Originally Published 2020-05-12 10:55:11 Published on May 12, 2020
Nepal: Challenges of reviving economy, post-Covid

Even as the Covid19 crisis is escalating in the country, its economy too is facing the threat of vulnerability.  According to the  World Bank’s recently- published report, the ‘South Asia Economic Focus’, the economic structure of the entire region is moving towards a downward plunge. With the prevailing vacuum in trade along with the increasing strain on the financial and banking sectors, the forecast of regional trade falling within a range of 1.8-2.8 percent in 2020, down from 6.3 percent, as portrayed just six months back, will be the worst regional performance in the last 40 years. This situation is also likely to move into 2021 as well, with growth rate fixed somewhere between 3.1 and four percent.

Circumstantially, given Nepal’s landlocked and LDC status, its growth rate has been estimated to be around 1.5-2.8 percent (financial year 2020), as a manifestation of poor remittances, absolute losses faced by the tourism sector and trade, agriculture, small scale industries and the service sector (contributing to 57 percent to the country’s GDP), that have been worst hit by the pandemic.

Additionally, Nepal has to prepare itself to support the poorer sections of the society, with recovery packages owing to the already existing lacuna in the healthcare facility. There is not only shortage in the availability of testing kits, resulting in low rates of Covid19 tests but also inadequate Personal Protective Equipment (PPE) for the healthcare workers with no specialized hospitals in the rural areas.

Ambiguous days ahead

The Asian Development Bank has clearly mentioned that Nepal would have to pay attention to each and every sector of its economy in the post COVID recovery phase. With the decrease in the gross domestic product of the country with around 0.13 percent, 15,880 people are most likely to lose on their jobs.

It was hardly a few months back that Nepal was looking forward to the successful implementation of the 15th periodic plan of the country. This framework had been attempting to bring about a growth rate of 9.6 percent in the next five years. The agricultural sector was given utmost importance along with the industrial sector, with targets set at 5.6 per cent and 17.1 percent, respectively.

The tourism sector was also given much importance with the ‘Visit Nepal 2020’ campaign, where around two-million tourists from all over the world were counted in for visiting the Himalayan country. The government was forced to call it off in the critical situation. With the allocation of around Rs. 65 million for the campaign, most of it has not produced results. The tourism sector contributes to eight per cent of the country’s economy. Given this circumstances, there has been losses of 13000 tourist and trekking guides.

The achievement of the set parameters and stature according to the plan seems highly unlikely now. The country is becoming more and more dependent on the international aid from countries like India, China or the United States of America, an area from which Nepal was trying its best to move out from in the past few years.

Potential solution

In this situation, Nepal might remember its delay in addressing the Millennium Challenge Corporation (MCC) fund that was offered by the United States of America and how that aid might refurnish its economy. Awaiting ratification for a long time, even though approved by the K. P Sharma Oli government and the Nepali Congress as well, this deal might provide Nepal with substantial grant to bounce back on track on the financial front.

However, though the offer seems to be lucrative and the need of the hour, it might lead Nepal to some serious troubles over the long run. There was a controversy regarding the relationship between the MCC and the Indo-Pacific Strategy of the United States of America. Nepal also had serious reservations when it was mentioned in the Indo-Pacific Strategy Report by the Department of Defense.

This strategy of the US is often viewed as a counteractive structure to contain China in the Indo-Pacific region. If Nepal signs the MCC compact and has relevant presence in the Indo-Pacific, siding with the US, it might not go down too well with the Chinese. This is a crucial point because Nepal and China are very close allies as well as partners in the Belt and Road Initiative with the One Belt One Road Structure.

As a small country requiring quick solution, it cannot afford to go into the bad books of the northern neighbour that has been helping in its development since the past few years. Thus, Nepal must calculate its steps very cautiously and not give into the ease that MCC offers. This might bring Nepal economic freedom, but might have geopolitical and geostrategic ramifications in the near future, having to survive right beside its immediate neighbour China.

The time is to remain steady and calm, waiting for the lockdown to be over and steer the country towards better financial decisions with the next budget’s announcement due at the end of the month in May.

This commentary originally appeared in South Asia Weekly.
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Sohini Nayak

Sohini Nayak

Sohini Nayak was a Junior Fellow at Observer Research Foundation. Presently she is working on Nepal-India and Bhutan-India bilateral relations along with sub regionalism and ...

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