Economy in Nepal

During the Nepal Investment Summit held on April 28-29, the government of Nepal tried to woo 148 potential investors to invest in projects worth INR 562.5 billion. Most of these projects, including the 1,216 MW Khimti project were related to the hydro sector. However, the political uncertainty on the one hand and recurrent corruption scams on the other have badly affected the investment environment. The Birgunj Customs Office which collects substantial revenue for the state has been able to collect only 60 per cent of the revenue as compared to the target during the first nine months of the current fiscal year 2023-24. Reports are that the Nepal Stock Exchange has also fallen below 2,000 points and together with this there has been a perceptible fall in the turnover to INR 1.31 billion. Fear looms large that Nepal could substantially lose its remittance earnings from the Gulf countries if the war between Israel and Iran escalates further. The remittance inflow in the country amounted to $9.33 billion in 2023-24, which was a record in itself. Almost 1,200 to 1,500 Nepalese make their destinations to the Gulf countries for jobs every day. The Middle East employs almost half of Nepal’s total migrant workers. Qatar alone hosts 133,262 Nepalese workers, which is followed by UAE (116,160), Saudi Arabia (112,777), Kuwait (43,508), Bahrain (7,690), Oman (5,294), and Jordan (1,019). Over and above, Israel also hosts 1,084 workers. Since Nepal largely depends on remittance earnings, tensions in the Middle East ring an alarming bell for Nepal. What is still more worrisome is the erosion of business confidence in the country. Despite the reduction in the interest rates on the loans, banks and financial institutions have not been able to increase their lending. This has been affecting investment in the private sector which contributes almost 80 per cent of the country’s GDP and generates 86 per cent of employment opportunities. In several parts of the country, industries are even finding it difficult to survive. Many industries are either closed or are on the verge of getting closed mainly due to the lack of demand for goods in the market. In Banke district, for example, 265 cottage and small industries have been closed in the last nine months of the current fiscal year 2023-24. Addressing the 21st annual general meeting of the Confederation of Nepalese Industries, Rajesh Kumar Agrawal said, “Though the external sector has improved, domestic activities have failed to recover. The banking system has billions of rupees piled up. This shows a lack of investment. Demand has slowed down in the market. Entrepreneurs are worried. The industrial production capacity has shrunk to 40 per cent.” Despite such favourable conditions as an increase in foreign exchange reserve, higher liquidity in the financial system, and lower interest rates, the overall economic condition of the country is gloomy. Youths are getting frustrated and leaving the country for jobs in different parts of the world. However, no institution seems to be serious in addressing the burning economic challenges the country is facing today. Before the situation goes out of control, the economic system needs to be restructured in a way that business confidence is re-built, legal and regulatory ambiguities are removed, political stability is restored, domestic production of goods and services is increased, and employment opportunities are generated to check the mass exodus of youths from the country.