale and retail commerce, transportation, communication, health, and education accounts for the majority of GDP, accounting for 62.4 percent.

Even during challenging times, we have the capacity to bounce back and with the execution of an effective strategy, we can overcome the difficulties in a timely manner.

Also read: Meter Byaj Problem in Nepal

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