March 25, 2020

How Will COVID-19 Affect the Economy of Nepal?

With businesses coming to a global halt due to the COVID-19 pandemic, global financial markets are in freefall. The whole world is in lockdown.
According to the Bank of America Global Research, Global GDP growth is likely to be just 2.8% in 2020 which would be the worst year since the financial crisis and the Great Recession ended in 2009.

Altogether, Nepal’s economy is being severely impacted. Although Nepal has not faced severe problems health-wise, its economy is expected to worsen in the coming months. The Asian Development Bank’s ‘COVID-19 Economic Impact Assessment Template’ released the best and worst-case scenarios for countries in the region, which predicts a loss of up to $322 million.

Let’s find out how this soon-to-be global economic crisis will affect the economy of Nepal.

Agriculture Sector

Agriculture remains Nepal’s principal economic activity. Agriculture is the main occupation of around 66% of the population, which provides 36% of GDP.

Nepal Rastra Bank, in its Mid-Term Review of the 2019-20 Monetary Policy, said that the spread of the coronavirus, along with decreased paddy production this year, would hurt the economy and this lockdown is sure to bring more harm.

Remittance

Nepal’s GDP is heavily dependent on remittance (16.39%) from foreign workers. If industries and businesses operating in the Gulf shut down due to the coronavirus, many Nepali workers will have to face unemployment for some time. Nepal has also stopped issuing labor permits to Nepali migrant workers for the time being.

Tourism Industry

The tourism sector has been the biggest victim of the Corona Virus. It has been impacted by travel restrictions imposed by Nepal and other countries. The Nepal government has also canceled all climbing expedition permits, including Mt. Everest for the spring season.

The government of Nepal has postponed Visit Nepal 2020 campaign, Sagarmatha Sambad 2020, and other international events until further notice.

Manufacturing Industry

The impact of the coronavirus has been most visible in the manufacturing industry, as most raw materials come from China. “Nepal’s pharmaceutical industry is heavily dependent on China for the chemicals used to make medicines,” said Shekhar Golchha, senior vice-president of the Federation of Nepalese Chambers of Commerce and Industry.

Construction Sector

The construction sector has already been sluggish from the early days of this fiscal year. Nepal imports a significant quantity of hardware used in buildings from China and hardware traders have said they will be in short supply after a month.

Projects like the Kathmandu-Narayangarh Road Widening Project and the expansion of the Kathmandu Ring Road, various hydropower projects and transmission line projects have been affected as Chinese contractors and workers have not returned.

The deadline for the Gautam Buddha International Airport in Bhairahawa has already been postponed until mid-May from March 31 as vital components like runway lighting, baggage handling and other equipment for the airport terminal are unlikely to be delivered on time.

Hartwig Schafer, World Bank Vice President for the South Asia Region, said, “Declining industrial production and imports, as well as tensions in the financial markets reveal a sharp economic slowdown in South Asia.” With that context in mind, the report remains cautiously optimistic that a slight rebound in investment and private consumption could jumpstart South Asia’s growth up to 6.3 percent in 2020, slightly above East Asia and the Pacific.

In Nepal, GDP growth is projected to average 6.5 percent over this and next fiscal year, backed by strong services and construction activity due to rising tourist arrivals and higher public spending.

Abhishek Dhital

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