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Nepalese Economy Post COVID-19, What If There Was No Spread Of COVID-19 In Nepal?

Global to Nepal

 

The COVID-19 is truly global in nature, leaving no country untouched, with world oil prices are at historic lows, jobs in the oil-rich Gulf States could dry up. India, the destination of choice for Nepal’s poorest migrants is facing a prolonged slowdown that predates COVID-19 and will likely grow worse.

 

As the COVID-19 has globally affected not only lives but has turned over the economy, Nepal is not spared from this crisis, and currently is in its nationwide lockdown. Post COVID-19 people are not oblivious to the fact that they have to face unparalleled social and economic challenges.

 

Worldwide millions of jobs are at risk. The UN agency –International Labor Organization (ILO) has warned that the latest dire assessment reflects the full or partial lockdown measure that affects almost 2.7 billion workers i.e. four in five of the world’s workforce. While there is no research data available at the national level, Nepal needs to protect the most vulnerable segments such as small and medium-sized enterprises (SMEs), self-employed, women, and youth.

 

According to the Asian Development Bank, Nepal might lose up to $322 million due to the impacts of COVID-19, especially at risk are small-and-medium scale enterprises, and more than 400 start-ups currently based in Nepal. According to the latest projections, gross domestic product growth (GDP) will fall sharply to 2.3 percent in the fiscal year 2019. The predicted loss of revenue for the budget so far is estimated at NRs.200 billion, and Nepal’s economic growth rate is expected to shrink by up to 4%.

 

The Nepal Rastra Bank, in its Mid-Term Review through 2019/20 monetary policy indicated that the spread of coronavirus, along with low paddy production this year would have a bad impact on our economy.

 

Who will be affected the most?

 

The branches of development including agriculture, tourism, and the industry is mostly affected.

About one-sixth of the population (4.9 million) people are food insecure, and the corona crisis can significantly increase this proportion. The more vulnerable communities are small-scale farmers and fishers. Fishing has to face challenges in accessing markets to sell their products or buy essential inputs. Mostly they have to struggle due to higher food prices and limited purchasing power.

 

 

The lockdown has especially affected people reliant on daily wages without an income. The prices of majority foodstuffs have sharply increased, reducing the people’s purchasing power, and many poor people have been forced out of their businesses and houses for being unable to pay their rent and loans. Children in some vulnerable communities are already experiencing an acute form of malnutrition.

On the supply side, companies will experience a reduction in the supply of labor. The e-commerce sector will also face the challenges due to COVID-19 and may see a dip in growth. There will be increased pressure on the supply chain for deliveries of products.

 

The domino effect of the pandemic lockdown will result in a drastic fall in aggregate demand, the total spending on goods and services. This means businesses will be unable to sell products, reducing future production, in turn leading to workers losing their jobs. Workers are then unable to buy, the supply chain will be disrupted with downward pressure on market demand, resulting in a rise in prices.

 

Tourism and Remittance at their Nadir                

 

The Visit Nepal 2020 campaign had expected to boost Nepal’s small economy – with a GDP of just $30 billion GDP — by generating a predicted $2 billion in tourist receipts and creating thousands of new jobs.

 

With the ‘Visit Nepal 2020’ being canceled in the beginning, internal as well as international tourism was cut as a natural response to the fear of COVID-19. It will be a tough job to build hopes to bring in a huge wave of foreign tourists as they will more unwilling to travel to Nepal.

 

Cascading adverse effect on the labor market was certain due to the pandemic, suspension of

on-arrival visas and Everest expedition alone caused around 20,000 job losses among trekking and tour guides while low occupancy in hotels, restaurants to caused layoffs. After the pandemic travel and tourism-related activities such as hotels and restaurants, transport, storage and communications are expected to contract.

 

Along with tourism — another sector sledgehammered by the crisis — remittances are a key source of foreign currency, crucial in an import-dependent country like Nepal. Remittances from Nepalese working abroad account for almost 30 percent of the nation’s GDP. A 2010 nationwide survey found that 56 percent of households relied on remittances, some speculate that a drop in migration could swell the ranks of unemployed youth at home, leading to social unrest. 

 

 

 

 

 

On the same account, Ganesh Gurung, the director of the Policy Research Institute, a government think tank, said this about the situation: “Households will have hard time managing their household economy, especially the lower middle class,” he says. “The decreasing trend of households under the poverty line will come to a halt.” Similarly, Chandan Sapkota, the economist says, “Ailing remittances could have knock-on effects in multiple areas of the domestic economy, harming government revenue and reducing liquidity in the banking industry.”

 

The COVID crisis has already put many Nepali migrants out of work. As fears of a pandemic spread in February and early March, a few hundred thousand workers returned to their hometowns and villages in Nepal. But most migrants were prevented from returning after the Nepali government announced a nationwide lockdown on March 24. Some were able to maintain their jobs abroad, but many others were fired or took unpaid leave and are living off meager savings.

 

Remittance is expected to drop significantly, and the permanent return of millions of Nepalese working abroad will heighten as families’ struggle to put food on the table. Also, it is unlikely that citizens will be able to travel abroad for work anytime soon as the labor destinations will be focused on their own internal labor management.

 

Effect on Educational Sector

 

Talking of the education sector, the public schools, and low-fee private schools especially are likely to face a larger impact on teaching and learning, owing to heavy reliance on brick and mortar means of delivery lessons. The impact of the COVID-19 outbreak is also expected to impact admissions to higher education in the coming academic year. The challenge in a country like Nepal is the additional economic burden facing the parents in the absence of school provided mid-day meals. In addition, many schools cannot rely on advanced technology for studying and still use the traditional method of board and chalk.

 

Other Sectors

The financial sector, which mobilizes the economy, will also be adversely affected, leading to financial stability threats due to shortfall in investments and deposits, repayment problem and high non-performing loans in the banking sector. Other affected areas include the capital market, insurance and cooperatives. The external sector also will face a serious threat in addressing the overall balance of payments (BOP) as a result of the large the shortfall in foreign remittance further slackened export performance, low foreign investment and bilateral aid coming from the affected countries, despite some inflow of multilateral aid in the form of relief packages.

Other services activities that are badly hit are financial intermediation, real estate and business activities, and education. Overall, consumption has been subdued, and fixed public and private investments are contracting.

 

 

Overall

 

The economic impact of the pandemic add to pre-existing macroeconomic problems including a growing balance of payments deficit. Nepal saw a fall in its current account balance from $240 million to $742 million in the first quarter of this fiscal year and this gap is expected to widen with a freeze of trade and movement.

 

As a result of the lockdown and low economic activities, thousands of Nepalese have lost or are losing their jobs both in the domestic and foreign labor market. This will lead to doubling of the 12 percent unemployment rate (as per the 2017/18 Labor Force Survey) and the below poverty level, which had risen by 2 percentage points due to the last earthquake, will shoot up. Similarly, inflation will jump to two digits from 7%, resulting from low production, supply constraint, and black marketing.

 

The socio-economic condition of a normal person will definitely change in lifestyle after the pandemic is over. We will have to upgrade food hygiene and public health and services to international standards. Priorities will also be given to working conditions and living facilities. While the first concern is public health, we can expect disruptions in the food supply chains. Closures of restaurants and less frequent grocery shopping diminish demand for fresh produce and fisheries products, affecting producers and suppliers.

 

The future looks bleak, and it should surprise none if we see riots and fights for food in the streets if the current situation lingers on for some months. Though some programs for food aid and debt postponement have been carried out by the government, initiatives that directly put cash in the hands of struggling citizens are lacking.

 

However, the government’s economic response to the COVID-19 crisis has been slow and small, even relative to South Asian neighbors. It will be sometime before we can estimate the full economic blow from this virus. Historical experience suggests that the rebounds from this kind of output loss are possible, but it takes time.

 

The National Planning Commission has said the Rs1.8 trillion budget ceiling is flexible, but officials remain unsure about the amount of government expenditure needed to restart the economy. Policymakers have also been unable to produce a concrete action plan because of the uncertainties about the duration of the pandemic. They have also been working to reopen the domestic and international flights for India and other Gulf countries where Nepalese have been working.

 

The unprecedented nature of the pandemic and its devastating impact on two of Nepal’s largest sources of income, remittances, and tourism have made it difficult for policy makers to implement a strategy to cushion the economic impact on the people.

 

 

 

Nepalese Economy without COVID-19

 

Before the outbreak of COVID-19, a 4.5 percent first-quarter growth estimate was made by the Central Bureau of Statistics (CBS) for this fiscal year mainly due to slackened economic activities caused by a shortfall in paddy production, slow industrial production and lowest expenditure of 25 percent of the capital budget during this period.

 

The economy was already weak before the lockdown and social distancing measures were implemented. For instance, a delayed monsoon, shortage of fertilizers, use of substandard seeds, and an armyworm invasion dented agricultural output before the Covid-19 pandemic. Similarly, weak capital spending and the lack of an investment-friendly environment have affected the output before the pandemic.

Within the services sector, a deceleration of remittance income and decline in imports were already affecting retail and wholesale trade, which has the second-largest share in the GDP.
The unemployment rate was already over 11.4 percent and the labor underutilization rate, which includes unemployed, time-related unemployed and the potential labor force was even higher at 39.3 percent.

 

However, we might have reduced these gaps in the economy through tourism that had targeted to bring 2 million tourists for ‘Visit Nepal 2020’. Without COVID-19 we could expect the regular utilization and mobilization of resources for tourism, creating more job opportunities and local people earning their livelihood by being guides, potter, trainers, and many more. Activities like trekking, hiking, and other adventurous activities would introduce tourists to local villages. With homestays or guesthouses, families could enjoy their benefits together.   

 

In cities, star hotels and restaurants would have been operating in their own pace, importing more international tourists, giving them a pleasant environment and a good experience being in the country.

 

With more, transactions occurring in the market, the financial sector would have a stable flow of cash in the market. The banking and finance as well would not have to stress about lowering their interest rates on loans.

 

We can expect that the government would have cut down a lot of expenses such as extra budget prioritizing health and PPE expenses. Expect for some seasonal flu and the low production of paddy, we can say there would have been a more balanced economy than now.

 

 At Last, we hope these information will give you a clear picture of the economic state of the country comparing it to that o without the spread of the pandemic.

 

We have been providing you with regular information that might help you to stay updated in these times, so that you can make a wise decision after the COVID-19.