Nepal’s economic landscape and roadmap to prosperity

The Covid-19 pandemic has had a profound impact on the global economy, and Nepal has not been immune to this economic decline. The nation is facing exceptional challenges that have greatly affected the socio economic welfare of its citizens. Nevertheless, Nepal has the opportunity to revitalize its economy and pave the way for a prosperous future. This essay aims to explore the major issues, potential opportunities, and future strategies for Nepal’s economy after the Covid-19 crisis. Furthermore, it will offer recommendations to the government on resolving current economic challenges while fostering the development of small, medium-sized, and startup enterprises. Challenges Nepal’s economy has been severely impacted by the Covid-19 pandemic, particularly due to its heavy reliance on tourism, remittances, and agriculture. The country is expected to experience a 1.5 percent decline in its economy during FY2021, and the unemployment rate has surged as a result of the crisis. The tourism sector, which contributes approximately seven percent to Nepal’s GDP, has been severely affected, with travel restrictions bringing the industry to a standstill. It may take several years for the sector to fully recover.

Remittances, accounting for nearly 25 percent of Nepal’s GDP, have also declined due to the pandemic. Many Nepali workers who were employed abroad lost their jobs and returned home, exacerbating the unemployment situation. The decrease in remittances has also affected the purchasing power of Nepali households, leading to a decline in demand for goods and services.

The agriculture industry, which employs around 70 percent of the Nepali population, has also faced significant challenges. Market closures and disruptions in transportation have impacted the supply chain, resulting in a decrease in agricultural output. Small-scale farmers have been particularly affected, facing difficulties in accessing markets and suffering from a decline in their livelihoods. Opportunities Despite the challenges posed by the pandemic, Nepal possesses unique opportunities to rebuild its economy and create new prospects for its population. The country boasts abundant natural resources and a youthful and talented workforce, which can be leveraged to foster sustainable economic growth and employment opportunities. Nepal’s tourism industry holds immense potential. The nation is endowed with numerous natural and cultural assets that can be harnessed for tourism purposes. The government can prioritize the development of new tourism products that align with the principles of sustainability. Initiatives such as ecotourism and community-based tourism can create fresh avenues for local communities while ensuring the protection of the environment. Furthermore, renewable energy represents a significant avenue for growth in Nepal. The country possesses abundant hydroelectric resources that can be harnessed to meet its energy demands. By focusing on the development of renewable energy sources, Nepal can reduce its dependence on imported fossil fuels, enhance energy security, and promote a greener future. Supporting the development of small and medium-sized enterprises (SMEs) and startups is another crucial aspect for Nepal’s economic growth. SMEs already contribute over 22 percent to the country’s GDP and employ approximately 2.2m people. The government can offer financial and technical assistance to SMEs, enabling them to expand their operations, create more job opportunities, and contribute further to the economy. By capitalizing on these opportunities, Nepal can overcome the pandemic’s impact and pave the way for a resilient and prosperous economy that benefits its people. Roadmap to prosperity Nepal requires a comprehensive roadmap encompassing short-term, medium-term, and long-term actions to ensure sustained economic growth and prosperity. The following key areas should be addressed: Building resilience: Nepal needs to enhance its resilience to future pandemics and economic shocks. The government should prioritize healthcare spending to strengthen its response capabilities. Additionally, implementing social protection programs will provide support to vulnerable populations during economic downturns. Economic diversification: It is crucial for Nepal’s economy to diversify and reduce dependence on a few sectors. The government should actively promote the growth of new industries such as renewable energy, information and communications technology (ICT), and manufacturing. Tourism growth: Long-term growth of the tourism industry should be a priority, with a focus on sustainable practices like ecotourism and community-based tourism. Investments in infrastructure development and public-private partnerships can drive tourism growth, particularly in rural areas, creating employment opportunities and stimulating economic progress. Development of SMEs and startups: The government should facilitate the growth of small and medium-sized enterprises (SMEs) and startups by providing them with financial and technical support. Streamlining regulatory procedures and improving access to financing for small businesses are essential steps to foster their growth. Education and skill development: Investing in education and skill development is crucial to build a competent workforce capable of meeting the demands of the modern economy. The government should prioritize technical and vocational education and training (TVET) to equip young people with the necessary skills. Promoting entrepreneurship education can also inspire young individuals to establish their own businesses. Infrastructure development: Nepal needs to invest in infrastructure development to support economic progress. Strengthening transportation infrastructure, particularly roads and airports, will improve connectivity. Additionally, investments in energy infrastructure, such as hydropower, will contribute to fulfilling the country’s energy needs. By addressing these areas and implementing a well-rounded roadmap, Nepal can pave the way for sustained economic growth, resilience, and prosperity. Short-term measures In the short term, Nepal should prioritize swift action to address the immediate concerns posed by the pandemic. The government should focus on the following steps: Health sector: Investing in the health sector is crucial to enhance the country’s capacity to respond to pandemics. Providing healthcare professionals with personal protective equipment (PPE) and increasing hospital capacity to treat Covid-19 patients are essential initiatives to ensure effective healthcare delivery during such crises. Social protection: Introducing social protection programs is vital to support low-income households and individuals who have lost their jobs during economic downturns. Measures like cash transfers and food assistance can provide immediate relief and mitigate the impact of the crisis on vulnerable populations. Tax relief: Offering tax relief to businesses severely affected by the pandemic is important. Deferring tax payments and providing tax credits to enterprises that have experienced financial losses can alleviate their financial burdens and help them navigate through challenging times. Financial assistance: Providing financial support, such as low-interest loans and grants, to businesses facing financial difficulties due to the pandemic is crucial. This assistance can help them overcome immediate cash flow problems and sustain their operations during the crisis. By taking prompt action in these areas, Nepal can address the immediate challenges brought about by the pandemic and provide support to its healthcare system, vulnerable populations, and businesses in need. Medium-term measures In the medium term, Nepal should prioritize actions to facilitate economic recovery and build resilience. The government should consider the following steps: Infrastructure development: Investing in infrastructure, particularly transportation and energy infrastructure, will contribute to economic growth and improved connectivity. Developing and improving roads, airports, and energy networks will enhance accessibility and attract investment in various sectors. Tourism development: Focusing on sustainable tourism practices, including the development of infrastructure and public-private partnerships, will stimulate tourism growth and create job opportunities. Emphasizing ecotourism and community-based tourism will help protect natural and cultural assets while promoting economic benefits for local communities. Development of SMEs and startups: Continued support through financial and technical assistance for small and medium-sized enterprises (SMEs) and startups is essential. Streamlining regulatory processes and enhancing access to capital will facilitate their growth and enable them to contribute to job creation and economic development. Education and skill development: Increasing investments in education, particularly in technical and vocational education and training (TVET), will equip the younger generation with the necessary skills for the modern economy. Promoting entrepreneurship education will inspire and empower young people to become entrepreneurs and create their own businesses, fostering innovation and economic growth. By prioritizing these actions in the medium term, Nepal can lay the foundation for sustainable economic recovery, resilience, and the creation of new opportunities for its population. Long-term measures In the foreseeable future, Nepal should prioritize long-term economic growth and prosperity by considering the following steps: Economic diversification: Encouraging economic diversification by promoting sectors such as information technology, renewable energy, and manufacturing will reduce reliance on traditional industries. This diversification will not only create new job opportunities but also drive long-term economic growth. Good governance: Emphasizing good governance practices is crucial for creating a business-friendly and transparent environment. By tackling corruption, reducing bureaucratic regulations, and increasing transparency, Nepal can attract foreign investment and foster economic growth. Trade expansion: Expanding trade connections with other nations through negotiation and implementation of trade agreements can enhance export opportunities and attract foreign investment. Increased trade activity will result in job creation and stimulate economic growth. In summary, Nepal’s path to economic success in the post-Covid-19 era requires a comprehensive strategy that encompasses immediate measures to address the pandemic’s impact, medium-term plans to promote recovery and resilience, and long-term actions for sustainable growth.  By diversifying the economy, developing sustainable tourism, supporting SMEs and startups, investing in education and infrastructure, and promoting good governance, Nepal can unlock its potential, attract investments, and build a resilient economy that ensures a brighter future for its citizens.