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nepal_top_newsportal

Healing Nepal's economy

Half the remittance to Nepal could be blocked due to the ban on entering destinations such as Qatar, Kuwait, Bahrain, Saudi Arabia, South Korea and Japan

Bhoj Raj Poudel
Bhoj Raj Poudel published on 2020-03-20 14:03:00
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Coronavirus is yet to enter Nepal (or so we are told). But the virus is already having a huge impact on the Nepali labor market, hitting those who rely on daily wages for bread and butter the hardest. Seemingly, the Nepali economy is agriculture-driven, as it accounts for 65 percent of our GDP. In reality, the economy’s real backbone is remittance, which has been badly affected by the spread of coronavirus in most destination countries for Nepali migrant workers. This will result in great damage, and not just in the labor market.

Yet the effects on the labor market will be the most disturbing. Many of the affected workers will be from the bottom of the wage spectrum, and a layoff or reduced hours in different industries could even lead to a broader financial crisis. Tourism is estimated to lose Rs 40 billion as 60 percent aviation fleet is grounded as of now. There has been a loss of around Rs 450 million in mountaineering permits. Hotels have 10 percent occupancy, which might eventually hit zero if the virus spreads here. Likewise, there has been 50 percent reduction in road transport and even those travelling are keeping themselves away from consuming goods and services. 

Most striking, 50 percent share of remittance to Nepal could be blocked due to the ban on entering destinations such as Qatar, Kuwait, Bahrain, Saudi Arabia, South Korea and Japan. In other words, around 15 percent of our GDP will take a direct hit. 

The fears from the coronavirus contagion have been growing ever since the WHO declared it a pandemic on March 11. The coronavirus could even be present in at least some quarters in Nepal. With significant disruptions in global supply chains, there has been an increasing tendency to hoard goods in Nepal, especially essential items. This mostly harms those without the capacity to purchase more than they need for a day. The government doesn’t seem keen on ensuring their basic food supply. 
Moreover, as Nepal is also closely integrated with China’s supply chains—just think of all the Chinese goods we use—the disruptions will be greater the longer the coronavirus pandemic persists. 

Against this backdrop, it is critical that Nepal learns from the policy measures China has taken to combat the crisis. It has come up with tax relief for small businesses and individuals; subsidies for those returning to work quickly; rent relief and wage subsidies for slow businesses; and accelerated local bond issuance for infrastructure spending. On the monetary front, China has cut the Reserve Requirement Ratio (RRR) for banks and injected liquidity. It would be wise to think about replicating these policy tools as the Nepali economy is also vulnerable to an outbreak.  

Some forecasts indicate there is a good chance non-performing loans will rise across Asia, and in Nepal. This will be first linked to service industries such as travel, tourism, and hospitality. But much will depend on how the government uses fiscal policy to support them through easier access to credit, delayed interest payments, lower taxes and rent, and wage subsidies to see the businesses through the worst times. 

The fate of our economy hangs in the balance. It is vital that we have a full-proof strategic plan to deal with a likely corona crisis. For a start, the Ministry of Finance should come up with multiple strategies to deal with different economic scenarios and to support those below the 
poverty line. 

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