Is Nepalese Economy Heading for a Major Crisis?

I just finished reading this report in Nepal news: Economy heading towards crisis: Dr Mahat

This announcement has come from Former Finance Minister Dr Ram Saran Mahat. So, when someone like him says this kind of thing then we have to take it seriously. Mr. Mahat has stated some facts about the economy:

Remittance is down

FDI has decreased around one third

There is a serious liquidity crisis

Export revenue has fallen

All these are serious problems and if they continue then Nepalese economy will surely head for a major crisis. Now, the economy needs some bold initiatives from the government and this is not possible because of the ongoing political instability.

I personally think that political fighting is the major problem for the country. If political stability does not come then the economy will only continue to suffer. 

Tourism Sector in Nepal gets a Boost from no Strike Pledge

Tourism is perhaps the most important sector for Nepalese economy when it comes to earning foreign exchange. It is a beautiful country full of natural beauty and rich history. Nepal is the birthplace of Buddha and for this matter alone, it has the potential to attract thousands of visitors from around the world. There are several major obstacles and political instability is perhaps the worst thing for the growth of tourism in any country. Now, the political parties have pledged ‘no strike’ for the welfare of this sector.

Sify Wrote:

Sixteen major parties of Nepal, including the opposition Maoists who are seeking a change in the government, pledged not to enforce any general strikes or violent protests as Prime Minister Madhav Kumar Nepal Friday kicked off a campaign that seeks to bring at least 1 million tourists in 2011.

A 'peace lamp' that was lit Sunday in Lumbini town in southern Nepal, the birthplace of the Buddha, the apostle of peace, was brought to Kathmandu by five marathon runners who have represented Nepal in the Olympic Games in the past, to kick off the campaign for Nepal Tourism Year 2011.

I am not very hopeful about this ‘no strike pledge’ because there is deep division among political leaders in the country. This pledge looks like a political stunt to me. Still, I am very happy with it simply because the political parties have started to realize that people are not very fond of strikes and political instability. They want development of economy in the country. 

No Hope for Nepalese Economy Until People Unite

It is just over one year that Nepal totally abolished monarchy and became a democratic republic. The expectations were huge one year ago but for most people, hardly anything has changed. The political condition has not improved and the same goes for the economy of the country. There is hardly any hope among the people. However, the people have to realize a very important thing: they have to be united for the national interest or else nothing will change or improve.

The country has not got yet any kind of political stability. In fact, the Maoist government could not survive more than one year and now, there is a new government in power. This is a coalition consisting of more than 20 parties. It is needless to say that when 20 parties are in a coalition then political stability is the last thing you can expect. The Maoists are in opposition and we have already seen that they have taken a strategy to remind everyone about their strength and popular support through carrying out a lot of protests in different parts of the country. There is no doubt that a significant portion of the population is behind them.

The ruling government is a mixture of parties of all backgrounds. The current Prime Minister Madhav Kumar Nepal comes from Communist Party of Nepal (Unified Marxist-Leninist). Naturally, this party should have been with the Maoists but they are now with other parties. In 2008 Constituent Assembly election, Communist Party of Nepal (Unified Marxist-Leninist) was in the third position. They have some dedicated supporters.

Nepali Congress has been the largest political party in the country for the last 5-6 decades. In election 2008, they suffered an unexpected setback and were in second position behind the Maoists. Nepali Congress has strong organization base in all over the country.

Madhesi Jana Adhikar Forum, Nepal was in 4^th position in the election and they are a regional party. They are strong in the Terai region.

Then, there is the former King Gyanendra and his supporters. You should not rule them out because they have close ties with the Nepalese army. Not only that, for many generations, Gyanendra’s family was closely related to the major religious activities and that is why, they have some sympathetic supporters among the religious groups. For the last one year, Gyanendra was more or less silent about political affairs. It seems that he is planning to make a comeback in the political scenario. It will not be difficult for him because the parties who threw him out of power are themselves bitterly divided.

The economy is suffering because of political instability and global economic recession. However, I do not see any hope for the economy because of deep political division among the parties. As I stated earlier in this entry, the political parties and even the King has some loyal and dedicated supporters among ordinary people. This matter is hurting the economy more than politics. The major challenges for the Nepalese economy are:

Extreme Poverty

Unemployment

Illiteracy

Shortage of Electricity and Fuel

Impoverished rural areas with no infrastructure

It is true that these problems cannot be solved overnight. For this, a strong government is needed at the center. At least, a stable government is a must to fight against any of these problems. If the ministers are busy in fighting for their own survival then naturally, they will not have any time to fight against such big problems.

I don’t think that the political leaders would become noble and suddenly they would decide that there would be no fighting. It does not happen at least in third world countries. So, the ordinary people have to realize this simple matter that if any improvement has to happen for the economy then the first precondition is that the people have to become united.

Smart Telecom: A New Mobile Phone Operator in Nepal

Nepal may not be a country that all the time catches the attention of international media for economic issues but it has some kind of peace and stability at this moment. So, it is also a very good time for economic activities and there is going to be a new mobile phone operator in the country called Smart Telecom. I tried to find the website of this mobile phone operator but could not do it. So, if you know the website address of Smart Telecom then let me know when the comment section.

The company has just got the license to provide mobile phone service in the country and they’re going to start the service is very soon.

My Republica reported:

Smart Telecom, which acquired the license to provide telecom services after depositing a fee of US$39,500, is a joint venture between Nepali, Singaporean and Israeli companies. Lal Sahu Distributions Limited of Singapore has 70 percent stake in the company, while Square Network Nepal and Gilat Satellite Networks of Israel have 20 percent and 10 percent shares, respectively.

As per the commitment expressed by the company during the time of acquiring the license, it will have to first introduce services in 398 VDCs in remote areas of western, mid-western, far-western and central regions.

There is a still a lot of room for growth in the mobile phone sector of the country as tele-density is not that high. Most people are poor and live in the rural areas and there is a very big market to catch.

Impact of Global Economic Recession on Nepalese Economy

If you are a regular visitor to this blog then you should know that I have covered a lot about the economic recession that is going on at this moment in the whole world. When we’re talking about the global recession, most of the time, mainstream media talk about rich and developed countries like America, Canada, Australia, England, France, Germany and so on. We hardly talk about the impact of the recession on poor third world countries like Nepal. I do not know the reason but I feel frustrated to see such poor coverage on countries like Nepal at the mainstream media. Today, I’d like to talk about the impact of the ongoing global economic recession on Nepalese economy.

Current Condition of Nepal

I feel that the condition of Nepal is stable at this moment compared to the past two decades. Nepal is now a democratic Republic and it has a mixed economic system in which there is a private sector but the public sector is very strong. There are some political and regional tensions but as I stated earlier, the condition is much better compared to the last two decades. The Communist Party of Nepal (Maoist) is leading a coalition government and the government is under pressure from the people to perform and ensure economic development. A Maoist led government is perhaps not ideal for the growth of the private sector but the country is doing fine at this moment.

Until now, there is little indication that the economy of Nepal is suffering from the implication of the global economic crises but I feel that it is about to happen.

Nepalese Economy: Some Basic Information

First of all, if you do not have idea about the exporting activities of the country then I would like you to visit this link: Economy of Nepal. Carpets and Ready Made Garments (RMG) are two of the most important exporting commodities. Apart from that, the country also exports from other agricultural items. Also, tourism is a very important source of earning foreign exchange just like manpower export to Malaysia and the Middle East. The foreign aid is also an important factor in the economy. About 40% people are very poor and unemployment rate is very high. Hunger, unemployment, illiteracy- all of them exist in larger scale in the country. Nepal is still an agriculture based economy. India is the major and most important trading partner both in terms of export and import.

Impact of Recession on Export Sector

The positive thing for Nepalese economy until now is that export revenue for the first four months of the current fiscal year has increased significantly. However, you have to remember that the economic recession has started to hurt the global economy seriously in the last few months. America is an important market for the garments industry of Nepal. So, any economic slowdown there will have some kind of negative impact on the industry. Carpet is beautiful but it is considered to be a luxury item in many countries. Even before economic recession, I saw reports indicating that export revenue from garments and carpet was declining.

Tourism

You may have doubts whether the export revenue will be seriously affected but I have no doubt that tourism of the country will suffer because of the economic recession. I could see a report today that that arrival of tourists in January 2009 decreased sharply (15.8% less compared to the same period of last year). Most tourists come from the neighboring countries like India. The condition of the economy in India is also not good either and that is why, I do not think that there will be a significant increase of tourist arrival from India. The same perhaps goes for Europe and America where people are less likely to travel foreign countries at this time when they are worried about their future and job security.

Manpower Export

This is a sector which has surely been affected by the global economic recession already in Nepal. Remittance is very important for neighbors of Nepal like India, Bangladesh, Sri Lanka and Pakistan. Nepal joined the manpower export bandwagon a bit late compared to these 4 neighbors. Now, Nepalese workers in Malaysia and UAE are facing uncertain future. You know that many projects in Dubai are getting closed and that has decreased the demand of Nepalese workers. Malaysian government is also cutting the number of foreign workers. In the last few weeks, almost 150,000 Nepalese workers lost their jobs in Malaysia and the Middle East. Also, the number of workers going abroad for job has decreased a lot too in the last few weeks.

Foreign Aid

Nepal imports more than it exports. So, the economy depends a lot on foreign aid. At this moment, the government needs some foreign aid badly to implement its development projects. Well, rich countries are now themselves suffering and it may become some difficult for them to keep the current amount of foreign aid to developing countries like Nepal.

Indian Factor

Nepal is a landlocked country and it is heavily dependent on India for communication and foreign trade. India is the major foreign trade partner in both and export and import. Nepalese people can go to India without any passport and work there. Indian economy is now suffering because of the global recession. So, there is fear that Nepalese economy may suffer from the bad condition in India too.

Oil Price

The only respite that can come to Nepalese economy is perhaps the decrease in global fuel price. In the last 3 years, the people in this country suffered a lot. Many times, they went to the street to protest against high fuel price. Well, the government was helpless too as Nepal is not an oil producing country.

(This entry was originally posed in February 2009. It got deleted for technical problem. Now, I am again posting it today).

I have tried to analyze the possible impact of global economic recession on Nepalese economy. Do you agree with my analysis? Do you have anything more to add? Please, do it by leaving a comment.

$782 Loan from World Bank for Nepal

I have repeatedly been saying that if peace has to sustain in Nepal then the country needs economic support from the international community. Poverty and unemployment are the two major basic problems of the country. There is no doubt that the country needs a lot of loans on easy condition. I am happy to see that it is going to get a healthy amount of money as loan from World Bank.

Reuters reported:

Under the interim strategy, the World Bank’s private sector lender could potentially commit an additional $15 million to $20 million annually during the two-year period.

“The Bank’s strategy document supports the promotion of consensus and unity to address key elements of the peace process, including the foundations for state building, growth, and improved basic service delivery for Nepal’s poor,” the World Bank said in a statement.

Nepal is now in a process of creating a new constitution that will perhaps bring more human rights to the people. What I feel is that the ordinary people will have to become more proactive about political matters. The country does not have a sizable educated middle class population and that is why democracy is fragile.

(This entry was uploaded a few days ago in this blog and then it got deleted for technical reason. Now, I am again posting it.)

Bird Flu Scare in Nepal

I wrote 2 days ago about detection of bird flu virus (H5N1) in Nepal. Well, it seems that many farmers are now worried about the possible outbreak of bird flu disease on a larger scale. The government is worried too.

The farmers are worried because in any case, they will suffer most. The worst part of a bird flu outbreak is that most people become afraid of eating any chicken or even egg. I don’t blame them because I also reacted almost similar fashion in 2006 and 2007. So, the farmers suffer huge loss as a result. Many of them lose their everything. Well, as for the government, it is even a matter of graver concern. The government has to think of the impact of bird flu not only on the poultry industry but also on the overall economy of a country.

(This entry was first published in February 2009. Because of a technical problem, the entry had to be deleted and I am reposting again now.)