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The World Bank has projected that Nepal's economy is poised to achieve a growth rate of 3.9 percent in the fiscal year 2024. This marks a notable improvement compared to the previous fiscal year, FY 2023, when the country’s economic expansion was limited, registering only a 1.9 percent growth rate.

The World Bank’s optimistic report comes amid a deep economic crisis that the country is facing. Releasing its Nepal Development Update-October 2023 on Tuesday, the World Bank has said that Nepal’s economy is expected to rebound to 3.9 percent in FY 2024 owing to the impact of the lifting of import restrictions, a strong rebound in tourism, and the gradual loosening of monetary policy. The economic growth in FY 2025, will be five percent, according to the World Bank.

In its report, the World Bank says that the impact of lifting the final import restriction measures in January 2023 and the gradual loosening of monetary policy are expected to support growth in the industrial and services sectors. “Sub-sectors that suffered the brunt of the import restrictions and monetary policy tightening in FY 2023, including wholesale and retail trade, construction, and manufacturing, are expected to gradually recover over the forecast period,” reads the report.

While wholesale and retail trade are expected to benefit from the lifting of import restrictions and boost service sector growth, the report says, agricultural sector growth is expected to slow in 2024 due to the impact of the lumpy skin disease on livestock and a decline in rice production.

According to the report, strong energy sector growth helped to avoid an industrial contraction, since manufacturing and construction outputs shrank. Hydroelectric generation increased significantly for the second year in row and added close to 500 megawatts of hydroelectric power to the national grid, the report says, Nepal nevertheless remains a net energy importer.

The top financial body further states that slow credit growth and import restrictions contributed to a reduction in private investment on the demand side. Lower capital expenditure and revenue underperformance drove lower public investment. As a result, total investment decreased by more than 10 percent, a sharper reduction than in 2020. Private consumption remained robust, owing to strong remittance inflows.

Inflation is gradually increasing and a new report says that it is likely to go up.  Average consumer price inflation reached a seven-year peak in 2023. Average inflation amounted to 7.8 percent, above the central bank’s seven percent policy ceiling, driven by both food and non-food prices. Key drivers of food prices, which increased by 6.9 percent, included supply side shocks such as India’s wheat and rice export restrictions, and domestic policy changes including the removal of VAT exemptions on multiple basic food items and price support to producers of rice paddies, milk, and wheat, the report says.

Non-food prices rose by 8.5 percent, driven by higher housing and utility prices, and an increase in the consultation fee of medical doctors in May 2023, the report states, the decline in edible oil prices from February 2023 onwards, reflecting global price reductions, had an offsetting effect on prices. The persistence of high inflation impedes policies to stimulate growth. Particularly, Nepal’s vulnerability to external shocks implies a difficult trade-off between policies that boost growth and those that contain inflation, according to the report.

Agricultural output remained resilient and expanded by 2.7 percent. Rice paddy production supported the sectoral growth and increased by 6.9 percent, reflecting a good summer monsoon and improved seed varieties (Figures 1 and 2). However, a lumpy skin disease has affected livestock as of early April 2023, infecting more than 1m and killing close to 50,000. The resulting lower dairy product and meat production could negatively affect agricultural output growth. Updated statistics will be released by the National Statistics Office in April 2024.

Manufacturing and construction shrank by two percent and 2.6 percent, respectively. The decline was partly due to lower production of key construction materials (cement, basic iron, and steel) and vegetable oils in the first half of FY 2023. Higher frequency indicators suggest that the decline continued in the second half of FY 2023. Lower demand resulting from the elevated prices of manufactured goods and construction materials further weighed on industrial output, which increased by a meager 0.6 percent.

Sluggish wholesale and retail trade slowed the pace of services sector growth. Authorities estimate that the services sector expanded by 2.3 percent in this year, the slowest pace since 2020. Growth of the wholesale and retail trade sub-services sector declined 0.5 percent due to high inflation and lower goods imports.

Looser monetary policy and the lifting of import restrictions imply an increase in goods imports over the medium-term, the report states, policies to contain credit growth and lower one-off imports, including of Covid-19 vaccines, are expected to keep imports below its 2022 historic high. Near-record migration of Nepali workers should be reflected in strong medium-term remittance inflows which, however, are not expected to balance the goods and services trade deficit. Consequently, the current account deficit is expected to widen to 3.7 percent of GDP in 2025, and 4.6 percent of GDP in 2025. 

Revenues are expected to increase in line with higher goods imports, given that taxation focuses heavily on trade. The 2024 budget envisions lower federal spending on capital investment and fiscal transfers to subnational governments, yet higher debt servicing costs. Overall, the recovery of revenues is expected to reduce the fiscal deficit to 3.5 percent in 2024 and 3.3 percent in 2025. Together with the rebound in growth, tighter fiscal policy is expected to keep the overall public debt burden contained at around 41 percent of GDP in 2024 and 2025.

In the external sector, the current account deficit narrowed to a six-year low in 2023, driven by lower imports and higher remittances. The current account deficit fell from 12.6 percent of GDP in 2022 to 1.3 percent of GDP this year.  The reduction occurred through lower imports of goods and services, which fell from 42.6 percent of GDP in 2022 to 34.5 percent of GDP in 2023. Exports on the other hand remained stable, and remittances rebounded strongly. Foreign reserves ended 2023 at a comfortable level of 10 months of concurrent import cover, above the policy floor of 7 months of import cover.

Official remittance inflows surged to a five-year high in this year. Remittance inflows climbed from 20.4 percent of GDP in 2022 to 22.7 percent of GDP.  Nepal’s dependence on the export of workers and remittance inflows increased sharply over the past two decades. Goods and services exports have fallen significantly since the early 2000s as a percentage of GDP.

In FY23, total exports amounted to 6.9 percent of GDP, only one-third of what the average South Asian middle-income country exports. Not surprisingly, the 2019 World Economic Forum Global Competitiveness Index ranked Nepal 108th out of 141 countries.30 Net foreign direct investment (FDI) has also underperformed. Remittance inflows on the other hand increased to 22.7 percent of GDP in FY23, are the main source of foreign currency, and the main driver of private consumption and economic growth.

According to the bank, the near-record migration of Nepali workers should be reflected in strong medium-term remittance inflows which, however, are not expected to balance the goods and services trade deficit. “Consequently, the current account deficit is expected to widen to 3.7 percent of GDP in FY 2024, and 4.6 percent of GDP in FY 2025,” reads the report.

However, there are multiple risks to the outlook including an erratic monsoon, which could dampen agricultural growth; a renewed spike in commodity prices or continued food export bans by India which would raise prices; and higher inflation which could keep policy rates elevated, increase domestic debt servicing costs, and drag on growth. 

“Amid challenges, Nepal is leading the way towards operationalizing its green, resilient, and inclusive development vision to shape the country’s long-term economic recovery,” said Faris Hadad-Zervos, World Bank Country Director for Maldives, Nepal, and Sri Lanka. “Improved external competitiveness is key to driving this recovery and enabling Nepal to compete in export markets, in terms of both prices and quality. This requires an emphasis on reforms to help increase domestic productivity and reduce the inflation differential with Nepal’s trading partners.”

 Major points

• Nepal’s export performance has continuously declined.
• Real appreciation of exchange rate and productivity deficit negatively affected exports.
• The budgetary process needs further strengthening to better support planning.
• Increasing domestic productivity and containing domestic inflation key to improving external competitiveness.
• Credit growth to the private sector slowed owing to policy measures taken to help correct the external imbalances.
• Fiscal space diminished further with the contraction of revenues.
• Economic activity is expected to gradually gain momentum. 
• The current account deficit is expected to increase moderately.
• A rebound in revenues should reduce the fiscal deficit and contain public debt.
• Prudent policies to stimulate growth and contain downside risks are key.

Recommendations

• Changing the current tax model by shifting taxation away from the border and reducing high import tariffs
• Improving the implementation of fiscal federalism which would facilitate effective investments in infrastructure and services
• Simplifying and streamlining processes to attract more FDI which would create significant knowledge and spillover effects.
• In addition, containing domestic inflation would reduce the inflation differential with trading partners. This would help avoid further real appreciation of the exchange rate.

All G7 member-states are members of G20, while China is at the center of G77. Of the BRICS nations, President Luiz Inacio Lula da Silva of Brazil was the only head of the state and the government present at the Havana G77 summit whereas South Africa sent a cabinet minister for the summit. More than 100 countries, including 30 heads of state and government and those aligned with the Non-Aligned Movement, were present at the summit of the grouping that has 18 of the 25-member Shanghai Cooperation Organisation, observer states or dialogue partners as members in addition to seven of G20 member-states. 

The UN Secretary General Antonio Guterres participated in the recent summits of BRICS, G20, G77 and the 78th UN convention. Guterres’ emphasis was on a new global order with increased participation from the Global South in the global governance system.

Guterres has asked G20 to assume leadership on two fronts: Emission reduction and climate justice. Eighty percent of emissions is from G20 countries, he pointed out, stressing the need for the latter to reduce emissions and build resilience in communities suffering the impacts of climate change. 

“This multiplicity of summits reflects the growing multipolarity of our world,” Guterres observed ahead of the Havana meeting and warned, “Multipolarity could be a factor in escalating geostrategic tensions, with tragic consequences.” 

At the G77 summit in Havana, pointing to climate and foreign debt, he articulated that the Global South was “trapped in a tangible global crisis.” The world is failing developing nations, he said, describing the grouping as “a champion of multilateralism”. Guterres stressed that G77 should “champion a system rooted in equality that is ready to reverse the injustice and neglect of centuries and deliver for all humanity and not only for the privileged”. 

China stated that it “will always make South-South cooperation a priority” in its dealing with the outside world.  Cuban President Miguel Diaz-Canel, the chair, said, “After all this time that the North has organized the world according to its interests, it is now up to the South to change the rules of the game.” 

In the realm of international relations and global governance, the roles of India and the US in the G20 and China in the G77 have significant implications. Fostered by G77, the ‘South bloc’ challenges traditional great power dominance and undertakes collective action to shape global politics. As India, the US and China navigate these blocs, their actions influence geopolitics and contribute to the ongoing dynamics of great power rivalry. Understanding these dynamics is critical for policymakers and scholars seeking to comprehend the changing landscape of international relations.

The US holds significant political influence within the G20 by virtue of its long-established global leadership and diplomatic reach. India has emerged as a voice representing developing nations and brings its unique political perspective to the forum. The US and India bring their distinct foreign policy priorities with connectivity and North-South cooperation. The US focuses on maintaining its global dominance and shaping the international order, while India emphasizes multilateralism, inclusivity and regional stability.

China pursues a distinct political strategy within the G77. Its active role, along with economic support, allows it to garner political influence, further reinforcing its position within the bloc. China seeks to promote its vision of development, connectivity and cooperation among developing nations through G77. Chinese foreign policy objectives concentrate on strengthening ties with these nations, including shaping economic relationships and securing access to resources

The rise in the price of sugar has hit the customers hard. Just two weeks ago, sugar was available in the market at Rs 105 per kilogram, but it has now skyrocketed to Rs 140. Moreover, sugar has become scarce in stores, resulting to black marketing. 

The Department of Commerce has sealed the largest sugar warehouse in Kathmandu over alleged black marketing activities. 

The warehouse belonged to Griheshwori Tradelink, and it had been storing sugar under artificial storage with unclear labeling.

Anandraj Pokhrel, information officer at the department, confirmed the warehouse’s closure and said that the sugar was sent for quality testing. 

A complaint was filed with the department, accusing the businessperson, Santosh Khetan, of buying sugar at a low price from industries and selling it at a higher price in Kathmandu without proper invoices. Khetan was allegedly billing the sugar at only Rs 105 per kilogram after selling it at Rs 127 per kilogram wholesale.  

“The report submitted by the Department of Food Technology and Quality Control states that the quality of the sugar has no problem. But as there are no packaging details, we have sent a letter to the producers asking for clarification,” said Pokharel. 

Rajeev Shrestha, a tea shop owner, has not seen such a rise in sugar prices. He said that he had been paying Rs 25 extra for sugar because of the price hike. “Despite the price hike, I have to run the business in order to get by,” he said. 

Sugar ban likely

India is expected to ban sugar mills from exporting from October, making the first halt in export in seven years. The decision is led by a lack of rain that has cut cane yields, according to Reuters. 

India allowed mills to export only 6.1m tons of sugar during the current season to Sept 30, after letting them sell a record 11.1m tons last season. India’s sugar production could fall 3.3 percent to 31.7m tons in the 2023/24 season, as per Reuters. 

In India, sugar prices rose by more than three percent in a fortnight. Monsoon rains in the top cane growing districts of the western state of Maharashtra and the southern state of Karnataka—which together account for more than half of India’s total sugar output—have been as much as 50 percent below average so far this year. Patchy rains would cut sugar output in the 2023/24 season and even reduce planting for the 2024/25 season. 

Trading Economics, an IT service and IT consulting service provider based in New York, reports that insufficient rainfall in India’s key producing states exacerbated poor growing conditions for next season’s crop. The current drought added to concerns that El Nino will extend dryness for a prolonged period, driving cane yields to slump and potentially prompting the Indian government to limit sugar exports for the upcoming season, as it attempts to contain elevated food inflation in the country. 

Rising demand of sugar 

As the Dashain and Tihar festivals are approaching, the demand for sugar has started increasing. The consumption of sugar increases for households and industries ahead of the festival.

Therefore, in view of the upcoming festivals, the Ministry of Industry, Commerce and Supplies has asked the Finance Ministry to waive customs for importing 60,000 tons of sugar to meet the demand. The finance ministry has, however, given permission to import only 20,000 tons for the time being. 

Salt Trading Corporation (STC) and Food Management and Trading Company are set to import 10,000  tons of sugar each for the upcoming festival season. Pokhrel said the procurement process has already started. 

Nepal’s domestic demand for sugar stands at 300,000 tons and it needs to import a huge quantity of sugar mainly from India. There are 12 sugar factories in Nepal that produce around 100,000 tons of sugar. 

The country immediately has 188,000 tons of sugar in stores. The government has slashed the import duty by half to provide relief to consumers. The usual import duty on sugar is 30 percent and there is another 13 percent VAT.

Decline in sugarcane production 

There has been a continuous decline in sugarcane production in the country. As per Statistical Information on Nepalese Agriculture published by the Ministry of Agriculture and Livestock Department, the production of sugar has been constantly declining over the past four years. 

The ministry says production has been falling due to high costs and increasing market risk. Difficulties in getting payment from the mills and chemical fertilizer have discouraged farmers from planting the cash crop. Heat waves, untimely rains and depleting water level have also affected the sugarcane production, leading to disruption in demand and supply curve. 

A host of factors such as weather, supply and demand, health concerns and consumer preferences affects the price of sugar.

Jyoti Baniya, a leading consumer rights activist, said the surge in sugar price has affected businesses and households alike.  “As the festivals are nearing, the rise in sugar price and its shortage will make it difficult for people to purchase this essential item,” 

The Consumer Protection Act 2018 states that every consumer has the right of easy access to goods or services and has the right to choose quality goods or services at the fair competitive price. But the access to sugar consumption is not so. 

If the government fails to inspect and meet the demand and supply of sugar, it is likely that the price will continue to rise. 

The Annapurna Express, an English daily of Annapurna Media Network, has honored 50 pioneering personalities through its special annual program ‘Salute’. Those who have contributed in various fields have been honored with medals and certificates.

The personalities who were honored are national and international economic, social, political, sports, medicine, social service, financial sector, entertainment, business and space sector. 

Captain Rameshwar Thapa, Chairperson of Annapurna Media Network said that the responsibility of the media is to promote positive issues and said that the ApEx will continue to respect and honor such top people. 

He further said, “Our responsibility is not limited only to conveying news. Those who have made a significant contribution to society should be appreciated. In the current situation where negativity is mostly highlighted, honoring positive work is a challenge.”

The chief guest of the event, former President Bidya Devi Bhandari, praised Annapurna Media Network for honoring personalities who have done commendable work in various fields of national life. 

A book containing the journey, experience and profile of 50 pioneers was also released at Monday’s event. The book titled ‘Apex Pioneer, The Changemakers of Nepal’ was launched by former President Bhandari and Chairperson Thapa. 

Kamal Dev Bhattarai, Editor of The Annapurna Express, said that he was proud to appreciate the inspirational work of personalities who fill the society with positive energy. According to him, last year the top visionaries were honored and the next year the top planners will be motivated through a similar program.

Chief Executive Officer of Annapurna Media Network, Sanat Neupane, said that Annapurna has succeeded in continuing the image of not only writing news but also honoring individuals who work uniquely in their field. 

Here are the honored pioneers:

Anupama Khunjeli

Anuradha Koirala

Ashesh Malla

Baburam Bhattarai

Baikuntha Manandhar

Bal Krishna Joshi

Basanta Raj Mishra

Bhairab Risal

Bharat Pokharel

Bhinda Swari Shah

Bhuwan Chand

Binod Chaudhary

Bishnu Maya Pariyar

Buddhi Narayan Shrestha

Capt Siddhartha Gurung

Devendra Raj Pandey

Dr Bhagawan Koirala

Dr Kumud Dhital

Dr Ram Kantha Makaju

Dr Sanduk Ruit

Durga Baral

Gagan Pradhan

Ghanashyam Gurung

Harry Bhandari

Himalaya Shamsher JBR

Jhamak Ghimire

Kanchha Sherpa

Kiran Manandhar

Kulman Ghising

Mahabir Pun

Mahesh Acharya

Mallika Shakya

Manjushree Thapa

Min Bahadur Gurung

Mukesh Chalise

Neer Shah

Pawan Golyan

Rabindra Puri

Ram Dayal Rakesh

Ram Kumar Panday

Ramesh Sherpa

RP Pradhan

Shyam Goenka

Suresh Raj Sharma

Tulsi Ghimire

Uday Raj Khanal

Upendra Mahato

Usha Nepal

Uttam Sanjel