Sunday, 1 August, 2021

Economic Scenario

It is disheartening to note that Nepal's economy has adversely been affected by COVID-19 pandemic, and the various restrictive measures taken to rein in its transmission to the community. The virus disease has had grave impact on diverse economic sectors ranging from remittance inflows, private sector credit, and capital expenditure to foreign trade. The country went into lockdown since March 24 to control the potential virus spread. This brought all economic activities to a grinding halt. Transactions saw unprecedented slump which resulted in negative trend in trade and business activities. The state of recession coming from drastic reduction in revenue, foreign aid and tourism earning has affected the very structure of the national budget and public expenditure. It is not clear when the economic recovery will start as the pandemic continues to spread its tentacles. The country has already recorded more than 10,000 infections though, luckily, death toll is very low at 24 persons across the country so far. This figure is very small as compared to many other countries.  Both the caseload and deaths are quite alarming in other worst-hit countries, including neighbouring India.

According to the Nepal Rastra Bank's fresh report on the country's microeconomic status, remittance inflows between mid-May and mid-June 2020 stood at Rs. 62 billion against Rs. 73.7 billion in the same period last year.  The report shows that the remittance inflow was Rs. 53.9 billion in April-May this year as against Rs. 72.1 billion in the same period last year. Such a downturn trend in the inflow of remittance was due, mainly, to the transmission of the COVID-19 pandemic in the labour destinations for Nepal. The nationwide lockdown could be another factor resulting in this bleak scenario. The central bank's report also indicates that the remittance inflow into the country fell by 6.1 per cent to Rs. 680.84 billion in the first 10 months of the current fiscal year compared to a rise of 19.6 per cent in the same period of the last fiscal year. Likewise, in the US dollar terms, such inflows dropped by 7.4 per cent in the review period against an increase of 9.3 per cent in the same period last year.

Similarly, net transfer income also plummeted by 6.5 per cent to Rs. 772.51 billion in the first 10 months of the current fiscal year while it rose by 19.4 per cent in the corresponding period of the last fiscal year. The country witnessed a remarkable fall in capital expenditure as well to just Rs. 9.1 billion in April-May and Rs. 8.7 billion in March-April this year. Meanwhile, government revenue plunged to Rs. 16.1 billion in the 10th month of the current fiscal year against Rs. 59.1 billion in the same month last year. The export trade is another sector to nosedive. The country was able to export goods worth only Rs. 3.9 billion and Rs. 3.3 billion between mid-April and mid-May, and mid-May and mid-June this year as compared to the transactions of Rs. 8.7 billion and Rs. 9.3 billion during the review periods last year. Despite all this, the country's foreign exchange reserves and current account saw surpluses. The country also showed better performance in terms of foreign direct investment, balance of payments and gross foreign exchange reserves during the review period this year. This is definitely an encouraging indication. However, the government and the private sector must join hands to revive the faltering economy.